<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION NO. 333-102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EXTENDED STAY AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7011 36-3996573
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION OF INDUSTRIAL CLASSIFICATION EMPLOYERIDENTIFICATION
INCORPORATION OR CODE NUMBER) NUMBER)
ORGANIZATION)
500 E. BROWARD BOULEVARD
FT. LAUDERDALE, FLORIDA 33394
TELEPHONE (954) 713-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GEORGE D. JOHNSON, JR.
CHIEF EXECUTIVE OFFICER
EXTENDED STAY AMERICA, INC.
500 E. BROWARD BOULEVARD
FT. LAUDERDALE, FLORIDA 33394
TELEPHONE (954) 713-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JOHN T. MCCARTHY, ESQ.
BELL, BOYD & LLOYD
THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602
TELEPHONE: (312) 372-1121
----------------
AMENDING THE PROSPECTUS AND FILING CERTAIN EXHIBITS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 3, 1996
PROSPECTUS
3,468,000 SHARES
LOGO
COMMON STOCK
-----------
The 3,468,000 shares of common stock, $.01 par value per share ("Common
Stock"), covered by this Prospectus may be offered and issued from time to time
by Extended Stay America, Inc. (the "Company") in connection with acquisitions
of other businesses, real or personal properties, or securities in business
combination transactions in accordance with Rule 415(a)(1)(viii) of Regulation
C under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise under Rule 415. This Prospectus may also be used, with the Company's
prior consent, by persons who have received or will receive shares in
connection with acquisitions and who wish to offer and sell such shares under
circumstances requiring or making desirable its use. See "Securities Covered by
this Prospectus" and see the inside back cover page hereof for the identity of
such persons, if any.
The Common Stock is traded on the Nasdaq National Market under the symbol
"STAY". On June 26, 1996, the closing sale price of the Common Stock, as
reported in The Wall Street Journal, was $29.875 per share. See "Price Range of
Common Stock."
-----------
SEE "RISK FACTORS" AT PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
-----------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Recent Developments....................................................... 11
Securities Covered by this Prospectus..................................... 13
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Selected Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 21
Management................................................................ 28
Certain Transactions...................................................... 36
Principal Shareholders.................................................... 37
Financing................................................................. 38
Description of Capital Stock.............................................. 40
Shares Eligible for Future Sale........................................... 42
Experts................................................................... 43
Index to Financial Statements............................................. F-1
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, registration statements, proxy
statements, and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form S-
1 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock offered hereby. As
used herein, the term "Registration Statement" means the initial Registration
Statement and any and all amendments thereto. This Prospectus omits certain
information contained in said Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete and in each instance reference is made to such contract or other
document filed with the Commission as an exhibit to the Registration Statement,
or otherwise, each such statement being qualified by and subject to such
reference in all respects.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent public
accountants.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless the context suggests otherwise, references in this
Prospectus to the "Company" mean Extended Stay America, Inc. and its
subsidiaries and references to the year ended December 31, 1995 mean the period
from January 9, 1995, the Company's date of inception, through December 31,
1995. On May 9, 1996, the Board of Directors of the Company declared a dividend
of one additional share of Common Stock for each share issued as of the close
of business on July 5, 1996, to be distributed on July 19, 1996, thereby
effecting a 2-for-1 stock split (the "Stock Dividend"). Except as otherwise
noted, none of the information contained in this Prospectus reflects the Stock
Dividend.
THE COMPANY
Extended Stay America, Inc. was organized in January 1995 to develop, own,
and manage extended stay lodging facilities which are designed to appeal to
value-conscious guests. The Company's facilities are designed to offer quality
accommodations for guests at substantially lower rates than most other extended
stay lodging providers and hotels in the economy segment of the traditional
lodging industry. They feature fully furnished rooms which are generally rented
on a weekly basis to guests such as business travelers (particularly those with
limited expense accounts), professionals on temporary work assignment, persons
between domestic situations, and persons relocating or purchasing a home, with
most guests staying for multiple weeks. The Company's facilities provide a
variety of features that are attractive to the extended stay guest such as a
fully-equipped kitchenette, weekly housekeeping with twice-weekly towel
service, color television with cable or satellite hook-up, coin laundromat, and
telephone service with voice mail messaging. To help maintain affordability of
room rates, labor intensive services such as daily cleaning, room service, and
restaurants are not provided.
The extended stay category is one of the most rapidly evolving sectors of the
U.S. lodging industry. From 1992 to 1995, the number of dedicated extended stay
rooms increased at a compounded annual growth rate of approximately 3.3%,
compared with compounded annual room growth of approximately 1.4% for the
overall lodging industry over the same period. However, the vast majority of
these rooms have been developed in the high-price end of the category. The
economy extended stay sector of the lodging industry appears to present a
number of attractive characteristics compared to traditional hotels, including
higher occupancy rates and operating margins. Based on published occupancy
rates for other participants in the extended stay market, the Company believes
that demand in the economy extended stay market is greater, relative to supply,
than in the lodging industry generally. The Company is not aware of any
operator who serves the economy extended stay market niche on a national level.
The Company's goal is to become a national provider of economy extended stay
lodging. The Company intends to achieve this goal by rapidly developing
properties in selected markets, providing high value accommodations for its
guests, actively managing its properties to increase revenues and reduce
operating costs, and increasing awareness of the economy extended stay concept.
Through June 26, 1996, the Company had developed and opened three facilities,
acquired six others, and had agreements to acquire five additional facilities.
As of such date, the Company had 34 facilities under construction, 25 of which
the Company expects to have opened by the end of 1996. The Company plans to
begin construction of approximately 33 additional facilities during the
remainder of 1996 and to continue an active development program thereafter. The
Company's plans call for the average facility to have approximately 125
extended stay rooms and to take approximately 7-9 months to construct.
3
<PAGE>
The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga, who
are the two largest shareholders of the Company. Mr. Johnson, who is the
President and Chief Executive Officer of the Company, was formerly the
President of the Consumer Products Division of Blockbuster Entertainment Group,
a division of Viacom, Inc. Mr. Huizenga, who is the Chairman of the Board of
Directors of the Company, is the Chairman and Chief Executive Officer of
Republic Industries, Inc. and was formerly Vice-Chairman of Viacom, Inc. and
Chairman and Chief Executive Officer of Blockbuster Entertainment Corporation.
The Company's management team has extensive experience in the acquisition and
development of real estate and the operation of properties on a national scale.
The Company was initially capitalized with approximately $60 million in
equity from a group of private investors, a number of whom constitute part of
the Company's management team. On December 19, 1995, the Company completed an
initial public offering of 5,060,000 shares of Common Stock at a price of
$13.00 per share (the "IPO") and a concurrent offering to the Company's then
existing shareholders of 2,067,825 additional shares of Common Stock at a price
of $12.09 per share, being the initial public offering price per share less the
underwriting discounts and commissions (the "Concurrent Offering", and,
collectively with the IPO, the "December 1995 Offerings"). The net proceeds to
the Company from the December 1995 Offerings were approximately $85 million
after deduction of the underwriting discounts and commissions and other
offering expenses. On June 5, 1996, the Company completed an additional
offering of 9,775,000 shares of Common Stock at a price to the public of $31.00
per share (the "June 1996 Offering", and collectively with the December 1995
Offerings, the "Prior Offerings"). The net proceeds to the Company from the
June 1996 Offering were approximately $290 million after deduction of the
underwriting discounts and commissions and other offering expenses. See "Recent
Developments." In addition, pursuant to its mortgage facilities, the Company
may be able to borrow up to $400 million to finance its properties.
The Company was formed in 1995 as a Delaware corporation and its executive
offices are located at 500 E. Broward Boulevard, Ft. Lauderdale, Florida 33394
and its telephone number is (954) 713-1600.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Recent Developments," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," and elsewhere in
this Prospectus constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of the Company
to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the Company's limited operating history
and uncertainty as to the Company's future profitability; the ability to meet
construction and development schedules and budgets; the ability to develop and
implement operational and financial systems to manage rapidly growing
operations; the uncertainty as to the consumer demand for economy extended stay
lodging; increasing competition in the extended stay lodging market; the
ability to integrate and successfully operate acquired properties and the risks
associated with such properties; the ability to obtain financing on acceptable
terms to finance the Company's growth strategy; and the ability of the Company
to operate within the limitations imposed by financing arrangements; and other
factors referenced in this Prospectus. See "Risk Factors."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------------- --------------------------
ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(2)
<S> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Revenue................ $ 877,885 $14,164,414 $ 1,170,829 $ 3,904,359
Operating expenses..... 2,887,091 10,118,595 2,846,928 4,118,518
Depreciation and
amortization.......... 146,726 2,193,514 203,343 586,780
Income (loss) from
operations............ (2,155,932) 1,852,305 (1,879,442) (800,939)
Interest income........ 848,510 804,510 1,450,132 1,425,132
Income taxes........... 0 1,036,000 0 243,000
Net income (loss)...... $(1,307,422) $ 1,620,815 $ (429,310) $ 381,193
=========== =========== ============ ============
Net income (loss) per
share(3)................ $ (0.10) $ 0.11 $ (0.02) $ 0.02
Weighted average number
of shares of common
stock and equivalents
outstanding(3).......... 12,652,110 15,260,204 22,467,393 24,785,595
<CAPTION>
AS OF MARCH 31, 1996
--------------------------
ACTUAL PRO FORMA(4)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $104,010,918 $391,358,418
Total assets.................................... 166,369,727 494,692,227
Long-term debt(5)............................... 0 0
Shareholders' equity............................ 164,533,055 492,544,810
</TABLE>
- --------------------
(1) Giving pro forma effect to the acquisition of the Norcross, Georgia lodging
facility in January 1996, the Norcross, Georgia and Riverdale, Georgia
lodging facilities in February 1996, and the Lawrenceville, Georgia lodging
facility in June 1996 (the "Gwinnett Facility") (collectively, the
"Acquired Facilities"), the acquisition of the Marietta, Georgia lodging
facility in August 1995 (the "Marietta Facility"), and the proposed
acquisitions of the lodging facility in Lakewood, Colorado (the "KHEC
Facility") from Kipling Hospitality Enterprise Corporation ("KHEC") and the
four lodging facilities in Las Vegas, Nevada (the "M&M Facilities") as if
they all had occurred at the beginning of the period and to the Company
operating as a publicly held entity as of such date. See the pro forma
financial statements and notes thereto and notes 5 and 14 to the Company's
consolidated financial statements, all of which are contained elsewhere
herein.
(2) Giving pro forma effect to the acquisitions of the Acquired Facilities and
the proposed acquisitions of the KHEC Facility and the M&M Facilities as if
they had occurred at the beginning of the period. See the pro forma
financial statements and notes thereto and notes 5 and 14 to the Company's
consolidated financial statements, all of which are contained elsewhere
herein.
(3) See notes 2, 5, and 14 to the Company's consolidated financial statements
contained elsewhere herein.
(4) Giving pro forma effect to the acquisition of the Gwinnett Facility and the
proposed acquisitions of the KHEC Facility and the M&M Facilities and the
June 1996 Offering as if they occurred on March 31, 1996. See the pro forma
financial statements and notes thereto contained elsewhere herein.
(5) Does not give effect to future borrowings.
5
<PAGE>
RISK FACTORS
Prospective purchasers of the shares of Common Stock offered hereby should
consider carefully the specific factors set forth below as well as the other
information contained in this Prospectus in evaluating an investment in the
Common Stock.
LIMITED OPERATING HISTORY AND COSTS ASSOCIATED WITH EXPANSION
The Company first began operating economy extended stay facilities in August
1995 and has a limited operating history upon which investors may evaluate the
Company's performance. The Company has incurred losses to date and there can be
no assurance that the Company will be profitable in the future. Given the
substantial development and financing expenses relating to the Company's
expansion, it expects to have net losses for the foreseeable future.
DEVELOPMENT RISKS
The Company intends to grow primarily by developing additional Company-owned
lodging facilities. Development involves substantial risks, including the risk
that development costs will exceed budgeted or contracted amounts, the risk of
delays in completion of construction, the risk of failing to obtain all
necessary zoning and construction permits, the risk that financing might not be
available on favorable terms, the risk that developed properties will not
achieve desired revenue or profitability levels once opened, the risk of
competition for suitable development sites from competitors which have greater
financial resources than the Company, the risks of incurring substantial costs
in the event a development project must be abandoned prior to completion,
changes in governmental rules, regulations, and interpretations (including
interpretations of the requirements of the Americans with Disabilities Act),
and general economic and business conditions. Although the Company intends to
manage development to reduce such risks, there can be no assurance that present
or future developments will perform in accordance with the Company's
expectations. As of June 26, 1996, the Company operated nine facilities, had
agreements to acquire five additional facilities, and had 34 facilities under
construction, 25 of which the Company expects to have opened by the end of
1996. The Company plans to begin construction of approximately 33 additional
facilities during the remainder of 1996 and to continue an active development
program thereafter. There can be no assurance, however, that the Company will
complete the development and construction of the facilities or will acquire
each of the planned properties and complete development of a Company-owned
facility thereon, or that any such developments will be completed in a timely
manner or within budget.
RISKS ASSOCIATED WITH RAPID GROWTH
The Company's rapid development plans will require the implementation of
enhanced operational and financial systems and will require additional
management, operational, and financial resources. For example, the Company will
be required to recruit and train property managers and other personnel for each
new lodging facility as well as additional accounting personnel. In addition,
the Company needs to complete the development of a systemwide integrated
computer network. There can be no assurance that the Company will be able to
manage its expanding operations effectively. The failure to implement such
systems and add such resources on a cost-effective basis could have a material
adverse effect on the Company's results of operations and financial condition.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The economy extended stay segment of the lodging industry, in which the
Company operates, may be adversely affected by changes in national or local
economic conditions and other local market conditions, such as an oversupply of
hotel space or a reduction in demand for hotel space in a geographic area,
changes in travel patterns, extreme weather conditions, changes in governmental
regulations which influence or
6
<PAGE>
determine wages, prices, or construction costs, changes in interest rates, the
availability of financing for operating or capital needs, and changes in real
estate tax rates and other operating expenses. The Company's principal assets
will consist of real property, and real estate values are sensitive to changes
in local market and economic conditions and to fluctuations in the economy as a
whole. In addition, due in part to the strong correlation between the lodging
industry's performance and economic conditions, the lodging industry is subject
to cyclical changes in revenues and profits. These risks may be exacerbated by
the relatively illiquid nature of real estate holdings. The ability of the
Company to vary its portfolio in response to changes in economic and other
conditions will be limited. There can be no assurance that downturns or
prolonged adverse conditions in real estate or capital markets or in national
or local economies, and the inability of the Company to dispose of an
investment when it finds disposition to be advantageous or necessary, will not
have a material adverse impact on the Company.
COMPETITION IN THE LODGING INDUSTRY
There is no single competitor or small number of competitors of the Company
that is or are dominant in the economy extended stay market. However, some of
the Company's indirect competitors have substantially larger networks of
locations and greater financial resources than the Company. A number of major
lodging companies recently have announced their intent to aggressively develop
extended stay lodging properties which may compete with the Company's
properties. Competition in the U.S. lodging industry is based generally on
convenience of location, price, range of services and guest amenities offered,
and quality of customer service. The Company considers the location of its
lodging facilities, the reasonableness of its room rates, and the services and
guest amenities provided by it to be among the most important factors in its
business. Demographic or other changes in one or more of the Company's markets
could impact the convenience or desirability of the sites of certain lodging
facilities, which would adversely affect their operations. Further, there can
be no assurance that new or existing competitors will not significantly lower
rates or offer greater convenience, services, or amenities or significantly
expand or improve facilities in a market in which the Company's facilities
compete, thereby adversely affecting the Company's operations. See "Business--
Competition."
RISKS ASSOCIATED WITH ACQUISITIONS
Although the Company expects that the construction and development of new
extended stay lodging facilities will be its primary means of expansion, the
Company has also made, and may continue making, acquisitions of existing
extended stay lodging facilities or other properties that are suitable for
conversion to the extended stay concept. There can be no assurance that the
Company will be able to acquire other extended stay lodging facilities on terms
favorable to the Company. When the Company does make such acquisitions, it
encounters various associated risks, including possible environmental and other
regulatory costs, goodwill amortization, diversion of management's attention,
and unanticipated problems or liabilities, some or all of which could have a
material adverse effect on the Company's operations and financial performance.
RISKS OF BORROWING
The Company expects to incur substantial borrowings in connection with its
expansion. Pursuant to its mortgage facilities, the Company may be able to
borrow up to $400 million to finance its properties, depending on certain
conditions. This compares to total equity of $492.5 million as of March 31,
1996, including estimated net proceeds from the June 1996 Offering of
approximately $290 million and the issuance of shares of Common Stock in
connection with the acquisition of the Gwinnett Facility and the proposed
acquisitions of the KHEC Facility and the M&M Facilities. These borrowings will
be secured by mortgages on the Company's properties and various accounts and
other assets. The Company may incur additional debt from time to time. See "--
Need for Additional Capital." Leverage increases the risks to the Company of
any variations in its results, construction cost overruns, or any other factors
affecting its cash flow or liquidity. In addition, the Company's interest costs
could increase as the result of general increases in interest rates because
7
<PAGE>
a portion of the Company's borrowings under these facilities will bear interest
at floating rates, the rates on individual term loans under these facilities
will depend on the level of prevailing yields on U.S. Treasury securities at
the times loans are made, and additional borrowings may bear interest at
floating rates. See "Financing."
NEED FOR ADDITIONAL CAPITAL
The extent to which the Company will be able to borrow under its mortgage
facilities will be dependent on the Company meeting certain conditions and
maintaining certain reserves. In addition, these mortgage facilities may
restrict the ability of the Company to incur additional debt in the future.
Although the Company is unable to quantify its needs for additional financing,
the Company expects that it will need to procure additional financing over
time, the amount of which will depend on a number of factors including the
number of properties the Company constructs or acquires and the cash flow
generated by its properties. There can be no assurance regarding the
availability or terms of additional financing the Company may be able to
procure over time. Any future debt financings or issuances of preferred stock
by the Company will be senior to the rights of the holders of Common Stock, and
any future issuances of Common Stock will result in the dilution of the then
existing shareholders' proportionate equity interests in the Company.
RESTRICTIONS ON OPERATIONS IN MORTGAGE FACILITIES
The Company's financing arrangements contain a number of provisions that
impose restrictions on the Company which could, under certain circumstances,
limit the Company's operating and financial flexibility and adversely affect
its results of operations. These provisions include restrictions on the ability
of the Company to incur additional indebtedness, prepay indebtedness, declare
dividends, enter into certain financing arrangements, acquire or dispose of
certain assets, or make certain investments. In addition, the Company's ability
to utilize these mortgage facilities is subject to it meeting certain
conditions. See "Financing."
NEW MANAGEMENT
Since its formation in January 1995, the Company has recruited a management
team, most of whom have had no prior experience in the lodging industry. The
Company's success depends upon the ability of these individuals to develop
expertise in managing such business. See "Management--Directors and Officers."
IMPACT OF ENVIRONMENTAL REGULATIONS
The Company's operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances, and
regulations. In addition, in the event any future legislation is adopted, the
Company may, from time to time, be required to make significant capital and
operating expenditures in response to such legislation. The Company attempts to
minimize its exposure to potential environmental liability through its site-
selection procedures. The Company typically secures an option to purchase land
subject to certain contingencies. Prior to exercising such option and
purchasing the property, the Company conducts a Phase I environmental
assessment (which generally involves a physical inspection and database search,
but not soil or groundwater analyses). Under various federal, state, and local
environmental laws, ordinances, and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under, or in such property. Such laws
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of contamination from hazardous or toxic substances, or
the failure to properly remediate such contaminated property, may adversely
affect the owner's ability to borrow using such real property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common-law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials
8
<PAGE>
("ACMs"), into the environment, and third parties may seek recovery from
owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. Environmental laws
also may impose restrictions on the manner in which property may be used or
transferred or in which businesses may be operated, and these restrictions may
require expenditures. In connection with the ownership of its properties, the
Company may be potentially liable for any such costs. The cost of defending
against claims of liability or remediating contaminated property and the cost
of complying with environmental laws could materially adversely affect the
Company's results of operations and financial condition.
LOSSES IN EXCESS OF INSURANCE COVERAGE
The Company intends to maintain comprehensive insurance on each of its
properties, including liability, fire, and extended coverage, in the types and
amounts customarily obtained by an owner and operator in the Company's
industry. Nevertheless, there are certain types of losses, generally of a
catastrophic nature, such as hurricanes, earthquakes, and floods, that may be
uninsurable or not economically insurable. The Company uses its discretion in
determining amounts, coverage limits, and deductibility provisions of
insurance, with a view to obtaining appropriate insurance on the Company's
properties at a reasonable cost and on suitable terms. This may result in
insurance coverage that in the event of a loss would not be sufficient to pay
the full current market value or current replacement value of the Company's
lost investment and the insurance proceeds received by the Company might not
be adequate to restore its economic position with respect to such property.
RELIANCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the efforts and
abilities of its senior management and key employees, particularly Mr. George
D. Johnson, Jr., President and Chief Executive Officer, and Mr. Robert A.
Brannon, Senior Vice President and Chief Financial Officer. The loss of the
services of any of these individuals could have a material adverse effect upon
the Company. See "Management--Directors and Officers." The Company does not
have employment or consulting agreements with any of its officers other than
Mr. Harold E. Wright nor does it carry key man life insurance on any of its
officers.
CONTROL OF THE COMPANY BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of June 26, 1996, George D. Johnson, Jr., H. Wayne Huizenga, and Stewart
H. Johnson beneficially owned approximately 33.1% of the outstanding shares of
Common Stock of the Company and these individuals together with other
executive officers and directors of the Company as a group owned approximately
39.9% of the outstanding shares of Common Stock. By reason of such holdings,
such shareholders acting as a group will be able to effectively control the
affairs and policies of the Company and will be able to elect a sufficient
number of directors to control the Company's Board of Directors and to approve
or disapprove any matter submitted to a vote of the shareholders, including
certain fundamental corporate transactions (such as certain mergers and sales
of assets) requiring shareholder approval. See "Principal Shareholders." In
addition, the Company's debt agreements contain, and future financing
arrangements may contain, provisions regarding the composition of the
Company's Board of Directors. See "Financing."
ANTITAKEOVER EFFECT OF CHARTER, BYLAWS, STATUTORY PROVISIONS, AND FINANCING
ARRANGEMENTS
The ownership positions of Messrs. George D. Johnson, Jr., H. Wayne
Huizenga, and Stewart H. Johnson and the other executive officers and
directors of the Company as a group, together with the anti-takeover effects
of Section 203 of the Delaware General Corporation Law which, in general,
imposes restrictions upon acquirors of 15% or more of the Common Stock, and of
certain provisions in the Company's Certificate of Incorporation and Bylaws,
may have the effect of delaying, deferring, or preventing a change of control
of the Company, even if such event would be beneficial to shareholders. For
example, the Certificate of
9
<PAGE>
Incorporation requires that all shareholder action must be effected at a duly-
called annual or special meeting of shareholders, and the Bylaws require that
shareholders follow an advance notification procedure for certain shareholder
nominations of candidates for the Board of Directors and for certain other
business to be conducted at any meeting of shareholders. In addition, the
Company's Certificate of Incorporation authorizes "blank check" preferred
stock, so that the Company's Board of Directors may, without shareholder
approval, issue preferred shares through a shareholders rights plan or
otherwise which could inhibit a change of control. In the event that the
current members of the Company's Board of Directors cease to constitute a
majority of the Board or Mr. George D. Johnson, Jr. or Mr. Huizenga cease to be
a member of the Board, amounts outstanding under its financing arrangements
would become immediately due. See "Principal Shareholders," "Financing," and
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
At June 26, 1996, the Company had 32,628,092 shares of Common Stock
outstanding, 17,625,062 of which were freely tradeable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act of
1933, as amended (the "Securities Act")) without restriction or registration
under the Securities Act. The remaining 15,003,030 shares of Common Stock will
become eligible for sale in the public market at various times, subject to
compliance with an exemption from the registration requirements of the
Securities Act, such as Rule 144 or Rule 144A, or registration under the
Securities Act. The Company has registered under the Securities Act all of
those 15,003,030 shares of Common Stock so that such shareholders may make
resales in the public market of their Common Stock. The holders of
approximately 13.3 million shares of Common Stock (including all shares
beneficially owned by the Company's directors and executive officers) have
agreed that they will not sell any shares of Common Stock until August 28, 1996
without the consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), subject to certain exceptions, including pursuant to a foreclosure by
a lender on a loan for which shares of Common Stock have been pledged as
collateral. The Company also intends to register under the Securities Act all
shares reserved for issuance under the 1995 Plan, the 1996 Plan, and the
Directors' Plan (each as defined below and collectively the "Option Plans").
Shares so registered could be sold in the public market. No predictions can be
made as to the effect, if any, that market sales of such shares or the
availability of such shares for sale will have on the market price for shares
of Common Stock prevailing from time to time. Sales of substantial amounts of
shares of Common Stock in the public market could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of equity securities. See "Shares Eligible
for Future Sale."
ABSENCE OF DIVIDENDS
The Company intends to retain its earnings to finance its growth and for
general corporate purposes and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's debt agreements
contain, and future financing agreements may contain, limitations on the
payment of cash dividends or other distributions of assets. See "Dividend
Policy."
10
<PAGE>
RECENT DEVELOPMENTS
On January 26, 1996, the Company acquired substantially all of the assets of
Apartment/Inn, L.P., a Georgia limited partnership ("Apartment/Inn").
Apartment/Inn owned and operated a 196-room economy extended stay lodging
facility in Norcross, Georgia which is similar in concept to the Company's
lodging facilities. In consideration for such acquisition, the Company issued
an aggregate of 293,629 shares of Common Stock, 163,629 of which may be
reoffered and resold pursuant to this Prospectus. See the inside back cover
page of this Prospectus. For historical and pro forma financial information
concerning this acquisition, see "Index to Financial Statements--Apartment/Inn,
L.P." and "--Pro Forma Financial Statements of Extended Stay America, Inc. and
Subsidiaries."
On February 23, 1996, the Company acquired substantially all of the assets of
Hometown Inn I, LTD and Hometown Inn II, LTD (collectively "Hometown Inn").
Hometown Inn owned and operated a 130-room economy extended stay lodging
facility in Norcross, Georgia and a 144-room economy extended stay lodging
facility in Riverdale, Georgia, both of which are similar in concept to the
Company's lodging facilities. In consideration for such acquisition, the
Company issued 428,608 shares of Common Stock and paid an additional $75,000 in
cash. Of such shares, 198,608 shares of Common Stock may be reoffered and
resold pursuant to this Prospectus. See the inside back cover page of this
Prospectus. The acquisition was accounted for using the purchase method of
accounting. For historical and pro forma financial information concerning this
acquisition, see "Index to Financial Statements--Hometown Inn I, LTD and
Hometown Inn II, LTD" and "--Pro Forma Financial Statements of Extended Stay
America, Inc. and Subsidiaries."
On May 10, 1996, the Company acquired substantially all of the assets of
American Apartmen-Tels Investors II, L.P. ("AATI"), which owned and operated a
59-room extended stay lodging facility in Lenexa, Kansas, for a purchase price
of approximately $3.3 million in cash. This purchase includes adjacent land on
which the Company intends to build a new 60-room economy extended stay lodging
facility.
On May 1, 1996, the Company entered into an agreement to acquire the KHEC
Facility, a 145-room traditional lodging facility located in Lakewood,
Colorado, which the Company intends to remodel and convert to the economy
extended stay format. The purchase price will be approximately $3.0 million,
which the Company expects to pay by delivering shares of Common Stock.
Consummation of the proposed acquisition of the KHEC Facility is subject to a
number of conditions. The Company expects to account for this acquisition using
the purchase method of accounting. For historical and pro forma financial
information concerning this proposed acquisition, see "Index to Financial
Statements--Kipling Hospitality Enterprise Corporation" and "--Pro Forma
Financial Statements of Extended Stay America, Inc. and Subsidiaries."
On May 9, 1996, the Board of Directors of the Company declared the Stock
Dividend of one additional share of Common Stock for each share issued as of
the close of business on July 5, 1996. Except as otherwise noted, none of the
information contained in this Prospectus reflects the Stock Dividend.
On June 5, 1996, the Company completed the June 1996 Offering, consisting of
9,775,000 shares of Common Stock at a price to the public of $31.00 per share.
The net proceeds to the Company from the June 1996 Offering were approximately
$290 million after the deduction of underwriting discounts and commissions and
other offering expenses.
On June 25, 1996, the Company acquired substantially all of the assets of
Apartment Inn Partners/Gwinnett, L.P., a Georgia limited partnership
("Gwinnett"). Gwinnett owned and operated a 126-room economy extended stay
lodging facility in Lawrenceville, Georgia which is similar in concept to the
Company's lodging facilities. The facility was operated as The Apartment Inn
and rights for the use of that name and certain other rights were controlled by
Apartment/Inn. In consideration for such acquisition, the Company issued
172,100 shares of Common Stock and paid an additional $23,000 in cash. The
acquisition was accounted for using the purchase method of accounting. For
historical and pro forma financial information concerning this acquisition, see
"Index to Financial Statements--Apartment Inn Partners/Gwinnett, L.P." and "--
Pro Forma Financial Statements of Extended Stay America, Inc. and
Subsidiaries."
11
<PAGE>
On June 26, 1996, the Company entered into agreements to acquire
substantially all of the assets of Melrose Suites, Inc., St. Louis Manor, Inc.,
Boulder Manor, Inc., and Nicolle Manor (co-owned by Michael J. Mona, Jr. and
Dean O'Bannon), which own extended stay lodging facilities in Las Vegas, Nevada
(collectively, the "M & M Facilities"), that have 177 rooms, 125 rooms, 211
rooms, and 125 rooms, respectively. Each of the facilities is managed by M & M
Development, with which the Company expects to enter into a two-year consulting
agreement with a fee of $120,000 per year. In consideration for these
facilities, in addition to assuming liability under certain leases for personal
property, the Company will issue promissory notes totalling $34.0 million,
which the Company expects to pay by delivering approximately 1,138,000 shares
of Common Stock. All of such shares may be reoffered and resold pursuant to
this Prospectus. These acquisitions will be accounted for using the purchase
method of accounting. For historical and pro forma financial information
concerning these acquisitions, see "Index to Financial Statements--M & M
Facilities" and "--Pro Forma Financial Statements of Extended Stay America,
Inc. and Subsidiaries."
12
<PAGE>
SECURITIES COVERED BY THIS PROSPECTUS
The shares of Common Stock covered by this Prospectus are available for use
in future acquisitions of other businesses, real or personal properties, or
securities in business combination transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act or otherwise under
Rule 415. Such acquisitions may be made directly by the Company or indirectly
through a subsidiary, may relate to businesses or securities of businesses
similar or dissimilar to the Company's extended stay lodging facilities or to
properties of a type which may or may not currently be used by or in connection
with the Company's extended stay lodging facilities or by the Company, and may
be made in connection with the settlement of litigation or other disputes. The
consideration offered by the Company in such acquisitions, in addition to the
shares of Common Stock offered by this Prospectus, may include cash, debt, or
other securities (which may be convertible into shares of Common Stock covered
by this Prospectus), or assumption by the Company of liabilities of the
business, properties, or securities being acquired or of their owners, or a
combination thereof. It is contemplated that the terms of acquisitions will be
determined by negotiations between the Company and the owners of the
businesses, properties, or securities to be acquired, with the Company taking
into account such factors as the quality of management, the past and potential
earning power, growth and appreciation of the businesses, properties, or
securities acquired, and other relevant factors, and it is anticipated that
shares of Common Stock issued in acquisitions will be valued at a price
reasonably related to the market value of the Common Stock either at the time
the terms of the acquisition are tentatively agreed upon or at or about the
time or times of delivery of the shares.
The Company may from time to time, in an effort to maintain an orderly market
in the Common Stock, negotiate agreements with persons receiving Common Stock
covered by this Prospectus that will limit the number of shares that may be
sold by such persons at specified intervals. Such agreements may be more
restrictive than restrictions on sales made pursuant to the exemption from
registration requirements of the Securities Act, including the requirements
under Rule 144 or Rule 145(d), and certain persons party to such agreements may
not otherwise be subject to such Securities Act requirements. The Company
anticipates that, in general, such negotiated agreements will be of limited
duration and will permit the recipients of Common Stock issued in connection
with acquisitions to sell up to a specified number of shares per business day
or days.
With the consent of the Company, this Prospectus may also be used by persons
who have received or will receive from the Company Common Stock covered by this
Prospectus and who may wish to sell such stock under circumstances requiring or
making desirable its use. This Prospectus may also be used, with the Company's
consent, by pledgees, donees, or assignees of such persons. The Company's
consent to any such use may be conditioned upon such persons' agreeing not to
offer more than a specified number of shares following supplements or
amendments to this Prospectus, which the Company may agree to use its best
efforts to prepare and file at certain intervals. The Company may require that
any such offering be effected in an organized manner through securities
dealers.
Sales by means of this Prospectus may be made from time to time privately at
prices to be individually negotiated with the purchasers, or publicly through
transactions in the over-the-counter market (which may involve block
transactions), at prices reasonably related to market prices at the time of
sale or at negotiated prices. Broker-dealers participating in such transactions
may act as agent or as principal and, when acting as agent, may receive
commissions from the purchasers as well as from the sellers (if also acting as
agent for the purchasers). The Company may indemnify any broker-dealer
participating in such transactions against certain liabilities, including
liabilities under the Securities Act. Profits, commissions, and discounts on
sales by persons who may be deemed to be underwriters within the meaning of the
Securities Act may be deemed underwriting compensation under the Securities
Act.
Stockholders may also offer shares of stock covered by this Prospectus by
means of prospectuses under other registration statements or pursuant to
exemptions from the registration requirements of the Securities Act, including
sales which meet the requirements of Rule 144 or Rule 145(d) under the
Securities Act, and stockholders should seek the advice of their own counsel
with respect to the legal requirements for such sales.
13
<PAGE>
This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who have received shares of Common Stock for
whom the Company has consented to the use of this Prospectus in connection with
resales of such shares. See the inside back cover page of this Prospectus for
the identity of any such persons.
PRICE RANGE OF COMMON STOCK
The Common Stock began trading in the Nasdaq National Market on December 14,
1995. The following table sets forth, for the periods indicated, the high and
low sales prices of the Common Stock as quoted on the Nasdaq National Market.
On June 26, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $29.875 per share. At March 31, 1996, there were
approximately 150 record holders and approximately 3,500 beneficial holders of
Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK
---------------
HIGH LOW
<S> <C> <C>
Year Ended December 31, 1995:
Fourth Quarter (from December 14, 1995)................. $28 $20 1/4
Year Ended December 31, 1996:
First Quarter........................................... 31 1/4 20
Second Quarter.......................................... 35 22
</TABLE>
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock, and the Board of
Directors intends to continue a policy of retaining earnings to finance its
growth and for general corporate purposes and, therefore, does not anticipate
paying any such dividends in the foreseeable future. In addition, the Company's
debt agreements contain, and future financing agreements may contain, a minimum
net worth covenant and limitations on payment of any cash dividends or other
distributions of assets, which covenant, limitations, and requirements could
restrict the Company's ability to pay dividends. See "Financing."
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
historical and pro forma financial statements of the Company and from the
historical financial statements of Welcome Inn America 89-1, L.P. ("Welcome").
The selected financial data for Welcome is included because Welcome may be
deemed to be a predecessor of the Company. The historical financial statements
of the Company for the year ended December 31, 1995 have been audited by
Coopers & Lybrand L.L.P., independent accountants, whose report thereon appears
elsewhere herein. The historical financial statements of Welcome for the years
ended December 31, 1992, 1993, and 1994, and for the period from January 1,
1995 through August 18, 1995, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report for the years ended December 31, 1993 and
1994 and for the period from January 1, 1995 through August 18, 1995 thereon
appears elsewhere herein. The selected financial data set forth below for the
year ended December 31, 1991 has been derived from Welcome's unaudited internal
financial statements and reflects all adjustments which management considers
necessary for a fair and consistent presentation of the results of operations
for that period. Operating statement data for the three months ended March 31,
1995 and 1996 and balance sheet data as of March 31, 1996 are derived from
unaudited financial statements of the Company included herein. The unaudited
financial statements include all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for the fair
presentation of its financial position and the results of its operations for
these periods. The pro forma data is unaudited but, in the opinion of
management, all necessary pro forma adjustments have been made. The unaudited
pro forma consolidated operating statement data is not necessarily indicative
of what the actual results of operations of the Company would have been
assuming the pro forma transactions had been completed as of the beginning of
the period, nor does it purport to represent the results of operations for any
future periods. The unaudited pro forma consolidated balance sheet data is not
necessarily indicative of what the actual financial position would have been
assuming the pro forma transactions had been completed as of March 31, 1996,
nor does it purport to represent the future financial position of the Company.
These selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the historical and pro forma financial statements and related notes thereto of
the Company and the historical financial statements and related notes thereto
of Welcome, Apartment/Inn, Hometown Inn, KHEC, Gwinnett, and the M & M
Facilities contained elsewhere herein.
THE COMPANY
<TABLE>
<CAPTION>
FOR THE THREE
YEAR ENDED MONTHS ENDED FOR THE THREE MONTHS
DECEMBER 31, 1995 MARCH 31, 1995 ENDED MARCH 31, 1996
------------------------- -------------- --------------------------
ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(2)
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenue............... $ 877,885 $14,164,414 $ $ 1,170,829 $ 3,904,359
Operating expenses.... 2,887,091 10,118,595 248,601 2,846,928 4,118,518
Depreciation and
amortization......... 146,726 2,193,514 203,343 586,780
Income (loss) from
operations........... (2,155,932) 1,852,305 (248,601) (1,879,442) (800,939)
Interest income....... 848,510 804,510 1,450,132 1,425,132
Income taxes.......... 0 1,036,000 0 243,000
Net income (loss)..... $ (1,307,422) $ 1,620,815 $ (248,601) $ (429,310) $ 381,193
============ =========== ========== ============ ============
Net income (loss) per
share(3)............. $ (0.10) $ 0.11 $ (0.02) $ (0.02) $ 0.02
============ =========== ========== ============ ============
Weighted average
number of shares of
common stock and
equivalents
outstanding(3)....... 12,652,110 15,260,204 11,489,017 22,467,393 24,785,595
============ =========== ========== ============ ============
<CAPTION>
AS OF
DECEMBER 31,
1995 AS OF MARCH 31, 1996
------------ --------------------------
ACTUAL ACTUAL PRO FORMA(4)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $123,357,510 $104,010,918 $391,358,418
Total assets.......... 149,618,649 166,369,727 494,692,227
Long-term debt(5)..... 0 0 0
Shareholders' equity.. 147,222,245 164,533,055 492,544,810
</TABLE>
15
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1995 THROUGH
------------------------------------------ AUGUST 18,
1991(6) 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenue............... $ 686,970 $ 866,314 $999,371 $1,079,287 $712,837
Operating expenses.... 503,508 502,611 557,002 561,746 367,217
Depreciation and
amortization......... 153,066 159,874 138,987 141,362 95,546
--------- --------- -------- ---------- --------
Income from
operations........... 30,396 203,829 303,382 376,179 250,074
Interest expense...... 470,698 398,650 382,306 360,639 272,152
--------- --------- -------- ---------- --------
Net income (loss)..... $(440,302) $(194,821) $(78,924) $ 15,540 $(22,078)
========= ========= ======== ========== ========
</TABLE>
- ---------------------
(1) Giving pro forma effect to the acquisitions of the Acquired Facilities and
the Marietta Facility and the proposed acquisitions of the KHEC Facility
and the M&M Facilities as if they all had occurred at the beginning of the
period and to the Company operating as a publicly held entity as of such
date. See the pro forma financial statements and notes thereto and notes 5
and 14 to the Company's consolidated financial statements, all of which are
contained elsewhere herein.
(2) Giving pro forma effect to the acquisitions of the Acquired Facilities and
the proposed acquisitions of the KHEC Facility and the M&M Facilities as if
they had occurred at the beginning of the period. See the pro forma
financial statements and notes thereto and notes 5 and 14 to the Company's
consolidated financial statements, all of which are contained elsewhere
herein.
(3) See notes 2, 5, and 14 to the Company's consolidated financial statements
contained elsewhere herein.
(4) Giving pro forma effect to the acquisition of the Gwinnett Facility and the
proposed acquisitions of the KHEC Facility and the M&M Facilities and the
June 1996 Offering as if they occurred on March 31, 1996. See the pro forma
financial statements and notes thereto contained elsewhere herein.
(5) Does not give effect to future borrowings.
(6) The Marietta Facility commenced operations in February 1991.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was organized in January 1995 to develop, own, and manage
extended stay lodging facilities. The Company began construction of its first
lodging facility in Spartanburg, South Carolina on February 1, 1995. This
facility was completed and commenced operations in August 1995. The Company's
activities during the quarter ended March 31, 1995 consisted of corporate
organization, site selection, and site development. The Company did not have
operating facilities or other revenue sources during the quarter ended March
31, 1995. On May 1, 1995, the Company contracted to manage an extended stay
facility in Marietta, Georgia which was subsequently acquired by the Company on
August 18, 1995. On August 18, 1995 the Company also issued 11,718,000 shares
(adjusted to reflect a 210-for-1 stock split in October 1995) of Common Stock
in exchange for net proceeds of approximately $55.8 million. In October 1995,
the Company executed a mortgage facility providing for up to $200 million in
mortgage loans, which may be used to finance on a long-term basis newly
constructed facilities. The Company completed the December 1995 Offerings in
December 1995 from which it received net proceeds of approximately $85.3
million. In May 1996, the Company executed an additional mortgage facility
providing for up to $300 million in mortgage loans and also reduced the
existing mortgage facility to $100 million. In June 1996, the Company completed
the June 1996 Offering from which it received net proceeds of approximately
$289.8 million.
As of March 31, 1996 the Company had 5 operating facilities, 17 facilities
under construction, and options to purchase 64 sites for development in 23
states. The Company expects to complete the construction of the facilities
currently under construction and to commence construction on the majority of
these sites under option during 1996. There can be no assurances, however, that
the Company will complete the acquisition of the sites under option or, if
acquired, commence construction during 1996 and the Company's ability to do so
may be materially impacted by various factors including zoning, permitting, and
environmental due diligence issues and weather-induced construction delays.
Although the Company expects that the construction and development of new
extended stay lodging facilities will be its primary means of expansion, the
Company has also made, and may continue making, acquisitions of existing
extended stay facilities or other properties that are suitable for conversion
to the extended stay concept. During the quarter ended March 31, 1996, the
Company acquired three operating facilities (two in Norcross, Georgia and one
in Riverdale, Georgia). On January 26, 1996, the Company acquired substantially
all of the assets of Apartment/Inn, which owned and operated a 196-room economy
extended stay lodging facility in Norcross, Georgia. In consideration for the
acquisition, the Company issued an aggregate of 293,629 shares of Common Stock.
On February 23, 1996, the Company acquired substantially all of the assets of
Hometown Inn which owned and operated a 130-room economy extended stay lodging
facility in Norcross, Georgia and a 144-room economy extended stay lodging
facility in Riverdale, Georgia. In consideration for the acquisition, the
Company issued an aggregate of 428,608 shares of Common Stock and paid an
additional $75,000 in cash. These acquisitions were accounted for using the
purchase method of accounting.
On May 10, 1996, the Company acquired substantially all of the assets of
AATI, which owned and operated a 59-room extended stay lodging facility in
Lenexa, Kansas, for a purchase price of approximately $3.3 million in cash.
This purchase includes adjacent land on which the Company intends to build a
new 60-room economy extended stay lodging facility. On June 25, 1996, the
Company acquired substantially all of the assets of Gwinnett, which owned a
126-room extended stay lodging facility in Lawrenceville, Georgia. In
consideration for this acquisition, the Company issued 172,100 shares of Common
Stock and paid an additional $23,000 in cash. This acquisition was accounted
for using the purchase method of accounting.
On May 1, 1996, the Company entered into an agreement to acquire from KHEC a
145-room traditional lodging facility located in Lakewood, Colorado, which the
Company intends to remodel and convert to the economy extended stay format. The
purchase price will be approximately $3.0 million, which the Company expects to
pay by delivering shares of Common Stock. Consummation of the proposed
acquisition of the
17
<PAGE>
KHEC Facility is subject to a number of conditions. The Company will account
for this acquisition using the purchase method of accounting. On June 26, 1996,
the Company entered into agreements to acquire substantially all of the assets
of the M & M Facilities with a total of 636 rooms located in Las Vegas, Nevada.
In addition to assuming liability for certain leases of personal property, the
Company expects to issue, as consideration for these acquisitions, promissory
notes totalling $34 million, which the Company expects to pay by delivering
approximately 1,138,000 shares of Common Stock. Consummation of the proposed
acquisition of the M & M Facilities is subject to a number of conditions. These
acquisitions will be accounted for using the purchase method of accounting.
RESULTS OF OPERATIONS
PROPERTY OPERATIONS
Property operations for the year ended December 31, 1995 included the
Spartanburg, South Carolina property from the date of opening on August 1, 1995
and the Marietta, Georgia facility from the date of acquisition on August 18,
1995. These properties realized average occupancy of 83% and average weekly
room rates of $198 for their periods of operation by the Company during 1995.
The Company did not have operating facilities during the quarter ended March
31, 1995. The Company began the quarter endedMarch 31, 1996 with two operating
facilities and acquired three additional operating facilities during that
quarter. During the period owned by the Company, these properties realized
average occupancy of 90% and average weekly room rates of $198 during the
quarter ended March 31, 1996. There can be no assurance that the foregoing
occupancy and room rates can be maintained or are representative of rates to be
expected for new facilities. Occupancy rates are determined by dividing the
guest rooms occupied on a daily basis by the total number of guest rooms.
Average weekly room rates are determined by dividing room revenue by the number
of rooms occupied on a daily basis for the applicable period and multiplying by
seven. The average weekly room rates vary from standard room rates due
primarily to (i) stays of less than one week, which are charged at a higher
nightly rate, (ii) higher weekly rates for a limited number of rooms which are
larger than the standard rooms, and (iii) additional charges for more than one
person per room.
The Company recognized total room revenues of $817,133, along with other
revenues, consisting of telephone and vending revenues which vary based on
occupancy, of $42,977 during 1995. Total room revenues for the quarter ended
March 31, 1996 were $1,137,841 and other revenues were $32,988. Property
operating expenses, consisting of all expenses directly allocable to the
operation of the properties but excluding any allocation of corporate operating
expenses and depreciation, were $332,523 or 37.9% of total revenues for 1995
and $442,540 or 37.8% of total revenues for the quarter ended March 31, 1996.
Depreciation of the cost of the facilities was provided using the straight-
line method over the estimated useful lives of the properties. The provision
for the period ended December 31, 1995 was $126,772 and the provision for the
quarter ended March 31, 1996 was $193,113. These provisions reflect a pro-rata
allocation of the annual depreciation charge for the period for which the
properties were in operation.
CORPORATE OPERATIONS
The Company realized management fees of $17,775 in 1995 from its management
of the Marietta facility prior to its acquisition of that facility. The Company
has not managed properties for a fee since that property was acquired.
Corporate operating and property management expenses include all expenses not
directly related to the development or operation of facilities. Expenses of
$2,042,039 for the year ended December 31, 1995, $1,580,655 for the quarter
ended March 31, 1996, and $195,823 for the quarter ended March 31, 1995 consist
primarily of personnel expenses, professional and consulting fees, and related
travel expenses. The increase in corporate operating and property management
expenses for the quarter ended March 31, 1996 as compared with the quarter
ended March 31, 1995 reflects an increase in personnel and related expenses in
connection
18
<PAGE>
with the Company's increased level of operating properties and site
development. The total amount of these expenses will increase in the future
with the development of additional facilities.
Site selection costs of $512,529 for the year ended December 31, 1995,
$823,733 for the quarter ended March 31, 1996 and $52,778 for the quarter
ended March 31, 1995 consist of real estate and construction personnel costs
which are not directly related to a site that will be developed by the
Company, along with expenditures made to third parties for services and costs
related to the investigation of such sites. The increase in these costs for
the quarter ended March 31, 1996 as compared with the quarter ended March 31,
1995 reflects the increased level of sites under development. These costs will
continue in the future and could increase depending on the rate of expansion
because the Company's development personnel must evaluate numerous potential
sites in an effort to identify sites meeting the Company's standards.
Depreciation and amortization in the amount of $19,954 for the year ended
December 31, 1995, and $10,230 for the quarter ended March 31, 1996 were
provided using the straight-line method over the estimated useful lives of the
assets for assets not directly related to the operation of the facilities,
including primarily organization costs and office furniture and equipment.
These assets were acquired subsequent to March 31, 1995 and therefore no
provision for depreciation and amortization was made for the quarter ended
March 31, 1995.
The Company realized $848,510 of interest income during the year ended
December 31, 1995 and $1,450,132 during the quarter ended March 31, 1996 which
was primarily attributable to the short-term investment of funds received from
the initial capitalization of the Company in the third quarter of 1995 and the
consummation of the December 1995 Offerings on December 19, 1995. There were
no funds held for investment by the Company during the quarter ended March 31,
1995.
LIQUIDITY AND CAPITAL RESOURCES
From the inception of the Company in January 1995 through August 18, 1995,
the Company's operations were financed primarily by loans from the Company's
two largest shareholders in an aggregate amount of approximately $6.1 million.
These loans accrued interest at an annual rate of 8.75% with such interest
being capitalized as a cost of development of the Spartanburg, South Carolina
facility. The loans were repaid in full in August 1995 from the proceeds of
$55.8 million received upon the issuance of 11,718,000 shares (adjusted to
reflect a 210-for-1 stock split in October 1995) of Common Stock. In December
1995, the Company completed the December 1995 Offerings from which the Company
received net proceeds of approximately $85 million upon the issuance of
7,127,825 shares of Common Stock. The Company completed the June 1996 Offering
in June 1996, from which it received net proceeds of approximately $289.8
million upon the issuance of 9,775,000 shares of Common Stock.
The Company had cash balances of $123.4 million as of December 31, 1995 and
$104.0 million as of March 31, 1996. Substantially all of the cash balances as
of December 31, 1995 and March 31, 1996 were invested in an overnight sweep
account with a commercial bank which invests in short-term, interest bearing
reverse repurchase agreements for U.S. government securities. The market value
of the securities held pursuant to the agreements approximates the carrying
amount. In consideration for the three existing facilities acquired by the
Company in the quarter ended March 31, 1996, the Company issued Common Stock
valued at approximately $17.9 million and paid cash, including the payment of
related expenses, of approximately $356,000. In addition, approximately $15.4
million was used to acquire land and develop and furnish the 17 sites under
construction during the quarter. This compares to approximately $281,000 used
to develop one property during the first quarter of 1995. A total of
approximately $2.7 million, less refunds of site deposits of $240,000, was
used for site deposits and preacquisition costs in the three months ended
March 31, 1996, compared to approximately $120,000 used for such costs in the
comparable prior year period.
The Company expects to finance the construction and development of its
lodging facilities principally with its cash balances and with loans under
mortgage facilities. The Company has two mortgage facilities which provide for
up to a total of $400 million in loans, subject to certain conditions and
limitations, for facilities after completion of construction. See "Financing."
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<PAGE>
The Company in the future may seek to increase the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt
instruments. Any debt incurred or issued by the Company may be secured or
unsecured, with a fixed or variable interest rate, and may be subject to such
terms as the Board of Directors of the Company deems prudent. The Company
expects that it will need to procure additional financing over time, although
there can be no assurance that such financing will be available when needed.
SEASONALITY AND INFLATION
Based upon the operating history of the Company's facilities, management
believes that extended stay lodging facilities are not as seasonal in nature as
the overall lodging industry. Management does expect, however, that occupancy
and revenues may be lower than average during the months of December and
January due to the holiday season. Because many of the Company's expenses do
not fluctuate with occupancy, such declines in occupancy may cause fluctuations
or decreases in the Company's quarterly earnings.
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenue or operating results of the
Company from its inception on January 9, 1995. There can be no assurance,
however, that inflation will not affect future operating or construction costs.
See "Risk Factors--Development Risks."
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement No.
121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement requires the Company to
identify properties for which it has committed to an exit plan or which may be
otherwise impaired. The fixed assets for such properties must be written down
to fair market value. The Company anticipates that the adoption of SFAS 121,
required for fiscal years beginning after December 15, 1995, will not result in
a reduction of net fixed assets or an increase in expenses in the fiscal year
1996 statement of operations.
The FASB has also issued Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after December
15, 1995. Under SFAS 123, companies are encouraged but not required to
recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value accounting rules. Companies
that choose not to record compensation expense under the new rules will be
required to disclose pro forma net income and earnings per share under the new
method. The Company has not yet determined the financial statement impact of
SFAS 123 and has elected not to recognize the impact of this pronouncement in
its fiscal 1995 statement of operations, but will disclose as required in the
fiscal 1996 financial statements on a pro forma comparative basis the effect of
SFAS 123 on net income and earnings per share.
20
<PAGE>
BUSINESS
OVERVIEW
Extended Stay America, Inc. was organized in January 1995 to develop, own,
and manage extended stay lodging facilities which are designed to appeal to
value-conscious guests. The Company's facilities are designed to offer quality
accommodations for guests at substantially lower rates than most other extended
stay lodging providers and hotels in the economy segment of the traditional
lodging industry. They feature fully furnished rooms which are generally rented
on a weekly basis to guests such as business travelers (particularly those with
limited expense accounts), professionals on temporary work assignment, persons
between domestic situations, and persons relocating or purchasing a home, with
most guests staying for multiple weeks. The Company's facilities provide a
variety of features that are attractive to the extended stay guest such as a
fully-equipped kitchenette, weekly housekeeping with twice-weekly towel
service, color television with cable or satellite hook-up, coin laundromat, and
telephone service with voice mail messaging. To help maintain affordability of
room rates, labor intensive services such as daily cleaning, room service, and
restaurants are not provided.
The extended stay category is one of the most rapidly evolving sectors of the
U.S. lodging industry. From 1992 to 1995, the number of dedicated extended stay
rooms increased at a compounded annual growth rate of approximately 3.3%,
compared with compounded annual room growth of approximately 1.4% for the
overall lodging industry over the same period. However, the vast majority of
these rooms have been developed in the high-price end of the category. The
economy extended stay sector of the lodging industry appears to present a
number of attractive characteristics compared to traditional hotels, including
higher occupancy rates and operating margins. Based on published occupancy
rates for other participants in the extended stay market, the Company believes
that demand in the economy extended stay market is greater, relative to supply,
than in the lodging industry generally. The Company is not aware of any
operator who serves the economy extended stay market niche on a national level.
The Company's goal is to become a national provider of economy extended stay
lodging. The Company intends to achieve this goal by rapidly developing
properties in selected markets, providing high value accommodations for its
guests, actively managing its properties to increase revenues and reduce
operating costs, and increasing awareness of the economy extended stay concept.
Through June 26, 1996, the Company had developed and opened three facilities,
acquired six others, and had agreements to acquire five additional facilities.
As of such date, the Company had 34 facilities under construction, 25 of which
the Company expects to have opened by the end of 1996. The Company plans to
begin construction of approximately 33 additional facilities during the
remainder of 1996 and to continue an active development program thereafter. The
Company's plans call for the average facility to have approximately 125
extended stay rooms and to take approximately 7-9 months to construct.
The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga, who
are the two largest shareholders of the Company. Mr. Johnson, who is the
President and Chief Executive Officer of the Company, was formerly the
President of the Consumer Products Division of Blockbuster Entertainment Group,
a division of Viacom, Inc. Mr. Huizenga, who is the Chairman of the Board of
Directors of the Company, is the Chairman and Chief Executive Officer of
Republic Industries, Inc. and was formerly Vice-Chairman of Viacom, Inc. and
Chairman and Chief Executive Officer of Blockbuster Entertainment Corporation
("Blockbuster"). The Company's management team has extensive experience in the
acquisition and development of real estate and the operation of properties on a
national scale.
GROWTH AND DEVELOPMENT STRATEGY
The Company's goal is to become a national provider of economy extended stay
facilities. The Company plans to rapidly develop new economy extended stay
lodging facilities. Although the Company expects that the construction and
development of new extended stay lodging facilities will be its primary means
of expansion, the Company has also made, and may continue making, acquisitions
of existing extended stay lodging facilities or other properties that are
suitable for conversion to the extended stay concept.
21
<PAGE>
Through June 26, 1996, the Company has developed and opened three economy
extended stay facilities and acquired six other facilities since the Company
began operations in 1995. As of such date, the Company had 34 facilities under
construction, 25 of which the Company expects to have opened by the end of
1996. The Company plans to begin construction of approximately 33 additional
facilities during 1996 and to continue an active development program
thereafter. The Company's strategy is to identify regions of the country that
contain the demographic factors necessary to support one or more economy
extended stay lodging facilities and to focus its development in those regions
in order to obtain the maximum benefit from operational efficiencies. The
Company expects target sites will generally have a large and/or growing
population in the surrounding area with a large employment base. Such sites
also are generally expected to have good visibility from a major traffic artery
and be in close proximity to convenience stores, restaurants, and shopping
centers.
For the economy extended stay facilities developed and opened by the Company
in Spartanburg, South Carolina, Columbia, South Carolina, and Downers Grove,
Illinois, the average development cost was approximately $5.1 million with an
average of 133 rooms. The cost to develop a facility varies significantly by
geographic location. For the 34 facilities that were under construction as of
June 26, 1996, the estimated average cost is approximately $4.7 million with an
average of approximately 122 rooms. The cost of these facilities is expected to
vary from a low of approximately $3.7 million to a high of $6.0 million with
the number of rooms ranging from a low of 96 to a high of 150.
Sites for development are selected by the Company's real estate
professionals, subject to review and approval by senior management. The Company
currently maintains offices in Spartanburg, South Carolina; Park Ridge,
Illinois; Bellevue, Washington; Morristown, New Jersey; El Segundo, California;
San Rafael, California; and Phoenix, Arizona for these real estate
professionals and the construction supervisors for the region. The Company
expects to open regional offices in other geographic areas in the future as the
Company increases the number of regions in which it is focusing its
development. The Company utilizes independent general contractors for the
construction of its lodging facilities and is using a number of such
contractors depending upon geographic area, costs of construction, and
financial and physical capacities of the contractors. The Company's
construction personnel will oversee the progress of construction on a regular
basis during the development cycle.
Certain members of the Company's management team have extensive experience in
the rapid development of standardized commercial properties nationwide. In
connection with past development activities, in particular the nationwide roll-
out of Blockbuster video stores, these individuals were responsible for site
selection, construction management, and subsequent operation of hundreds of
locations.
OPERATING STRATEGY
The Company's business strategy is to develop the economy extended stay
concept by providing an affordable and attractive lodging alternative for
value-conscious travelers looking for extended stay accommodations. The
Company's goal is to provide its guests with the level of amenities needed to
optimize room and occupancy rates while maintaining high operating margins at
its facilities. The Company attempts to achieve this goal through the
following:
Appeal to Value Conscious Guests. The Company's facilities are designed
to offer quality accommodations for guests at substantially lower rates
than most other extended stay lodging providers and hotels in the economy
segment of the traditional lodging industry. As of June 26, 1996, the
Company's facilities offered extended stay accommodations for $169 to $269
per week. Room rates at the Company's facilities may vary significantly
depending upon market factors affecting such locations. These rates
contrast with average weekly rates of approximately $545 for traditional
extended stay hotels and approximately $330 for hotels in the economy
segment of the lodging industry.
Lodging Facility Features. The Company's facilities contain a variety of
non-labor intensive features that are attractive to the extended stay guest
such as a fully-equipped kitchenette, weekly housekeeping
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<PAGE>
with twice-weekly towel service, color television with cable or satellite
hook-up, coin laundromat, and telephone service with voice mail messaging.
Standardized Concept. The Company has developed standardized plans and
specifications for its facilities which should lower construction and
purchasing costs and establish uniform quality and operational standards.
The Company also expects to benefit from the experience of various members
of the Company's management team in developing numerous commercial
properties to a uniform set of design standards and in operating systems on
a cost-effective basis.
Operating Efficiencies. The Company believes that the design and price
level of its facilities attract guest stays of several weeks, which should
result in a more stable revenue stream and which, coupled with low-labor
amenities, could in turn lead to reduced administrative and operational
costs and higher operating margins. In addition, members of the Company's
management team have extensive experience in the utilization of
sophisticated control and information systems which should enable the
Company to manage, on a Company-wide basis, individual facility specific
factors such as pricing, payroll, and occupancy levels.
Each Company facility employs a property manager who is responsible for the
operations of the particular property. The property manager shares duties with
and oversees a staff typically consisting of an assistant manager, a desk
clerk, a maintenance person, and a housekeeping/laundry staff of approximately
8-10 persons (most of whom are part-time employees). The office at each
facility is generally open daily from 7:00 a.m. to 11:00 p.m., although an
employee normally is on duty twenty-four hours a day to respond to guests'
needs.
The majority of daily operational decisions are made by the property manager.
Each property manager is under the supervision of a regional manager who will
be responsible for five to ten facilities, depending on geographic location.
The regional manager oversees the performance of the property managers in such
areas as guest service, property maintenance, and payroll and cost control. The
corporate office utilizes state-of-the-art information systems to support its
regional managers. Each facility is measured against a detailed revenue and
expense budget, as well as against the performance of the Company's other
facilities. The Company is developing centralized pricing, purchasing,
marketing, and operational procedures in order to achieve operating
efficiencies.
The Company's current operating subsidiaries are ESA Development, Inc. ("ESA
Development") and ESA Properties, Inc. ("ESA Properties"), which acquire and
develop properties, and ESA Management, Inc. ("ESA Management"), which provides
construction and management services for all of the lodging facilities owned by
the Company and its subsidiaries. The Company expects that each lodging
facility will be owned by a separate single-purpose subsidiary formed for such
purpose. See "Financing."
LODGING FACILITIES
As of June 26, 1996, the Company had nine economy extended stay lodging
facilities in operation and 34 facilities under construction in a total of 15
states. The following table sets forth certain information regarding the
Company's lodging facilities that are in operation.
<TABLE>
<CAPTION>
DATE OPENED NUMBER
LOCATION OR ACQUIRED OF ROOMS
<S> <C> <C>
Spartanburg, South Carolina........................ August 1995 123
Marietta, Georgia.................................. August 1995 119
Norcross, Georgia.................................. January 1996 196
Norcross, Georgia.................................. February 1996 130
Riverdale, Georgia................................. February 1996 144
Columbia, South Carolina........................... April 1996 120
Downers Grove, Illinois............................ May 1996 154
Lenexa, Kansas..................................... May 1996 59
Lawrenceville, Georgia............................. June 1996 126
</TABLE>
23
<PAGE>
The following table sets forth certain information regarding the Company's
lodging facilities that are under construction.
<TABLE>
<CAPTION>
PLANNED
ESTIMATED NUMBER
LOCATION OPENING DATE OF ROOMS
<S> <C> <C>
Chattanooga, Tennessee....................... Second Quarter 1996 120
Greensboro, North Carolina................... Third Quarter 1996 129
Chesapeake, Virginia......................... Third Quarter 1996 132
Sharonville, Ohio............................ Third Quarter 1996 130
Winston-Salem, North Carolina................ Third Quarter 1996 111
Charleston, South Carolina................... Third Quarter 1996 126
Virginia Beach, Virginia..................... Third Quarter 1996 120
Maryland Heights, Missouri................... Third Quarter 1996 150
Lexington, Kentucky.......................... Third Quarter 1996 126
Little Rock, Arkansas........................ Third Quarter 1996 120
Brentwood, Tennessee......................... Fourth Quarter 1996 120
Springdale, Ohio............................. Fourth Quarter 1996 126
Rolling Meadows, Illinois.................... Fourth Quarter 1996 125
Novi, Michigan............................... Fourth Quarter 1996 124
Louisville, Kentucky......................... Fourth Quarter 1996 120
Itasca, Illinois............................. Fourth Quarter 1996 125
Memphis, Tennessee........................... Fourth Quarter 1996 126
Greece, New York............................. Fourth Quarter 1996 125
Burr Ridge, Illinois......................... Fourth Quarter 1996 119
Newport News, Virginia....................... Fourth Quarter 1996 120
Auburn Hills, Michigan....................... Fourth Quarter 1996 133
Columbus, Georgia............................ Fourth Quarter 1996 108
Dewitt, New York............................. Fourth Quarter 1996 121
Tukwila, Washington.......................... Fourth Quarter 1996 96
Merrillville, Indiana........................ Fourth Quarter 1996 105
Lakewood, Colorado........................... First Quarter 1997 120
Greenville, South Carolina................... First Quarter 1997 109
Kansas City, Missouri........................ First Quarter 1997 109
Hazelwood, Missouri.......................... First Quarter 1997 122
Ann Arbor, Michigan.......................... First Quarter 1997 112
Nashville, Tennessee......................... First Quarter 1997 125
Albany, New York............................. First Quarter 1997 134
Henrietta, New York.......................... First Quarter 1997 127
Naperville, Illinois......................... First Quarter 1997 125
</TABLE>
The design plans for the Company's economy extended stay lodging facilities
call for a newly-constructed apartment style complex with two to three story
buildings containing an average of approximately 125 guest rooms with
laundromat and office areas. The Company utilizes both interior and exterior
corridor building designs, depending primarily on local zoning and weather
factors. Rooms generally offer approximately 250 to 300 square feet of fully
furnished living space, including a kitchenette and a dining/working area. The
kitchenette is fully-equipped with a refrigerator, stovetop, microwave, and
sink.
INDUSTRY OVERVIEW
TRADITIONAL LODGING INDUSTRY
The U.S. lodging industry is estimated to have generated approximately $51
billion in annual room revenues in 1995 and had approximately 3.3 million rooms
at the end of 1995. Over 60% of the industry's rooms are owned, managed, or
franchised by the 10 largest lodging chains.
Industry statistics, which the Company believes to be reliable, indicate that
the U.S. lodging industry's performance is strongly correlated to economic
activity. Room supply and demand historically have been
24
<PAGE>
sensitive to shifts in economic growth, which has resulted in cyclical changes
in average daily room and occupancy rates. Overbuilding in the lodging industry
in the mid and late 1980s, when approximately 500,000 rooms were added,
resulted in an oversupply of rooms. The Company believes this oversupply and
the general downturn in the economy led to depressed industry performance and a
lack of capital available to the industry in the late 1980s and early 1990s.
The Company believes that the lodging industry has benefited from a gradually
improving supply and demand balance, evidenced by increased average daily room
and occupancy rates. Room supply growth in the lodging industry has slowed in
recent years as the industry absorbs the oversupply of rooms that resulted from
an average annual room supply growth of approximately 3.5% for 1988 through
1991. According to industry reports, which the Company believes are reliable,
this growth slowed to an average of 1.4% for 1992 through 1995. The 3.1%
average annual increase in demand (measured by occupied rooms) for 1992 through
1995 as compared to increases in supply during the same period reflects an
improved supply and demand balance in the industry. The Company believes these
factors were primarily responsible for the increase in industry occupancy rates
from 61.7% for 1991 to 66.1% for 1995 and the increase in average daily room
rates from $58.11 for 1991 to $65.62 for 1995.
The lodging industry generally can be segmented by the level of service
provided and the pricing of the rooms. Segmentation by level of service is
divided into the following categories: full service hotels, which offer food
and beverage services, meeting rooms, room service, and similar guest services;
limited service hotels, which generally offer only rooms with amenities such as
swimming pools, continental breakfast, or similar limited services; and all-
suites, which generally have limited public spaces but provide guests with two
rooms or distinct partitioned areas and which may or may not offer food and
beverage service to guests. Segmentation by price level may generally be
divided into the following categories with the respective average daily room
rates for 1995: budget ($36), economy ($47), mid-price ($61), upscale ($80),
and luxury ($118).
The all-suites segment of the lodging industry is a relatively new segment,
having developed largely over the past 10 years, and is principally oriented
toward business travelers in the mid-price to upscale price levels. All-suite
hotels were developed partially in response to the increasing number of
corporate relocations, transfers, and temporary assignments and the need of
business travelers for more than just a room. To address those needs, all-suite
hotels began to offer suites with additional space and, in some cases, an
efficiency kitchen, and guests staying for extended periods of time were
offered discounts to daily rates when they paid on a weekly or monthly basis.
Because of the perceived positive price/value relationship, all-suite hotels
have generally outperformed the lodging industry as a whole over the last five
years.
EXTENDED STAY MARKET
The Company believes that the extended stay market, in which the Company
participates, is a continuation of the all-suites phenomenon, and that the same
price/value relationship which has enabled the all-suites segment to achieve
higher than industry average occupancy rates and operating margins will also
carry through to the extended stay market. Demand for extended stay lodging has
been stimulated by the economic and social changes resulting from the increased
volume of corporate reorganizations and trends toward down-sizing and out-
sourcing of various functions, the break-up and geographic dispersion of the
traditional family, and technological improvements which have allowed
businesses to relocate outside of large metropolitan areas. These changes have
created new accommodation needs for, among others, corporate executives and
trainees, consultants, sales representatives, construction workers, and people
in between jobs or houses. The extended stay category is one of the most
rapidly evolving sectors of the U.S. lodging industry. From 1992 to 1995, the
number of dedicated extended stay rooms has increased at a compounded annual
growth rate of approximately 3.3%, compared with compounded annual room growth
of approximately 1.4% for the overall lodging industry over the same period.
However, the vast majority of these rooms have been developed in the high-price
end of the category.
ECONOMY EXTENDED STAY CONCEPT
Economy extended stay lodging competes on the basis of price compared to the
extended stay market generally, thereby providing an economic inducement to
guests who are already attracted to the extended
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<PAGE>
stay concept. In addition, economy extended stay lodging provides a new and
affordable lodging alternative for guests who are value conscious, have lower
incomes, or are on limited expense accounts. Based on published occupancy rates
for other participants in the extended stay market, the Company believes that
there is a strong demand for economy extended stay accommodations and that
there is little organized competition for that business on a national or
regional basis. Of the approximately 3.3 million total available rooms in the
U.S. lodging industry at the end of 1995, there were approximately 38,000, or
1.2%, dedicated extended stay rooms at approximately 325 separate properties.
More than two-thirds of these extended stay properties were controlled by only
two other competitors, both of which are priced toward the upscale segment of
the extended stay market.
COMPETITION
The lodging industry is highly competitive. Competitive factors within the
lodging industry include room rates, quality of accommodations, service levels,
convenience of location, reputation, reservation systems, name recognition, and
supply and availability of alternative lodging in local markets, including
short-term lease apartments. The Company's facilities compete with a number of
competitors, including budget and economy segment hotels and other companies
focusing on the extended stay market. All of the Company's existing facilities
are located in developed areas that include competing lodging facilities. In
addition, each of the Company's proposed facilities is likely to be located in
an area that includes competing facilities. The number of competitive lodging
facilities in a particular area could have a material adverse effect on the
levels of occupancy and average weekly room rates of the Company's existing and
future facilities.
The Company anticipates that competition within the economy extended stay
lodging market will increase as participants in other segments of the lodging
industry and others focus on this relatively new market. A number of major
lodging companies recently have announced their intent to aggressively develop
extended stay lodging properties which may compete with the Company's
properties. Numerous other extended stay lodging facilities exist, most of
which are oriented toward the upscale segment. The Company may compete for
development sites with established entities which have greater financial
resources than the Company and better relationships with lenders and sellers.
These entities may generally be able to accept more risk than the Company can
prudently manage. Further, there can be no assurance that new or existing
competitors will not significantly reduce their rates or offer greater
convenience, services, or amenities or significantly expand, improve, or
develop facilities in a market in which the Company competes, thereby adversely
affecting the Company's operations.
ENVIRONMENTAL MATTERS
Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment a
hazardous substance at a property owned by another may be liable for the costs
of removal or remediation of hazardous substances released into the environment
at that property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell
such real estate or to borrow using such real estate as collateral. In
connection with the ownership and operation of its properties, the Company may
be potentially liable for any such costs.
The Company has obtained recent Phase I environmental site assessments
("Phase I Surveys") on its existing properties and intends to obtain Phase I
Surveys prior to the purchase of any future properties. The Phase I Surveys are
intended to identify potential environmental contamination and regulatory
compliance concerns. Phase I Surveys generally include historical reviews of
the properties, reviews of certain public records, preliminary investigations
of the sites and surrounding properties and the preparation and issuance of
written reports. Phase I Surveys generally do not include invasive procedures,
such as soil sampling or ground water analysis.
26
<PAGE>
The Phase I Surveys have not revealed any environmental liability or
compliance concern that the Company believes would have a material adverse
effect on the Company's business, assets, results of operations, or liquidity,
nor is the Company aware of any such liability or concern. Nevertheless, it is
possible that Phase I Surveys will not reveal all environmental liabilities or
compliance concerns or that there will be material environmental liabilities or
compliance concerns of which the Company will not be aware. Moreover, no
assurances can be given that (i) future laws, ordinances, or regulations will
not impose any material environmental liability, or (ii) the current
environmental condition of the Company's existing and future properties will
not be affected by the condition of the neighboring properties (such as the
presence of leaking underground storage tanks) or by third parties unrelated to
the Company.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels by requiring
registration, disclosure statements, and compliance with specific standards of
conduct. The Company believes that each of its facilities has the necessary
permits and approvals to operate its respective business and the Company
intends to continue to obtain such permits and approvals for its new
facilities. In addition, the Company is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions, and work permit requirements. An increase in the minimum
wage rate, employee benefit costs, or other costs associated with employees
could adversely affect the Company. Both at the federal and state level from
time to time, there are proposals under consideration to increase the minimum
wage.
Under the Americans With Disabilities Act ("ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. Although the Company has attempted to satisfy ADA
requirements in the designs for its facilities, no assurance can be given that
a material ADA claim will not be asserted against the Company, which could
result in a judicial order requiring compliance, and the expenditure of
substantial sums to achieve compliance, an imposition of fines, or an award of
damages to private litigants. These and other initiatives could adversely
affect the Company as well as the lodging industry in general.
INSURANCE
The Company currently has the types and amounts of insurance coverage that it
considers appropriate for a company in its business. While management believes
that its insurance coverage is adequate, if the Company were held liable for
amounts exceeding the limits of its insurance coverage or for claims outside of
the scope of its insurance coverage, the Company's business, results of
operations, and financial condition could be materially and adversely affected.
EMPLOYEES
As of March 31, 1996, the Company and its subsidiaries employed approximately
180 persons. The Company expects that it will significantly increase the number
of its employees as it expands its business. The Company's employees are not
subject to any collective bargaining agreements and management believes that
its relationship with its employees is good.
PROPERTIES
In addition to its lodging facilities described above (see "--Lodging
Facilities"), the Company also maintains a corporate headquarters and seven
regional offices. The Company's principal executive offices are located in Ft.
Lauderdale, Florida and the Company's regional offices are located in
Spartanburg, South Carolina; Park Ridge, Illinois; Bellevue, Washington;
Morristown, New Jersey; El Segundo, California; San Rafael, California; and
Phoenix, Arizona. The Company generally rents its office space on a short-term
basis, although it has recently entered into a new five-year lease for its
corporate headquarters in Ft. Lauderdale, Florida. These offices are sufficient
to meet the Company's present needs and it does not anticipate any difficulty
in securing additional office space, as needed, on terms acceptable to the
Company.
LEGAL PROCEEDINGS
The Company is not a party to any litigation or claims, other than routine
matters incidental to the operation of the business of the Company. To date, no
claims have had a material adverse effect on the Company nor does the Company
expect that the outcome of any pending claims will have such an effect.
27
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of the Company and its subsidiaries,
their ages at March 31, 1996, and their positions with the Company or such
subsidiaries are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<C> <C> <S>
H. Wayne Huizenga(1)...... 58 Chairman of the Board of Directors
George D. Johnson, Jr.(1). 53 President, Chief Executive Officer, and
Director
Robert A. Brannon......... 45 Senior Vice President, Chief Financial
Officer,
Secretary, and Treasurer
Richard A. Fadel, Jr...... 38 Vice President--Operations of ESA Management,
Inc.
Michael R. Beck........... 34 Vice President--Real Estate of ESA
Properties, Inc.
Corry W. Oakes............ 29 Vice President--Construction of ESA
Management, Inc.
Gregory R. Moxley......... 41 Vice President--Finance and Controller
Michael M. Wilson......... 56 Vice President--Marketing of ESA Management,
Inc.
Shawn R. Ruben............ 29 Vice President--Development of ESA
Management, Inc.
Robert W. Levis........... 32 Vice President--Corporate Development of ESA
Management, Inc.
Harold E. Wright.......... 53 President of ESA Development, Inc.
Donald F. Flynn(2)(3)..... 56 Director
Stewart H. Johnson(3)..... 52 Director
John J. Melk(2)........... 59 Director
Peer Pedersen(3).......... 71 Director
</TABLE>
- ---------------------
(1) Member of Executive Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
(3) Member of the Audit Committee of the Board of Directors
All directors are elected to serve until the next annual meeting of
shareholders and until their successors are elected and qualified. Officers
serve at the pleasure of the Board.
H. Wayne Huizenga became a director of the Company in August 1995 and serves
as Chairman of its Board of Directors. Mr. Huizenga also currently serves as
Chairman of the Board of Directors and Chief Executive Officer of Republic
Industries, Inc., ("Republic"), a diversified company with operations in solid
waste collection, disposal, and recycling, electronic security services, and
out-of-home advertising, and served until 1995 as Vice-Chairman of Viacom,
Inc. ("Viacom"), a diversified media and entertainment company, a position he
assumed upon its merger with Blockbuster in 1994. Mr. Huizenga became a
director of Blockbuster in February 1987 and was elected as Chairman of the
Board and Chief Executive Officer from April 1987 through September 1994. He
is a co-founder of Waste Management, Inc. (now WMX Technologies, Inc.
("WMX")), a waste disposal and collection company, where he served in various
capacities, including President, Chief Operating Officer, and director until
May 1984. From May 1984 to present, Mr. Huizenga has been an investor in
several businesses and is the sole shareholder and Chairman of the Board of
Huizenga Holdings, Inc., a holding and management company with various
business interests. In connection with these business interests, Mr. Huizenga
has been actively involved in strategic planning for, and executive management
of, these businesses. He also has a majority ownership interest in the Florida
Marlins, a Major League Baseball franchise, and owns the Florida Panthers, a
National Hockey League franchise, the Miami Dolphins, a National Football
League franchise, and Joe Robbie Stadium in South Florida.
28
<PAGE>
George D. Johnson, Jr. has been President, Chief Executive Officer, and a
director of the Company since January 1995. He is responsible for all aspects
of development, operation, marketing, and personnel of the Company. Mr. Johnson
is the former President of the Consumer Products Division of Blockbuster
Entertainment Group, a division of Viacom. In this position he was responsible
for all U. S. video and music stores. Mr. Johnson has over 30 years of
experience developing and managing various businesses. He was formerly the
managing general partner of WJB Video, the largest Blockbuster franchisee which
developed over 200 video stores prior to a merger with Blockbuster in 1993 and
is the managing general partner of American Storage Limited Partnership, a
chain of 23 self-storage facilities located in the Carolinas and Georgia. He
currently serves on the board of directors of Viacom, Republic, and Duke Power
Company and has been the Chairman of the Board of Directors of Johnson
Development Associates, Inc. since its founding in 1986. Johnson Development
Associates, Inc. is a real estate management, leasing, and development company
controlling approximately two million square feet of commercial, retail, and
industrial property located in the Carolinas and Georgia which are owned by
various partnerships controlled by Mr. Johnson and his brother, Stewart H.
Johnson. Mr. Johnson practiced law in Spartanburg, South Carolina from 1967
until 1986 and served three terms in the South Carolina House of
Representatives.
Robert A. Brannon has been Chief Financial Officer of the Company since
February 1995 and Senior Vice President, Secretary, and Treasurer since August
1995. He is responsible for overseeing accounting procedures and controls,
along with financial reporting and cash management. Prior thereto, he served as
Vice President--Finance for the Domestic Home Video division of the Blockbuster
Entertainment Group, where he was responsible for financial management and
control of over 2,000 video stores. Prior to joining Blockbuster in 1993, Mr.
Brannon was Chief Financial Officer for WJB Video and for American Storage
Limited Partnership. In those capacities, Mr. Brannon was responsible for the
financial aspects of the development of over 200 video stores and 23 self-
storage facilities. Prior to his participation in these businesses, Mr. Brannon
served as a Certified Public Accountant in various management and staff
positions with local and national accounting firms.
Richard A. Fadel, Jr. has been Vice President--Operations of ESA Management
since June 1996. Mr. Fadel is responsible for staffing and managing the
operations of the Company's extended stay facilities. Mr. Fadel served as Zone
Vice President of Operations for the Blockbuster Entertainment Group from
August 1993 through June 1996, where he was responsible for the operations of
over 500 stores. Prior to joining Blockbuster, Mr. Fadel was employed by WJB
Video, where he served as Director of Operations from April 1992 through August
1993 and as Regional Manager of Operations from December 1990 through April
1992. Prior to joining WJB Video, Mr. Fadel held retail management positions
with The Limited, Inc. and Peebles Department Stores, Inc. from 1981 through
1990.
Michael R. Beck has been Vice President--Real Estate of the Company from
September 1995 to January 1996 and Vice President--Real Estate of ESA
Properties since January 1996. Mr. Beck is responsible for identifying and
negotiating the purchase of suitable locations for the Company's expansion.
Prior to joining the Company, Mr. Beck served in various capacities including
Vice President--Development at Blockbuster Entertainment Group from July 1993
to May 1995, where he was responsible for new store development including real
estate construction and distribution for Blockbuster Video and Blockbuster
Music. From May 1989 to July 1993, Mr. Beck served in various capacities at WJB
Video, including the position of Director of Strategic Planning where he was
responsible for real estate acquisition and construction, marketing, and video
tape purchasing.
Corry W. Oakes has been Vice President--Construction of the Company from
January 1995 to January 1996 and Vice President--Construction of ESA Management
since January 1996. Mr. Oakes is responsible for managing initial construction
of all properties as well as ongoing renovations and repairs. Prior thereto, he
served as a National Director of Construction for the Blockbuster Entertainment
Group. In that capacity, he was responsible for the development of over 400
video and music stores during 1994 alone. Prior to joining Blockbuster in 1993,
Mr. Oakes served as Construction Manager for WJB Video. Mr. Oakes also served
as property manager with Westover Development Company, a real estate
development firm.
29
<PAGE>
Gregory R. Moxley became Controller of the Company in October 1995 and Vice
President--Finance in January 1996, where he is responsible for the accounting,
budgeting, and financial reporting functions. From 1990 until joining the
Company, Mr. Moxley held various positions, including Director of Financial
Reporting and Assistant Treasurer, with One Price Clothing Stores, Inc., a
national chain of women's apparel stores. Prior to that, Mr. Moxley served as a
Certified Public Accountant in various management and staff positions with
Ernst & Young from 1978 to 1990.
Michael M. Wilson has been Vice President--Marketing of ESA Management since
February 1996. Mr. Wilson is responsible for developing and implementing
marketing strategy and public relations. From September 1993 until he joined
the Company, he served as Director of Marketing--Special Projects for
Blockbuster, where he was responsible for marketing and developing proprietary
technology. Before joining Blockbuster in 1993, Mr. Wilson was Director of
Marketing of WJB Video. Prior thereto, Mr. Wilson founded and served as
President of two private consumer products companies, Lasso Closure Corp. and
Torus Corporation, and served as Senior V.P. for Henderson Advertising in
Greenville, South Carolina.
Shawn R. Ruben has been Vice President--Development of ESA Management since
December 1995. Mr. Ruben is responsible for managing the due diligence process
on all of the Company's properties as well as land closings and loan approvals.
Prior thereto, he served as National Director of Real Estate for the
Blockbuster Entertainment Group, where he was responsible for new store
development, asset management, and all real estate legal matters. Before
joining Blockbuster in 1991, Mr. Ruben practiced law in Florida.
Robert W. Levis has been Vice President--Corporate Development of ESA
Management since April 1996. Mr. Levis is responsible for corporate strategy,
including acquisitions. From 1992 until he joined the Company, Mr. Levis was
Director, Corporate Development for Blockbuster where he was responsible for
corporate strategy for new lines of business, including mergers and
acquisitions. From 1995 until he joined the Company, Mr. Levis was also Vice
President, Corporate Development and Finance for Discovery Zone, Inc.
("Discovery Zone"), an owner and franchisor of family indoor entertainment and
fitness facilities, during the period it was managed by Blockbuster. On March
25, 1996, Discovery Zone announced that it had filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code. Prior thereto, Mr. Levis was a Manager,
Real Estate and Hospitality Consulting with KPMG Peat Marwick.
Harold E. Wright has been President of ESA Development, a wholly-owned
subsidiary of the Company, since June 1995. Mr. Wright is responsible for
selection and development of suitable locations in certain geographic areas.
See "--Management Compensation," and "--Employment and Stock Option
Agreements." Prior to joining ESA Development, Inc., Mr. Wright was President
of HVI, Inc., formerly Homestead Venture, Inc., a site selection and
development company of extended stay facilities in the Southwest. From 1989 to
1992, Mr. Wright was President of Homestead Properties, Inc., which developed
and operated three extended stay properties in North Carolina. Prior to that
time, Mr. Wright was involved in commercial and real estate development in
Georgia and Florida.
Donald F. Flynn became a director of the Company in August 1995. Mr. Flynn is
Chairman and Chief Executive Officer of Flynn Enterprises, Inc., a business
consulting and venture capital company, and from July 1992 until March 1996 was
Chairman of Discovery Zone. From July 1992 until May 1995, Mr. Flynn also
served as Chief Executive Officer of Discovery Zone. Mr. Flynn also currently
serves as a director of WMX, Waste Management International plc, Wheelabrator
Technologies, Inc., and Psychemedics, Inc. ("Psychemedics"). Mr. Flynn is a
former director of Blockbuster. From 1972 to 1990, Mr. Flynn served in various
positions with WMX, including Senior Vice President and Chief Financial
Officer.
Stewart H. Johnson became a director of the Company in August 1995. Mr.
Johnson is currently the Chairman of the Board of Directors, Chief Executive
Officer, and President of Morgan Corporation, a construction company
specializing in grading, site preparation, and sewer and utility installation.
Mr. Johnson has been directing the operations of Morgan Corporation since 1971.
Mr. Johnson also serves as Secretary for Johnson Development Associates, Inc.
Mr. Johnson is the brother of George D. Johnson, Jr.
30
<PAGE>
John J. Melk became a director of the Company in August 1995. He has been
Chairman and Chief Executive Officer of H/2/0 Plus, Inc. since 1988. H/2/0 Plus
develops and manufactures health and beauty products and distributes them
through a national chain of company-owned retail stores as well as through over
500 wholesale/department stores. Prior to 1984, Mr. Melk held various positions
with WMX and its subsidiaries, and served as President of Waste Management
International, Ltd. based in London, England. Mr. Melk currently serves as a
director of Psychemedics and Republic and is a former Vice-Chairman and
director of Blockbuster. Mr. Melk is also Chairman of M.W. Partners, which is a
major investor in residential and commercial real estate development, resort
hotels, marinas, and other private ventures.
Peer Pedersen became a director of the Company in August 1995. He is the
founder and has been Chairman of the law firm of Pedersen & Houpt, P.C., in
Chicago, Illinois for more than five years. He serves on the board of directors
of Aon Corporation, Boston Chicken, Inc., and WMX.
MANAGEMENT COMPENSATION
The Company was incorporated in January 1995 and did not conduct any
operations prior to that time. The Company's executive officers commenced their
service with the Company at various times during 1995 and none was employed by
the Company during all of 1995. Accordingly, the following table sets forth, on
an annualized basis with respect to the salary information, the information
regarding the compensation paid by the Company to its Chief Executive Officer
and each of the other four most highly compensated officers of the Company
(hereinafter, the "Named Executive Officers") for services rendered in all
capacities to the Company during 1995. The Company does not have a restricted
stock award program or a long-term incentive plan. Directors of the Company are
not paid any cash compensation for their services but are reimbursed for their
out-of-pocket expenses.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
George D. Johnson, Jr...... 200,000 -- -- 200,000 --
President and Chief
Executive Officer
Robert A. Brannon.......... 175,000 -- -- 301,875 --
Senior Vice President,
Chief Financial Officer,
Secretary, and Treasurer
Michael R. Beck............ 100,000 -- -- 21,000 --
Vice President--Real
Estate of ESA Properties,
Inc.
Corry W. Oakes............. 100,000 -- -- 21,000 22,837(1)
Vice President--
Construction of ESA
Management, Inc.
Harold E. Wright........... 175,000 -- -- -- 51,179(1)
President of ESA
Development, Inc.
</TABLE>
- ---------------------
(1) Represents the taxable portion of reimbursed relocation expenses.
31
<PAGE>
The following table sets forth individual grants of stock options made to the
Named Executive Officers during 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL PRICE APPRECIATION
OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
DATE OF OPTIONS TO EMPLOYEES IN OR BASE EXPIRATION ---------------------
NAME GRANT GRANTED FISCAL YEAR PRICE(1) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
George D. Johnson, Jr... 11/17/95 200,000 17.7% $13.00 11/17/05 $1,635,126 $4,143,730
Robert A. Brannon....... 8/18/95 301,875 26.7 4.76 8/18/05 903,675 2,290,087
Michael R. Beck......... 8/18/95 21,000 1.9 4.76 8/18/05 62,864 159,310
Corry W. Oakes.......... 8/18/95 21,000 1.9 4.76 8/18/05 62,864 159,310
Harold E. Wright........ -- -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Under the 1995 Plan, the exercise price must be the fair market value on
the date of grant. Except for specific situations, the options granted
become exercisable as to one-fourth of the grant on each of the first,
second, third, and fourth anniversary of the date of grant.
(2) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future performance
of the Common Stock. There can be no assurance that the amounts reflected
in this table will be achieved.
The following table provides certain information concerning the value of
unexercised options to purchase Common Stock at December 31, 1995 for the Named
Executive Officers. No options to purchase Common Stock were exercised during
1995.
AGGREGATE 1995 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT 12/31/95 AT 12/31/95(1)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
<S> <C> <C> <C> <C>
George D. Johnson, Jr....... -- 200,000 -- 2,900,000
Robert A. Brannon........... -- 301,875 -- 6,864,638
Michael R. Beck............. -- 21,000 -- 477,540
Corry W. Oakes.............. -- 21,000 -- 477,540
Harold E. Wright............ -- -- -- --
</TABLE>
- ---------------------
(1) This column indicates the aggregate amount, if any, by which the market
value of the Common Stock on December 31, 1995 exceeded the options'
exercise price based on the closing per share sale price of the Common
Stock on such date of $27.50 as quoted on the Nasdaq National Market as
reported by The Wall Street Journal.
EMPLOYMENT AND STOCK OPTION AGREEMENTS
In June 1995, Mr. Wright entered into an employment agreement, which was
terminated in March 1996, with ESA Development, a wholly-owned subsidiary of
the Company which was formed for the purpose of developing economy extended
stay facilities in the Midwest and certain other areas. In connection with the
termination of a business relationship before joining ESA Development, Mr.
Wright entered into a non-
32
<PAGE>
compete agreement that may restrict him from performing certain functions for
ESA Development in the states of Texas, New Mexico, Colorado, Arizona, Nevada,
Utah, California, Oklahoma, Louisiana, Florida and the greater metropolitan
areas of Las Vegas, Nevada; Portland, Oregon; Atlanta, Georgia; Charlotte,
North Carolina and Washington, D.C. until the end of 1996. As a result, neither
Mr. Wright nor ESA Development will operate in those areas and Mr. Wright will
focus his time and efforts locating and developing sites for ESA Development in
regions not restricted by his non-compete agreement.
Pursuant to his employment agreement, Mr. Wright was entitled to receive a
minimum annual base salary of $175,000. The agreement had an initial term of
two years and was to have been automatically renewed for one-year periods
thereafter unless notice of termination was given by either party. The
agreement provided that in the event Mr. Wright's employment with ESA
Development was terminated for any reason other than for cause, Mr. Wright was
entitled to receive an amount equal to his then base salary for the remainder
of the then current term. In addition, in the event ESA Development did not
grant to Mr. Wright, during each twelve month period from June 1 through May 31
of the term of the agreement, options to purchase shares of common stock of ESA
Development in an amount equal to 2 1/2 times his then base salary at the fair
market value per share on the date of grant, Mr. Wright could declare his
employment terminated other than for cause.
In June 1995, Mr. Wright also entered into a stock option agreement with ESA
Development which was also terminated in March 1996 and all options granted
thereunder terminated. Pursuant to the stock option agreement, ESA Development
granted to Mr. Wright non-qualified options to purchase a total of 1,437.5
shares of the common stock of ESA Development. The options were to vest ratably
on each of the next four anniversaries of the date of the option grant. With
respect to options underlying 437.5 shares, the exercise price per share was
$1,000 and the term of the options was ten years. With respect to options
underlying the remaining 1,000 shares, the exercise price per share was $1,000
plus interest accrued at 10% per year, compounded annually, from the date of
the option grant through the date of exercise of the option, and the term of
the options was five years.
In March 1996, Mr. Wright and ESA Development entered into a new employment
agreement for the period commencing on March 18, 1996 and ending on June 30,
1999. Pursuant to this employment agreement, Mr. Wright is to act as the
President of ESA Development and is entitled to receive a minimum annual base
salary of $175,000. ESA Development also agreed to pay Mr. Wright additional
compensation equal to $15,000 for each site upon which ESA Development or its
subsidiaries has commenced construction of an extended stay lodging facility
during the term of the agreement. This additional compensation shall apply only
to the first 40 sites for 1996, 1997, and 1998 and the first 20 sites for 1999
and may be paid by delivering shares of the Company's Common Stock with a fair
market value equal to the amount due. In addition, pursuant to this employment
agreement, the Company granted to Mr. Wright, under the 1996 Plan, ten-year
options to purchase 600,000 shares of the Company's Common Stock at an exercise
price per share of $21.00 (the fair market value on the date of grant), which
options vest as to one-fourth of the grant on September 19, 1996 and June 1 of
each of 1997, 1998, and 1999, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until August 1995, Mr. George D. Johnson, Jr., the Company's Chief Executive
Officer, approved the terms of the compensation of the Company's executive
officers. In August 1995, the Company's Board of Directors formed a
Compensation Committee, which is currently composed of Messrs. Flynn and Melk,
which determines the compensation of the Company's executive officers.
STOCK OPTION PLANS
1995 PLAN
The Board of Directors of the Company adopted in August 1995, and the
shareholders of the Company have approved, the Amended and Restated 1995
Employee Stock Option Plan (the "1995 Plan") which will
33
<PAGE>
be administered by the Compensation Committee of the Board of Directors, which
consists solely of non-employee directors. The Compensation Committee has
authority to determine the persons to be granted options under the 1995 Plan,
the number of shares subject to each option, the time or times at which options
will be granted, the option price of the shares subject to each option (which
price shall not be less than the fair market value of the shares at the date of
grant), and the time or times when each option becomes exercisable and the
duration of the exercise period. Except for specific situations, such as a
change in control of the Company, options which have been granted become
exercisable as to one-fourth of the grant on each of the first, second, third,
and fourth anniversary of the date of grant.
Options may be granted under the 1995 Plan to key employees and consultants,
(other than members of the Compensation Committee) of the Company. Options may
be granted with respect to a total of not more than 1,677,060 shares of Common
Stock under the 1995 Plan, subject to antidilution and other adjustment
provisions. No options may be granted to a single optionee under the 1995 Plan
in excess of 50% of the total number of shares authorized for issuance under
the 1995 Plan. No options may be granted under the 1995 Plan after August 18,
2005. If an option expires or is terminated or canceled unexercised as to any
shares, such released shares may again be optioned (including a grant in
substitution for a canceled option). The Compensation Committee has granted,
under the 1995 Plan, ten-year options to purchase 150,000 shares and 200,000
shares of Common Stock to Messrs. Huizenga and George D. Johnson, Jr.,
respectively, at an exercise price per share equal to $13.00 and ten year
options to purchase Common Stock at an exercise price per share equal to $4.76
to the other Named Executive Officers, among others, for the following number
of shares: Mr. Brannon, 301,875; Mr. Beck, 21,000; and Mr. Oakes, 21,000. In
January 1996, the Compensation Committee granted additional ten-year options to
purchase 500,281 shares of Common Stock to employees at exercise prices per
share ranging from $26.75 to $29.625, including grants to Named Executive
Officers for the following number of shares: Mr. Brannon, 39,252; Mr. Beck,
28,037; Mr. Oakes, 28,037; and Mr. Wright, 39,252. As of March 31, 1996,
options to purchase an aggregate of 1,676,873 shares of Common Stock had been
granted under the 1995 Stock Option Plan.
1996 PLAN
The Board of Directors of the Company adopted in January 1996, and the
shareholders of the Company have approved, the Amended and Restated 1996
Employee Stock Option Plan (the "1996 Plan"). The 1996 Plan will be
administered by the Compensation Committee of the Board of Directors and the
terms of the 1996 Plan are substantially identical to those of the 1995 Plan.
Options may be granted with respect to a total of not more than 2,500,000
shares of Common Stock under the 1996 Plan, subject to antidilution and other
adjustment provisions. No options may be granted under the 1996 Plan after
January 24, 2006. As of March 31, 1996, options to purchase 679,385 shares of
Common Stock had been granted under the 1996 Plan, including ten-year options
to purchase 600,000 shares of Common Stock granted to Mr. Wright at an exercise
price per share equal to $21.00.
DIRECTORS' PLAN
The Board of Directors of the Company adopted in November 1995, and the
shareholders of the Company have approved, a 1995 Stock Option Plan for Non-
Employee Directors (the "Directors' Plan"). The Directors' Plan is administered
by the Board of Directors.
Options shall be granted under the Directors' Plan only to non-employee
directors of the Company. Options may be granted with respect to a total of not
more than 240,000 shares of Common Stock under the Directors' Plan, subject to
antidilution and other adjustment provisions. If an option expires or is
terminated or canceled unexercised as to any shares, such released shares may
again be optioned.
A one-time option covering 20,000 shares of Common Stock is automatically
granted to each non-employee director of the Company effective upon initial
election to the Board of Directors of the Company. During the four-year period
following the initial election of a non-employee director to the Board of
34
<PAGE>
Directors, an additional option covering 5,000 shares of Common Stock shall be
granted to such non-employee director on each anniversary of the initial grant;
provided that such non-employee director remains a director and that not more
than four such additional options shall be granted to any one non-employee
director. The option price for all options granted under the Directors' Plan
shall be the fair market value of a share of Common Stock on the date of grant.
Each option granted under the Directors' Plan is for a term of ten years,
subject to earlier termination if the optionee's service as a director
terminates. Each option granted under the Directors' Plan becomes exercisable
with respect to all of the shares subject to the option six months after the
date of its grant. Options to purchase 20,000 shares of Common Stock at an
exercise price per share of $13.00 were automatically granted under the
Directors' Plan on the closing of the IPO on December 19, 1995 to each of
Messrs. Flynn, Stewart H. Johnson, Melk, and Pedersen.
35
<PAGE>
CERTAIN TRANSACTIONS
In order to finance the construction of the Company's Spartanburg, South
Carolina facility and the Company's initial operations, George D. Johnson, Jr.,
the Company's President and Chief Executive Officer, and H. Wayne Huizenga, the
Chairman of the Board of Directors of the Company, loaned an aggregate of
approximately $6.1 million at various times between February 1995 and July
1995. Those loans accrued interest at an annual rate of 8.75% and were repaid
in full in August 1995 with the proceeds from the subscriptions of the
Company's shareholders described below.
In connection with the formation of the Company in January 1995, Mr. George
D. Johnson, Jr. purchased 1,677,060 shares (adjusted to reflect a 210-for-1
stock split in October 1995) of Common Stock for an aggregate purchase price of
$2,000. In August 1995, the Company entered into Subscription Agreements
pursuant to which certain investors, including H. Wayne Huizenga, George D.
Johnson, Jr., Donald F. Flynn, Stewart H. Johnson, John J. Melk, Peer Pedersen,
and Robert A. Brannon, contributed $55.8 million to the capital of the Company
in exchange for 11,718,000 shares (adjusted to reflect a 210-for-1 stock split
in October 1995) of Common Stock ($4.76 per share). Approximately one-half of
such amount was contributed in August 1995 and the balance in October 1995.
As consideration for the commitment to provide a mortgage loan facility (the
"DLJ Mortgage Facility"), the Company issued 750,540 shares of Common Stock,
with a then estimated fair market value of approximately $3.6 million, to
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), one of the
representatives of the underwriters of the Prior Offerings. In connection
therewith, DLJ Capital Corporation, an affiliate of DLJ, also purchased 500,430
shares of Common Stock for a purchase price of $2.4 million. See "Financing."
In the Concurrent Offering, the Company sold to its then existing
shareholders (other than DLJ and its affiliates), on a pro-rata basis, for $25
million, 2,067,825 shares of Common Stock for $12.09 per share, such price
being the IPO price per share less underwriting discounts and commissions.
These shareholders included the Company's directors and certain of its
officers. The amounts paid by the Company's directors and certain of its
officers in the Concurrent Offering were as follows: Mr. H. Wayne Huizenga,
$7,253,456; Mr. George D. Johnson, Jr., $3,048,747; Mr. Stewart H. Johnson,
$954,396; Mr. Robert A. Brannon, $381,765; Mr. Donald F. Flynn, $381,765; Mr.
John J. Melk, $1,145,285; and Mr. Peer Pedersen, $1,145,285. In addition, the
amounts paid by trusts for the benefit of various members of the immediate
family of George D. Johnson, Jr. was an aggregate of $5,726,429 and the amounts
paid by trusts for the benefit of various members of the immediate family of
Stewart H. Johnson was an aggregate of $381,754.
The Company has airplane leasing arrangements with companies owned by George
D. Johnson, Jr., Stewart Johnson, and certain of their family members. In
connection therewith, the Company incurred aggregate charges of approximately
$412,000 during the year ended December 31, 1995. The Company believes that the
terms of its use of the planes are at least as favorable to the Company as
those it could have obtained from an unaffiliated party. In April 1995, the
Company acquired a parcel of real estate in Spartanburg, South Carolina for
approximately $562,000 from a limited partnership controlled by George D.
Johnson, Jr. and Stewart H. Johnson. The Company believes that the terms of the
acquisition were as favorable to it as it could have obtained from an
unaffiliated party.
In 1996 the Company entered into (i) a 10-year lease for a suite at Joe
Robbie Stadium for a base rental of $115,000 per year, subject to certain
additional charges and periodic escalation, and (ii) a 3-year lease for a suite
at Homestead Motor Sports Complex for a base rental of $53,250 per year,
subject to certain additional charges. Mr. Huizenga owns Joe Robbie Stadium and
has an approximately 50% ownership interest in Homestead Motor Sports Complex.
The Company believes that the terms of these leases are comparable to those
charged to other persons.
36
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of June 26, 1996, certain information
regarding the beneficial ownership of the Company's Common Stock by each person
known by the Company to be the beneficial owner of 5% or more of the
outstanding Common Stock, by each of the Company's directors and Named
Executive Officers, and by all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
------------------
NAME(1) NUMBER PERCENT
<S> <C> <C>
George D. Johnson, Jr.(2).............................. 5,552,881 16.9%
H. Wayne Huizenga...................................... 4,589,955 14.0
Stewart H. Johnson(3).................................. 724,729 2.2
Robert A. Brannon...................................... 241,577 *
Michael R. Beck........................................ 18,000 *
Corry W. Oakes......................................... 16,425 *
Harold E. Wright....................................... 2,904 *
Donald F. Flynn(4)..................................... 241,577 *
John J. Melk(5)........................................ 944,730 2.9
Peer Pedersen.......................................... 724,730 2.2
All directors and executive officers as a group
(15 persons)(2)(3)(4)(5).............................. 13,072,738 39.9%
</TABLE>
- ---------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of such person is c/o Extended Stay
America, Inc., 500 E. Broward Boulevard, Ft. Lauderdale, Florida 33394.
(2) Includes 3,623,650 shares of Common Stock held in various trusts for the
benefit of members of Mr. Johnson's immediate family, of which Mr.
Johnson's brother, Stewart H. Johnson, is a trustee and does not include
120,788 shares held in various trusts for the benefit of members of Stewart
H. Johnson's immediate family and with respect to which Mr. Johnson is
trustee, all of which shares Mr. Johnson may be deemed to beneficially own.
(3) Includes 120,788 shares Common Stock held in various trusts for the benefit
of members of Stewart H. Johnson's immediate family, of which George D.
Johnson, Jr. is trustee, but does not include 3,623,650 shares of Common
Stock held in various trusts for the benefit of members of George D.
Johnson, Jr.'s immediate family, of which Stewart H. Johnson is a trustee,
and 120,788 shares of Common Stock held in a trust of which Stewart H.
Johnson is a trustee, all of which shares Stewart H. Johnson may be deemed
to beneficially own.
(4) Represents 241,577 shares of Common Stock held in a trust, of which Mr.
Flynn is a trustee and beneficiary.
(5) Includes 724,730 shares of Common Stock beneficially owned by M Group
Investment IV, L.P., of which Mr. Melk is a general partner.
37
<PAGE>
FINANCING
EQUITY
The Company was initially capitalized with approximately $60 million of
equity from a group of private investors, a number of whom constitute part of
the Company's management team. On December 19, 1995, the Company completed the
December 1995 Offerings from which it received aggregate net proceeds of
approximately $85 million. The Company received aggregate net proceeds of
approximately $290 million from the June 1996 Offering.
MORTGAGE FACILITIES
DLJ MORTGAGE FACILITY
The Company has a mortgage facility with DLJ Mortgage Capital, Inc., an
affiliate of DLJ, providing for up to $100 million in mortgage financing (which
was reduced by the Company from $200 million in connection with the
establishment of the CSFB Mortgage Facility described below), subject to
certain conditions (the "DLJ Mortgage Facility"). Under the DLJ Mortgage
Facility, each extended stay lodging facility financed thereby will, upon
obtaining a certificate of occupancy, receive funding of 60% of the lesser of
the total development cost or the approved budget thereof. In addition, the
funding for each facility may be increased to not more than 75% of the lesser
of its cost or its appraised value within the first 15 months of operation,
with the amount of such additional funding depending upon the lodging facility
meeting certain debt service coverage ratios. Interest on each loan will be
payable monthly at a fixed rate equal to the rate of 10-year U.S. Treasury
securities on the date of funding plus 4.0%. Principal amortization based on a
25-year term will begin not later than 15 months after the initial funding and
will continue through various maturity dates from December 31, 2006 through
December 31, 2008. Prepayments of loans may be made without penalty within five
years of their respective maturity dates. Amounts borrowed under the DLJ
Mortgage Facility will be secured by, among other things, a first mortgage
encumbering each lodging facility and assignment of the revenues and profits
from the respective facility. Funding under the DLJ Mortgage Facility is
subject to, among other things, the funding by the Company of certain escrow
accounts and prior approval by the lender of the construction and operating
budgets.
The DLJ Mortgage Facility requires the Company to maintain consolidated
tangible net worth (as defined therein) of at least $40 million. In addition,
the DLJ Mortgage Facility contains certain affirmative and negative covenants,
including without limitation, limitations on any sale, mortgaging, granting of
options or other transfer of any legal or beneficial interest in any property
financed; making of dividends, share repurchases, or other restricted payments
by the Company other than dividends by the Company not exceeding 50% of the
excess of its net income for any period over its cumulative losses not
previously applied in computing the limitation; financing new properties
without first submitting such property for approval by the lender for financing
under the DLJ Mortgage Facility; affiliated party transactions; making certain
investments; and engaging in businesses other than the ownership, management,
and operation of extended stay lodging facilities.
All or any portion of the amounts outstanding under the DLJ Mortgage Facility
may at any time become immediately due and payable, at the option of the
lender, if an event of default occurs, including, among other things, (i) any
payment of principal or interest or any payment of any fee or other amount due
under the DLJ Mortgage Facility is not paid when the same becomes due and
payable; (ii) the Company fails to perform any obligation or observe any
agreement or covenant under the DLJ Mortgage Facility or related loan,
collateral, or other documentation (collectively, the "Loan Documents") and
such failure remains unremedied past the applicable grace period, if any; (iii)
any material representation made or deemed to be made by the Company in the
Loan Documents shall prove to have been incorrect in any material respect when
made or deemed made; (iv) a default occurs and is continuing with respect to
any indebtedness of the Company and (in the case of a default other than a
payment default) such default permits the acceleration of indebtedness or any
such indebtedness is declared due and payable prior to its stated maturity; (v)
certain events of bankruptcy, insolvency or reorganization occur with respect
to the Company or any of its
38
<PAGE>
subsidiaries; (vi) any material provision of collateral documentation relating
to a loan ceases to be valid and binding on the Company or fails to create a
valid perfected and first priority lien on any of the collateral covered
thereby; (vii) a material adverse change, or an event which is reasonably
likely to have a material adverse change, occurs in the Company, in the ability
of the parties to the Loan Documents to perform their respective obligations,
or the legality, validity, or enforceability of the Loan Documents or the
rights and remedies of the lender thereunder; or (viii) the current members of
the Company's Board of Directors cease to constitute a majority of the Board.
CSFB MORTGAGE FACILITY
The Company also has a mortgage facility (the "CSFB Mortgage Facility") from
CS First Boston Mortgage Capital Corporation (an affiliate of CS First Boston
Corporation, one of the representatives of the underwriters of the June 1996
Offering) which provides up to $300 million in mortgage financing, subject to
certain conditions and limitations, for completed facilities.
Under the CSFB Mortgage Facility, each extended stay lodging facility
financed thereby will, upon obtaining a certificate of occupancy, receive
funding of 65% of the lesser of the total development cost, the approved
budget, or the appraised value, subject to limitations based on projected debt
service coverage ratios. The Company may choose either a fixed rate loan or a
floating rate loan at the time the loan is to be funded, subject, however, to a
requirement that a minimum of $50 million of loans must be made under the
chosen rate program before the other rate program can be selected. Interest on
each loan will be payable monthly at either (i) a fixed rate equal to the rate
of 7-year U.S. Treasury securities on the date of funding plus from 3.55% to
3.85%, depending upon the aggregate amount of fixed rate loans, or (ii) a
floating rate equal to the 30-day LIBOR rate plus 3%. Principal amortization
will generally be based on a 15-year term for fixed rate loans and based on a
20-year term with an assumed 9.9% interest rate for floating rate loans. Fixed
rate loans will mature on the earlier of 7 years and 3 months from the date
that the first such loan is funded or May 2004. All floating rate loans will
mature three years from the execution of a credit facility agreement.
Prepayments of fixed rate loans may be made after five years, subject to
certain penalties. Prepayments of floating rate loans may be made after one
year without penalty. Amounts borrowed under the CSFB Mortgage Facility will be
secured by, among other things, a first mortgage encumbering each lodging
facility so financed and an assignment of the revenues and profits from such
facilities.
Funding under the CSFB Mortgage Facility is subject to, among other things,
market capitalization of the Company of at least $300 million, maintenance of
certain debt service coverage ratios, maintenance of the ratio of debt to total
book capitalization of not more than 70%, maintenance of unrestricted and
unpledged cash of not less than $20 million, the funding by the Company of
certain escrow accounts, and prior approval by the lender of the construction
and operating budgets. The CSFB Mortgage Facility also contains certain
affirmative and negative covenants similar to those contained in the DLJ
Mortgage Facility. The Company may, however, finance new properties through
other lenders without first submitting such property for approval by the lender
for financing under the CSFB Mortgage Facility. However, in the event that the
Company finances more than $175 million of secured facility debt (other than
construction financing and certain other financings) with another lender prior
to May 1999, without having financed at least $100 million of such debt under
the CSFB Mortgage Facility, the lender may terminate its obligation to fund
additional facilities under the CSFB Mortgage Facility.
All or any portion of the amounts outstanding under the CSFB Mortgage
Facility will become due and payable, at the option of the lender, if an event
of default occurs, including, among other things, (i) a declared default or
acceleration under other indebtedness of the Company; (ii) certain events of
bankruptcy with respect to the Company or any of its subsidiaries; (iii) the
Company's tangible net worth ceases to exceed $50 million; (iv) a dividend
payout by the Company in excess of 50% of the excess of its net income for any
period over its cumulative losses not previously applied in computing the
limitation; (v) the current members of the Company's Board of Directors cease
to constitute a majority of the Board; or (vi) Mr. Huizenga or Mr. George D.
Johnson, Jr. cease to be Board members to the extent that they are living and
have not been declared judicially incompetent.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 200 million shares of
Common Stock, $.01 par value per share, and 10 million shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). As of June 26, 1996,
32,628,092 shares of Common Stock were issued and outstanding and none of the
Preferred Stock was outstanding. The following description is a summary and is
qualified in its entirety by reference to the provisions of the Company's
Restated Certificate of Incorporation, as amended (the "Certificate"), and its
Bylaws (the "Bylaws"), copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Holders of a
majority of the shares of Common Stock represented at a meeting can elect all
of the directors. Holders of Common Stock are not permitted to act by written
consent. Shareholders must follow an advance notification procedure for certain
shareholder nominations of candidates for the Board of Directors and for
certain other business to be conducted at any meeting of shareholders. Subject
to preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of a liquidation, dissolution, or winding
up of the Company, holders of the Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock
have no preemptive rights and have no right to convert their Common Stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
shareholders, to issue up to 10 million shares of Preferred Stock in one or
more series and to fix the voting powers, designations, preferences, and
relative, participating, optional, or other special rights, and qualifications,
limitations, and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series. Because the Board of Directors has
the power to establish the preferences and rights of the shares of any such
series of Preferred Stock, it may afford holders of any Preferred Stock
preferences, powers, and rights (including voting rights), senior to the rights
of holders of Common Stock, which could adversely affect the rights of holders
of Common Stock and could have the effect of delaying, deferring, or preventing
a change in control of the Company. The Company has no present plan to issue
any shares of Preferred Stock.
DELAWARE GENERAL CORPORATION LAW
The Company was incorporated in 1995 as a Delaware corporation and will be
subject to Section 203 of the Delaware General Corporation Law ("Section 203").
Pursuant to Section 203, with certain exceptions, a Delaware corporation may
not engage in any of a broad range of business combinations, such as mergers,
consolidations, and sales of assets, with an "interested shareholder" for a
period of three years from the date that such person became an interested
shareholder unless (i) the transaction that results in the person's becoming an
interested shareholder, or the business combination, is approved by the board
of directors of the corporation before the person becomes an interested
shareholder, (ii) upon consummation of the transaction which results in the
shareholder becoming an interested shareholder, the interested shareholder owns
85% or more of the voting stock of the corporation outstanding at the time the
transaction commenced (other than certain excluded shares), or (iii) on or
after the date the person becomes an interested shareholder, the business
combination is approved by the corporation's board of directors and by holders
of at least two-thirds of the corporation's outstanding voting stock, excluding
shares owned by the interested shareholder, at a
40
<PAGE>
meeting of shareholders. Under Section 203, an "interested shareholder" is
defined as any person, other than the corporation and any direct or indirect
majority-owned subsidiaries of the corporation, that is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested shareholder. The Company has approved Messrs.
George D. Johnson, Jr., Stewart H. Johnson, and H. Wayne Huizenga as
"interested shareholders."
Under certain circumstances, Section 203 makes it more difficult for a person
who would be an "interested shareholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage persons interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors because the
shareholder approval requirement would be avoided if a majority of the
Company's directors then in office approve either the business combination or
the transaction which results in the person becoming an interested shareholder.
Such provisions also may have the effect of preventing changes in management of
the Company. It is possible that such provisions could make it more difficult
to accomplish transactions that shareholders may otherwise deem to be in their
best interests.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank (Chicago).
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of June 26, 1996, the Company had 32,628,092 shares of Common Stock
outstanding, 17,625,062 of which were freely tradable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act)
without restriction or registration under the Securities Act. The remaining
15,003,030 outstanding shares of Common Stock originally subscribed for and
purchased by the initial shareholders of the Company (the "Initial
Shareholders") were issued and sold by the Company in private transactions
("Restricted Shares") and may not be sold unless registered under the
Securities Act (which registration is described below) or sold in accordance
with an exemption therefrom, such as Rule 144 or Rule 144A thereunder. In
connection with the June 1996 Offering, the holders of approximately 13.3
million shares of Common Stock (including all shares beneficially owned by the
Company's directors and executive officers) agreed that they would not sell any
shares of Common Stock prior to August 28, 1996, without the consent of DLJ,
subject to certain exceptions, including pursuant to a foreclosure by a lender
on a loan for which shares of Common Stock have been pledged as collateral.
In general, under Rule 144 as currently in effect, a holder of Restricted
Shares who beneficially owns shares that were not acquired from the Company or
an affiliate of the Company within the previous two years would be entitled to
sell in the public market within any three-month period a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares
of Common Stock or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. The Initial Shareholders will be able to sell shares of
Common Stock acquired pursuant to the Subscription Agreements in accordance
with such provision on and after August 18, 1997. Sales pursuant to Rule 144
are also subject to certain other requirements relating to manner of sale,
notice, and the availability of current public information about the Company. A
person who is deemed not to have been an affiliate of the Company at any time
during the three months immediately preceding a sale and who beneficially owns
shares that were not acquired from the Company or an affiliate of the Company
within the past three years is entitled to sell such shares under Rule 144(k)
without regard to the foregoing limitations. Rule 144A under the Securities Act
permits the immediate sale by the holders of Restricted Shares issued prior to
completion of the IPO of all or a portion of their shares to certain "qualified
institutional buyers" as defined in Rule 144A.
The Company has registered under the Securities Act all of the 15,003,030
shares of Common Stock owned by the Initial Shareholders so that such Initial
Shareholders may make resales in the public market of their Common Stock upon
expiration of their lock-up agreements described above. The Company also
intends to register under the Securities Act all shares reserved for issuance
under the 1995 Plan, the 1996 Plan, and the Directors' Plan. All shares
purchased in the future under such plans will be available for resale in the
public market without restriction, except that affiliates must comply with the
provisions of Rule 144 other than the holding period requirement. Shares
registered pursuant to any of these registration statements could be sold in
the public market. In addition, the Company has also issued additional shares
of Common Stock pursuant to this Prospectus in connection with various
acquisitions of businesses, some of which shares may be resold in the public
market pursuant to this Prospectus or otherwise. See "Recent Developments."
42
<PAGE>
EXPERTS
The consolidated balance sheet of Extended Stay America, Inc. and
subsidiaries as of December 31, 1995 and the related consolidated statements of
operations, shareholders' equity and cash flows for the period from January 9,
1995 (inception) through December 31, 1995, the statements of operations,
partners' deficit, and cash flows of Welcome Inn America 89-1, L.P. for each of
the two years in the period ended December 31, 1994 and the period from January
1, 1995 through August 18, 1995, the balance sheets of Apartment/Inn, L.P. as
of December 31, 1994 and 1995 and the related statements of operations and
partners' deficit and cash flows for each of the two years in the period ended
December 31, 1995, the combined balance sheets of Hometown Inn I, LTD and
Hometown Inn II, LTD as of December 31, 1994 and 1995 and the related combined
statements of operations and partners' capital and cash flows for each of the
three years in the period ended December 31, 1995, the balance sheet of Kipling
Hospitality Enterprise Corporation as of December 31, 1995 and the related
statements of operation and retained earnings and cash flows for the year then
ended, the balance sheet of Apartment Inn Partners/Gwinnett, L.P. as of
December 31, 1995 and the related statements of operations and partners'
capital and cash flows for the year then ended, and the combined balance sheets
of the M&M Facilities as of December 31, 1994 and 1995 and the related combined
statements of operations and equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1995, included in this Prospectus,
have been included herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PRO FORMA FINANCIAL STATEMENTS OF EXTENDED STAY AMERICA, INC. AND
SUBSIDIARIES
Pro Forma Consolidated Statement of Operations for the period from
January 9, 1995 (inception) through December 31, 1995 (unaudited) and
the three months ended March 31, 1996 (unaudited)....................... F-2
Pro Forma Consolidated Balance Sheet as of March 31, 1996 (unaudited).... F-4
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
Report of Independent Accountants........................................ F-5
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996
(unaudited)............................................................. F-6
Consolidated Statements of Operations for the period from January 9, 1995
(inception) through December 31, 1995, for the period from January 9,
1995 (inception) through March 31, 1995 (unaudited) and for the three
months ended March 31, 1996 (unaudited) ................................ F-7
Consolidated Statements of Shareholders' Equity for the period from
January 9, 1995 (inception) through December 31, 1995 and for the three
months ended March 31, 1996 (unaudited) ................................ F-8
Consolidated Statements of Cash Flows for the period from January 9, 1995
(inception) through December 31, 1995, for the period from January 9,
1995 (inception) through March 31, 1995 (unaudited) and for the three
months ended March 31, 1996 (unaudited)................................. F-9
Notes to Consolidated Financial Statements............................... F-10
WELCOME INN AMERICA 89-1, L.P.
Report of Independent Accountants........................................ F-18
Statements of Operations for the years ended December 31, 1993 and 1994
and for the period from January 1, 1995 through August 18, 1995......... F-19
Statements of Partners' Deficit for the years ended December 31, 1993 and
1994 and for the period from January 1, 1995 through August 18, 1995.... F-20
Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the period from January 1, 1995 through August 18, 1995......... F-21
Notes to Financial Statements............................................ F-22
APARTMENT/INN, L.P.
Report of Independent Accountants........................................ F-23
Balance Sheets as of December 31, 1994 and 1995.......................... F-24
Statements of Operations and Partners' Deficit for the two years ended
December 31, 1994 and 1995.............................................. F-25
Statements of Cash Flows for the two years ended December 31, 1994 and
1995.................................................................... F-26
Notes to Financial Statements............................................ F-27
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
Report of Independent Accountants........................................ F-29
Combined Balance Sheets as of December 31, 1994 and 1995................. F-30
Combined Statement of Operations and Partners' Capital for the three
years ended December 31, 1993, 1994, and 1995........................... F-31
Combined Statement of Cash Flows for the three years ended December 31,
1993, 1994, and 1995.................................................... F-32
Notes to Combined Financial Statements................................... F-33
KIPLING HOSPITALITY ENTERPRISE CORPORATION
Report of Independent Accountants........................................ F-35
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).... F-36
Statements of Operations and Retained Earnings for the year ended
December 31, 1995 and the three months ended March 31, 1995 and 1996
(unaudited)............................................................. F-37
Statements of Cash Flows for the year ended December 31, 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited).................. F-38
Notes to Financial Statements............................................ F-39
APARTMENT INN PARTNERS/GWINNETT, L.P.
Report of Independent Accountants........................................ F-42
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).... F-43
Statements of Operations and Partners' Capital for the year ended
December 31, 1995 and for the three months ended March 31, 1995 and 1996
(unaudited)............................................................. F-44
Statements of Cash Flows for the year ended December 31, 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited).................. F-45
Notes to Financial Statements............................................ F-46
M & M FACILITIES
Report of Independent Accountants........................................ F-48
Combined Balance Sheets as of December 31, 1994 and 1995 and March 31,
1996 (unaudited)........................................................ F-49
Combined Statements of Operations and Equity (Deficit) for the years
ended December 31, 1993, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 (unaudited)..................................... F-50
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and for the three months ended March 31, 1995 and 1996
(unaudited)............................................................. F-51
Notes to Combined Financial Statements................................... F-52
</TABLE>
F-1
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
These unaudited pro forma consolidated statements of operations are presented
as if the acquisitions of the Acquired Facilities and the proposed acquisitions
of the KHEC Facility and the M & M Facilities and the related issuances of
shares of common stock had occurred at the beginning of the relevant period.
For the year ended December 31, 1995, the statement also reflects the
acquisition of the Marietta Facility and estimated incremental expenses to
operate as a publicly held company as if it were publicly held on the date of
inception. Such pro forma information is based in part upon the consolidated
statements of operations of Extended Stay America, Inc. and subsidiaries and
the statements of operations of Welcome, Apartment/Inn, Hometown Inn, KHEC,
Gwinnett, and the M & M Facilities. They should be read in conjunction with the
financial statements listed in the index on page F-1 of this Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made. The acquisition of the lodging facility from AATI
has not been included in these unaudited statements of operations because the
purchase price and the unaudited results of operations for the periods, when
measured in relation to the Company, did not meet certain materiality standards
and can be excluded as permitted by the rules and regulations of the Securities
and Exchange Commission.
These unaudited pro forma consolidated statements of operations are not
necessarily indicative of what the actual results of operations of the Company
would have been assuming such transactions had been completed as of the
beginning of the period, nor do they purport to represent the results of
operations for any future periods. Results of operations and the related
earnings or loss per share for future periods will be affected by a number of
factors, including but not limited to, the number of facilities opened and the
operating results therefrom, interest costs incurred on indebtedness (including
the amortization of the fees paid in cash and common stock to DLJ), corporate
operating and property management expenses, site selection costs and the number
of future shares issued.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 9, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMPLETED COMPLETED PROPOSED
ACTUAL ACQUISITIONS ADJUSTMENTS ACQUISITIONS ACQUISITIONS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 817,133 $5,957,989 $ (135,614)(1) $6,639,508 $6,940,992 $ (152,131)(1) $13,428,369
Management fees........ 17,775 (17,775)(2)
Other revenue.......... 42,977 277,596 (6,398)(1) 314,175 431,323 (9,453)(1) 736,045
----------- ---------- ---------- ---------- ---------- ---------- -----------
Total revenue........ 877,885 6,235,585 (159,787) 6,953,683 7,372,315 (161,584) 14,164,414
----------- ---------- ---------- ---------- ---------- ---------- -----------
Costs and expenses:
Property operating
expenses.............. 332,523 2,655,610 (61,941)(1) 2,908,417 3,045,884 (66,759)(1) 5,887,542
(17,775)(2)
Corporate operating
and property
management expenses... 2,042,039 391,114 800,000 (3) 3,233,153 543,464 (58,093)(2) 3,718,524
Site selection costs... 512,529 512,529 512,529
Depreciation and
amortization.......... 146,726 623,721 263,067 (4) 1,033,514 737,220 422,780 (4) 2,193,514
----------- ---------- ---------- ---------- ---------- ---------- -----------
Total costs and
expenses............ 3,033,817 3,670,445 983,351 7,687,613 4,326,568 297,928 12,312,109
----------- ---------- ---------- ---------- ---------- ---------- -----------
Income (loss) from
operations.......... (2,155,932) 2,565,140 (1,143,138) (733,930) 3,045,747 (459,512) 1,852,305
Interest income
(expense).............. 848,510 (1,104,633) 1,104,633 (5) 848,510 (1,733,591) 1,689,591 (5) 804,510
----------- ---------- ---------- ---------- ---------- ---------- -----------
Income (loss) before
income taxes.......... (1,307,422) 1,460,507 (38,505) $ 114,580 $1,312,156 $1,230,079 $ 2,656,815
Provision for income
taxes................. (45,000)(6) (45,000) (991,000)(6) (1,036,000)
----------- ---------- ---------- ---------- ---------- ---------- -----------
Net income (loss)...... $(1,307,422) $1,460,507 $ (83,505) $ 69,580 $1,312,156 $ 239,079 $ 1,620,815
=========== ========== ========== ========== ========== ========== ===========
Net income (loss) per
common share(7)....... $ (0.10) $ 0.01 $ 0.11
=========== ========== ===========
Weighted average
number of common and
equivalent shares
outstanding during
the period(7)......... 12,652,110 13,849,898 15,260,204
=========== ========== ===========
</TABLE>
F-2
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMPLETED COMPLETED PROPOSED
ACTUAL ACQUISITIONS ADJUSTMENTS ACQUISITIONS ACQUISITIONS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 1,137,841 $778,821 $ $ 1,916,662 $1,827,570 $ $ 3,744,232
Other revenue.......... 32,988 30,016 63,004 97,123 160,127
----------- -------- ------- ----------- ---------- --------- -----------
Total revenue........ 1,170,829 808,837 1,979,666 1,924,693 3,904,359
Costs and expenses:
Property operating
expenses.............. 442,540 288,123 730,663 790,051 1,520,714
Corporate operating
and property
management expenses... 1,580,655 58,937 1,639,592 145,739 (11,260)(2) 1,774,071
Site selection costs... 823,733 823,733 823,733
Depreciation and
amortization.......... 203,343 73,199 20,238 (4) 296,780 186,215 103,785 (4) 586,780
----------- -------- ------- ----------- ---------- --------- -----------
Total costs and
expenses............ 3,050,271 420,259 20,238 3,490,768 1,122,005 92,525 4,705,298
Income (loss) from
operations.......... (1,879,442) 388,578 (20,238) (1,511,102) 802,688 (92,525) (800,939)
Interest income
(expense).............. 1,450,132 (64,151) 64,151 (5) 1,450,132 (424,570) 399,570 (5) 1,425,132
----------- -------- ------- ----------- ---------- --------- -----------
Income (loss) before
income taxes........... (429,310) 324,427 43,913 (60,970) 378,118 307,045 624,193
Provision for income
taxes.................. (243,000)(6) (243,000)
----------- -------- ------- ----------- ---------- --------- -----------
Net income (loss)....... $ (429,310) $324,427 $43,913 $ (60,970) $ 378,118 $ 64,045 $ 381,193
=========== ======== ======= =========== ========== ========= ===========
Net loss per common
share(7)............... $ (0.02) $ (0.00) $ 0.02
=========== =========== ===========
Weighted average number
of common and
equivalent shares
outstanding during the
period(7).............. 22,467,393 23,025,192 24,785,595
=========== =========== ===========
</TABLE>
- ---------------------
(1) To eliminate the estimated revenues and expenses for the Acquired
Facilities, the Marietta Facility, the KHEC Facility, and the M & M
Facilities for the period January 1, 1995 through January 8, 1995 in order
to present a period comparable to the historical period for the Company.
(2) To eliminate in consolidation management fees charged to the Marietta
Facility prior to being acquired by the Company and franchise fees incurred
by KHEC.
(3) Reflects estimated increases in: (i) salaries and benefits--$238,000; (ii)
state capital-based taxes--$150,000; (iii) audit and tax fees--$75,000;
(iv) legal expenses--$37,000; (v) directors' and officers' insurance--
$150,000; (vi) additional expenses--$150,000, as if the Company had been a
public company on the date of inception.
(4) To adjust depreciation and amortization expense to reflect the expense
based on the purchase price paid and to be paid by the Company for the
Acquired Facilities, the Marietta Facility, the KHEC Facility, and the M &
M Facilities for any period prior to acquisition.
(5) To eliminate non-continuing interest expense paid by the Acquired
Facilities, the Marietta Facility, the KHEC Facility, and the M & M
Facilities prior to acquisition, net of interest income earned by the
Company on the amount of cash used in the acquisitions.
(6) To provide for estimated income tax expense.
(7) See notes 2, 5 and 14 to the Company's consolidated financial statements.
F-3
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
This unaudited pro forma consolidated balance sheet is presented as if the
June 1996 Offering had been completed and the acquisition of the Gwinnett
Facility and the proposed acquisitions of the KHEC Facility and the M&M
Facilities had occurred on March 31, 1996. Such pro forma information is based
upon the consolidated balance sheet of the Company and the balance sheets of
Gwinnett, KHEC, and the M&M Facilities as of March 31, 1996. It should be read
in conjunction with the financial statements listed in the index on page F-1 of
this Prospectus. In management's opinion, all adjustments necessary to reflect
the effects of these transactions have been made.
This unaudited pro forma consolidated balance sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of March 31, 1996, nor does it purport to
represent the future financial position of the Company.
<TABLE>
<CAPTION>
ACQUISITIONS
SUBSEQUENT
TO MARCH 31,
1996 AND
PROPOSED
ACTUAL ACQUISITIONS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $104,010,918 $ 628,882 $ (3,098,882)(1) $391,358,418
289,817,500 (2)
Refundable deposits... 621,654 621,654
Supply inventories.... 291,266 88,050 281,950 (1) 661,266
Prepaid expenses...... 366,142 2,198 (2,198)(1) 366,142
Other current assets.. 56,768 180,808 (180,808)(1) 56,768
------------ ----------- ------------ ------------
Total current
assets............. 105,346,748 899,938 286,817,562 393,064,248
------------ ----------- ------------ ------------
Property and equipment,
net.................... 51,658,313 20,257,229 20,347,771 (1) 92,263,313
Site deposits and
preacquisition costs... 3,913,811 3,913,811
Deferred loan costs..... 5,294,114 8,327 (8,327)(1) 5,294,114
Other assets............ 156,741 102,532 (102,532)(1) 156,741
------------ ----------- ------------ ------------
$166,369,727 $21,268,026 $307,054,474 $494,692,227
============ =========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 925,504 $ 136,042 $ (136,042)(1) $ 925,504
Accrued salaries and
related expenses..... 67,855 22,177 (22,177)(1) 67,855
Due to related
parties.............. 71,845 211,334 (211,334)(1) 71,845
Other accrued
expenses............. 440,612 311,636 (891)(1) 751,357
Deferred revenue...... 330,856 19,087 (19,087)(1) 330,856
Current maturities of
long-term debt....... 6,335,578 (6,335,578)(1)
------------ ----------- ------------ ------------
Total current
liabilities........ 1,836,672 7,035,854 (6,725,109) 2,147,417
------------ ----------- ------------ ------------
Long-term debt.......... 13,564,248 (13,564,248)(1)
Shareholders' Equity:
Preferred stock, $.01
par value, 10,000,000
shares authorized, no
shares issued or
outstanding..........
Common stock, $.01 par
value, 200,000,000
shares authorized,
22,853,092 and
34,039,192 shares
issued and
outstanding for
Actual and Pro Forma,
respectively......... 228,531 226,733 (212,622)(1) 340,392
97,750 (2)
Additional paid in
capital.............. 166,041,256 30,270 38,149,874 (1) 493,941,150
289,719,750 (2)
Due from affiliated
companies and prepaid
services............. (521,395) 521,395 (1)
Accumulated
(deficit)/retained
earnings............. (1,736,732) 932,316 (932,316)(1) (1,736,732)
------------ ----------- ------------ ------------
Total shareholders'
equity............. 164,533,055 667,924 327,343,831 492,544,810
------------ ----------- ------------ ------------
$166,369,727 $21,268,026 $307,054,474 $494,692,227
============ =========== ============ ============
</TABLE>
- ---------------------
(1) To reflect the purchase adjustments relating to the acquisition of the
Gwinnett Facility for 172,100 shares of Common Stock and the proposed
acquisitions of the KHEC Facility and the M&M Facilities assuming the
acquisitions are completed through the issuance of approximately 101,000
and 1,138,000 shares, respectively, of Common Stock and to reflect the use
of $2,000,000 of the Company's cash representing the estimated costs to
remodel and to convert the KHEC property to an extended stay lodging
facility and the use of $470,000 of the Company's cash to retire debt of
the M&M Facilities assumed by the Company.
(2) To reflect the estimated net proceeds of the June 1996 Offering.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying consolidated balance sheet of Extended Stay
America, Inc. and subsidiaries (the "Company") as of December 31, 1995 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the period from January 9, 1995 (inception) through December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Extended Stay
America, Inc. and subsidiaries as of December 31, 1995 and the consolidated
results of their operations and their cash flows for the period from January 9,
1995 (inception) through December 31, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
January 26, 1996
F-5
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
ASSETS ------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents (including securities
purchased under agreements to resell of
$122,904,142 at December 31, 1995).............. $123,357,510 $104,010,918
Refundable deposits.............................. 344,064 621,654
Supply inventories............................... 92,817 291,266
Prepaid expenses................................. 318,541 366,142
Other current assets............................. 20,758 56,768
------------ ------------
Total current assets........................... 124,133,690 105,346,748
------------ ------------
Property and equipment, net........................ 18,205,537 51,658,313
Site deposits and preacquisition costs............. 1,931,215 3,913,811
Deferred loan costs................................ 5,293,119 5,294,114
Other assets....................................... 55,088 156,741
------------ ------------
$149,618,649 $166,369,727
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable................................. $ 670,708 $ 925,504
Accrued salaries and related expenses............ 271,230 67,855
Due to related parties........................... 133,149 71,845
Other accrued expenses........................... 691,117 440,612
Deferred revenue................................. 330,856
Note payable..................................... 630,200
------------ ------------
Total current liabilities...................... 2,396,404 1,836,672
------------ ------------
Commitments
Shareholders' Equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued and
outstanding.....................................
Common stock, $.01 par value, 200,000,000 shares
authorized, 22,130,855 and 22,853,092 shares
issued and outstanding, respectively............ 221,309 228,531
Additional paid in capital....................... 148,308,358 166,041,256
Accumulated deficit.............................. (1,307,422) (1,736,732)
------------ ------------
Total shareholders' equity..................... 147,222,245 164,533,055
------------ ------------
$149,618,649 $166,369,727
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 9, JANUARY 9,
1995 1995 FOR THE
(INCEPTION) (INCEPTION) THREE MONTHS
THROUGH THROUGH ENDED
DECEMBER MARCH 31, MARCH 31,
31, 1995 1995 1996
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue........................... $ 817,133 $ $1,137,841
Management fees........................ 17,775
Other revenue.......................... 42,977 32,988
----------- ----------
Total revenue........................ 877,885 1,170,829
----------- ----------
Costs and expenses:
Property operating expenses............ 332,523 442,540
Corporate operating and property
management expenses (including
$386,000 to related parties for the
period ending December 31, 1995)...... 2,042,039 195,823 1,580,655
Site selection costs................... 512,529 52,778 823,733
Depreciation and amortization.......... 146,726 203,343
----------- ---------- ----------
Total costs and expenses............. 3,033,817 248,601 3,050,271
----------- ---------- ----------
Loss from operations................. (2,155,932) (248,601) (1,879,442)
Interest income.......................... 848,510 1,450,132
----------- ---------- ----------
Net loss............................. $(1,307,422) $ (248,601) $ (429,310)
=========== ========== ==========
Net loss per common share............ $ (0.10) $ (0.02) $ (0.02)
=========== ========== ==========
Weighted average number of common and
equivalent shares outstanding during
the period.......................... 12,652,110 11,489,017 22,467,393
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 9, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT
<S> <C> <C> <C> <C>
Issuance of common stock, net of
issuance costs of $5,709,337... 22,130,855 $221,309 $148,308,358
Net loss........................ $(1,307,422)
---------- -------- ------------ -----------
Balances, December 31, 1995..... 22,130,855 221,309 148,308,358 (1,307,422)
Issuance of common stock
(unaudited).................... 722,237 7,222 17,845,642
Additional payouts of initial
public offering costs
(unaudited).................... (112,744)
Net loss (unaudited)............ (429,310)
---------- -------- ------------ -----------
Balances, March 31, 1996
(unaudited).................... 22,853,092 $228,531 $166,041,256 $(1,736,732)
========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE
JANUARY 9, 1995 PERIOD FROM
(INCEPTION) JANUARY 9, 1995
THROUGH (INCEPTION) FOR THE THREE
DECEMBER 31, THROUGH MARCH 31, MONTHS ENDED
1995 1995 MARCH 31, 1996
--------------- ----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $ (1,307,422) $(248,601) $ (429,310)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Depreciation and
amortization.............. 146,726 203,343
Write-off of site deposits
and preacquisition costs.. 288,655 187,418
Change in:
Refundable deposits....... (45,516) (3,371) (117,590)
Supply inventories........ (92,817) (24,930)
Prepaid expenses.......... (318,541) (5,345) (51,154)
Other current assets...... (26,284) (36,010)
Accounts payable.......... 65,504 205,361
Accrued expenses.......... 355,397 89,537 224,915
Due to related parties.... 133,149 54,857 (133,149)
Deferred revenue.......... 330,856
------------ --------- ------------
Net cash (used in)
provided by operating
activities.............. (801,149) (112,923) 359,750
------------ --------- ------------
Cash flows from investing
activities:
Acquisition of extended stay
properties.................. (2,342,346) (355,579)
Additions to property and
equipment................... (13,230,022) (281,301) (15,356,090)
Payments for site deposits
and preacquisition costs.... (2,579,667) (120,086) (2,738,578)
Refunds of deposits on
property sites.............. 191,666 240,000
Payments for other assets.... (65,436) (60,746)
------------ --------- ------------
Net cash used in
investing activities.... (18,025,805) (401,387) (18,270,993)
------------ --------- ------------
Cash flows from financing
activities:
Proceeds from issuance of
common stock................ 143,882,880
Additions to deferred loan
costs....................... (1,698,416) (21,698)
Additions to prepaid
registration costs.......... (52,035)
Proceeds from related party
loans....................... 6,135,462 521,031
Payments on related party
loans....................... (6,135,462)
Payment of note payable...... (630,200)
Payments of initial public
offering costs.............. (731,416)
------------ --------- ------------
Net cash provided by
(used in) financing
activities.............. 142,184,464 521,031 (1,435,349)
------------ --------- ------------
Increase (decrease) in
cash.................... 123,357,510 6,721 (19,346,592)
Cash and cash equivalents at
beginning of period.......... 123,357,510
------------ --------- ------------
Cash and cash equivalents at
end of period................ $123,357,510 $ 6,721 $104,010,918
============ ========= ============
Noncash investing and
financing transactions:
Issuance of common stock for
acquisition of extended stay
properties.................. $ 1,700,000 $ 17,852,864
============ ============
Capitalized or deferred items
included in accounts payable
and accrued liabilities..... $ 1,212,154 $ 454,178 $ 654,639
============ ========= ============
Note payable for purchase of
property site............... $ 630,200
============
Issuance of common stock for
deferred loan costs......... $ 3,574,000
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Extended Stay America, Inc. (the "Company") was incorporated on January 9,
1995 as a Delaware corporation to develop, own, and operate extended stay
lodging facilities designed to appeal to value-conscious guests. Operations of
the Company's first extended stay facility commenced on August 1, 1995. The
Company acquired a second extended stay facility on August 18, 1995 (Note 5).
The Company's current operating subsidiaries are ESA Development, Inc. and ESA
Properties, Inc., which acquire and develop properties, and ESA Management,
Inc., which provides management services for all of the lodging facilities
owned by the Company and its subsidiaries. The Company expects that each
lodging facility will be owned by a separate single-purpose subsidiary formed
for such purpose.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk. The Company maintained deposits totaling
$123,357,510 at December 31, 1995, with one bank. Deposits in excess of
$100,000 are not insured by the Federal Deposit Insurance Corporation.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.
The Company invests excess funds in an overnight sweep account with
NationsBank which invests in short-term, interest-bearing reverse repurchase
agreements. On December 31, 1995, the Company had invested $122,904,142 in U.S.
Government securities under agreements to resell. Due to the short-term nature
of these investments, the Company did not take possession of the securities,
which were instead held by the bank. The market value of the securities held
pursuant to the agreements approximates the carrying amount.
Supply Inventories. Supply inventories consist principally of linen, cleaning
and other room supplies and are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Property and Equipment. Property and equipment is stated at cost. The Company
capitalizes interest, salaries and related costs for site selection, design and
construction supervision.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 3-7 years
</TABLE>
For the period from January 9, 1995 through December 31, 1995 the Company
incurred interest of $98,217 all of which was capitalized and included in the
cost of buildings and improvements.
F-10
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preacquisition Costs. The Company incurs costs related to the acquisition of
property sites. These costs are capitalized when it is probable that a site
will be acquired. These costs are reclassified to property and equipment upon
acquisition. In the event the acquisition is not consummated, the costs are
charged to site selection costs. All other site selection costs are expensed as
incurred.
Deferred Loan Costs. The Company has incurred costs in obtaining financing.
These costs have been deferred and will be amortized over the life of the
respective loans using the effective yield method.
Preopening Costs. The Company capitalizes compensation and other training-
related costs incurred prior to the opening of a property. Included in other
current assets at December 31, 1995 are costs of $7,736, net of accumulated
amortization of $5,526, which are being amortized over a period of twelve
months.
Organization Costs. Organization costs at December 31, 1995 of $41,388 are
included in other assets, net of accumulated amortization of $10,348, and are
being amortized over sixty months using the straight-line method.
Income Taxes. Income taxes for the Company are determined in accordance with
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the
use of a liability method in which deferred income taxes are provided for
temporary differences between the financial reporting and income tax basis of
assets and liabilities using the income tax rates, under existing legislation,
expected to be in effect at the date such temporary differences are expected to
reverse.
Revenue Recognition. Room revenue and other income are recognized when
earned. Management fees of $17,775 were recognized as earned and represent fees
charged to Welcome Inn America 89-1, L.P. for the management of its extended
stay property for the period May 1, 1995 through August 18, 1995 prior to the
acquisition of such property by the Company (Note 5).
Business Segment. The Company operates principally in one business segment
which is to develop, own, and operate extended stay lodging facilities.
Net Loss Per Common Share. The net loss per common share amount in the
statement of operations for the three months ended March 31, 1996 has been
computed in accordance with Accounting Principles Board Opinion (APB) No. 15.
The net loss per common share amount for the year ended December 31, 1995 and
for the three months ended March 31, 1995 has been computed in accordance with
a Staff Accounting Bulletin (SAB) of the Securities and Exchange Commission.
According to the SAB, equity securities, including stock, warrants, options and
other potentially dilutive securities, issued within a twelve-month period
prior to an initial public offering of common stock must be treated as common
stock equivalents when computing earnings per share for all periods presented
if the issue price of the common stock or the exercise price of the warrants,
options or other potentially dilutive securities is substantially less than the
proposed initial public offering price, including loss years where the impact
of the incremental shares is anti-dilutive. As permitted by the SAB, the
treasury stock method has been used in determining the weighted average number
of shares of common stock outstanding during the periods presented.
On October 19, 1995, the Board of Directors of the Company declared a 210-
for-1 stock split effected in the form of a dividend. Accordingly, all shares
and per share amounts have been adjusted retroactively to reflect this event.
Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and generally accepted accounting principles
applicable to interim financial statements and include all adjustments which
are, in the
F-11
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. All such adjustments are, in the opinion of
management, of a normal recurring nature. Results for the three months ended
March 31, 1995 and 1996 are not necessarily indicative of results to be
expected for a full year. All data at March 31, 1995 and 1996 and for each of
the three-month periods then ended are unaudited.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31, 1995
<S> <C>
Land and improvements, including land under current
development................................................ $ 9,074,172
Buildings and improvements.................................. 5,350,107
Furniture, fixtures and equipment........................... 1,197,481
Construction in progress.................................... 2,714,629
-----------
18,336,389
Less accumulated depreciation............................... 130,852
-----------
Total property and equipment............................ $18,205,537
===========
</TABLE>
The Company had commitments to construct additional extended stay properties
totaling approximately $23,000,000 at December 31, 1995.
NOTE 4--OPTIONS TO PURCHASE PROPERTY SITES
As of December 31, 1995, the Company had options to purchase parcels of real
estate at 32 locations in 14 states. The Company has paid $710,000 in
connection with these options. If for any reason the Company does not acquire
these parcels, the amounts paid in connection with the options are generally
refundable. These amounts are included in site deposits and preacquisition
costs.
NOTE 5--ACQUISITION OF EXTENDED STAY PROPERTIES
On August 18, 1995 the Company acquired an existing extended stay property
from Welcome Inn America 89-1, L.P. for $4,042,346 which was paid for by the
issuance of 357,000 shares of common stock valued at $1,700,000 and payment of
$2,342,346 in cash.
On January 26, 1996, the Company acquired an existing extended stay property
from Apartment/Inn, L.P. for approximately $8,324,000 which was paid for by the
issuance of 293,629 shares of common stock plus the payment of related expenses
of approximately $106,000 in cash.
On February 23, 1996, the Company acquired two existing extended stay
properties from Hometown Inn I, LTD and Hometown Inn II, LTD for approximately
$9,603,000 which was paid for by the issuance of 428,608 shares of common stock
and $75,000 in cash plus the payment of related expenses of $175,000 in cash.
(Unaudited)
These acquisitions were accounted for using the purchase method of accounting
and, accordingly, the results of operations of the properties are included in
the Consolidated Statement of Operations from the dates of acquisition.
F-12
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following unaudited pro forma condensed statements of operations of the
Company have been updated to include all acquisitions occurring through March
31, 1996, as discussed above, and the issuance of shares to acquire and to fund
the cash portion of the purchase prices as if the acquisitions had occurred on
January 9, 1995 (the date of inception of the Company). Accordingly, the
unaudited pro forma statement of operations for the period January 9, 1995
through December 31, 1995 differs from the statement included in the Company's
1995 annual report to shareholders. This statement also reflects estimated
incremental expenses to operate as a publicly held company as if the Company
were publicly held on the date of inception. This pro forma condensed statement
of operations is not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions had been
completed as of January 9, 1995, nor does it purport to represent the results
of operations for future periods.
<TABLE>
<CAPTION>
PRO FORMA FOR THE PERIOD FROM PRO FORMA FOR THE PERIOD FROM PRO FORMA FOR THE
JANUARY 9, 1995 JANUARY 9, 1995 THREE MONTHS
(INCEPTION) THROUGH (INCEPTION) THROUGH ENDED
DECEMBER 31, 1995 MARCH 31, 1995 MARCH 31, 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue.......... $ 5,434,720 $1,128,223 $1,595,909
Other revenue......... 253,351 57,791 48,954
----------- ---------- ----------
Total revenue....... 5,688,071 1,186,014 1,644,863
----------- ---------- ----------
Costs and expenses:
Property operating
expenses............. 2,332,561 522,856 595,344
Corporate operating
and property
management expenses.. 3,144,491 473,658 1,619,616
Site selection costs.. 512,529 52,778 823,733
Depreciation and
amortization......... 881,514 213,486 258,780
----------- ---------- ----------
Total costs and
expenses........... 6,871,095 1,262,778 3,297,473
----------- ---------- ----------
Loss from
operations......... (1,183,024) (76,763) (1,652,610)
Interest income....... 848,510 1,450,132
----------- ---------- ----------
Net loss............ $ (334,514) $ (76,763) $ (202,478)
=========== ========== ==========
Net loss per common
share and
equivalent......... $ (0.02) $ (0.01) $ (0.01)
=========== ========== ==========
Weighted average
number of common
and equivalent
shares outstanding
during the period.. 13,589,464 12,493,366 22,853,092
=========== ========== ==========
</TABLE>
NOTE 6--NOTE PAYABLE
In conjunction with the acquisition of a property site, the Company issued a
note payable to the seller in the amount of $630,200. The note bore interest at
a rate of three percent per year and was paid on January 2, 1996. The note was
collateralized by a deed of trust on the property.
NOTE 7--PREFERRED STOCK
Shares of preferred stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors. Prior to issuance of shares of
each series, the Board will designate for each such series, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as are permitted by law. No shares of preferred stock are
outstanding and the Company has no present plans to issue any shares of
preferred stock.
F-13
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--STOCK OPTION PLANS
The Company has adopted the 1995 Employee Stock Option Plan to attract and
retain employees and consultants. Under the plan, options may be granted with
respect to a total of not more than 1,677,060 shares of common stock, subject
to antidilution and other adjustment provisions. No options may be granted
under the plan after August 18, 2005. The options vest over a four-year period.
During the period January 9, 1995 through December 31, 1995, the compensation
committee granted, under the plan, 1,132,501 ten-year options to purchase
common stock at exercise prices per share ranging from $4.76 to $13.00. The
option price is equal to the fair market value of the stock on the date of
grant, as determined by the Board of Directors. No options to purchase common
stock under the plan are currently exercisable.
During the period January 1, 1996 through March 31, 1996, the compensation
committee granted under the 1995 plan 544,372 additional options to purchase
common stock at exercise prices per share ranging from $21.00 to $30.25.
(Unaudited)
Pursuant to an agreement with an officer of ESA Development, Inc. ("ESA
Development"), such officer was granted options in June 1995 to purchase a
total of 1,437.5 shares of ESA Development common stock. In March 1996, the
agreement and options were terminated. (Unaudited)
The Company has adopted the 1995 Stock Option Plan for Non-Employee
Directors. Under the plan, options may be granted with respect to a total of
not more than 240,000 shares of common stock of the Company subject to the
antidilution and other adjustment provisions. Each option shall be for a term
of ten years and shall become exercisable six months after the date of its
grant. Options to purchase an aggregate of 80,000 shares of the Company's
common stock were granted to non-employee directors of the Company effective
upon the Company's initial public offering of its common stock on December 13,
1995 at an exercise price per share of $13.00 (the initial public offering
price). Pursuant to the plan, subsequent non-employee directors of the Company
will be granted a one-time option to purchase 20,000 shares of the Company's
common stock upon their initial election to the Board of Directors of the
Company at a price equal to the fair market value of the stock on the date of
grant. During the four-year period following the initial election of a non-
employee director to the Board of Directors, an additional option covering
5,000 shares of common stock of the Company shall be granted to such non-
employee director on each anniversary of such non-employee director's initial
option grant, provided that not more than four such additional options shall be
granted to any one non-employee director. No options may be granted under the
plan after November 17, 2005. As of December 31, 1995, no options to purchase
common stock under the plan were exercisable.
Effective January 24, 1996, the Company has adopted (subject to shareholder
approval) the 1996 Employee Stock Option Plan to attract and retain employees
and consultants. Under the plan, options may be granted with respect to a total
of not more than 2,500,000 shares of common stock, subject to antidilution and
other adjustment provisions. No options may be granted under the plan after
January 24, 2006. The options vest over a four-year period.
During the period January 1, 1996 through March 31, 1996, the compensation
committee granted under the 1996 plan 679,385 options to purchase common stock
at exercise prices per share ranging from $21.00 to $25.88 under this plan.
(Unaudited)
NOTE 9--MORTGAGE FACILITY
On October 31, 1995, the Company executed a mortgage facility (the "Mortgage
Facility") for up to $200 million to be used to finance, on a long-term basis,
newly constructed extended stay lodging facilities.
F-14
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Mortgage Facility provides that after the first $100 million of borrowings,
the availability of the next $60 million is contingent upon (1) the Company's
operating facilities meeting certain debt coverage ratios, and (2) the
successful completion of an initial public offering of the Company's common
stock which was completed on December 19, 1995. An additional $40 million will
become available at the option of the Company, subject to the Company having at
least 10 facilities which meet certain debt coverage ratios. Draws under the
Mortgage Facility will be made on an individual property basis in amounts
ranging from 50% to 75% of construction costs, depending on the operating
results of the individual property. The Mortgage Facility provides for the
following fees to be paid by the Company: (1) a commitment fee, $1,600,000 of
which was paid pursuant to the execution of the Mortgage Facility $400,000 of
which will be paid if the availability under the Mortgage Facility is
increased; (2) a drawdown fee of 1% of the funds loaned under the Mortgage
Facility; and (3) a fee paid by the issuance of 750,540 shares of common stock
of the Company at the time the Mortgage Facility was executed. These fees,
which include the estimated fair market value of the common stock issued to the
lender, will be amortized over the life of the Mortgage Facility using the
effective yield method, thus increasing the effective interest rate above the
stated interest rate discussed below. Additionally, the lender was provided the
right, which it has exercised, to purchase 500,430 shares of common stock at a
price of $4.76 per share upon the execution of the Mortgage Facility. The
Mortgage Facility also provides for additional fees in the event of termination
or nonusage of amounts in excess of $100 million of up to 2.0% of the portion
of the facility so terminated or unused. All amounts borrowed under the
Mortgage Facility will be fully guaranteed by the Company and will be
collateralized by, among other things, first mortgages on the properties
financed and assignment of leases, rents and security deposits related to each
property. The amounts drawn under the Mortgage Facility will bear interest at a
base rate equal to the ten-year U.S. Treasury securities rate plus 4.0% at the
times the loans are made. Advances under the Mortgage Facility will be provided
on an interest only basis for a pre-stabilization period and will be amortized
based on a 25-year schedule thereafter with a final maturity on the December 31
following the tenth anniversary of the date that the loan begins to amortize.
Prepayment of mortgage loans may be made subject to specified penalties
provided certain conditions are met. Such prepayments may be made without
penalty within five years of their respective final maturity dates. The
Mortgage Facility provides that the Company must maintain a tangible net worth
of not less than $40,000,000 and amounts due under the Mortgage Facility may at
any time become immediately due and payable if the current members of the Board
of Directors cease to constitute a majority of the board. The Company must
place $22,500,000 in an escrow account in the name of the lender prior to
obtaining the first loan and an additional $22,500,000 once the loan amount
exceeds $33,750,000. Funds deposited in the escrow account will be classified
as noncurrent and will be used to acquire and construct extended stay lodging
facilities. The loan also requires the Company to fund certain other escrow
accounts. The Company's dividends cannot exceed 50% of the excess of its net
income for any period over its cumulative losses not previously applied in
computing the limitation.
The Company believes that there is no material difference in the carrying
amount (including the terms and conditions outlined above) and estimated fair
value of the Company's Mortgage Facility.
NOTE 10--RELATED PARTY TRANSACTIONS
During the period ended December 31, 1995, the Company borrowed under an
informal revolving loan agreement from shareholders and their affiliates, which
was paid on August 18, 1995. The maximum amount outstanding during the period
was approximately $4,476,000. Interest payments of approximately $92,000 were
made on the loans from shareholders and their affiliates, all of which were
capitalized and included in the cost of buildings and improvements.
F-15
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company leases office space on a month-to-month basis from a company on
whose board the Chief Executive Officer of the Company serves. The Company
recognized rent expense of $18,000 through December 31, 1995 related to this
lease. In addition, the Company leases office space on a month-to-month basis
from a company owned by the Chairman of the Board of the Company. The Company
recognized rent expense of $15,000 through December 31, 1995 related to this
lease.
During 1995, the Company incurred charges of approximately $412,000 from a
company controlled by a shareholder for the use of airplanes, including
$133,000 in amounts due to related parties at December 31, 1995. Approximately
$70,000 of such charges were incurred in connection with the Company's initial
public offering and approximately $342,000 is included in corporate operating
and property management expenses. Approximately $126,000 in charges were
incurred from a law firm, one of the partners of which is a director of the
Company. Substantially all of such charges were incurred in connection with the
Company's organization, initial public offering and obtaining the Mortgage
Facility.
The Company acquired a property site for approximately $562,000 in cash from
a partnership in which certain shareholders are partners during 1995.
NOTE 11--INCOME TAXES
The Company adopted SFAS 109 upon inception. Under the provisions of SFAS
109, there was no income tax expense on the net loss for the period ended
December 31, 1995. Accordingly, there is no current nor deferred federal or
state income tax expense in the initial period.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Start up expenses capitalized for tax......................... $242,000
Net operating loss carryforward............................... 155,000
Other......................................................... 78,000
--------
Total gross deferred tax asset.............................. 475,000
Less valuation allowance........................................ (453,000)
--------
Net deferred tax asset...................................... 22,000
--------
Deferred tax liability:
Fixed assets, due to differences in depreciation.............. (22,000)
--------
Net deferred tax liability.................................. $ -0-
========
</TABLE>
A valuation allowance of $453,000 was established in the Company's initial
period. The Company believes the reversal of existing taxable temporary
differences will be sufficient to recognize the remaining deferred tax assets.
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $450,000, which are available to
offset future federal taxable income, if any, through 2010.
No income taxes were paid during the period January 9, 1995 through December
31, 1995.
NOTE 12--INITIAL PUBLIC OFFERING
On December 19, 1995, the Company closed an initial public offering of
5,060,000 shares of its common stock at a public offering price of $13.00 per
share and a concurrent offering to existing shareholders of
F-16
<PAGE>
2,067,825 shares of common stock at an offering price of $12.09 per share,
being the initial public offering price per share less the underwriting
discounts and commissions. The proceeds to the Company of such offerings were
approximately $85,275,000, net of estimated offering expenses.
NOTE 13--EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement No.
121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement requires the Company to
identify properties for which it has committed to an exit plan or which may be
otherwise impaired. The fixed assets for such properties must be written down
to fair market value. The Company anticipates that the adoption of SFAS 121,
required for fiscal years beginning after December 15, 1995, will not result in
a reduction of net fixed assets or an increase in expenses in the fiscal year
1996 statement of operations.
The FASB has also issued Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after December
15, 1995. Under SFAS 123, companies are encouraged but not required to
recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value accounting rules. Companies
that choose not to record compensation expense under the new rules will be
required to disclose pro forma net income and earnings per share under the new
method. The Company has not yet determined the financial statement impact of
SFAS 123 and has elected not to recognize the impact of this pronouncement in
its fiscal 1995 statement of operations, but will disclose as required in the
fiscal 1996 financial statements on a comparative basis the effect of SFAS 123
on net income and earnings per share.
NOTE 14--SUBSEQUENT EVENTS (UNAUDITED)
On May 1, 1996, the Company entered into an agreement to acquire a
traditional lodging facility, which the Company intends to remodel, for a
purchase price of approximately $3.0 million. The Company expects to pay the
purchase price by delivering shares of Common Stock. Consummation of the
proposed acquisition is subject to a number of conditions.
On May 9, 1996, the Board of Directors of the Company declared a dividend of
one additional share of Common Stock for each share issued as of the close of
business on July 5, 1996, to be distributed on July 19, 1996, thereby effecting
a 2-for-1 stock split. The accompanying financial statements have not been
retroactively restated. Net loss per common share for the periods presented on
the statements of operations would be one-half of the amounts currently
reflected.
On May 10, 1996, the Company acquired a 59-room extended stay lodging
facility and adjacent land for a purchase price of approximately $3.3 million
in cash. This acquisition was accounted for using the purchase method of
accounting.
On May 17, 1996, the Company entered into a credit facility agreement which
provides up to $300 million in mortgage financing, subject to certain
conditions and limitations, for completed facilities.
On May 24, 1996, the Company reduced the size of an existing mortgage
facility from $200 million to $100 million.
On June 25, 1996, the Company acquired for 172,100 shares of Common Stock and
approximately $23,000 in cash, an extended stay lodging facility. This
acquisition was accounted for using the purchase method of accounting.
On June 26, 1996, the Company entered into agreements to acquire four
extended stay lodging facilities. In addition to assuming liability for certain
leases of personal property, the Company expects to issue 1,138,000 shares of
Common Stock as consideration for these acquisitions. Consummation of these
acquisitions is subject to a number of conditions.
The Company entered into (i) a 10-year lease for a suite at Joe Robbie
Stadium for a base rental of $115,000 per year, subject to certain additional
charges and periodic escalation, and (ii) a three-year lease for a suite at
Homestead Motor Sports Complex for a base rental of $53,250 per year, subject
to certain additional charges. The Chairman of the Company's Board of Directors
owns Joe Robbie Stadium and has an approximately 50% interest in Homestead
Motor Sports Complex.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying statements of operations, partners' deficit
and cash flows of Welcome Inn America 89-1, L.P. for each of the two years
ended December 31, 1994 and the period from January 1, 1995 through August 18,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of Welcome Inn America 89-1, L.P. operations
and its cash flows for each of the two years in the period ended December 31,
1994 and the period from January 1, 1995 through August 18, 1995 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
October 16, 1995
F-18
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995
-------------------- THROUGH
1993 1994 AUGUST 18, 1995
<S> <C> <C> <C>
Revenue:
Room revenue............................. $927,593 $1,009,872 $670,954
Other, net............................... 71,778 69,415 41,883
-------- ---------- --------
Total revenue.......................... 999,371 1,079,287 712,837
-------- ---------- --------
Costs and expenses:
Property operating expenses.............. 452,951 495,182 322,337
Property management fees to partners..... 104,051 66,564 44,880
Depreciation and amortization............ 138,987 141,362 95,546
-------- ---------- --------
Total costs and expenses............... 695,989 703,108 462,763
-------- ---------- --------
Income from operations................. 303,382 376,179 250,074
Interest expense:
Bank..................................... 185,518 211,607 184,226
Partners................................. 196,788 149,032 87,926
-------- ---------- --------
Total interest expense................. 382,306 360,639 272,152
-------- ---------- --------
Net income (loss)...................... $(78,924) $ 15,540 $(22,078)
======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF PARTNERS' DEFICIT
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1994
AND THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 18, 1995
<TABLE>
<S> <C>
Balance, January 1, 1993............................................ $(611,817)
Net loss............................................................ (78,924)
---------
Balance, December 31, 1993.......................................... (690,741)
Net income.......................................................... 15,540
---------
Balance, December 31, 1994.......................................... (675,201)
Net loss............................................................ (22,078)
---------
Balance, August 18, 1995............................................ $(697,279)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED DECEMBER PERIOD FROM
31, JANUARY 1, 1995
---------------------- THROUGH
1993 1994 AUGUST 18, 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ (78,924) $ 15,540 $(22,078)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation......................... 126,110 127,456 86,760
Amortization......................... 12,877 13,906 8,786
Change in:
Accounts receivable................. 106 (7,115) 117
Other current assets................ (496) (2,851) 5,672
Accounts payable.................... 3,737 (3,801) 43,481
Accrued expenses.................... 8,361 (1,483) (17,350)
Accrued interest.................... (68,493) (112,629) 79,628
Accrued salaries.................... (1,625) 496 (10,338)
--------- ----------- --------
Net cash provided by operating
activities............................ 1,653 29,519 174,678
--------- ----------- --------
Cash flows from investing activities:
Expenditures for buildings and
improvements......................... (30,547) (660)
Purchases of furniture, fixtures and
equipment............................ (5,052) (31,921)
--------- ----------- --------
Net cash used in investing activities.. (35,599) (660) (31,921)
--------- ----------- --------
Cash flows from financing activities:
Proceeds from long-term debt.......... 2,500,000
Proceeds from notes payable to
partners............................. 260,000
Principal payments on long-term debt.. (209,333) (1,874,667) (96,000)
Principal payments on notes payable to
partners............................. (693,781)
Additions to deferred loan costs...... (18,000)
--------- ----------- --------
Net cash provided by (used in)
financing activities.................. 32,667 (68,448) (96,000)
--------- ----------- --------
Net increase (decrease) in cash........ (1,279) (39,589) 46,757
Cash at beginning of periods........... 123,676 122,397 82,808
--------- ----------- --------
Cash at end of periods................. $ 122,397 $ 82,808 $129,565
========= =========== ========
Supplemental cash flow disclosure,
interest paid......................... $ 450,799 $ 473,268 $192,524
========= =========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Welcome Inn America 89-1, L.P. (the "Partnership") is a Georgia limited
partnership that operates an extended stay facility (formerly known as the
"Welcome Inn") in Marietta, Georgia.
On August 18, 1995, the Partnership's extended stay facility was acquired by
Extended Stay America, Inc. (the "Company"). In order to present comparable
results of operations and cash flows of the Partnership, the accompanying
financial statements represent the historical results of operations and cash
flows of the Partnership through August 18, 1995, immediately prior to the
acquisition by the Company. Accordingly, any gain or loss on the sale of assets
to the Company has not been recognized in the accompanying financial
statements.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements....................................... 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>
Deferred Loan Costs. The Partnership has incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loans using the effective yield method.
Income Taxes. Any income taxes related to income earned by the Partnership
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned.
NOTE 3--LONG-TERM DEBT
Interest expense related to long-term debt consisting of mortgages held by
various banks and partners. Certain notes have variable rates of interest tied
to various commonly used indices.
The following is a summary of long-term debt on which interest expense was
incurred:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Note payable to a bank paid in August 1995............ $2,416,000
Note payable to a bank paid in 1994................... $1,790,667
Note payable to a partner, bearing interest at twelve
percent per year...................................... 1,716,191 1,022,410
---------- ----------
$3,506,858 $3,438,410
========== ==========
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS
Management fees and interest charged by partners are as follows:
<TABLE>
<CAPTION>
MANAGEMENT INTEREST
FEES EXPENSE
<S> <C> <C>
1993.................................................... $104,051 $196,788
1994.................................................... 66,564 149,032
Period from January 1, 1995 to August 18, 1995.......... 44,880 87,926
</TABLE>
Management fees in 1993 included a one time bonus payment to a partner of
approximately $42,000.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying balance sheets of Apartment/Inn, L.P. as of
December 31, 1994 and 1995, and the related statements of operations and
partners' deficit and cash flows for each of the two years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Apartment/Inn, L.P. at
December 31, 1994 and 1995 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
January 26, 1996
F-23
<PAGE>
APARTMENT/INN, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 379,272 $ 73,407
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$10,933 in 1994 and $14,627 in 1995................ 19,268 25,448
Related parties..................................... 16,568 68,826
Refundable property taxes............................. 20,062
Other current assets.................................. 3,937 3,142
---------- ----------
Total current assets.............................. 419,045 190,885
---------- ----------
Property and equipment, net............................. 2,855,407 2,718,312
Other assets............................................ 13,845 9,502
---------- ----------
$3,288,297 $2,918,699
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable...................................... $ 27,982 $ 18,292
Accrued salaries...................................... 4,023 5,216
Accrued interest...................................... 26,800 26,800
Other accrued expenses................................ 28,552 17,272
Current maturities of long-term debt.................. 224,773 163,475
---------- ----------
Total current liabilities......................... 312,130 231,055
---------- ----------
Long-term debt.......................................... 3,230,201 3,022,197
---------- ----------
Total liabilities..................................... 3,542,331 3,253,252
---------- ----------
Partners' deficit....................................... (254,034) (334,553)
---------- ----------
$3,288,297 $2,918,699
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
APARTMENT/INN, L.P.
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1994 1995
<S> <C> <C>
Revenue:
Room revenue......................................... $1,696,763 $1,820,680
Other, net........................................... 77,735 76,909
---------- ----------
Total revenue...................................... 1,774,498 1,897,589
---------- ----------
Costs and expenses:
Property operating expenses.......................... 745,434 755,176
Property management fees to partners................. 106,059 113,215
Depreciation and amortization........................ 202,568 173,936
---------- ----------
Total costs and expenses........................... 1,054,061 1,042,327
---------- ----------
Income from operations............................... 720,437 855,262
Interest expense....................................... 418,758 394,413
---------- ----------
Net income........................................... 301,679 460,849
Partners' deficit, beginning of year................... (467,793) (254,034)
Distributions........................................ (87,920) (541,368)
---------- ----------
Partners' deficit, end of year......................... $ (254,034) $ (334,553)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
APARTMENT/INN, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
------------------
1994 1995
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $301,679 $460,849
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................. 163,775 169,593
Amortization............................................. 38,793 4,343
Change in:
Accounts receivable..................................... (4,433) (58,438)
Refundable property taxes............................... (20,062)
Other current assets.................................... 10,755 795
Accounts payable........................................ 11,621 (9,690)
Accrued expenses........................................ 11,109 (11,280)
Accrued salaries........................................ 55 1,193
-------- --------
Net cash provided by operating activities.............. 533,354 537,303
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (29,333) (32,498)
-------- --------
Net cash used in investing activities.................. (29,333) (32,498)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt...................... (130,778) (269,302)
Payments of deferred loan costs........................... (5,234)
Distributions to partners................................. (87,920) (541,368)
-------- --------
Net cash used in financing activities.................. (223,932) (810,670)
-------- --------
Net increase (decrease) in cash............................ 280,089 (305,865)
-------- --------
Cash at beginning of periods............................... 99,183 379,272
-------- --------
Cash at end of periods..................................... $379,272 $ 73,407
======== ========
Supplemental cash flow disclosure, interest paid........... $418,758 $394,413
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
APARTMENT/INN, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Apartment/Inn, L.P. (the "Partnership") is a Georgia limited partnership that
operates an extended stay facility (known as the "Apartment Inn") in Norcross,
Georgia. On January 26, 1996, the Partnership's extended stay facility was
acquired by Extended Stay America, Inc.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements....................................... 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>
Deferred Loan Costs. The Partnership has incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loans using the effective yield method. Deferred loan costs
are included in other assets.
Income Taxes. Any income taxes related to income earned by the Partnership
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................... $ 635,639 $ 635,639
Building and improvements.......................... 2,492,855 2,509,540
Furniture and fixtures............................. 671,287 687,100
---------- ----------
3,799,781 3,832,279
Less accumulated depreciation...................... 944,374 1,113,967
---------- ----------
$2,855,407 $2,718,312
========== ==========
</TABLE>
F-27
<PAGE>
APARTMENT/INN, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following as of December
31: 1994 1995
<S> <C> <C>
Mortgage loan, principal and interest payable $44,529
monthly with a final balloon payment due June 1997,
interest at 12%....................................... $3,322,879 $3,137,376
Mortgage loan, principal and interest payable $6,000
monthly through August 1996, interest at 18%.......... 111,462 45,145
Other.................................................. 20,633 3,151
---------- ----------
3,454,974 3,185,672
Less current maturities................................ (224,773) (163,475)
---------- ----------
Long term debt, net of current maturities.............. $3,230,201 $3,022,197
========== ==========
</TABLE>
The mortgage loans are collateralized by substantially all of the
Partnership's property and equipment. Aggregate maturities of long term debt
are as follows: 1996--$163,475; 1997--$3,022,197.
The Partnership believes that there is no material difference in the carrying
amount and estimated fair value of the Partnership's long-term debt, since all
of it matures on or prior to June 1997.
NOTE 5--RELATED PARTY TRANSACTIONS
Management fees charged by and room revenue charged to a company controlled
by a partner are as follows:
<TABLE>
<CAPTION>
MANAGEMENT ROOM
FEES REVENUE
<S> <C> <C>
1994................................................... $106,059 $ --
1995................................................... 113,215 45,607
</TABLE>
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying combined balance sheets of Hometown Inn I,
LTD and Hometown Inn II, LTD (the "Partnerships") as of December 31, 1994 and
1995, and the related combined statements of operations and partners' capital
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Hometown Inn I, LTD
and Hometown Inn II, LTD at December 31, 1994 and 1995 and the combined results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
February 23, 1996
F-29
<PAGE>
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
ASSETS 1994 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 177,079 $ 362,357
Accounts receivable, net of allowance for doubtful
accounts of $3,813 in 1994 and $7,686 in 1995.......... 3,751 32,260
Supply inventories...................................... 26,660 26,660
Advance to affiliate.................................... 91,938
Other current assets.................................... 2,913
---------- ----------
Total current assets.................................. 207,490 516,128
Property and equipment, net............................... 4,966,202 4,964,094
Other assets.............................................. 7,000 17,733
---------- ----------
$5,180,692 $5,497,955
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 15,801 $ 29,912
Accrued expenses........................................ 75,304 60,274
Deposits................................................ 19,660 161,970
Advances from affiliates................................ 159,120 204,120
Current maturities of long-term debt.................... 117,903 185,949
---------- ----------
Total current liabilities............................. 387,788 642,225
Long-term debt............................................ 1,483,324 1,529,874
---------- ----------
Total liabilities..................................... 1,871,112 2,172,099
Partners' capital......................................... 3,309,580 3,325,856
---------- ----------
$5,180,692 $5,497,955
========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-30
<PAGE>
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
<S> <C> <C> <C>
Revenue:
Room revenue............................. $1,802,707 $2,123,589 $2,234,569
Other, net............................... 84,679 99,719 96,617
---------- ---------- ----------
Total revenue.......................... 1,887,386 2,223,308 2,331,186
---------- ---------- ----------
Costs and expenses:
Property operating expenses.............. 1,074,103 1,143,716 989,337
Property management fees to related
party................................... 105,600 105,600 144,357
Depreciation and amortization............ 229,142 232,632 244,603
---------- ---------- ----------
Total costs and expenses............... 1,408,845 1,481,948 1,378,297
---------- ---------- ----------
Income from operations..................... 478,541 741,360 952,889
Interest expense........................... 131,848 137,532 170,232
---------- ---------- ----------
Net income............................. 346,693 603,828 782,657
Partners' capital, beginning of year....... 3,538,770 3,455,553 3,309,580
Distributions............................ (429,910) (749,801) (766,381)
---------- ---------- ----------
Partners' capital, end of year............. $3,455,553 $3,309,580 $3,325,856
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-31
<PAGE>
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-------------------------------
1993 1994 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 346,693 $ 603,828 $ 782,657
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 229,142 232,632 243,056
Amortization.............................. 1,547
Change in:
Accounts receivable..................... 9,271 37,488 (28,509)
Other assets............................ (1,377) 1,377 (2,913)
Accounts payable........................ 944 (26,506) 14,111
Deposits................................ 3,927 8,833 142,310
Accrued expenses........................ (10,763) 11,346 (15,030)
--------- --------- ---------
Net cash provided by operating activities... 577,837 868,998 1,137,229
--------- --------- ---------
Cash flows from investing activities,
purchases of property and equipment.......... (34,818) (41,384) (240,948)
--------- --------- ---------
Cash flows from financing activities:
Payments of deferred loan costs............. (12,280)
Advances to affiliates...................... (91,938)
Advances from affiliates.................... 73,650 85,470 45,000
Principal payments on long-term debt........ (97,549) (130,956) (130,404)
Proceeds from issuance of long-term debt.... 245,000
Distributions to partners................... (429,910) (749,801) (766,381)
--------- --------- ---------
Net cash used in financing activities. (453,809) (795,287) (711,003)
--------- --------- ---------
Net increase in cash.......................... 89,210 32,327 185,278
Cash at beginning of periods.................. 55,542 144,752 177,079
--------- --------- ---------
Cash at end of periods........................ $ 144,752 $ 177,079 $ 362,357
========= ========= =========
Supplemental cash flow disclosure, interest
paid......................................... $ 125,141 $ 136,809 $ 170,227
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-32
<PAGE>
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation. The combined financial statements include the assets,
liabilities, capital and results of operations of two limited partnerships,
Hometown Inn I, LTD and Hometown Inn II, LTD. Where referred to herein, the
"Partnerships" include the two entities listed above. All significant
intercompany accounts and transactions have been eliminated.
Description of Business. The Partnerships operate two extended stay
facilities in Norcross, Georgia and Riverdale, Georgia. On February 23, 1996,
the Partnerships' extended stay facilities were acquired by Extended Stay
America, Inc.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk. The Partnerships maintained deposits totalling
$362,357 at December 31, 1995 with one bank. Deposits in excess of $100,000 are
not insured by the Federal Deposit Insurance Corporation.
Cash and cash equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.
Supply Inventory. Supply inventories consist primarily of linen, cleaning and
other room supplies and are stated at the lower of cost or market.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to operations as
incurred; major renewals and improvements are capitalized. The gain or loss on
the disposition of property and equipment is recorded in the year of
disposition.
The estimated useful lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 5-7 years
</TABLE>
Deferred Loan Costs. The Partnerships have incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loan using the effective yield method. Deferred loan costs
are included in other assets.
Income Taxes. Any income taxes related to income earned by the Partnerships
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned. Prepayments and deposits are recorded as unearned revenue.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................ $ 646,007 $ 646,007
Building and improvements....................... 4,893,161 4,893,161
Furniture and fixtures.......................... 785,355 1,006,213
----------- -----------
6,324,523 6,545,381
Less accumulated depreciation................... (1,358,321) (1,581,287)
----------- -----------
$ 4,966,202 $ 4,964,094
=========== ===========
</TABLE>
F-33
<PAGE>
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1994 1995
Long-term debt consists of the following as of December
31:
<S> <C> <C>
Mortgage loan, principal and interest payable monthly at
approximately $23,000 through January 1997, interest at
prime plus 1%........................................... $1,601,227 $1,483,325
Mortgage loan principal and interest payable monthly at
approximately $5,300 through August 2000, interest at
11%..................................................... 232,498
---------- ----------
1,601,227 1,715,823
Less current maturities.................................. 117,903 185,949
---------- ----------
Long-term debt, net of current maturities................ $1,483,324 $1,529,874
========== ==========
</TABLE>
The mortgage loans are collateralized by substantially all of the
Partnerships' property and equipment. Aggregate maturities of long term debt
are as follows: 1996--$185,949; 1997--$1,382,719; 1998--$50,217; 1999--$56,028;
2000--$40,910.
The Partnerships believe that there is no material difference in the carrying
amount and estimated fair value of the long-term debt.
4. RELATED PARTY TRANSACTIONS:
Management fees are charged by a related entity controlled by the partners
and advances are made to and taken by the related entity from the Partnerships
as follows:
<TABLE>
<CAPTION>
MANAGEMENT ADVANCES TO ADVANCES FROM
FEES RELATED ENTITY RELATED ENTITY
<S> <C> <C> <C>
1993............................. $105,600 $ $ 73,650
1994............................. 105,600 159,120
1995............................. 144,357 91,938 204,120
</TABLE>
F-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying balance sheet of Kipling Hospitality
Enterprise Corporation as of December 31, 1995 and the related statements of
operations and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kipling Hospitality Enterprise
Corporation at December 31, 1995 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
May 4, 1996
F-35
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
ASSETS ------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 37,728 $ 40,136
Accounts receivable................................. 24,058 21,255
Supply inventories.................................. 40,338 40,338
Prepaid and other current assets.................... 32,425 5,314
---------- ----------
Total current assets.............................. 134,549 107,043
---------- ----------
Property and equipment, net........................... 1,468,171 1,454,178
Deferred loan costs, net.............................. 9,797 8,327
---------- ----------
$1,612,517 $1,569,548
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.................................... $ 40,758 $ 15,730
Accrued salaries and related expenses............... 16,152 15,537
Accrued property taxes.............................. 31,350 39,475
Accrued expenses.................................... 14,136 7,406
Deferred revenue.................................... 7,062 9,499
Note payable to related party....................... 33,486 33,486
Note payable to former shareholder.................. 80,000 80,000
Current maturities of long-term debt................ 63,437 64,454
---------- ----------
Total current liabilities......................... 286,381 265,587
---------- ----------
Long-term debt........................................ 1,116,934 1,105,358
---------- ----------
Total liabilities................................. 1,403,315 1,370,945
---------- ----------
Shareholder's Equity:
Common stock, $2 par value, 100,000 shares
authorized, 87,000 shares issued and outstanding... 174,000 174,000
Additional paid in capital.......................... 30,270 30,270
Due from affiliated companies and prepaid services.. (515,053) (521,395)
Retained earnings................................... 519,985 515,728
---------- ----------
209,202 198,603
---------- ----------
$1,612,517 $1,569,548
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue.......................... $1,255,118 $273,374 $231,426
Telephone income...................... 47,426 11,740 7,595
Other, net............................ 22,075 5,592 5,702
---------- -------- --------
Total revenue....................... 1,324,619 290,706 244,723
---------- -------- --------
Costs and expenses:
Property operating expenses........... 736,994 165,893 167,465
Management salaries................... 53,269 11,013 6,787
Franchise expense..................... 58,093 12,348 11,260
Depreciation and amortization......... 89,018 16,634 18,132
---------- -------- --------
Total costs and expenses............ 937,374 205,888 203,644
---------- -------- --------
Income from operations.................. 387,245 84,818 41,079
Other income (expense):
Loss on sale of property and
equipment............................ (20,774)
Interest income....................... 20,287 66 76
Interest expense...................... (139,298) (34,788) (31,912)
---------- -------- --------
Net income.......................... 247,460 50,096 9,243
Retained earnings, beginning of period.. 374,996 374,996 519,985
Dividends............................. (102,471) (13,500)
---------- -------- --------
Retained earnings, end of period........ $ 519,985 $425,092 $515,728
========== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $247,460 $ 50,096 $ 9,243
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............ 74,140 15,164 16,662
Amortization............ 14,878 1,470 1,470
Loss on sale of property
and equipment.......... 20,744
Change in:
Accounts receivable..... 6,398 4,021 2,804
Prepaid and other
current assets......... (31,709) 1 27,111
Accounts payable........ 8,996 (15,584) (25,028)
Accrued expenses........ (1,259) 28,159 3,217
-------- -------- --------
Net cash provided by
operating activities. 339,648 83,327 35,479
-------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................ (72,240) (41,216) (2,670)
Proceeds from sale of
property and equipment... 13,779
-------- -------- --------
Net cash used in
investing activities. (58,461) (41,216) (2,670)
-------- -------- --------
Cash flows from financing
activities:
Advances to affiliated
companies................ (46,434) (6,342)
Advances from affiliated
companies................ 4,988
Principal payments on
long-term debt........... (124,345) (9,693) (10,559)
Proceeds from issuance of
long-term debt........... 10,065
Dividends................. (102,471) (13,500)
-------- -------- --------
Net cash used in
financing activities. (263,185) (4,705) (30,401)
-------- -------- --------
Net increase in cash........ 18,002 37,406 2,408
Cash at beginning of period. 19,726 19,726 37,728
-------- -------- --------
Cash at end of period....... $ 37,728 $ 57,132 $ 40,136
======== ======== ========
Noncash financing
transaction, prepaid
services to former
shareholder................ $ 80,000
========
Supplemental cash flow
disclosure, interest paid.. $149,804 $ 34,995 $ 37,612
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business. Kipling Hospitality Enterprise Corporation (the
"Company") operates a franchise hospitality property in Lakewood, Colorado. In
1996, the Company entered into an agreement to sell its hospitality property
and equipment to Extended Stay America, Inc.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.
Supply Inventory. Supply inventories consist primarily of linen, cleaning and
other room supplies and are stated at the lower of cost or market.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. Maintenance and repairs are charged to
operations as incurred; major renewals and improvements are capitalized. The
gain or loss on the disposition of property and equipment is recorded in the
year of disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Building and improvements........................................ 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>
Franchise Fee. Franchise fee is stated at cost and is amortized on a
straight-line basis over the period of the franchise agreement.
Income Taxes. The Company's shareholder elected that the Company be subject
to S Corporation regulations under the Internal Revenue Code. As such, the
shareholder is liable for federal and state income taxes.
Deferred Loan Costs. The Company has incurred costs in obtaining financing.
The costs have been deferred and are being amortized on a straight-line basis
over the life of the respective loans.
Revenue Recognition. Room revenue and other income are recognized when
earned.
Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to generally accepted accounting
principles applicable to interim financial statements and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three months ended March 31, 1995 and 1996 are not necessarily
indicative of results to be expected for a full year. All data at March 31,
1995 and 1996 and for each of the three-month periods then ended are unaudited.
F-39
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Land.......................................................... $ 539,000
Building and improvements..................................... 990,132
Furniture and fixtures........................................ 214,997
Transportation equipment...................................... 38,708
----------
1,782,837
Less accumulated depreciation................................. 314,666
----------
$1,468,171
==========
</TABLE>
3. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31, 1995:
<TABLE>
<S> <C>
Mortgage loan, principal and interest payable at approximately
$13,450 monthly through September 1997, interest at the
bank's base rate (base rate was 9.75% at December 31, 1995)
plus 2%...................................................... $1,172,664
Other......................................................... 7,707
----------
1,180,371
Less current maturities....................................... 63,437
----------
Long-term debt, net of current maturities..................... $1,116,934
==========
</TABLE>
The mortgage loan is collateralized by substantially all of the Company's
property and equipment. Aggregate maturities of long-term debt are as follows:
1996--$63,437; 1997--$1,116,934.
The Company believes that there is no material difference in the carrying
amount and estimated fair value of the long-term debt.
4. NOTE PAYABLE TO FORMER SHAREHOLDER:
The Company entered into a note payable agreement on September 15, 1995 to
pay a former shareholder $100,000 to perform consulting, accounting, and
bookkeeping services over a five year period. The note bears interest at 7% and
is payable in five annual installments commencing on September 15, 1995.
5. RELATED PARTY TRANSACTIONS:
Certain members of the Company's management provide management services to
companies owned by the shareholder. The Company allocated approximately $45,000
of expenses to the affiliated companies in 1995 for providing these services.
Due from affiliated companies and prepaid services at December 31, 1995
consists of:
<TABLE>
<S> <C>
Advances to affiliated companies................................ $326,000
Prepaid services to former shareholder (Note 4)................. 80,000
Receivable for allocated management services.................... 109,053
--------
$515,053
========
</TABLE>
F-40
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
6. LITIGATION
From time to time, the Company has been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Company, would have a material
adverse effect on the financial condition.
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying balance sheet of Apartment Inn
Partners/Gwinnett, L.P. as of December 31, 1995 and the related statements of
operations and partners' capital and cash flows for the year then ended. These
financial statements are the responsibility of the partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Apartment Inn
Partners/Gwinnett, L.P. at December 31, 1995 and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
June 25, 1996
F-42
<PAGE>
APARTMENT INN PARTNERS/GWINNETT, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
ASSETS ------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents. $ 238,871 $ 308,635
Accounts receivable....... 14,560 28,556
Supply inventories........ 32,950 32,950
Prepaid expenses.......... 2,198
---------- ----------
Total current assets.... 286,381 372,339
---------- ----------
Property and equipment, net. 2,651,717 2,631,082
Other assets................ 10,575 10,575
---------- ----------
$2,948,673 $3,013,996
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS'
CAPITAL
<S> <C> <C>
Current liabilities:
Accounts payable.......... $ 5,666 $ 17,927
Accrued salaries and
related expenses......... 3,933 6,640
Other accrued expenses.... 24,601 28,496
Deferred revenue.......... 7,872 9,588
Current maturities of
long-term debt--related
party.................... 194,451 199,352
---------- ----------
Total current
liabilities............ 236,523 262,003
---------- ----------
Long-term debt--related
party...................... 2,387,119 2,335,405
---------- ----------
Total liabilities....... 2,623,642 2,597,408
---------- ----------
Partners' capital........... 325,031 416,588
---------- ----------
$2,948,673 $3,013,996
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
APARTMENT INN PARTNERS/GWINNETT, L.P.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue.............. $1,231,786 $296,835 $320,753
Other revenue............. 62,187 18,465 14,050
---------- -------- --------
Total revenue........... 1,293,973 315,300 334,803
---------- -------- --------
Costs and expenses:
Property operating
expenses................. 588,760 143,286 135,319
Management fees expense... 88,662 9,439 19,976
Depreciation and
amortization............. 109,636 25,971 23,800
---------- -------- --------
Total costs and
expenses............... 787,058 178,696 179,095
---------- -------- --------
Income from operations...... 506,915 136,604 155,708
Other expense:
Interest expense--related
party.................... 267,836 68,589 64,151
---------- -------- --------
Net income.............. 239,079 68,015 91,557
Partners' capital, beginning
of period.................. 85,952 85,952 325,031
---------- -------- --------
Partners' capital, end of
period..................... $ 325,031 $153,967 $416,588
========== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
APARTMENT INN PARTNERS/GWINNETT, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $239,079 $ 68,015 $ 91,557
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization........... 109,636 25,971 23,800
Change in:
Accounts receivable.... (2,391) (11,560) (13,996)
Prepaid and other
current assets........ 1,216 (569) (2,198)
Accounts payable....... (1,724) 9,975 12,261
Accrued expenses....... (5,844) 12,175 8,318
-------- -------- --------
Net cash provided by
operating activities. 339,972 104,007 119,742
-------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................ (8,577) (2,451) (3,165)
-------- -------- --------
Net cash used in
investing activities. (8,577) (2,451) (3,165)
-------- -------- --------
Cash flows from financing
activities:
Principal payments on
long-term debt--related
party.................... (176,019) (42,535) (46,813)
-------- -------- --------
Net cash used in
financing activities. (176,019) (42,535) (46,813)
-------- -------- --------
Net increase in cash........ 155,376 59,021 69,764
Cash at beginning of period. 83,495 83,495 238,871
-------- -------- --------
Cash at end of period....... $238,871 $142,516 $308,635
======== ======== ========
Supplemental cash flow
disclosure, interest paid.. $267,836 $ 68,589 $ 64,151
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE>
APARTMENT INN PARTNERS/GWINNETT, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business. Apartment Inn Partners/Gwinnett, L.P. (the
"Partnership") is a Georgia limited partnership that operates an extended stay
facility (known as the "Apartment Inn") in Lawrenceville, Georgia. On June 25,
1996, the Partnership's extended stay facility was acquired by Extended Stay
America, Inc.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.
Supply Inventories. Supply inventories consist primarily of linen, cleaning
and other room supplies and are stated at the lower of cost or market.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. Maintenance and repairs are charged to
operations as incurred; major renewals and improvements are capitalized. The
gain or loss on the disposition of property and equipment is recorded in the
year of disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Building and improvements........................................ 39 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>
Income Taxes. Any income taxes relating to income earned by the Partnership
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned.
Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to generally accepted accounting
principles applicable to interim financial statements and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three months ended March 31, 1995 and 1996 are not necessarily
indicative of results to be expected for a full year. All data at March 31,
1996 and for each of the three-month periods ended March 31, 1995 and 1996 are
unaudited.
F-46
<PAGE>
APARTMENT INN PARTNERS/GWINNETT, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Land.......................................................... $ 451,800
Building and improvements..................................... 2,144,300
Furniture, fixtures and equipment............................. 192,627
----------
2,788,727
Less accumulated depreciation................................. 137,010
----------
$2,651,717
==========
</TABLE>
3. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31, 1995:
<TABLE>
<S> <C>
Note payable, principal and interest payable to the general
partner of the Partnership at $36,988 monthly through
September 2004, interest at 10%.............................. $2,581,570
Less current maturities....................................... 194,451
----------
Long-term debt, net of current maturities..................... $2,387,119
==========
</TABLE>
The note payable is collateralized by substantially all of the Partnership's
property and equipment. Aggregate maturities of long-term debt are as follows:
1996--$194,451; 1997--$214,812; 1998--$237,305; 1999--$262,154; 2000--$289,606;
thereafter $1,383,242.
The Partnership believes that there is no material difference in the carrying
amount and estimated fair value of the long-term debt.
4. LITIGATION:
From time to time, the Partnership has been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Partnership, would have a material
adverse effect on its financial condition.
F-47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying combined balance sheets of Boulder Manor,
Inc., Melrose Suites, Inc., Nicolle Manor and St. Louis Manor, Inc. (the "M & M
Facilities") as of December 31, 1994 and 1995, and the related combined
statements of operations and equity and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the M & M Facilities' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the M & M Facilities
at December 31, 1994 and 1995 and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
June 27, 1996
F-48
<PAGE>
M & M FACILITIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31,
DECEMBER 31, 1996
------------------------ -----------
ASSETS 1994 1995
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 277,626 $ 307,376 $ 280,111
Accounts receivable................... 53,191 63,729
Supply inventories.................... 14,762 14,762
Other current assets.................. 9,592 15,112 61,954
----------- ----------- -----------
Total current assets................ 287,218 390,441 420,556
----------- ----------- -----------
Property and equipment, net............. 9,721,327 16,195,066 16,171,969
Other assets............................ 153,437 85,462 91,957
----------- ----------- -----------
$10,161,982 $16,670,969 $16,684,482
=========== =========== ===========
<CAPTION>
LIABILITIES AND EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable...................... $ 107,733 $ 119,915 $ 102,385
Accrued expenses...................... 12,276 47,627 79,760
Deposits.............................. 46,500 60,812 14,858
Accrued interest expense.............. 87,346 122,698 141,641
Accounts payable to affiliated
company.............................. 108,546 97,848
Current maturities of long-term debt
and notes payable to shareholders.... 464,967 1,014,720 6,071,772
----------- ----------- -----------
Total current liabilities........... 718,822 1,474,318 6,508,264
Long-term debt.......................... 4,318,218 10,139,340 8,301,363
Notes payable to shareholders........... 5,736,898 5,263,995 1,822,122
----------- ----------- -----------
Total liabilities................... 10,773,938 16,877,653 16,631,749
Equity (deficit)........................ (214,235) 377,284 628,318
Advances to shareholders................ (397,721) (583,968) (575,585)
----------- ----------- -----------
$10,161,982 $16,670,969 $16,684,482
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-49
<PAGE>
M & M FACILITIES
COMBINED STATEMENTS OF OPERATIONS AND EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- ----------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue.......... $3,410,258 $ 3,712,548 $5,685,874 $1,336,776 $1,596,144
Other, net............ 204,638 280,626 361,822 75,998 83,826
---------- ----------- ---------- ---------- ----------
Total revenue....... 3,614,896 3,993,174 6,047,696 1,412,774 1,679,970
---------- ----------- ---------- ---------- ----------
Costs and expenses:
Property operating
expenses............. 1,341,583 1,389,265 2,288,116 505,235 622,586
Property management
fees to related
party................ 314,327 323,429 432,102 106,942 127,692
Depreciation and
amortization......... 585,918 448,277 648,202 170,102 168,083
---------- ----------- ---------- ---------- ----------
Total costs and
expenses........... 2,241,828 2,160,971 3,368,420 782,279 918,361
---------- ----------- ---------- ---------- ----------
Income from operations.. 1,373,068 1,832,203 2,679,276 630,495 761,609
Other income............ 168,503
Interest expense........ 1,027,305 1,016,868 1,614,580 413,769 392,734
---------- ----------- ---------- ---------- ----------
Net income.......... 345,763 983,838 1,064,696 216,726 368,875
Equity (deficit),
beginning of period.... 574,410 416,751 (214,235) (214,235) 377,284
Distributions......... (503,422) (1,614,824) (473,177) (130,168) (117,841)
---------- ----------- ---------- ---------- ----------
Equity (deficit), end of
period................. $ 416,751 $ (214,235) $ 377,284 $ (127,677) $ 628,318
========== =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-50
<PAGE>
M & M FACILITIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- ---------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 345,763 $ 983,838 $1,064,696 $ 216,726 $ 368,875
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation........ 306,920 310,933 577,679 152,742 150,453
Amortization........ 278,998 137,344 70,523 17,360 17,630
Change in:
Supply
inventories...... (14,762) (15,000)
Accounts
receivable....... (53,191) (32,448) (10,538)
Other current
assets........... (13,273) 3,904 (5,520) (45,347) (46,842)
Accounts payable.. 12,663 (12,339) 12,182 (21,109) (17,530)
Deposits.......... 14,312 (22,584) (45,954)
Accrued interest.. (2,476) 3,823 35,352 150,585 18,943
Accounts payable
to affiliated
company.......... 108,546 61,567 (10,698)
Accrued expenses.. 2,848 240 35,351 41,323 32,133
---------- ----------- ---------- ---------- ---------
Net cash provided by
operating activities. 931,443 1,427,743 1,845,168 503,815 456,472
---------- ----------- ---------- ---------- ---------
Cash flows from
investing activities,
Purchases of property
and equipment.......... (46,502) (109,354) (7,051,417) (6,906,546) (127,356)
---------- ----------- ---------- ---------- ---------
Cash flows from
financing activities:
Payments of deferred
loan costs........... (78,497) (86,269) (2,549) (748) (24,125)
Collections from
(advances to)
shareholders......... 41,269 (15,419) (186,247) (64,880) 8,383
Principal payments on
long-term debt....... (18,487) (20,797) (165,539) (41,385) (43,563)
Principal payments on
notes payable to
shareholders......... (354,243) (400,452) (778,869) (193,552) (179,235)
Proceeds from issuance
of long-term debt.... 59,931 840,409 6,189,034 6,189,034
Proceeds from notes
payable to
shareholders......... 653,346 653,346
Distributions......... (503,422) (1,614,824) (473,177) (130,168) (117,841)
---------- ----------- ---------- ---------- ---------
Net cash (used
in) provided by
financing
activities..... (853,449) (1,297,352) 5,235,999 6,411,647 (356,381)
---------- ----------- ---------- ---------- ---------
Net increase (decrease)
in cash................ 31,492 21,037 29,750 8,916 (27,265)
Cash at beginning of
periods................ 225,097 256,589 277,626 277,626 307,376
---------- ----------- ---------- ---------- ---------
Cash at end of periods.. $ 256,589 $ 277,626 $ 307,376 $ 286,542 $ 280,111
========== =========== ========== ========== =========
Supplemental cash flow
disclosure, interest
paid................... $1,020,889 $ 1,005,894 $1,538,714 $ 253,178 $ 366,135
========== =========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-51
<PAGE>
M & M FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation. The combined financial statements include the assets,
liabilities, equity and results of operations of three S-Corporations, (Boulder
Manor, Inc., Melrose Suites, Inc. and St. Louis Manor, Inc.), and of a
partnership, (Nicolle Manor) which are under common ownership and control.
Where referred to herein, the "M & M Facilities" include the four entities
listed above. All significant intercompany accounts and transactions have been
eliminated.
Description of Business. The M & M Facilities operate four extended stay
facilities in Las Vegas, Nevada. On June 26, 1996, an agreement was reached to
sell the property and equipment of the M & M Facilities to Extended Stay
America, Inc.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk. The M & M Facilities maintained deposits
totalling $127,496 at December 31, 1995 with one bank. Deposits in excess of
$100,000 are not insured by the Federal Deposit Insurance Corporation.
Cash and cash equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.
Supply Inventory. Supply inventories consist primarily of linen, cleaning and
other room supplies and are stated at the lower of cost or market.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to operations as
incurred; major renewals and improvements are capitalized. The gain or loss on
the disposition of property and equipment is recorded in the year of
disposition.
The estimated useful lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 5-7 years
</TABLE>
Deferred Loan Costs. The M & M Facilities have incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loan using the effective yield method. Deferred loan costs
are included in other assets.
Income Taxes. Any income taxes related to income earned by the M & M
Facilities are paid by the shareholders and partners.
Revenue Recognition. Room revenue and other income are recognized when
earned. Prepayments and deposits are recorded as unearned revenue.
Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to generally accepted accounting
principles applicable to interim financial statements and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of
F-52
<PAGE>
M & M FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
operations for the interim periods presented. All such adjustments are, in the
opinion of management, of a normal recurring nature. Results for the three
months ended March 31, 1995 and 1996 are not necessarily indicative of results
to be expected for a full year. All data at March 31, 1995 and 1996 and for
each of the three-month periods then ended are unaudited.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................. $ 1,775,107 $ 2,525,107
Buildings and improvements....................... 8,493,697 13,689,568
Furniture and fixtures........................... 795,334 1,900,881
----------- -----------
11,064,138 18,115,556
Less accumulated depreciation.................... 1,342,811 1,920,490
----------- -----------
$ 9,721,327 $16,195,066
=========== ===========
</TABLE>
3. LONG-TERM DEBT AND NOTES PAYABLE TO SHAREHOLDERS:
<TABLE>
<CAPTION>
1994 1995
Long-term debt and notes payable to shareholders
consist of the following as of December 31:
<S> <C> <C>
Mortgage loan, principal and interest payable monthly
at approximately $34,550 through June 1, 2019,
interest at 9.75%..................................... $4,179,775 $4,136,257
Mortgage loan principal and interest payable monthly at
approximately $47,230 through July 1, 2002 with a
final payment of approximately $5,240,000 in July
2002, interest at 8.134% in 1995 and thereafter at the
bank's current index rate (based on cost of funds of
Federal Home Loan Bank of San Francisco) plus 3.25%... 5,869,141
Note payable to shareholders, principal and interest
payable at approximately $52,260 through December
1996, with a final payment of $3,019,487 on January 1,
1997, interest at 10%................................. 3,875,260 3,609,222
Note payable to shareholders, principal and interest
payable at approximately $32,700 through December
1996, with a final payment of $1,940,348 on January 1,
1997, interest at 10%................................. 2,301,051 2,127,676
Other related party note payable....................... 313,890
Other.................................................. 163,997 361,869
----------- -----------
10,520,083 16,418,055
Less current maturities................................ 464,967 1,014,720
----------- -----------
Long-term debt, net of current maturities.............. $10,055,116 $15,403,335
=========== ===========
</TABLE>
The notes payable to shareholders are collateralized by real property at two
of the entended stay facilities. The shareholders have related loans with a
financial institution collateralized by these properties. These loans with the
financial institutions total approximately $8,675,000 at December 31, 1995.
The mortgage loans are collateralized by substantially all of the M & M
Facilities property and equipment. Aggregate maturities of long term debt are
as follows: 1996--$1,014,720; 1997--$5,477,558; 1998--$217,487; 1999--$241,077;
2000--$212,019; thereafter--$9,255,194.
The M & M Facilities believe that there is no material difference in the
carrying amount and estimated fair value of the long-term debt.
F-53
<PAGE>
M & M FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. RELATED PARTY TRANSACTIONS:
Management fees charged by a related entity controlled by the
shareholders/partners and interest charged on notes payable to
shareholders/partners are as follows:
<TABLE>
<CAPTION>
MANAGEMENT INTEREST
FEES EXPENSE
<S> <C> <C>
1993.................................................. $314,327 $668,754
1994.................................................. 323,429 630,263
1995.................................................. 432,102 598,482
</TABLE>
The M & M Facilities purchased substantially all the property and equipment
from an affiliated company which constructed the extended stay facilities.
5. LITIGATION:
From time to time, the M & M Facilities have been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the M & M Facilities, would have a
material adverse effect on their financial condition.
F-54
<PAGE>
This Prospectus may be used by John W. Baker and Apartment/Inn, L.P., a
Georgia limited partnership controlled by Mr. Baker, in connection with
reoffers and resales of up to 163,629 shares of Common Stock acquired pursuant
to this Prospectus in connection with the acquisition by the Company in January
1996 of the extended stay lodging facility owned by Apartment/Inn. See "Recent
Developments." Such shares constitute all of the shares of Common Stock
currently owned by Mr. Baker and Apartment/Inn and represent less than 1% of
the outstanding Common Stock as of the date hereof.
This Prospectus may be used by Hometown Inn I, LTD and Hometown Inn II, LTD,
and their transferees and assignees, in connection with reoffers and resales of
up to 198,608 shares of Common Stock acquired by them pursuant to this
Prospectus in connection with the acquisition by the Company in February 1996
of the extended stay lodging facilities owned by Hometown Inn. See "Recent
Developments." Such shares constitute all of the shares of Common Stock
currently owned by Hometown Inn I, LTD and Hometown Inn II, LTD and represent
less than 1% of the outstanding Common Stock as of the date hereof.
This Prospectus may be used by Melrose Suites, Inc., St. Louis Manor, Inc.,
Boulder Manor, Inc., Michael J. Mona, Jr., and Dean O'Bannon, and their
respective transferees and assignees, in connection with reoffers and resales
of up to an aggregate of approximately 1,138,000 shares of Common Stock to be
acquired by them pursuant to this Prospectus in connection with the acquisition
by the Company of the M & M Facilities. See "Recent Developments." Such shares
constitute all of the shares of Common Stock owned or to be owned by Melrose
Suites, Inc., St. Louis Manor, Inc., Boulder Manor, Inc., Michael J. Mona, Jr.,
and Dean O'Bannon, and represent in the aggregate approximately 3.5% of the
outstanding Common Stock as of the date hereof.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the SEC registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 34,656
Blue Sky fees and expenses...................................... 10,000
Printing and engraving expenses................................. 20,000
Legal fees and expenses......................................... 50,000
Accounting fees and expenses.................................... 130,000
Miscellaneous................................................... 5,344
--------
Total....................................................... $250,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware authorizes the Company
to indemnify its directors and officers under specified circumstances. The
Restated Certificate of Incorporation and Bylaws of the Company provide that
the Company shall indemnify, to the extent permitted by Delaware law, its
directors and officers (and may indemnify its employees and agents) against
liabilities (including expenses, judgments, and settlements) incurred by them
in connection with any actual or threatened action, suit, or proceeding to
which they are or may become parties and which arises out of their status as
directors, officers, or employees.
The Company's Restated Certificate of Incorporation and Bylaws eliminate, to
the fullest extent permitted by Delaware law, liability of a director to the
Company or its stockholders for monetary damages for a breach of such
director's fiduciary duty of care except for liability where a director (a)
breaches his or her duty of loyalty to the Company or its stockholders, (b)
fails to act in good faith or engages in intentional misconduct or knowing
violation of law, (c) authorizes payment of an illegal dividend or stock
repurchase, or (d) obtains in improper personal benefit. While liability for
monetary damages has been eliminated, equitable remedies such as injunctive
relief or rescission remain available. In addition, a director is not relieved
of his responsibilities under any other law, including the federal securities
laws.
The directors and officers of the Company are insured within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of actions, suits, or proceedings and certain
liabilities which might be imposed as a result of such actions, suits, or
proceedings, to which they are parties by reason of being or having been such
directors or officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In January 1995, the Company issued 1,677,060 shares of Common Stock to its
initial stockholder for a $2,000 contribution to the capital of the Company.
Such securities were issued without registration under the Securities Act, in
reliance upon the exemption in Section 4(2) of the Securities Act.
In August 1995, pursuant to subscription agreements, the Company issued to
approximately 30 accredited investors 11,718,000 shares of Common Stock in
exchange for a $55,800,000 contribution to the capital of the Company made in
August and October of 1995. The above-referenced shares were issued without
registration under the Securities Act, in reliance upon the exemption in
Section 4(2) of the Securities Act.
II-1
<PAGE>
In August 1995, pursuant to a Contribution Agreement dated August 18, 1995
between the Company and Welcome Inn America 89-1, L.P. the Company issued
357,000 shares of Common Stock in exchange for certain assets and real
property. The above-referenced shares were issued without registration under
the Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.
Pursuant to a commitment agreement dated August 31, 1995, the Company issued
shares of Common Stock to DLJ and one of its affiliates as described under
"Financing." The above-referenced shares were issued without registration under
the Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
2.1 Contribution Agreement, dated August 18, 1995, between
the Company and Welcome Inn America 89-1, L.P. (incorpo-
rated by reference to the corresponding exhibit to the
Company's Registration Statement on Form S-1, Registra-
tion No. 33-98452 (the "IPO S-1"))
2.2* Agreement to Purchase Hotel and related agreements dated
January 24, 1996 between the Company and John W. Baker
and Apartment/Inn, L.P.
2.3* Agreement to Purchase Hotel and related agreements dated
February 23, 1996 among ESA 0992, Inc., ESA 0993, Inc.,
Hometown Inn I, LTD, and Hometown Inn II, LTD.
2.4 Agreement to Purchase Hotel dated May 1, 1996 and related
agreements among ESA Properties, Inc., Kipling Hospital-
ity Enterprise Corporation, and J. Craig McBride. (incor-
porated by reference to the corresponding exhibit to the
Company's Report on Form 10-Q for the quarter ended March
31, 1996 (the "1996 10-Q1"))
2.5 Agreement to Purchase Hotel dated as of June 24, 1996 and
related agreements among the Company, ESA 0996, Inc.,
Apartment Inn Partners/Gwinnett, L.P., and Rosa
Dziewienski Pajonk
2.6 Agreements to Purchase Hotels dated as of June 25, 1996
and related agreements between the Company and ESA Prop-
erties, Inc. and Boulder Manor, Inc., Melrose Suites,
Inc., St. Louis Manor, Inc., and Michael J. Mona, Jr. and
Dean O'Bannon
3.1 Restated Certificate of Incorporation of the Company (in-
corporated by reference to the corresponding exhibit to
the IPO S-1)
3.2 Amended and Restated Bylaws of the Company (incorporated
by reference to the corresponding exhibit to the IPO S-1)
4.1 Specimen certificate representing shares of Common Stock
(incorporated by reference to the corresponding exhibit
to the IPO S-1)
5.1* Opinion of Bell, Boyd & Lloyd as to the legality of the
Common Stock
10.1 Form of Subscription Agreement and related Demand Note
and Stockholders Agreement between the Company and ap-
proximately 30 investors entered into in August 1995 (in-
corporated by reference to the corresponding exhibit to
the IPO S-1)
10.2(a) Commitment for Mortgage Facility between the Company and
DLJ Mortgage Capital, Inc. ("DLJMC") (incorporated by
reference to the corresponding exhibit to the IPO S-1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE+
------- ---------------------- -----
<C> <S> <C>
10.2(b) Mortgage Facility, dated October 31, 1995, between the
Company and DLJMC (incorporated by reference to the cor-
responding exhibit to the IPO S-1)
10.3 Amended and Restated 1995 Employee Stock Option Plan of
the Company (incorporated by reference to the corre-
sponding exhibit to the 1996 10-Q1)
10.4 Employment Agreement, dated as of June 1, 1995, between
ESA Development, Inc. and Harold E. Wright (incorporated
by reference to the corresponding exhibit to the IPO S-
1)
10.5 Stock Option Agreement, dated as of June 1, 1995, be-
tween ESA Development, Inc. and Harold E. Wright (incor-
porated by reference to the corresponding exhibit to the
IPO S-1)
10.6 1995 Stock Option Plan for Non-Employee Directors of the
Company (incorporated by reference to the corresponding
exhibit to the 1996 10-Q1)
10.7 Contract to Buy and Sell Real Property, dated April 20,
1995, between the Company and North Town Associates,
L.P. (incorporated by reference to the corresponding ex-
hibit to the IPO S-1)
10.8 Aircraft Dry Lease, dated June 12, 1995, between Wyoming
Associates, Inc. and the Company (incorporated by refer-
ence to the corresponding exhibit to the IPO S-1)
10.9 Aircraft Dry Lease, dated June 12, 1995, between Wyoming
Associates, Inc. and the Company (incorporated by refer-
ence to the corresponding exhibit to the IPO
S-1)
10.10 Amended and Restated 1996 Employee Stock Option Plan of
the Company (incorporated by reference to the corre-
sponding exhibit to the 1996 10-Q1)
10.11 Employment Agreement, dated as of March 18, 1996, be-
tween ESA Development, and Harold E. Wright (incorpo-
rated by reference to the corresponding exhibit to the
1996 10-Q1)
10.12 Aircraft Dry Lease, dated April 5, 1996, between Morgan
Corp. and the Company (incorporated by reference to the
corresponding exhibit to the Company's Registration
Statement on Form S-1, Registration No. 333-03373)
10.13 Homestead Motorsports Complex Executive Suite License
Agreement, dated February 14, 1996, among The Homestead
Motorsports Joint Venture, Miami Motorsports Joint Ven-
ture, and the Company (incorporated by reference to the
corresponding exhibit to the 1996 10-Q1)
10.14 Joe Robbie Stadium Executive Suite License Agreement,
dated March 18, 1996, between Robbie Stadium Corporation
and the Company (incorporated by reference to the corre-
sponding exhibit to the 1996 10-Q1)
10.15(a) Commitment letter for mortgage facility between the Com-
pany and CS First Boston Mortgage Capital Corporation
("CSFBMC") (incorporated by reference to the correspond-
ing exhibit to the 1996 10-Q1)
10.15(b) Credit facility Agreement, dated May 24, 1996, between
the Company and CSFBMC (incorporated by reference to the
corresponding exhibit to the Company's Registration
Statement on Form S-1, Registration No. 333-03373)
11.1* Revised Statement re: Computation of Per Share Loss
21.1* Revised list of subsidiaries of the Company
23.1 Consent of Coopers & Lybrand LLP (included in Part II of
this registration statement)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE+
------- ---------------------- -----
<C> <S> <C>
23.2* Consent of Bell, Boyd & Lloyd (included in Exhibit 5.1)
24.1* Powers of Attorney (included on the signature page of
this registration statement)
27.1 Financial Data Schedule (for EDGAR filings only) (incor-
porated by reference to the corresponding exhibit to the
Company's Registration Statement on Form S-1, Registra-
tion No. 333-03373)
</TABLE>
- ---------------------
*Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required under the related instructions, are not applicable, or
the information has been provided in the consolidated financial statements or
the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Company pursuant to the provisions described under Item 14 above or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer, or controlling person of
the Company in the successful defense of any action, suit, or proceeding) is
asserted against the Company by such director, officer, or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF FT. LAUDERDALE, STATE OF FLORIDA, ON
JULY 2, 1996.
Extended Stay America, Inc.
/s/ Robert A. Brannon
By:__________________________________
Robert A. Brannon
Senior Vice President and Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 2, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:
George D. Johnson, Jr.* President and Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
/s/ Robert A. Brannon Senior Vice President, Chief Financial
___________________________________________ Officer, Secretary, and Treasurer
Robert A. Brannon
PRINCIPAL ACCOUNTING OFFICER:
Gregory R. Moxley* Vice President and Controller
A MAJORITY OF THE DIRECTORS:
H. Wayne Huizenga* Director
George D. Johnson, Jr.* Director
Stewart H. Johnson* Director
John J. Melk* Director
Peer Pedersen* Director
Director
___________________________________________
Donald F. Flynn
</TABLE>
/s/ Robert A. Brannon
*By: ________________________________
Robert A. Brannon
Attorney-in-fact
II-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated January 26, 1996, on our audit of the consolidated financial
statements of Extended Stay America, Inc., our report dated January 26, 1996 on
our audits of the financial statements of Apartment/Inn, L.P., our report dated
February 23, 1996 on our audits of the combined financial statements of
Hometown Inn I, LTD and Hometown Inn II, LTD, our report dated October 16, 1995
on our audits of the financial statements of Welcome Inn America 89-1, L.P.,
our report dated May 4, 1996 on our audit of the financial statements of
Kipling Hospitality Enterprise Corporation, our report dated June 25, 1996 on
our audit of the financial statements of Apartment Inn Partners/Gwinnett, L.P.,
and our report dated June 27, 1996 on our audits of the combined financial
statements of Boulder Manor, Inc., Melrose Suites, Inc., Nicolle Manor and St.
Louis Manor, Inc. (the "M & M Facilities"). We also consent to the references
to our firm under the captions "Experts" and "Selected Financial Data."
Coopers & Lybrand L.L.P.
Spartanburg, South Carolina
July 2, 1996
II-6
<PAGE>
AGREEMENT
TO PURCHASE HOTEL
by and among
APARTMENT INN PARTNERS/GWINNETT, L.P.,
ROSA DZIEWIENSKI PAJONK
and
ESA 0996, INC.
THE APARTMENT INN
LAWRENCEVILLE, GEORGIA
June 21, 1996
<PAGE>
AGREEMENT TO PURCHASE HOTEL
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I DEFINITIONS AND REFERENCES............................................1
1.1 Definitions.....................................................1
1.2 References......................................................5
II SALE AND PURCHASE.....................................................5
2.1 Sale and Purchase...............................................5
III PURCHASE PRICE........................................................5
3.1 Purchase Price; Allocation Thereof..............................5
3.2 Deposit.........................................................6
3.3 No Assumption of Seller's Obligations...........................6
3.4 Payment of the Note.............................................7
IV INSPECTION PERIOD.....................................................7
4.1 Inspection Period...............................................7
4.2 Submittals to Purchaser.........................................7
4.3 Review and Inspection...........................................8
4.4 Purchaser's Acceptance or Rejection.............................8
V REPRESENTATIONS AND WARRANTIES........................................9
5.1 Representations and Warranties of Seller and Rosa...............9
5.2 Representations and Warranties of Purchaser....................14
5.3 Duration of Representations and Warranties.....................15
VI CLOSING MATTERS......................................................15
6.1 Closing........................................................15
6.2 Manner of Closing..............................................15
VII CLOSING DELIVERIES...................................................16
7.1 Seller's Deliveries............................................16
7.2 Purchaser's Deliveries.........................................17
7.3 Concurrent Transactions........................................18
7.4 Further Assurances.............................................18
7.5 Possession.....................................................18
VIII ADJUSTMENTS AND PRORATIONS...........................................18
8.1 Adjustments and Prorations.....................................18
8.2 Receivables....................................................19
8.3 Proration Schedule.............................................19
IX CONDITIONS TO SELLER'S OBLIGATIONS...................................20
9.1 Conditions.....................................................20
9.2 Failure of Conditions..........................................21
X CONDITIONS TO PURCHASER'S OBLIGATIONS................................21
10.1 Conditions.....................................................21
10.2 Failure of Conditions..........................................22
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
XI ACTIONS AND OPERATIONS PENDING CLOSING...............................23
11.1 Actions and Operations Pending Closing.........................23
XII CASUALTIES AND TAKINGS...............................................24
12.1 Casualties.....................................................24
12.2 Takings........................................................24
XIII EMPLOYEES............................................................24
13.1 Employees, Compensation and Indemnification....................24
XIV INDEMNITIES..........................................................25
14.1 Seller's Indemnity.............................................25
14.2 Purchaser's Indemnity..........................................25
14.3 Notice of Claims...............................................25
XV SECURITIES LAW MATTERS...............................................26
XVI NOTICES..............................................................26
XVII ADDITIONAL COVENANTS.................................................27
17.1 Additional Covenants...........................................27
</TABLE>
Exhibit A: Land
Exhibit B: Excluded Assets
Exhibit C: Permitted Exceptions
Exhibit D: Submitted Financial Statements
Exhibit E: Allocation of Purchase Price
Exhibit F: Permits
Exhibit G: Hotel Contracts and Commissions
Exhibit H: Employee and Employment Contracts
Exhibit I: Bookings
Exhibit J: Space Leases and Commissions
Exhibit J-1: Spaces Lessee Estoppel Letter
Exhibit K: Notes and Violations
Exhibit L: Pending or Threatened Litigation
Exhibit M: Documents
Exhibit N: Impositions
Exhibit O: Hotel Names
Exhibit P: Employee Benefit Plans
Exhibit Q: FIRPTA Certificate
Exhibit R: Form of Agreement
Exhibit S: List of Employees
<PAGE>
AGREEMENT TO PURCHASE HOTEL
---------------------------
THIS AGREEMENT is made this 20th day of June, 1996, by and among Apartment
Inn Partners/Gwinnett, L.P., a Georgia limited partnership ("Seller"), Rosa
Dziewienski Pajonk ("Rosa"), and ESA 0996, Inc., a Georgia corporation
("Purchaser").
R E C I T A L S:
A. Seller is the fee owner of that certain parcel of land (and the
improvements and buildings located thereon) legally described in Exhibit A and
---------
commonly referred to as The Apartment Inn, 474 West Pike Street, Lawrenceville,
Georgia 30245 (the "Hotel") and the owner of the Fixtures and Tangible Personal
Property, Operating Equipment, Consumables, and Miscellaneous Hotel Assets (all
as hereinafter defined).
B. The Hotel's facilities include guest and public facilities consisting
of 126 rooms, administrative offices, and service areas.
C. Seller desires to sell, and Purchaser desires to purchase, the
Property upon and subject to the terms and conditions hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, agreements, covenants and conditions
herein contained, and other good and valuable consideration, Seller and
Purchaser agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
1.1 Definitions. As used herein, the following terms shall have the
-----------
respective meanings indicated below:
Affiliate: With respect to a specific entity, any natural person or any
---------
firm, corporation, partnership, association, trust or other entity which,
directly or indirectly, controls, or is under common control with, the subject
entity, and with respect to any specific entity or person, any firm,
corporation, partnership, association, trust or other entity which is controlled
by the subject entity or person. For purposes hereof, the term "control" shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of any such entity or the power to veto
major policy decision of any such entity, whether through the ownership of
voting securities, by contract, or otherwise.
Agreement: This Agreement to Purchase Hotel, including the Exhibits.
---------
Bookings: Contracts for the use or occupancy of guest rooms of the Hotel.
--------
Closing: As defined in Section 6.1.
-------
Compensation: The direct salaries and wages paid to, or accrued for the
------------
benefit of, any Employee, incentive compensation, vacation pay, severance pay,
employer's contributions under
<PAGE>
F.I.C.A., unemployment compensation, workmen's compensation, or other employment
taxes, and payments under Employee Benefit Plans (as hereinafter defined).
Consumables: All food and beverages (alcoholic, to the extent transferable
-----------
under applicable law, and non-alcoholic); engineering, maintenance and
housekeeping supplies, including soap, cleaning materials and matches;
stationery and printing; and other supplies of all kinds, in each case whether
partially used, unused, or held in reserve storage for future use in connection
with the maintenance and operation of the Hotel, which are on hand (including
off-site storage) on the date hereof, subject to such depletion and restocking
as shall occur and be made in the normal course of business but in accordance
with present standards, excluding, however, (i) Operating Equipment and (ii) all
items of personal property owned by Space Lessees, guests, employees, or persons
(other than Seller or any Affiliate of Seller, unless denominated as an Excluded
Asset hereunder) furnishing food or services to the Hotel.
Cut-off Time: 12:01 A.M. on the Closing Date.
------------
Department: Georgia Department of Revenue.
----------
Deposit: As defined in Section 3.2.
-------
Documents: Reproducible copies of all plans, specifications, drawings,
---------
blueprints, surveys, environmental reports and other documents which Seller has
in its possession, or has a right to, as the same relate to the Real Property,
including, but not limited to those relating to any prior or ongoing
construction or rehabilitation of the Real Property.
Employee(s): All persons employed by Seller and/or an Affiliate pursuant
-----------
to Employment Contracts.
Employee Benefit Plans: All employee benefit plans, as that term is
----------------------
defined in Section 3(2)(a) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including "multi-employer pension plans" as defined
in Section 3(37) of ERISA, and each other employee benefit plan or program
(including welfare benefit plans as defined in Section 3(1) of ERISA) to which
Seller contributes on behalf of any of the Employees.
Employment Contract(s): Those contracts and agreements, oral or written,
----------------------
with all or any of the executives, staff and employees of Seller and/or an
Affiliate for work in or in connection with the Hotel including, but not limited
to, individual employment agreements, union agreements, employee handbooks,
group health insurance plans, life insurance plans and disability insurance
plans (other than Employee Benefit Plans).
Environmental Laws: As defined in Section 5.1(u).
------------------
Environmental Study: As defined in Section 4.3.
-------------------
Excluded Assets: The following: (i) those assets, if any, listed on
---------------
Exhibit B hereto owned and to be retained by Seller or Affiliates of Seller;
- ---------
(ii) receivables; (iii) the name "Apartment Inn"; and (iv) except as provided to
the contrary in Section 17.1(f) hereof, all records, files and proprietary
operating manuals in the Hotel.
Excluded Permits: Permits and licenses required for the ownership and
----------------
operation of the Hotel which, under applicable law, are nontransferable.
-2-
<PAGE>
Fixtures and Tangible Personal Property: All fixtures, furniture,
---------------------------------------
furnishings, fittings, equipment, cars, trucks, machinery, apparatus, signage,
appliances, draperies, carpeting, and other articles of personal property now
located on the Real Property, or held in storage for future use at the Hotel,
and used or usable in connection with any part of the Hotel, subject to such
depletions, resupplies, substitutions and replacements as shall occur and be
made in the normal course of business but in accordance with present standards
excluding, however: (i) Consumables; (ii) Operating Equipment; (iii) equipment
and property leased pursuant to Hotel Contracts; (iv) property owned by Space
Lessees, guests, employees or other persons (other than Seller or any affiliate
of Seller, unless denominated as an Excluded Asset hereunder) furnishing goods
or services to the Hotel; and (v) Improvements.
FIRPTA Certificate: As defined in Section 17.1(m).
------------------
Hazardous Material: As defined in Section 5.1(u).
------------------
Hotel: The hotel referred to in the Recitals.
-----
Hotel Contracts: All management, service, maintenance, purchase orders,
---------------
leases and other contracts or agreements, including equipment leases capitalized
for accounting purposes, and any amendments thereto, with respect to the
ownership, maintenance, operation, provisioning, or equipping of the Hotel, or
any of the Property, as well as written warranties and guaranties relating
thereto, if any, including, but not limited to, those relating to heating and
cooling equipment and/or mechanical equipment, but exclusive, however, of (i)
insurance policies, (ii) the Bookings, (iii) the Space Leases, (iv) the
Employment Contracts, and (v) the Employee Benefit Plans.
Hotel Names: All names or other identifications used in connection with
-----------
the operation of Hotel.
Impositions: All taxes and other governmental charges of any kind
-----------
whatsoever that may at any time be assessed or levied against or with respect to
the Property, or any part thereof or any interest therein, including, without
limitation, all general and special real estate taxes and assessments or taxes
assessed specifically in whole or in part in substitution of general real estate
taxes or assessments; any taxes levied upon or with respect to the revenue,
income or profits of Seller from all or any part of the Property which, if not
paid, will become a lien on all or any part of the Property, or a lien or charge
on the rents, revenues or receipts therefrom; all assessed ad valorem taxes; all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep of the Property and all assessments and other charges made by any
governmental agency for improvements that may be secured by a lien on the
Property.
Improvements: The buildings, structures (surface and sub-surface) and
------------
other improvements, including such fixtures as shall constitute real property,
located on the Land.
Inspection Period: As defined in Section 4.1.
-----------------
Land: The parcel of real estate legally described in Exhibit A hereto,
---- ---------
together with all rights, title and interest, if any, of Seller in and to all
land lying in any street, alley, road or avenue, open or proposed, in front of
or adjoining said Land, to the centerline thereof, and all right, title and
interest of Seller in and to any easements benefitting such land, any award made
or to be made in lieu thereof and in and to any unpaid award for the damage to
said Land by reason of change of grade of any street.
-3-
<PAGE>
Legal Requirements: All laws, statutes, codes, acts, ordinances, orders,
------------------
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments and governmental
authorities having jurisdiction of the Hotel (including, for purposes hereof,
any local Board of Fire Underwriters), and the operation thereof.
Material Contracts: All Hotel Contracts which cannot be canceled by 30
------------------
days' or less notice without penalty or premium payment.
Miscellaneous Hotel Assets: All contract rights, leases, concessions,
--------------------------
copyrights, assignable warranties and other items of intangible personal
property of Seller relating to the ownership or operation of Hotel, but such
term shall not include (i) Bookings; (ii) Hotel Contracts; (iii) Space Leases;
(iv) Permits; (v) cash or other funds, whether in petty cash or house banks, or
on deposit in bank accounts or in transit for deposit; (vi) books and records
(except as provided in Section 17.1(f); (vii) refunds, rebates, or other claims,
or any interest thereon, for periods or events occurring prior to the Cut-off
Time; (viii) utility and similar deposits; (ix) prepaid insurance or other
prepaid items; and (x) prepaid license and permit fees; except to the extent
that Seller receives a credit as of Closing for any such item or matter.
Operating Equipment: All china, glassware, linens, silverware and
-------------------
uniforms, whether in use or held in reserve storage for future use, in
connection with the operation of the Hotel, which are on hand (including off-
site storage) on the date hereof, subject to such depletion and restocking as
shall be made in the normal course of business but in accordance with present
standards.
Parent: Extended Stay America, Inc., a Delaware corporation.
------
Permits: All licenses, franchises and permits, certificates of occupancy,
-------
authorizations and approvals used in or relating to the ownership, occupancy or
operation of any part of the Hotel.
Permitted Exceptions: Any liens, encumbrances, restrictions, exceptions
--------------------
and other matters specified in Exhibit C to which title to the Property may be
---------
subject on the Closing Date.
Personal Property: All of the Property other than the Real Property.
-----------------
Property: (i) The Real Property; (ii) the Fixtures and Tangible Personal
--------
Property; (iii) the Operating Equipment; (iv) the Consumables; (v) the
transferable right, title and interest of Seller in, to and under the Hotel
Contracts and Space Leases; (vi) the Bookings; (vii) the Permits (other than
Excluded Permits); (viii) the Hotel Names; (ix) the Documents; and (x) all other
Miscellaneous Hotel Assets, provided, however, that Property shall not include
the Excluded Assets.
Purchase Price: As defined in Section 3.1.
--------------
Real Property: The Land together with the Improvements located on the
-------------
Land.
Searches: As defined in Section 6.3(a).
--------
Section 1445: As defined in Section 17.1(m).
------------
-4-
<PAGE>
Software Program: The software programs used by Seller in connection with
----------------
the operation of the Hotel.
Space Leases: All leases, licenses, concessions and other occupancy
------------
agreements, and any amendments thereto, whether or not of record, for the use or
occupancy of any portion of the Real Property excluding, however, Bookings.
Space Lessee: Any person or entity entitled to occupancy of any portion of
------------
the Real Property under a Space Lease.
Submittals: As defined in Section 4.1.
----------
Submitted Financial Statements: Those financial statements of the Hotel
------------------------------
identified in Exhibit D hereto.
---------
Title Company: First American Title Insurance Company.
-------------
Title Defect: A lien, claim, charge, security interest or encumbrance
------------
other than a Permitted Exception.
Title Policy: As defined in Section 10.1(i).
------------
UCC: The Uniform Commercial Code in effect in the State of Georgia.
---
Violation: Any condition with respect to the Property which constitutes a
---------
violation of any Legal Requirements.
1.2 References. Except as otherwise specifically indicated, all
----------
references to Section and Subsection numbers refer to Sections and Subsections
of this Agreement, and all references to Exhibits refer to the Exhibits attached
hereto. The words "hereby," "hereof," "herein," "hereto," "hereunder,"
"hereinafter," and words of similar import refer to this Agreement as a whole
and not to any particular Section or Subsection hereof. The word "hereafter"
shall mean after, and the term "heretofore" shall mean before, the date of this
Agreement. Captions used herein are for convenience only and shall not be used
to construe the meaning of any part of this Agreement.
ARTICLE II
SALE AND PURCHASE
2.1 Sale and Purchase. Seller hereby agrees to sell (or to cause to be
-----------------
sold) to Purchaser, and Purchaser hereby agrees to purchase from Seller, the
Property on the terms and subject to the conditions of this Agreement.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price; Allocation Thereof. The aggregate consideration
----------------------------------
("Purchase Price") for the Property and the other agreements described herein
(the "Other Agreements") shall be:
-5-
<PAGE>
(a) Intentionally omitted
(b) A Note from Extended Stay America, Inc. to Seller in the form
attached hereto as Exhibit D-1 in the original principal amount of $4,100,000,
-----------
with a maturity date of July 15, 1996, which shall be paid in either cash or
additional Common Stock ("Additional Shares") if the Approved Sales occur as
contemplated by Section 3.4.
The Purchase Price shall be allocated in accordance with the values reasonably
attributable to the components of the Property and the other agreements as set
forth on Exhibit E hereto.
---------
3.2 INTENTIONALLY OMITTED.
----------------------
3.3 No Assumption of Seller's Obligations. Except as specifically
-------------------------------------
provided herein to the contrary, Purchaser shall not assume, or become obligated
with respect to, any obligation of Seller, including, but not limited to, the
following:
(a) Obligations of Seller now existing or which may arise prior to
the Cut-off Time with respect to any accounts payable or other payables;
(b) Obligations prior to the Closing Date of any term, covenant or
provision of any Employee Benefit Plan, Employment Contract, Hotel Contract or
Space Lease;
(c) Obligations of Seller now existing or which may hereafter exist
by reason of or in connection with any alleged misfeasance or malfeasance by
Seller in the conduct of its business, and with respect to any tort liability;
(d) Obligations to Employees with respect to any Compensation (or
pursuant to any Employment Contract or Employee Benefit Plan); and
(e) Obligations of Seller incurred in connection with or relating to
the transfer of the Property pursuant to this Agreement, including without
limitation, any Federal, state or local income, sales, transfer or other tax
incurred by reason of said transfer, all of which shall be the sole
responsibility of Seller.
3.4 Payment of the Note. Purchaser shall satisfy the obligations of
--------------------
Extended Stay America, Inc. under the Note by delivering Additional Shares
and/or cash to Seller, as the case may be, on or before the Note's maturity date
specified in the Note, subject to the following:
(a) Purchaser and Seller acknowledge that Seller intends to sell the
Additional Shares which are delivered by Purchaser in satisfaction of the Note
and the net proceeds realized by Seller shall be deducted from the balance of
the Note. Seller agrees that it shall attempt to sell such Additional Shares
only in bona fide private placements which are approved by Purchaser in its
reasonable discretion to a person or persons not affiliated with, related to, or
associated with Seller ("Approved Sales"). Purchaser shall deliver to Seller
that number of Additional Shares equal to the number of Additional Shares which
are sold pursuant to Approved Sales and such delivery shall be accomplished so
as to allow the Approved Sales to be consummated on a timely basis.
-6-
<PAGE>
(b) If the proceeds from Approved Sales are less than the amount due
under the Note, Purchaser shall also deliver cash to Seller prior to the
maturity date of the Note having a value equal to the difference between the
amount due under the Note and the proceeds from Approved Sales. In the event no
Approved Sales occur prior to the maturity date of the Note, the Note shall be
payable in cash on or before its stated maturity date. Seller shall use the
proceeds from Approved Sales first to satisfy any mortgages or deeds of trust
created or suffered by Seller which are a lien on the Property. Notwithstanding
the above, if proceeds received from Approved Sales are insufficient to satisfy
any mortgages or deeds of trust created or suffered by Seller which are a lien
on the Property, Purchaser shall set off against amounts due under the Note an
amount equal to such insufficiency and Purchaser shall apply such amount to
satisfy and release such liens.
(c) Purchaser shall indemnify, defend, and hold Seller harmless
against and with respect to all losses, damages, liabilities, costs, and
expenses to which Seller may become subject under the Securities Act of 1933, as
amended, or otherwise in connection with or arising out of Approved Sales.
ARTICLE IV
INSPECTION PERIOD
4.1 Inspection Period. The "Inspection Period" shall be the period from
-----------------
the date hereof to the Closing Date.
4.2 Submittals to Purchaser. Seller, at its expense, shall deliver to
-----------------------
Purchaser on or before June 24, 1996, true and correct copies of the following:
(a) the Permits, Hotel Contracts, Employment Contracts, Employee
Benefit Plans, Space Leases and notices of Violations (if any);
(b) a list of Bookings and a descriptive summary of the manner in
which all Bookings are made, whether oral or written, with or without deposits
or firm or contingent commitments for reservations, along with a copy of the
written agreements or confirmation letters used in connection with the Bookings;
(c) a descriptive summary of all pending or threatened litigation
which would or does materially impact the Property listed on Exhibit L;
---------
(d) the most recent real estate and personal property tax statements
for the Property;
(e) all Documents listed in Exhibit M, including, but not limited
---------
to, the plans and specifications;
(f) copies of all financial reports prepared for Seller for the 1995
and 1996 fiscal years of Seller ("Submitted Financial Statements"); and
(g) information reflecting the insurance loss history of the
Property for the period from January 1, 1995 to the present.
-7-
<PAGE>
4.3 Review and Inspection. During the Inspection Period, Purchaser shall
---------------------
review the Submittals and shall have the right to enter upon the Real Property
to inspect the Property and to conduct tests and investigations at its sole cost
and expense, except as provided herein. Seller shall cooperate with Purchaser,
or its agents, in arranging such inspections. Without limitation of the
foregoing, Purchaser or Purchaser's accountants or both may review the Submitted
Financial Statements and, in connection therewith, Seller shall supply such
documentation as Purchaser or Purchaser's accountants may reasonably request to
facilitate such review. Purchaser shall conduct all such inspections and reviews
in confidence and so as not to interfere unreasonably with the operation of the
Hotel. During the Inspection Period, Purchaser may order an environmental
report, at Purchaser's sole cost and expense, to be conducted by an
environmental engineering firm selected by Purchaser (the "Environmental
Study"). All materials and data of any and all nature made available to
Purchaser shall be kept confidential by Purchaser, and in the event the
transaction contemplated by this Agreement shall not be consummated for any
reason, all such materials and data in Purchaser's possession shall be returned
to Seller. Purchaser hereby agrees to indemnify, defend and holder Seller
harmless from and against all claims, liability and cost arising in connection
with Purchaser and its agents performing the above-mentioned inspections and
examinations on the Real Property.
4.4 Purchaser's Acceptance or Rejection. If, in its sole and absolute
-----------------------------------
discretion, Purchaser accepts the Submittals and the condition of the Property,
it shall give Seller written notice of such acceptance before expiration of the
Inspection Period. If Purchaser shall give Seller a notice of disapproval
before expiration of the Inspection Period or fails to give such notice, then,
without the necessity of further documentation, this Agreement shall be deemed
terminated and the Deposit shall be returned to Purchaser. Purchaser shall pay
to Seller the sum of $100.00 as fixed and liquidated compensation for such
termination, and neither party shall have any further obligation or liability to
the other party hereunder. The parties hereto acknowledge that Purchaser has
incurred substantial costs in connection with the negotiation and execution of
this Agreement, will incur additional substantial costs in conducting the
inspections contemplated by Section 4.3 and would not have entered into this
Agreement without the availability of the Inspection Period. Therefore, the
parties agree that adequate consideration exists to support the obligations of
the parties hereunder, even before expiration of the Inspection Period.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Seller and Rosa. Seller and Rosa
-------------------------------------------------
hereby represent and warrant, jointly and severally, the following to
Purchaser:
(a) Due Organization, etc. Seller is a Georgia limited partnership
---------------------
duly formed and validly existing in good standing under the laws of its state of
formation and has full power and authority (i) to own or lease its properties
and to carry on its business as it is now being conducted, (ii) to enter into
this Agreement and to sell, convey, transfer, assign, and deliver the Property
to Purchaser as provided herein, and (iii) to carry out the other transactions
and agreements contemplated hereby. This Agreement has been duly authorized by
all requisite action on the part of Seller. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby, except
as otherwise provided herein, do not require the consent or approval of any
governmental authority, nor shall such execution and delivery result in a breach
or Violation of any Legal Requirement, or constitute a default (or an
-8-
<PAGE>
event which with notice and passage of time or both will constitute a default)
under any contract or agreement to which Seller or an Affiliate is a party or by
which it or the Property is bound.
(b) Title to Real Property. Seller's interest in the Real Property
----------------------
is good and marketable title in fee simple, free and clear of all mortgages,
options, liens, charges, easements, agreements, claims, restrictions or other
encumbrances of any kind or nature except for the Permitted Exceptions.
(c) Title to Personal Property. Seller has good and marketable
--------------------------
title to the Personal Property, subject only to the Permitted Exceptions. All
items of Personal Property have been fully paid for to the extent that normal
business practice permits, except those items which are subject to installment
payments and with respect to which there are no installments due which are
delinquent. Without limiting the generality of the foregoing, at Closing Seller
shall have good and marketable title to all telephone and television equipment
located on the Property.
(d) Permits. (i) Exhibit F identifies all existing Permits and is
------- ---------
complete and correct in all material respects; (ii) such Permits constitute all
of the Permits currently necessary for the ownership and operation of the Hotel;
(iii) to Seller's knowledge, no default has occurred in the due observance or
condition of any Permit which has not been heretofore corrected; (iv) to
Seller's best knowledge, no Space Lessee has received any notice from any source
to the effect that there is lacking any Permit needed in connection with the
operation of the Hotel or any other operation connected therewith; and (v) all
Permits (except those Permits which are designated Excluded Permits on Exhibit
-------
F) are assignable to Purchaser.
(e) Hotel Contracts. Exhibit G identifies all Hotel Contracts and
--------------- ---------
the information noted therein is complete and correct in all material respects.
Except as disclosed in Exhibit G, there is no default under any Hotel Contract.
---------
Seller has provided (or will provide during the Inspection Period) true and
correct copies of all Hotel Contracts to Purchaser. Each Hotel Contract (other
than the Hotel Contracts designated as Material Contracts on Exhibit G may be
----------
canceled upon 30 days' or less notice without penalty or premium payment.
(f) Hotel Names. Exhibit O hereto identifies all Hotel Names and is
----------- ---------
complete and correct in all respects. Seller has not received any notice that
the use of any thereof infringes on the rights of a third party.
(g) Space Leases. Exhibit J identifies all Space Leases and is
------------ ---------
complete and correct in all material respects. Except as disclosed in Exhibit
-------
J, there is no default under any Space Lease. Seller has given (or will give,
during the Inspection Period) to Purchaser true and correct copies of all Space
Leases. Seller owns all right, title and interest of the lessor under each
Space Lease.
(h) Commissions, etc. Except as may be disclosed on Exhibits G or J
---------------- ---------- -
and other than in the ordinary course of business in connection with Bookings,
there are no commissions or referral fees relating to the Hotel currently
outstanding, nor will there be any such commissions or referral fees
outstanding, on or before the Closing Date. Seller has not entered into any
agreements with any referral organization or booking agent which contain any
obligations that extend beyond the Closing Date.
(i) Impositions.
-----------
(i) Except as described on Exhibit N hereto, Seller has timely
---------
filed all returns and reports for sales, use and property taxes required to
be filed by it with respect
-9-
<PAGE>
to the operation of the Property and has paid in full or made adequate
provision by the establishment of reserves for Impositions which have
become due with respect to the operation of the Property. There is no
sales, use or property tax deficiency proposed or threatened against Seller
with respect to the operation of the Property. There are no tax liens upon
any property or assets of Seller. Seller has made all payments of sales,
use and property taxes when due in amounts sufficient to avoid the
imposition of any penalty with respect to the Property.
(ii) Impositions which Seller was required by law to withhold
or to collect with respect to the Property have been duly withheld and
collected, and have been paid over to the proper governmental entity or are
being held by Seller for such payment, and all such withholdings and
collections and all other payments due in connection therewith as of the
date of the Submitted Financial Statements are duly reflected on the
Submitted Financial Statements.
(iii) Seller is not currently being audited by, and has not
received any notice of intention to audit from, any federal, state or local
sales, use or property taxing authority.
(j) Fixtures, Tangible Personal Property, etc. To the best of
-----------------------------------------
Seller's knowledge, except for such guest rooms as have been combined as two-
room suites (each of which contain such furniture and furnishings as is
appropriate), each guest room contains a complete set of furniture and
furnishings appropriate for a guest room of an extended-stay lodging hotel with
in-room kitchenette. The quantities of Fixtures and Tangible Personal Property,
Consumables and Operating Equipment in the Hotel, including physical reserves,
are sufficient for the proper and efficient operation of the Hotel in accordance
with the standards of operation heretofore maintained by Seller. Seller shall
continue to maintain the same at a level consistent with the average maintenance
for the 12 months preceding the date hereof.
(k) Submitted Financial Statements. To the best of Seller's
------------------------------
knowledge, the Submitted Financial Statements for the Hotel (which shall include
the income of restaurants, bars, retail rental space and garage portions of the
Hotel, if any) fairly present the results of operation of the Hotel for the
periods indicated, and were prepared in accordance with generally accepted
accounting principles, on a consistent basis, and there has been no material
adverse change in the results of the operations of the Hotel since the statement
dated for the period ended December 31, 1995.
(l) Bookings. Exhibit I identifies all Bookings for periods from
-------- ---------
and after the date hereof.
(m) Pending Litigation. Except as described in Exhibit L, there are
------------------ ---------
no actions, suits, or proceedings, pending or threatened against Seller or
affecting any of Seller's rights, in each case, with respect to the Property, at
law or in equity, or before any federal, state, municipal, or other governmental
agency or instrumentality, which might result in any order, injunction, decree
or judgment having an adverse effect on the Hotel or the Property, nor is Seller
aware of any facts which to its knowledge might result in any action, suit or
proceedings. Except as noted in Exhibit K, to the best of Seller's knowledge,
---------
the Hotel complies with all Legal Requirements. Except as noted in Exhibit K,
---------
Seller has not received any notice of any Violation of a Legal Requirement which
has not been heretofore corrected. Prior to the Closing Date, any uncured
Violations listed in Exhibit K and any other Violations that arise shall be
---------
cured by Seller at its sole expense.
-10-
<PAGE>
(n) Condemnation. There are no pending, or, to the knowledge of
------------
Seller, threatened, condemnation proceedings or condemnation actions against the
Real Property or any of the rights-of-way located adjacent thereto.
(o) Zoning. The Land is currently zoned for its present use.
------
(p) Assessments. No governmental assessment for sewer, sidewalk,
-----------
water, paving, electrical, power or other improvements is pending or threatened,
except as may be set forth on Exhibit C.
---------
(q) Labor Disputes. During the three (3) years preceding the date
--------------
hereof, Seller has not experienced any labor disputes or labor trouble other
than routine grievances or organizational efforts, none of which have had a
material adverse effect on the operations of the Property.
(r) Employees. Exhibit H is a complete list of all Employees with
--------- ---------
their salaries, position and terms of employment; and (i) except as set forth on
Exhibit H, Seller is not a party to any Employment Contract and no union is
- ---------
presently serving as collective bargaining agent for any Employees; (ii) to the
best of Seller's knowledge, no union presently is conducting or planning to
conduct an organizational campaign for any Employees; and (iii) with the
exception of the Employee Benefit Plans listed on Exhibit P, there is no
---------
pension, profit-sharing, bonus or other employee benefit plan relating to
current or past Employees.
(s) Utilities. All utility equipment and facilities required for
---------
the operation and use of the Hotel are located on the Property and all
agreements for providing utilities are with direct providers.
(t) Material Changes. There are no facts or circumstances
----------------
specifically related to the Hotel and the operation thereof not disclosed to
Purchaser of which Seller has knowledge (and Purchaser does not), which have or
could have a material adverse effect upon the Hotel or its operation. Seller
agrees to notify Purchaser immediately of such facts or circumstances if it
becomes aware of the same prior to Closing.
(u) Environmental Matters.
---------------------
(i) To the best of Seller's knowledge, Seller has not
transported, stored, treated, or disposed of, nor has it allowed or
arranged for any third parties to transport, store, handle, treat, or
dispose (as hereinafter defined) of Hazardous Substances or other waste to
or at any location other than a site lawfully permitted to receive such
Hazardous Substances or other waste for such purposes, nor has it
performed, arranged for, or allowed by any method or procedure such
transportation, storage, treatment, or disposal in contravention of any
laws or regulations or in a manner giving rise to any liability whatsoever.
Seller has not stored, handled, treated, or disposed of, nor allowed or
arranged for any third parties to store, handle, treat, or dispose of
Hazardous Substances or other waste upon property owned or leased by it,
except as permitted by law. For purposes of this Section 5.1(u), the term
"Hazardous Substances" shall include, without limitation, any material or
substance that is one or more of the following: (i) defined as a
conventional, hazardous, toxic, regulated or solid pollutant, contaminant,
substance or waste pursuant to any Environmental Law (as hereinafter
defined), (ii) petroleum, (iii) asbestos, (iv) corrosive, toxic, flammable,
explosive, reactive, mutagenic, carcinogenic, infectious or radioactive,
(v) materials mixed with, containing or derived from any of the foregoing
or (xvii) any material which is or
-11-
<PAGE>
becomes regulated by any Environmental Law which is released (as
hereinafter defined) at or from the Real Property or which has migrated to
or from the Real Property or is found on the Real Property or any other
site affected by such release at, to, on or from the Real Property. The
terms release(d), transport(ed), store(d), treat(ed), handle(d),
arrange(d), dispose(d) and disposal shall have the meanings assigned by the
Comprehensive Environmental Response Compensation and Liability Act, 42
U.S.C.A. Section 9601 et seq. ("CERCLA") or the Resource Conservation and
Recovery Act, 42 U.S.C.A. Section 6901 et seq. (42 U.S.C.A. Section 6903
("RCRA").
(ii) To the best of Seller's knowledge, there has not occurred
during Seller's occupancy nor is there currently occurring, a release of
any Hazardous Substance to, from, on, into, or beneath the surface of the
Land.
(iii) To the best of Seller's knowledge, the Seller has not
shipped, transported, or disposed of, nor has it allowed or arranged, by
contract, agreement, or otherwise, for any third parties to ship,
transport, or dispose of, any Hazardous Substance or other waste to or at a
site which, pursuant to CERCLA or any similar state law, (i) has been
placed on the National Priorities List or its state equivalent, or (ii) the
Environmental Protection Agency or the relevant state agency has proposed
or is proposing to place on the National Priorities List or its state
equivalent. Seller has not received written notice, nor does it have
knowledge of any facts which could give rise to any written notice, that
Seller is a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under CERCLA or any
other applicable law or regulation. Seller has not submitted nor was it
required to submit any notice pursuant to Section 103(c) of CERCLA, or
pursuant to any federal, state or local requirement for notification of a
release with respect to the Real Property. Seller has not received any
written request for information from any federal, state or local
governmental authority in connection with any release. Seller has not been
required to or has not undertaken any response, investigation, monitoring,
or remedial actions or clean-up actions of any kind at the request of any
federal, state, or local governmental entity, or at the request of any
other person or entity.
(iv) Seller does not use, and has not used, any Underground
Storage Tanks, and there are not now nor to the best of Seller's knowledge
have there ever been any Underground Storage Tanks on the Land. For
purposes of this Section 5.1(u)(iv), the term "Underground Storage Tanks"
shall have the meaning given it in the Resource Conservation and Recovery
Act (42 U.S.C. Sections 6901 et seq.).
(v) To the best of Seller's knowledge, there is no asbestos
in or on the Real Property.
(vi) Seller has not received written notice of any violation,
noncompliance or breach of any environmental or worker safety laws or
regulations which require any work, repairs, construction, or capital
expenditures with respect to the assets or properties of Seller.
(vii) Seller has delivered to Purchaser, if any exist: (i) all
environmental audits, assessments, or occupational health studies
undertaken by Seller or its respective agents or known to have been
undertaken by or at the order or request of governmental agencies; (ii) the
results of any ground, water, soil, air, or asbestos monitoring or
investigation undertaken with respect to the Real Property; (iii) all
written communications between Seller and any environmental
-12-
<PAGE>
agencies; and (iv) all citations issued under the Occupational Safety and
Health Act (29 U.S.C. Sections 651 et seq.).
(viii) Seller's Environmental Indemnity.
(a) Indemnification. Seller and Rosa shall defend,
---------------
indemnify and hold harmless Purchaser, its nominees, officers,
directors, agents, employees, successors, lenders, assigns,
affiliates, subsidiaries, parent companies (if any), shareholders,
lenders, representatives and the successors and assigns of all of the
foregoing from and against, any breach of any of representations and
warranties of Seller set out herein at Section 5.1(u)(i) through
5.1(u)(vii).
(b) Discharge of Environmental Claims. In the event
---------------------------------
that Purchaser notifies Seller of any claim that may be subject to an
indemnification obligation under this Section 5.1(u), Seller shall,
within thirty (30) days from the date of receipt of notice,
acknowledge and assume the liability asserted. During such thirty
(30) day period, Purchaser shall not take any action or incur any
expense with respect to the claim, except to the extent that such
action or expense is legally required or reasonably necessary under
the circumstances.
Seller shall have the right and obligation to control,
manage and direct all discussions, proceedings and activities
regarding the satisfaction or discharge of any claim which is assumed
by Seller or any liability or obligation that such a claim seeks to
impose on Seller.
Purchaser shall have the right, at its own expense, to
consult with Seller, through counsel or otherwise, with respect to all
meetings and proceedings with adverse parties or governmental
authorities regarding any Environmental Claim and with respect to all
activities pertaining to that matter. Prior to initiating or
participating in any meeting or proceeding in which decisions or
discussions adverse to Purchaser may be made, Seller shall consult
with Purchaser. This right of consultation shall not apply to
confidential meetings or documents in cases where Seller or Purchaser
are disputing or litigating claims against each other in a judicial or
administrative proceeding. Seller shall promptly notify Purchaser in
writing before Seller initiates or participates in any meeting or
proceeding in which decisions or discussions adverse to Purchaser may
be made, including without limitation decisions or discussions
concerning matters not covered by this Agreement. Purchaser shall have
the right, but not the obligation, to participate in such meetings or
proceedings.
(c) Remedies. If Seller fails to perform its
--------
obligations under this Section 5.1(u), Purchaser may, at its option
(1) bring an action for injunction or specific performance of this
Section 5.1(u) or this Agreement, and in such action, recover damages
suffered by Purchaser as a result of Seller's breach or delay in
performing its obligations, or (2) bring an action for damages for
Seller's breach of its obligations, or (3) bring an action for
response costs or other relief under federal or state environmental
laws or regulations, or (4) any combination of the above. In the
event that Purchaser prevails in such an action, it shall be entitled
to recover from Seller the costs and expenses of bringing the action,
including reasonable attorneys' fees. No delay or omission in the
exercise of any right or remedy accruing to Purchaser upon any breach
by Seller under this Agreement shall impair any such
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<PAGE>
right or remedy or be construed as a waiver of such breach
theretofore or thereafter occurring. The waiver by Purchaser of any
condition or of any breach of any term, covenant or condition
contained in this Agreement shall not be deemed to be a waiver of any
other condition or of any subsequent breach of the same or of any
other term, covenant or condition of this Agreement. All rights,
powers, options or remedies afforded to Purchaser either under this
Section 5.1(u) or this Agreement or by law or by equity, shall be
cumulative and not alternative and the exercise of any right, power,
privilege or remedy shall not bar other rights, powers, privileges or
remedies.
(v) Documents. Exhibit M is a list of all of the Documents; Seller
--------- ---------
knows of no other document or instrument relating to the Hotel, or the ownership
or operation thereof.
(w) Seller's Knowledge. For the purposes of this Section 5.1, the
------------------
phrases "to the best of Seller's knowledge," "to Seller's knowledge" and similar
phrases shall imply a reasonable investigation by Seller and its agents.
(x) Third Party Property. Seller is not in possession of any
--------------------
property owned by third parties other than (i) property leased by Seller
pursuant to leases disclosed to Purchaser pursuant to this Agreement; (ii)
baggage of current guests which has been checked with or left in the care of
Seller; and (iii) contents in safe deposit boxes deposited by current guests.
(y) Investment Representations. Seller represents and warrants that
--------------------------
each of it and its partners either (i) is an "accredited investor" as defined in
17 C.F.R. 230.501(a); or (ii) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
investment in the Shares as contemplated by this Agreement. Seller represents
that they have received a prospectus of Parent dated as of the date of this
Agreement.
5.2 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants the following to Seller:
(a) Authority. Purchaser has all requisite power and authority to
---------
execute and deliver this Agreement and to consummate the transactions
contemplated hereby pursuant to the terms and conditions hereof.
(b) No Conflict. The execution and delivery of this Agreement and
-----------
the consummation of the transactions contemplated hereby will not conflict with,
breach, result in a default under, or violate any commitment, document or
instrument to which Purchaser is a party or by which it is bound.
(c) Parent Shares. The Shares have been registered by the Parent
-------------
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "SEC"), a so-called "shelf" registration statement (the
"Registration Statement"), in accordance with the provisions of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "1933 Act"). Upon the issuance and delivery of the Shares to the Seller in
accordance with this Agreement, such shares will constitute legally and validly
authorized and issued, fully paid, and nonassessable shares of Common Stock.
The Registration Statement has been declared effective under the 1933 Act. The
Parent is in compliance with the undertakings contained in the Registration
Statement and to the knowledge of the Purchaser, no stop order suspending the
effectiveness of the Registration Statement has been issued under the 1933 Act.
(d) Rule 145. Purchaser covenants that it will file the reports
--------
required to be filed
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<PAGE>
by it under the Securities Act of 1933, as amended (the "Act") and the
Securities Exchange Act of 1934, as amended and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, to the extent
required from time to time to enable Seller to sell the shares of Common Stock
delivered to Seller pursuant to this Agreement without registration under the
Act within the limitation of the exemptions provided by Rule 145(d) under the
Act.
5.3 Duration of Representations and Warranties. All representations and
------------------------------------------
warranties contained in Sections 5.1 and 5.2 shall be deemed restated on and as
of the Closing Date.
ARTICLE VI
CLOSING MATTERS
6.1 Closing. The closing of the transaction contemplated hereby (the
-------
"Closing") shall take place at the offices of the Title Company on or before
June 24, 1996 (the "Closing Date") or such other date and/or place as may be
mutually agreed by the parties.
6.2 Manner of Closing. The transaction shall be closed with the
-----------------
concurrent delivery of the documents of title, transfer of interests, delivery
of the title policy described in Section 10.1(i) and the payment of the Purchase
Price. Seller shall provide and pay for any undertaking (the "Gap Undertaking")
to the Title Company necessary for the Closing to occur.
(a) Searches. Seller shall deliver to buyer, not less than three
--------
(3) days prior to the Closing Date, UCC, judgment and tax lien searches on the
names of the Seller covering a date not earlier than seven (7) days prior to the
date hereof (the "Searches") showing no Title Defect as to the Property unless
the same is to be paid by Seller and released at or prior to Closing.
(b) Defects. With respect to the survey and title commitment
-------
obtained by Purchaser and the Searches delivered to Purchaser by Seller, if the
same shall reflect any facts that would result in a Title Defect, Seller shall
have thirty (30) days from the expiration of the Inspection Period within which
to cure or remove the Title Defect. Seller shall be obligated to remove
mortgages, deeds of trust and other liens or encumbrances of a definite and
ascertainable amount, which the parties agree may be removed by the use of the
proceeds of sale at Closing as provided in Section 6.3(c) below. In the
alternative, Seller may make arrangements satisfactory to the Title Company for
the cure (including insurance over) or removal of record of any such Title
Defect. If any such Title Defect is not cured or otherwise provided for as
aforesaid on or prior to the thirtieth (30th) day, the Purchaser shall either:
(i) terminate this Agreement, in which event (hereinafter referred to as
"Election No. 1") the Deposit shall be returned to Purchaser and the parties
shall have no further obligation or liability to each other hereunder; or (ii)
accept the title commitment, survey, or Searches as is, with the right, however,
to deduct the amount of Title Defects represented by liens or encumbrances of a
definite or ascertainable amount from the Purchase Price payable at Closing
(hereinafter referred to as "Election No. 2"). Title Defects which are
acceptable as part of Election No. 2 shall thereupon be deemed to be Permitted
Exceptions and Exhibit C shall be amended, if necessary, to include such
---------
additional Permitted Exceptions. Election No. 2 shall be made by the Purchaser
giving Seller written notice thereof within five (5) days after notice of
Seller's inability to cure or remove the Title Defect and in the absence of
notice of Election No. 2 within such five (5) day period, Purchaser shall be
deemed to have elected Election No. 1. In the event Purchaser elects Election
No. 1 and a Title Defect was created or suffered by Seller, Purchaser shall be
paid by Seller the actual costs of Purchaser's investigation not to exceed
$10,000.00 in addition to recovery of the Deposit.
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<PAGE>
(c) Removal of Liens, etc. If on the Closing Date there shall be
---------------------
any Title Defect which is capable of satisfaction by the payment of money, then
Seller shall either (a) use a portion of the Purchase Price to satisfy the same,
provided Seller shall simultaneously either deliver to Purchaser at Closing
instruments, in recordable form, sufficient to satisfy such Title Defect of
record, together with the cost of recording or filing said instrument; or (b) in
the alternative, make arrangements with the Title Company, in advance of
Closing, whereby Seller will deposit with the Title Company sufficient monies,
acceptable to the Title Company to induce the Title Company to issue the Title
Policy to Purchaser, either free of any such Title Defect or with insurance
which "insures over" such Title Defect. Purchaser agrees to provide at Closing
separate certified checks as requested, to facilitate the satisfaction of any
such Title Defects, if request is made within a reasonable time prior to the
Closing Date. The existence of any Title Defects capable of satisfaction by the
payment of money shall not be deemed to be Title Defects for the purposes of
cure periods, as discussed supra in Section 6.3(b), if Seller shall comply with
-----
the foregoing requirements.
ARTICLE VII
CLOSING DELIVERIES
7.1 Seller's Deliveries. At Closing, Seller shall deliver, or cause to
-------------------
be delivered to Purchaser, the following, each of which shall be in form and
substance acceptable to counsel for Purchaser and, in the case of documents of
transfer or conveyance, shall be accepted or consented to by all parties
required to make such transfer or conveyance effective:
(a) a recordable limited warranty deed from Seller to Purchaser
subject only to the Permitted Exceptions;
(b) a Bill of Sale, with special covenants of title, transferring to
Purchaser all of Seller's right, title and interest in and to each and every
item of Fixtures and Tangible Personal Property, Documents, Consumables and
Operating Equipment to be transferred hereunder subject only to Permitted
Exceptions, and with respect to any vehicles included therein, such separate
forms of assignment as are required to be filed with any governmental agency to
effect such change in registration of ownership;
(c) all of the Bookings, Hotel Contracts, Space Leases, Permits and
other tangible Miscellaneous Hotel Assets, together with an Assignment conveying
and transferring to Purchaser all of Seller's right, title and interest in, to
and under the Bookings, Hotel Contracts, Space Leases, Permits (other than
Excluded Permits) and all other Miscellaneous Hotel Assets;
(d) the certificate referred to in Section 10.1(b) hereof;
(e) the Noncompete Agreements, in the form attached hereto as
Exhibit R, executed by Tempo Real Estate Corporation, the sole general partner
- ---------
of Seller, and Rosa.
(f) a FIRPTA Certificate;
(g) estoppel letters from all of the Space Lessees in the form of
Exhibit J-1 and any estoppel certificates for Hotel Contracts which may be
- -----------
required pursuant to Section 10.1(f);
(h) Affidavit of Title for the Real Property, in customary form;
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<PAGE>
(i) notices to Space Lessees of change in ownership of the Hotel, if
requested by Purchaser;
(j) the opinion of Seller's counsel as provided by Section 10.1(c);
(k) State of Georgia and County of Gwinnett transfer stamp
declarations;
(l) evidence acceptable to Purchaser and the Title Company of the
authority of the general partners of Seller to convey the Property on behalf of
the Seller, and resolutions of the directors of the general partner of Seller
authorizing the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby;
(m) a certificate of the secretary of the general partner of Seller,
dated as of the Closing Date, certifying the incumbency of the officer(s) of the
general partner of Seller executing the documents delivered by Seller pursuant
to this Agreement;
(n) evidence satisfactory to Purchaser of termination of the
management agreement between Seller and A/I Development, Inc., a Georgia
corporation.
7.2 Purchaser's Deliveries. At the Closing, Purchaser shall cause to be
----------------------
delivered to Seller:
(a) the stock certificates described in Section 3.1(a), registered
in the name of Seller;
(b) the Note described in Section 3.1(b);
(c) the certificate referred to in Section 9.1(b) hereof;
(d) the opinion of Purchaser's counsel as provided by Section
9.1(c); and
(e) State of Georgia and County of Gwinnett transfer stamp
declarations.
7.3 Concurrent Transactions. All documents or other deliveries required
-----------------------
to be made by Purchaser or Seller at Closing, and all transactions required to
be consummated concurrently with Closing, shall be deemed to have been delivered
and to have been consummated simultaneously with all other transactions and all
other deliveries, and no delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until all deliveries
required by Purchaser, or its designee, and Seller shall have been made, and all
concurrent or other transactions shall have been consummated.
7.4 Further Assurances. Seller and Purchaser will, at the Closing, or at
------------------
any time or from time to time thereafter, upon request of either party, execute
such additional instruments, documents or certificates as either party deems
reasonably necessary in order to convey, assign and transfer the Property to
Purchaser, hereunder.
7.5 Possession. Possession of the Property shall be delivered at
Closing. Subject to the provisions of Section 17.1(f), Excluded Assets (other
than any thereof under leases to be assumed by Purchaser) shall be removed from
the Hotel by Seller, at its expense, on or before the Closing Date. Seller, at
its expense shall make all repairs necessitated by such removal but shall have
no obligation to replace any Excluded Asset so removed.
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<PAGE>
ARTICLE VIII
ADJUSTMENTS AND PRORATIONS
8.1 Adjustments and Prorations. The following matters and items shall be
--------------------------
apportioned between the parties hereto or, where appropriate, credited in total
to a particular party, as of the Cut-off Time as provided below:
(a) Down Payments for Reservations. Any pre-closing down payments
------------------------------
made to Seller on confirmed reservations for dates after the Closing Date will
be credited to Purchaser as of the Closing. Any post-closing down payments made
to Seller on confirmed reservations for dates after the Closing Date will be
forwarded to Purchaser upon receipt.
(b) Taxes and Assessments. All ad valorem taxes, special or general
---------------------
assessments, personal property taxes, attorneys' fees directly related to the
reduction of taxes or assessments, water and sewer rents, rates and charges,
vault charges, canopy permit fees, and other municipal permit fees. If the
amount of any such item is not ascertainable on the date the proration schedule
is completed pursuant to Section 8.3, the credit therefor shall be based on one
hundred percent (100%) of the most recent available bill and shall be reprorated
upon receipt of the actual tax bill. Notwithstanding the above, special real
property tax assessments for which the work is substantially completed as of the
Closing Date shall be paid by Seller.
(c) Utility Contracts. Telephone and telex contracts and contracts
-----------------
for the supply of heat, steam, electric power, gas, lighting and any other
utility service, with Seller receiving a credit for each deposit, if any, made
by Seller as security under any such public service contracts if the same is
transferable and provided such deposit remains on deposit for the benefit of
Purchaser. Where possible, cut-off readings will be secured for all utilities on
the Closing Date.
(d) Hotel Contracts and Space Leases. Any amounts prepaid or
--------------------------------
payable under any Hotel Contracts and Space Leases shall be apportioned between
the parties. Any percentage rentals under Space Leases shall be prorated on the
basis of the ratio of the number of days expired before Closing to the number of
days after Closing, for the current percentage rent period of the Space Lease.
All security deposits held by Seller shall be transferred to Purchaser and all
obligations with respect to such security deposits shall be assumed by
Purchaser.
(e) License Fees. Fees paid or payable for Permits (other than
------------
Excluded Permits) shall be apportioned between the parties.
(f) Hotel Matters.
-------------
(i) Advance payments, if any, under Bookings for Hotel
facilities which shall include prepaid amounts by current guests;
(ii) Coin machine, telephone, washroom and checkroom income;
and
(iii) Commissions to credit and referral organizations.
(g) Insurance. Prepaid premiums for policies of insurance which are
---------
assigned to Purchaser. Seller shall assign such of its policies of insurance
for the Property which has been designated by Purchaser to be assigned to
Purchaser as of the Closing Date.
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<PAGE>
(h) Employment Contracts. Seller shall be responsible for, and
--------------------
shall pay when due, all Compensation of Employees, until the Cut-off Time.
Purchaser assumes no Employment Contracts and assumes no obligation with respect
to any Employee Benefits all of which shall be the responsibility of Seller.
(i) Consumable Items. The cost of any Consumables or Operating
----------------
Equipment which are at a level below the level required to be maintained under
this Agreement shall be credited to Purchaser.
(j) Other. Such other items as are provided for in this Agreement
-----
or as are normally prorated and adjusted in the sale of a hotel, including
without limitation, all petty cash funds and cash in house banks, and all
deposits and prepaid items which inure to the benefit of the Purchaser.
8.2 Receivables. Purchaser is not purchasing any of the receivables of
-----------
the Hotel and Seller shall be solely responsible for the collection of accounts
receivable arising prior to the Closing Date. If Purchaser shall receive any
payment made on any unpurchased accounts receivable within ninety (90) days
after the Closing Date, it shall promptly remit such payment to Seller. With
regard to any collection made from any person or entity who is indebted to the
Hotel both with respect to accounts receivable accruing prior to the Closing
Date and to the accounts receivable accruing subsequent to the Closing Date,
such collection shall be applied as designated by the payor, but if there is no
designation, then any such collections received within ninety (90) days after
the Closing Date shall be applied first to the indebtedness accrued prior to the
Closing Date, but thereafter, any such collections shall be applied first to the
payment in full of any amounts due to Purchaser on accounts accruing subsequent
to the Closing Date.
8.3 Proration Schedule.
------------------
(a) A schedule setting forth the adjustments and prorations to be
made pursuant to Section 8.1 above shall be prepared by Purchaser and forwarded
to Seller within sixty (60) days after the Closing Date. Seller shall be
afforded the opportunity to review all work papers and computations used by
Purchaser in the preparation of the adjustments and prorations. The schedule as
delivered shall be deemed accepted by Seller except to the extent, if any, that
Seller, within ten (10) days after the date of delivery thereof to Seller, has
delivered a written notice to Purchaser stating any exceptions Seller may have
to such schedule. If within such period Seller shall give written notice to
Purchaser of any exceptions to the schedule as delivered by Purchaser, the
parties shall attempt to resolve all of the exceptions. To the extent that any
such exceptions are not resolved within fifteen (15) days after the delivery to
Purchaser of Seller's exceptions to the schedule, such differences shall be
submitted as soon as practicable thereafter to such "Big Six" accounting firm
upon which the parties shall agree, for final determination thereof. If the
parties are not able to agree upon an accounting firm, each shall designate a
"Big Six" accounting firm and give written notice to the other of the name and
address of the firm so designated. The two firms shall consult with each other
and, if possible, determine the exceptions in question by mutual agreement, and
their determination so agreed upon, if certified to the parties prior to their
reaching agreement independently of arbitration, shall be final and conclusive.
If the two firms are not able to agree upon the exceptions in question, they
jointly shall designate a third firm whose determination concerning the
exceptions shall be final and conclusive, if certified to the parties prior to
their reaching agreement independent of arbitration. Any determination by such
accounting firm(s) as to the proper determination of any such item submitted to
it for determination shall be conclusive and binding upon the parties for
purposes of this Agreement. Seller and Purchaser shall each pay one-half of such
fees charged by such accounting firm(s) in connection with any matter submitted
to it hereunder.
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<PAGE>
(b) The net amount due pursuant to the adjustments and prorations
made as required by this Section 8.3 shall be paid by cash or bank cashier's
check payable in immediately available funds in United States currency to the
order of the party to whom the same shall be due upon final determination of the
adjustments and prorations required hereunder.
(c) Period for Recalculation. Notwithstanding the foregoing, if at
------------------------
any time within six (6) months following the Closing Date, either party
discovers any items which should have been included in the prorations but were
omitted therefrom, then such items shall be adjusted in the same manner as if
their existence had been known at the time of the preparation of the prorations.
The foregoing limitations shall not apply to any items which, by their nature,
cannot be finally determined within the periods specified.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
9.1 Conditions. Seller's obligation to close hereunder shall be subject
----------
to the occurrence of each of the following conditions, any one or more of which
may be waived by Seller in writing:
(a) Purchaser's Compliance with Obligations. Purchaser shall have
---------------------------------------
complied with all obligations required by this Agreement to be complied with by
Purchaser.
(b) Truth of Purchaser's Representations and Warranties. The
---------------------------------------------------
representations and warranties of Purchaser contained in Section 5.2 were true
in all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Seller shall have received a
certificate to that effect signed by an authorized agent of Purchaser.
(c) Opinion of Purchaser's Counsel. Purchaser shall have delivered
------------------------------
to Seller a favorable written opinion of Pedersen & Houpt in connection with
this transaction, dated the Closing Date, as to (i) the power and authority of
Purchaser to execute and deliver this Agreement, (ii) the due authorization,
execution and delivery by Purchaser of this Agreement, and (iii) the legality,
validity and, as to Purchaser, the binding effect of this Agreement (subject to
the effect of bankruptcy and similar laws affecting the enforcement of
creditors' rights generally and to the discretion of a court of equity to
enforce equitable remedies).
9.2 Failure of Conditions. If any of the conditions enumerated in
---------------------
Section 9.1 are not fulfilled and, as a consequence thereof, Seller elects to
terminate this Agreement, such failure shall be deemed a default by Purchaser
hereunder and the consequences thereof shall be governed by the provisions of
Section 3.2.
ARTICLE X
CONDITIONS TO PURCHASER'S OBLIGATIONS
10.1 Conditions. Purchaser's obligation to close hereunder shall be
----------
subject to the occurrence of each of the following conditions, any one or more
of which may be waived by Purchaser in writing:
(a) Seller's Compliance with Obligations. Seller shall have
------------------------------------
complied with all obligations required by this Agreement to be complied with by
Seller.
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<PAGE>
(b) Truth of Seller's Representations and Warranties. The
------------------------------------------------
representations and warranties of Seller contained in Section 5.1 were true in
all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Purchaser shall have received a
certificate to that effect signed by an authorized agent of Seller.
(c) Opinion of Seller's Counsel. There shall have been delivered to
---------------------------
Purchaser a favorable opinion of DeVille & Milhollin, counsel to Seller in
connection with this transaction, dated the Closing Date as to (i) the power and
authority of Seller to execute and deliver this Agreement; (ii) the due
authorization, execution and delivery by Seller of this Agreement and all other
documents required to be executed and delivered by Seller pursuant to Section
7.1 hereof; and (iii) the legality, validity and, as to Seller, the binding
effect of this Agreement and all other documents required to be executed and
delivered by Seller pursuant to Section 7.1 hereof (subject in each case to the
effect of bankruptcy and similar laws affecting creditors' rights generally and
to the discretion of a court of equity to enforce equitable remedies).
(d) Obtaining of Excluded Permits. Purchaser shall have obtained
-----------------------------
(or otherwise assured itself of the availability of), in its own or its
designee's name, all Permits of the type designated as Excluded Permits on
Exhibit F, except liquor licenses and permits, necessary for the operation of
- ---------
the Hotel. Purchaser agrees to use commercially reasonable efforts (and Seller,
at Purchaser's expense, agrees to cooperate fully with Purchaser in such regard)
to obtain all such Excluded Permits.
(e) Governmental Approvals. Except as provided to the contrary in
----------------------
subsection (d) above, if this transaction, or any part or parts hereof, or the
consummation of any of the transactions herein contemplated, shall require
authorization or approval of any governmental agency having jurisdiction, all
such authorizations and approvals shall have been obtained and shall be in full
force and effect on and as of the Closing Date. Seller agrees to use its
commercially reasonable efforts and all due diligence to cause such
authorizations or approvals to be obtained, and Purchaser agrees to cooperate
with Seller in all reasonable respects with respect thereto, but at the sole
cost and expense of Seller. If such authorizations and approvals shall not have
been obtained on or prior to the last day for Closing hereinabove provided, the
Closing Date may be deferred, at the election of Purchaser, for an additional
period of time, not to exceed thirty (30) days, as shall be necessary to obtain
any authorizations or approvals not then obtained.
(f) Estoppel Certificates--Hotel Contracts. Purchaser shall notify
--------------------------------------
Seller, in writing at least thirty (30) days prior to the Closing Date, of the
Material Contracts for which Purchaser requires estoppel certificates. Each of
said estoppel certificates shall be in writing from the parties to such Material
Contract stating that such Material Contract is in full force and effect, has
not been amended or modified except as therein indicated, that such party
consents to the assignment to Purchaser and that no party is then in default
under such Material Contract (or if any default is known to exist, or would
arise with the giving of notice or the passage of time, stating the nature of
such default). The estoppel certificates herein referred to shall be in form
and substance reasonably satisfactory to Purchaser and dated not more than
thirty (30) days prior to the Closing Date.
(g) No Pending Adverse Litigation. On the Closing Date, there shall
-----------------------------
not then be pending or, to the knowledge of either Purchaser or Seller,
threatened, any litigation, administrative proceeding, investigation or other
form of governmental enforcement, or executive or legislative proceeding which,
if determined adversely, would restrain the consummation of any of the
transactions herein referred to, declare illegal, invalid or non-binding any of
the covenants or obligations of the parties herein, or have a material and
adverse effect on the operations or cash flow
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<PAGE>
of the Hotel, or materially and adversely affect the value of the Property or
the ability of Purchaser, after the Closing, to operate the Hotel in the manner
contemplated hereby, other than those matters previously disclosed and approved
by Purchaser.
(h) Securities Laws. Parent shall have received all necessary
---------------
permits and otherwise complied with any state blue sky or other securities laws
applicable to the issuance of shares of Parent's common stock in connection with
the transaction contemplated hereby and Purchaser agrees to use its best efforts
to cause Parent to accomplish the foregoing.
(i) Title Policy. Purchaser shall have received contemporaneously
------------
upon Closing, an ALTA Owner's Insurance Policy issued by the Title Company in
the amount of the Purchase Price, showing good and marketable fee simple title
in the Real Property to be vested in Purchaser, which waives the general
exceptions, and subject only to the Permitted Exceptions (the "Title Policy"),
with such endorsements as Purchaser shall request.
(j) Service Mark. Purchaser shall have received, pursuant to an
-------------
agreement in form acceptable to Purchaser, the perpetual right to use the name
"Apartment Inn" to identify the Hotel.
10.2 Failure of Conditions. If any of the conditions enumerated in
---------------------
subsections (d), (e), (f), (g), (i) and (j) of Section 10.1 are not fulfilled,
then the sole remedy of Purchaser shall be to terminate this Agreement
(whereupon the Deposit shall be returned to Purchaser and neither party shall
have any further obligations or liability hereunder), unless the failure to
fulfill such condition constitutes, or results from, either (i) a material
breach of an express representation or warranty made by Seller hereunder, or
(ii) a material default of an express covenant made by Seller hereunder, in
which event Purchaser shall be entitled to pursue against Seller any and all
remedies available to Purchaser, at law or in equity. If any of the conditions
enumerated in subsections (a), (b) and (c) of Section 10.1 are not fulfilled
and, as a consequence thereof, Purchaser elects to terminate this Agreement,
such failure shall be deemed a default by Seller hereunder, the Deposit referred
to in Section 3.2 shall be promptly returned to Purchaser, and Purchaser shall
be entitled to pursue against Seller any and all remedies available to
Purchaser, at law or in equity.
ARTICLE XI
ACTIONS AND OPERATIONS PENDING CLOSING
11.1 Actions and Operations Pending Closing. Seller agrees that after the
--------------------------------------
expiration of the Inspection Period and until the Closing Date:
(a) The Hotel will continue to be operated and maintained
substantially in accordance with present standards.
(b) Seller will not enter into any new Material Contract or Space
Lease, or cancel, modify or renew any existing Material Contract or Space Lease,
without the prior written consent of Purchaser, which consent shall not be
unreasonably withheld. If Purchaser fails to respond to a request for consent
within 15 business days after receipt of such request, such consent shall be
deemed given.
(c) Seller shall have the right, without notice to or consent of
Purchaser, to make Bookings in the ordinary course of business, at no less than
the Hotel's standard rates including customary discounted rates. Additionally,
Seller agrees to entertain in good faith Purchaser's
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<PAGE>
suggestions relating to the policy of the Hotel with respect to future Bookings
and extension of credit.
(d) Seller shall use commercially reasonable efforts to preserve in
force all existing Permits and to cause all those expiring to be renewed prior
to the Closing Date. If any such Permit shall be suspended or revoked, Seller
shall promptly so notify Purchaser and shall take all measures necessary to
cause the reinstatement of such Permit without any additional limitation or
condition.
(e) Seller shall notify Purchaser promptly if Seller becomes aware
of any transaction or occurrence prior to the Closing Date which would make any
of the representations or warranties of Seller contained in Section 5.1 not true
in any material respect.
(f) Seller will maintain in effect, all policies of casualty and
liability insurance, or similar policies of insurance, with the same limits of
coverage which it now carries with respect to the Hotel.
(g) Seller will not dispose of any of the Property, except in the
ordinary course of business and in accordance with this Agreement.
(h) Seller shall allow Purchaser and its agents or representatives
to inspect the Property, and all books and records relating thereto, at such
times as Purchaser may reasonably request, provided such inspection does not
unreasonably interfere with the continued operation of the Hotel in the ordinary
course of business. Purchaser shall also have the right to have, and Seller
shall provide accommodations for, a full-time on-site representative to observe
the operations of the Hotel. Such accommodations shall be rent-free except for
those nights when all other guest rooms at the Hotel are fully occupied, in
which event Purchaser shall reimburse Seller for such nights at the Hotel's
lowest corporate rate for such accommodations. Purchaser agrees that the results
of all such observations will be treated as confidential, and Purchaser shall
not disclose the same to any other person or entity except for Purchaser's
counsel, accountants, and other agents or representatives consulted in
connection with the acquisition of the Hotel. In the event that the sale is not
consummated, any and all reports, financial and operating information obtained
by Purchaser or its representatives shall be returned to the Seller.
ARTICLE XII
CASUALTIES AND TAKINGS
12.1 Casualties.
----------
(a) If any damage to the Property shall occur prior to the Closing
Date by reason of fire, windstorm, hail, explosion or other casualty, and if, in
Purchaser's reasonable judgment, the cost of repairing such damage will exceed
Fifty Thousand Dollars ($50,000.00), Purchaser may elect to: (i) terminate this
Agreement by giving written notice to Seller in which event, the Deposit shall
be returned to Purchaser and neither party shall have any further obligations or
liability whatsoever to the other hereunder or (ii) receive an assignment of all
of Seller's rights to any insurance proceeds (including business interruption
proceeds) relating to such damage and acquire the Property without any
adjustment in the purchase price provided that, in such latter event, Seller
shall pay to Purchaser the amount of any deductible under applicable insurance
policies.
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<PAGE>
(b) If, in the reasonable business judgment of the insurance
adjuster or other representative of the insurer of the Property, the cost of
repairing such damage will not exceed Fifty Thousand Dollars ($50,000.00), and
such damage is covered by Seller's insurance policies, the transactions
contemplated hereby shall close without any adjustment in the Purchase Price,
Purchaser shall receive an assignment of all of Seller's rights to any insurance
proceeds (including business interruption proceeds), and Seller shall pay to
Purchaser the amount of any deductible under applicable insurance policies.
12.2 Takings. In the event of the actual or threatened taking (either
-------
temporary or permanent) in any condemnation proceedings by exercise of right of
eminent domain, of all or any part of the Real Property, between the date hereof
and the Closing Date, and if, in Purchaser's reasonable judgment, such taking
will result in the inability to conduct the operations of the Hotel
substantially in accordance with the present standards, Purchaser may elect to:
(i) terminate this Agreement by giving written notice to Seller, in which event
the Deposit shall be returned to Purchaser and neither party shall have any
further obligations or liability whatsoever to the other hereunder or (ii)
receive an assignment of all of Seller's rights to any condemnation award
relating to such taking and acquire the Property without any adjustment in the
Purchase Price.
ARTICLE XIII
EMPLOYEES
13.1 Employees, Compensation and Indemnification. Seller shall terminate
-------------------------------------------
its employer-employee relationship with all Employees as of the Cut-off Time.
Seller shall be solely responsible for all Compensation and other liabilities
with respect to Employees and liabilities and obligations to Employees pursuant
to any Employment Contract. Purchaser shall not be responsible for any such
liability or obligations and Seller agrees to indemnify and hold Purchaser
harmless from and against any such liability or obligations. All Compensation,
obligations, liabilities and claims (including any under the Fair Labor
Standards Act) to or by any Employee of Seller arising or occurring prior to the
Cut-off Time shall be the responsibility of Seller. Purchaser shall not be
responsible for any Compensation thereof and Seller agrees to indemnify and hold
Purchaser harmless from and against same. Purchaser shall not assume or be
liable upon any Employment Contract of Seller.
ARTICLE XIV
INDEMNITIES
14.1 Seller's Indemnity. Seller and Rosa agree, jointly and severally, to
------------------
indemnify, defend (with Purchaser having the right to retain counsel for the
purpose of participating in such defense, at its sole cost and expense) and hold
Purchaser harmless against and with respect to the following:
(a) any and all obligations, liabilities, claims, accounts, demands,
liens or encumbrances, whether direct or contingent and no matter how arising,
in any way related to the Property and arising or accruing on or before the
Closing Date or in any way related to or arising from any act, conduct,
omission, contract or commitment of Seller or any predecessor in interest of
Seller, at any time or times on or before the Closing Date (including, but not
limited to, any damage to property or injury to or death of any person; without
limitation on the generality of the foregoing, Seller and Rosa shall indemnify
Purchaser from any claim or judgment under any lawsuit or proceeding filed or
pending prior to the Closing Date against the Property, or any part thereof, and
-24-
<PAGE>
any costs or expenses (including reasonable attorneys' fees) heretofore or
hereafter incurred in connection with any such lawsuit or proceeding;
(b) any loss or damage to Purchaser resulting from any inaccuracy in
or breach of any representation or warranty of Seller or resulting from any
breach or default by Seller of any obligation of Seller under this Agreement;
and
(c) all costs and expenses, including reasonable attorneys' fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.2 Purchaser's Indemnity. Purchaser agrees to indemnify, defend (with
---------------------
Seller having the right to retain counsel for the purpose of participating in
such defense, at its sole cost and expense), and hold Seller harmless against
and with respect to the following:
(a) any loss or damage to Seller, subsequent to the Closing Date,
resulting from any inaccuracy in or breach of any representation or warranty of
Purchaser under this Agreement;
(b) any injury to person or property causing any loss or damage to
Seller resulting from or arising out of the inspections by Purchaser pursuant to
Section 4.3 hereof;
(c) any and all damage to Seller resulting from or arising out of
Purchaser's operation of the Property after the Closing Date;
(d) all losses, damages, liabilities, costs, and expenses to which
Seller may become subject under the Securities Act of 1933, as amended, or
otherwise in connection or arising out of Guarantee Share Sales; and
(e) all costs and expenses, including reasonable attorney's fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.3 Notice of Claims. Seller, Rosa, and Purchaser, as applicable, shall
----------------
promptly notify the other in the event any claim is made against Seller or
Purchaser as to which the other party has agreed to indemnify and the indemnitor
shall thereupon undertake to defend and hold the indemnitee saved and harmless
therefrom.
ARTICLE XV
SECURITIES LAW MATTERS
15.1 Disposition of Shares. Seller represents and warrants that the
---------------------
Shares are being acquired and will be acquired for its own account and will not
be sold or otherwise disposed of except pursuant to (i) the provisions of Rule
145(d) under the 1933 Act, as in effect at the time of sale, (ii) some other
exemption or exclusion from the registration requirements under the 1933 Act,
which does not require the filing by the Parent with the SEC of any registration
statement, offering circular, or other document, in which case Seller shall
first supply to the Parent an opinion of counsel (which opinion and counsel
shall be satisfactory to the Parent) that such exemption or exclusion is
available, or (iii) a registration statement filed by the Parent with the SEC
under the 1933 Act (which the Seller acknowledges the Parent has no obligation
to file).
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<PAGE>
15.2 Acknowledgment of Restrictions. Seller acknowledges that, under
------------------------------
current SEC interpretations of Rule 145, Seller is subject to restrictions on
transfer of the Shares for a period of two years following the Closing Date and
that an exemption from the requirement to register the Shares for public resale
is provided by Rule 145(d).
15.3 Evidence of Compliance. Seller further covenants and agrees that
----------------------
Parent will be supplied with such written evidence of compliance by it and its
broker with Rule 145(d) as in effect at the time of any sale by it pursuant
thereto, as the Parent may reasonably request.
15.4 Legend. Seller agrees that the certificates for the Shares received
------
shall bear the following legend:
The Shares represented by this certificate are subject to the
provisions of Rule 145(d) promulgated under the Securities Act of
1933, and may not be transferred or disposed of by the holder without
compliance with said Rule unless registered under said Act or
pursuant to another applicable exemption from the requirements of
said Act.
and that Parent may place stop transfer orders with its transfer agents with
respect to such certificates. The appropriate portions of the legend will be
removed at such time or times as Seller may reasonably request if at the time of
such request Seller is not an Affiliate (as defined in the 1933 Act) of Parent,
upon the expiration of the two-year holding period provided in Rule 145(d).
ARTICLE XVI
NOTICES
16.1 Notices. Except as otherwise provided in this Agreement, all notices,
-------
demands, requests, consents, approvals and other communications (herein
collectively called "Notices") required or permitted to be given hereunder, or
which are to be given with respect to this Agreement, shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by overnight express courier, postage
prepaid, addressed to the party to be so notified as follows:
If intended for Seller, to: Apartment Inn Partners/
Gwinnett, L.P.
1538 Chantilly Drive
Building "C"
Atlanta, GA 30324
Attention: Rosa Dziewienski-Pajonk
Copies to: DeVille & Milhollin
Village Trace, Suite 200
Marietta, Georgia 30067
Attn: Roman DeVille
If intended for Extended Stay America, Inc.
Purchaser, to: 200 South Andrews
Ft. Lauderdale, Florida 33301
Attn: Robert A. Brannon
Copies to: Pedersen & Houpt
161 North Clark, Suite 3100
Chicago, Illinois 60601
Attn: Michael W. Black
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<PAGE>
Notice mailed by registered or certified mail shall be deemed received by
the addressee three (3) days after mailing thereof. Notice personally delivered
shall be deemed received when delivered. Notice mailed by overnight express
courier shall be deemed received by the addressee two (2) days after mailing
thereof. Either party may at any time change the address for notice to such
party by mailing a Notice as aforesaid.
ARTICLE XVII
ADDITIONAL COVENANTS
17.1 Additional Covenants. In addition, the parties agree as follows:
--------------------
(a) Expenses. Seller shall be responsible for the payment of all
--------
sales, use and the State of Georgia and County of Gwinnett transfer taxes and
fifty percent (50%) of all escrow fees and closing charges, if any, but not to
exceed $1,000.00. Purchaser shall be responsible for the payment of all title
insurance premiums and costs of any survey of the Real Property performed at
Purchaser's request, recording fees, and fifty percent (50%) of all escrow fees
and closing charges. The fees and expenses of Seller's designated
representatives, accountants and attorneys shall be borne by Seller, and the
fees and expenses of Purchaser's designated representatives, accountants and
attorneys shall be borne by Purchaser.
(b) Brokerage. Seller and Purchaser each hereby represent and
---------
warrant to the other that neither has dealt with any broker or finder in
connection with the transaction contemplated hereby, and each hereby agrees to
indemnify, defend and hold the other harmless against and from any and all
manner of claims, liabilities, loss, damage, attorneys' fees and expenses,
incurred by either party and arising out of, or resulting from, any claim by any
such broker or finder in contravention of its representation and warranty herein
contained.
(c) Guest Baggage. All baggage of guests who are still in the Hotel
-------------
on the Closing Date, which has been checked with or left in the care of Seller
shall be inventoried, sealed, and tagged jointly by Seller and Purchaser on the
Closing Date. Purchaser hereby indemnifies Seller against any claims, losses or
liabilities in connection with such baggage arising out of the acts or omissions
of Purchaser after the Closing Date. Seller hereby indemnifies Purchaser
against any claim, losses or liabilities with respect to such baggage arising
out of the acts or omissions of Seller prior to the Closing Date.
(d) Safe Deposits. Immediately after the Closing, Seller shall send
-------------
written notice to guests or tenants or other persons who have safe deposit
boxes, advising of the sale of the Hotel to Purchaser and requesting immediate
removal of the contents thereof or the removal thereof and concurrent re-deposit
of such contents pursuant to new safe deposit agreements with Purchaser. Seller,
at its own expense, shall have a representative present when the boxes are
opened, in the presence of a representative of the Purchaser. Purchaser shall
not be liable or responsible for any items claimed to have been in such boxes
unless such items are so removed and re-deposited, and Seller agrees to
indemnify and hold harmless Purchaser from and against any such liability or
responsibility.
(e) Tax Appeal Proceedings. Seller shall be entitled to receive and
----------------------
retain the proceeds from any tax appeals or protests for tax fiscal years prior
to the tax fiscal year in which the
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<PAGE>
Closing Date occurs. In the event an application to reduce real estate taxes is
filed for the period during which Seller was the owner of the Real Property,
Seller shall be entitled to a reproration of real estate taxes upon receipt of
and based upon the reduction. Purchaser shall pay its pro rata share of the
attorneys' fees directly related to the reduction as and when due. Seller shall
continue to process any pending appeals or protests with respect to the tax
fiscal year in which the Closing Date occurs, and the net proceeds from any such
proceedings, after payment of attorneys' fees, will be prorated between the
parties, when received, as of the Closing Date.
(f) Books and Records. The transaction contemplated hereby includes
-----------------
the books and records of Seller (except those relating to performance of
employees) pertaining strictly to the business of the Hotel. Purchaser
covenants and agrees that such books and records will remain in the Hotel for
examination and audit by Seller and its agents after the Closing as provided in
this clause (f). Books and records not pertaining strictly to the business of
the Hotel may be removed by Seller within a reasonable time after the Closing
Date. Purchaser agrees to preserve all books and records, files and
correspondence, for at least five (5) years after the Closing Date, and not to
destroy or dispose of the same, for at least five (5) years after the Closing
Date. Purchaser agrees to provide access to Seller and its representatives, to
such books, records, files and correspondence at all reasonable times.
(g) Hart-Scott-Rodino Act. If it shall be determined that the
---------------------
within transaction is subject to the reporting requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, 15 U.S.C. (S)18(a) (1976) (the
"Act"), then notwithstanding anything to the contrary contained in Section
10.1(e) hereof, each party shall forthwith proceed to make the necessary
filings, and take all other actions necessary to comply with the Act and the
rules and regulations thereunder. If such requirements have not been fulfilled
by the Closing Date, then the Closing Date shall be adjourned until such
requirements have been fulfilled, but not more than sixty (60) days. If such
requirements have not been fulfilled prior to the expiration of such sixty (60)
day period, Seller or Purchaser, by notice to the other, may terminate this
Agreement in which event the Deposit shall be returned to Purchaser and neither
party shall have any further obligation or liability to the other party
hereunder.
(h) Survival of Covenants, etc. The representations, warranties,
---------------------------
obligations, covenants, agreements, undertakings and indemnifications of Seller
and Rosa, and Purchaser contained herein shall survive the Closing for a period
of two (2) years except that (i) the representation made by Seller and Rosa in
Section 5.1(i) shall expire at the time the period of limitations (including any
extensions thereof pursuant to the delivery of waivers of the applicable period
of limitations) expires for the assessment by the taxing authority of additional
taxes with respect to which the representation and warranty relate; and (ii) the
indemnification obligation of Purchaser set forth in Section 14.2(d) shall
expire at the time the latest period of limitations expires for the enforcement
by an applicable governmental authority of any remedy with respect to such
matters as to which the indemnity relates.
(i) Purchaser's Investigation and Inspections. Any investigation or
-----------------------------------------
inspection conducted by Purchaser, or any agent or representative of Purchaser,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Purchaser's obligations hereunder or
to determine whether Seller's warranties are true and accurate, shall not affect
(or constitute a waiver by Purchaser of) any of Seller's obligations hereunder
or Purchaser's reliance thereon.
(j) Construction. This Agreement shall not be construed more
------------
strictly against one party than against the other, merely by virtue of the fact
that it may have been prepared primarily by counsel for one of the parties, it
being recognized that both Purchaser and Seller have contributed substantially
and materially to the preparation of this Agreement.
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<PAGE>
(k) Publicity. All notice to third parties and all other publicity
---------
concerning the transactions contemplated hereby shall be jointly planned and
coordinated by and between Purchaser and Seller. None of the parties shall act
unilaterally in this regard without the prior written approval of the other;
however, this approval shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Purchaser may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly traded securities.
(l) General. This Agreement may be executed in any number of
-------
counterparts, each of which shall constitute an original but all of which, taken
together, shall constitute but one and the same instrument. This Agreement
(including all exhibits hereto) contains the entire agreement between the
parties with respect to the subject matter hereof, supersedes all prior
understandings, if any, with respect thereto and may not be amended,
supplemented or terminated, nor shall any obligation hereunder or condition
hereof be deemed waived, except by a written instrument to such effect signed by
the party to be charged. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia. The warranties,
representations, agreements and undertakings contained herein shall not be
deemed to have been made for the benefit of any person or entity, other than the
parties hereto and their permitted successors and assigns. Seller has no right
to assign its rights or to delegate its duties hereunder. Captions used herein
are for convenience only and shall not be used to construe the meaning of any
part of this Agreement.
(m) FIRPTA. Seller agrees to furnish Purchaser with an executed
------
Certification in the form attached hereto as Exhibit R ("FIRPTA Certificate"),
---------
and such other evidence as Purchaser may reasonably request, to establish that
Seller is not a foreign person for the purpose of Section 1445 of the Internal
Revenue Code of 1986, as amended ("Section 1445"). In the event that Seller
does not furnish such Certification or a qualifying statement for the U.S.
Treasury Department that the transaction is exempt from the withholding
requirements of Section 1445, Seller agrees that Purchaser shall be directed to
pay such amount required by law to the Internal Revenue Service in accordance
with the laws and regulations regarding the withholding requirements of Section
1445.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
APARTMENT INN PARTNERS/GWINNETT, L.P.
By Tempo Real Estate Corporation, its
general partner
By /s/ Rosa Dziewienski Pajonk
------------------------------------
Its President
---------------------------------
/s/ Rosa Dziewienski Pajonk
--------------------------------------
Rosa Dziewienski Pajonk
ESA 0996, INC.
By________________________________
Its_____________________________
The undersigned hereby guarantees the Purchaser's obligations under Section 14.2
of this Agreement.
EXTENDED STAY AMERICA, INC.
By______________________________________
Robert A. Brannon
Senior Vice President
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<PAGE>
PROMISSORY NOTE
---------------
$4,100,000 June 24, 1996
FOR VALUE RECEIVED, the undersigned, Extended Stay America, Inc. ( the
"Maker"), hereby promises to pay to Apartment Inn Partners/Gwinett, L.P., a
Georgia limited partnership (the "Payee"), the principal sum of FOUR MILLION ONE
HUNDRED DOLLARS ($4,100,000) with interest thereon from the date hereof at the
rate of ten percent (10%) per annum. All principal and accrued interest thereon
shall be payable on or before July 15, 1996 (the "Maturity Date") to Payee at
such address as Payee shall specify in writing. The principal amount hereof not
paid on or before the Maturity Date shall bear interest at twelve percent (12%)
per annum.
All payments made on account of the indebtedness evidenced by this Note
shall be made in accordance with the terms of Section 3.4 of the certain
Agreement to Purchase Hotel dated June 21, 1996, by and between Maker and Payee.
All parties hereto severally waive presentment for payment, notice of
dishonor, protest and notice of protest.
This Note may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
Maker agrees that this instrument and the rights and obligations of all
parties hereunder shall be governed by and construed under the substantive laws
of the State of Georgia.
The undersigned shall pay all expenses incurred by Payee in collecting this
Note, including, without limitation, the reasonable fees and expenses of any
attorney to whom this Note may be referred for such collection.
Time is of the essence hereof.
IN WITNESS WHEREOF, the undersigned has executed this Promissory Note as of
the day and year first above written.
EXTENDED STAY AMERICA, INC.,
a Delaware corporation
By /s/ Robert A. Brannon
-----------------------------------------
Robert A. Brannon, Senior Vice President
Attest Robert A. Brannon
-------------------------------------
Robert A. Brannon, Secretary
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the 24th day of
June, 1996, is delivered by Tempo Real Estate Corporation ("Tempo") to ESA 0996,
Inc., a Georgia corporation (the "Company").
R E C I T A L S:
- - - - - - - -
A. Tempo has entered into an agreement (the "Purchase Agreement") with
the Company to sell the certain hotel known as The Apartment Inn located in
Lawrenceville, Georgia (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by the
Company that Tempo execute and deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Tempo agrees as follows:
1. No Solicitation of Employees. Tempo agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Tempo nor any person or enterprise controlled by Tempo will knowingly solicit
for employment any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. The Tempo agrees that during the Term of
-----------------------
this Agreement, neither Tempo nor any person or enterprise controlled by Tempo
will become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engaged directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit the ownership of less than 5% of the outstanding shares of stock of any
corporation engaged in any business, which shares are regularly traded on a
national securities exchange or in any over-the-counter market. The term
"Competing Business shall mean any business, person, or entity which is engaged
in the ownership, management, operation, or development of extended-stay lodging
facilities generally similar to those owned or operated by the Company or its
affiliates during the Term except that certain existing extended-stay lodging
facility commonly known as the "Corporate Apartment Community" located in
Atlanta, Georgia and other substantially identical facilities operating under
the name "Corporate Apartment Community". The term "Prohibited Area" shall
mean, on the date hereof, any area within 25 miles of (i) any extended-stay
lodging facilities owned or operated by the Company or any of its affiliates;
and (ii) any real property owned, leased, or under contract for purchase by the
Company or any of its affiliates intends to develop an extended-stay lodging
facility. Upon commencement of the Agreement, the Company shall deliver to Tempo
a description of the
<PAGE>
location of each facility and parcel of real property referred to in the
proceeding sentence which is attached hereto as Exhibit A.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however, that in the event that any court shall
refuse to enforce of the covenant contained in Sections 1 and 2, then the
enforceable covenant shall be deemed eliminated from the provisions of this
Agreement for the purpose of those proceedings to the extent necessary to permit
the remaining covenant to be enforced so that the validity, legality or
enforceability of the remaining provisions of this Agreement shall not be
affected thereby.
The Tempo acknowledges that any material breach of its covenant contained
in Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive or preclude the Company from any other remedy
at law or equity.
4. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, Tempo has executed this Agreement as of the day and
year first above written.
TEMPO REAL ESTATE CORPORATION
By:/s/ Roza Dziewienski Pajonk
-----------------------------
Its: President
-------------------------
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the 24th day of
June, 1996, is delivered by Rosa Dziewienski Pajonk ("Rosa") to ESA 0996, Inc.,
a Georgia corporation (the "Company").
R E C I T A L S:
- - - - - - - -
A. Rosa has entered into an agreement (the "Purchase Agreement") with
the Company to sell the certain hotel known as The Apartment Inn located in
Lawrenceville, Georgia (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by the
Company that Rosa execute and deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Rosa agrees as follows:
1. No Solicitation of Employees. Rosa agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Rosa nor any person or enterprise controlled by Rosa will knowingly solicit
for employment any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. The Rosa agrees that during the Term of
-----------------------
this Agreement, neither Rosa nor any person or enterprise controlled by Rosa
will become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engaged directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit the ownership of less than 5% of the outstanding shares of stock of any
corporation engaged in any business, which shares are regularly traded on a
national securities exchange or in any over-the-counter market. The term
"Competing Business shall mean any business, person, or entity which is engaged
in the ownership, management, operation, or development of extended-stay lodging
facilities generally similar to those owned or operated by the Company or its
affiliates during the Term except that certain existing extended-stay lodging
facility commonly known as the "Corporate Apartment Community" located in
Atlanta, Georgia and other substantially identical facilities operating under
the name "Corporate Apartment Community". The term "Prohibited Area" shall
mean, on the date hereof, any area within 25 miles of (i) any extended-stay
lodging facilities owned or operated by the Company or any of its affiliates;
and (ii) any real property owned, leased, or under contract for purchase by the
Company or any of its affiliates intends to develop an extended-stay lodging
facility. Upon commencement of the Agreement, the Company shall deliver to
Rosa a description of the location of each facility and parcel of real property
referred to in the proceeding sentence which is attached hereto as Exhibit A.
<PAGE>
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however, that in the event that any court shall
refuse to enforce of the covenant contained in Sections 1 and 2, then the
enforceable covenant shall be deemed eliminated from the provisions of this
Agreement for the purpose of those proceedings to the extent necessary to permit
the remaining covenant to be enforced so that the validity, legality or
enforceability of the remaining provisions of this Agreement shall not be
affected thereby.
Rosa acknowledges that any material breach of its covenant contained in
Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining of
such relief shall be exclusive or preclude the Company from any other remedy at
law or equity.
4. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, Rosa has executed this Agreement as of the day and
year first above written.
/s/ Rosa Dziewienski Pajonk
---------------------------
Roza Dziewienski Pajonk
-2-
<PAGE>
AGREEMENT
---------
THIS AGREEMENT made and entered into this 24th day of June, 1996, by and
between APARTMENT/INN, L.P., a Georgia limited partnership (the "Partnership"),
ESA 0996, a Georgia corporation ("ESA"), and JOHN W. BAKER ("Baker").
W I T N E S S E T H T H A T:
WHEREAS, through agreements with Baker an his successors (the owner of the
Service Mark "The Apartment Inn") (the "Mark"), Partnership has the right to
sub-assign, convey and sell the Mark;
WHEREAS, ESA as "Purchaser" and Apartment/Inn Partners Gwinnett, L.P. as
"Seller" have executed an Agreement to Purchase Hotel of even date herewith with
respect to an accommodation facility (the "Facility") located at 474 West Pike
Street, Lawrenceville, Georgia 30245 (the Purchase Agreement");
WHEREAS, as a part of the purchase of the Facility pursuant to the Purchase
Agreement, ESA desires to acquire from the Partnership an assigned right to use
the Mark for use at the Facility, and certain other related rights, all as more
particularly set forth below, and the Partnership is willing to assign rights to
use the Mark upon the terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises and the sum of Ten
and No/100 Dollars ($10.00) and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
do hereby covenant and agree as follows:
1. ASSIGNMENT OF MARK. The Partnership agrees to assign, convey and sell
-------------------
to ESA the perpetual right to use the Mark at the Facility and ESA agrees to
compensate the Partnership for such assignment, as aforesaid, upon the terms and
conditions set forth below. Further, Baker agrees to acknowledge the
Partnership's right to assign, convey and sell ESA the right to use the Mark in
connection with the operation of the Facility. Notwithstanding anything to the
contrary, ESA shall have no obligation to purchase the Mark unless and until the
"Closing" under the Purchase Agreement occurs (it being intended and agreed that
the consummation of the transactions contemplated hereby shall occur
simultaneously with the Closing).
2. CLOSING. The consummation of the transactions contemplated hereby (the
-------
"Servicemark Closing") shall occur concurrently with the "Closing" of the
purchase and sale of the Facility under the Purchase Agreement. At the
Servicemark Closing, the Partnership and ESA shall (a) execute and deliver the
Assignment of Service Mark Agreement attached hereto as Exhibit "A" and
-----------
incorporated herein by this reference; and (b) execute and deliver any other
appropriate conveyance instruments requested by ESA to assign, convey and sell
from the Partnership to ESA, without recourse or warranty, the use of the Mark
in the operation of the
<PAGE>
Facility, including client and customer relationships of the Facility associated
with the use of the Mark at the Facility.
3. PURCHASE PRICE. As consideration and payment for the aforesaid
--------------
assignment of the Mark and related rights, (i) ESA shall deliver to the
Partnership at the Servicemark Closing 0 shares (said 0 shares being referred
- -
to as the "Retained Shares") of common stock, par value of $.01 per share of
Extended Stay America, Inc., a Delaware corporation (the "Parent") ("Shares");
and (ii) ESA shall cause Extended Stay America, Inc. to execute and deliver a
Promissory Note to the Partnership in the form and terms identical to EXHIBIT
-------
"B" attached hereto and incorporated herein by this reference (with blanks
- ---
appropriately completed), which Note shall be paid by Extended Stay America,
Inc. in cash or additional Shares as provided in Paragraph 4 below.
4. PAYMENT OF THE NOTE. Extended Stay America, Inc. shall satisfy its
-------------------
obligations under the Note by delivering additional Shares and/or cash to the
Partnership, as the case may be, on or before the Note's maturity date specified
in the Note, subject to the following:
(a) The Partnership and ESA acknowledge that the Partnership intends
to sell the Shares which are delivered by Extended Stay America, Inc. to the
Partnership in satisfaction of the Note and the net proceeds realized by the
Partnership shall be applied to the balance of the Note. The Partnership agrees
that it shall sell such Shares only in bona fide private placements which are
approved by Extended Stay America, Inc. in its absolute discretion to a person
or persons not affiliated with, related to, or associated with the Partnership
----------
("Approved Sales"). Extended Stay America, Inc. shall deliver to the Partnership
that number of Shares equal to the number of Shares which are sold pursuant to
Approved Sales and such delivery shall be accomplished so as to allow the
Approved Sales to be consummated on a timely basis.
(b) If the proceeds from Approved Sales are less than the amount due
under the Note, ESA shall also deliver prior to the maturity date of the Note
cash to the Partnership having a value equal to the difference between the
amount due under the Note and the proceeds from Approved Sales. In the event no
Approved Sales occur, the Note shall be payable in full in cash on or before its
stated maturity date.
----
(c) ESA shall indemnify, defend and hold the Partnership harmless
against and with respect to all losses, damages, liabilities, costs, and
expenses to which Seller may become subject under the Securities Act of 1933, as
amended, or otherwise in connection with or arising out of Approved Sales.
5. WARRANTIES OF THE PARTNERSHIP. The Partnership hereby warrants and
-----------------------------
represents to ESA that the Partnership is a Georgia limited partnership duly
formed and validly existing in good standing under the laws of its state of
formation and has full power and authority (i) to carry on its business as it is
now being conducted, (ii) to enter into this Agreement and to assign, convey and
sell the Mark to ESA as provided herein, and (iii) to carry out the other
transactions and agreements contemplated hereby. This Agreement has been duly
authorized by all requisite action on the part of Seller. The execution and
delivery of this Agreement, and the
2
<PAGE>
consummation of the transactions contemplated hereby, except as otherwise
provided herein, do not require the consent or approval of any governmental
authority, or constitute a default (or an event which with notice and passage of
time or both will constitute a default) under any contract or agreement to which
the Partnership is a party or by which it or the Mark is bound.
6. WARRANTIES OF ESA. ESA hereby represents and warrants the following
-----------------
to the Partnership:
(a) ESA has all requisite power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby pursuant
to the terms and conditions hereof.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with, breach, result
in a default under, or violate any commitment, document or instrument to which
ESA is a party or by which it is bound.
(c) The Shares have been registered by the Parent pursuant to a
registration statement field with the Securities and Exchange Commission (the
"SEC"), a so-called "shelf" registration statement (the "Registration
Statement"), in accordance with the provisions of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "1933 Act").
Upon the issuance and delivery of the Shares to the Partnership in accordance
with this Agreement, such shares will constitute legally and validly authorized
and issued, fully paid, and nonassessable shares of Common Stock. The
Registration Statement has been declared effective under the 1933 Act. The
Parent is in compliance with the undertakings contained in the Registration
Statement and to the knowledge of ESA, no stop order suspending the
effectiveness of the Registration Statement has been issued under the 1933 Act.
(d) ESA covenants that it will file the reports required to be filed
by it under the Securities Act of 1933, as amended (the "Act") and the
Securities Exchange Act of 1934, as amended and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, to the extend
required from time to time to enable the Partnership to sell the shares of
Common Stock delivered to the Partnership pursuant to this Agreement without
registration under the Act within the limitation of the exemptions provided by
Rule 145(d) under the Act.
7. DURATION OF REPRESENTATIONS AND WARRANTIES. All representations and
------------------------------------------
warranties contained in Paragraphs 5 and 6 shall be deemed restated on and as of
the Closing Date and shall survive the Servicemark Closing.
8. DISPOSITION OF SHARES. The Partnership represents and warrants that
---------------------
the Retained Shares are being acquired and will be acquired for its own account
and will not be sold or otherwise disposed of except pursuant to (i) the
provisions of Rule 145(d) under the 1933 Act, as in effect at the time of sale,
(ii) some other exemption or exclusion from the registration requirements under
the 1933 Act, which does not require the filing by the Parent with the SEC of
any registration statement, offering circular, or other document, in which case
the Partnership
3
<PAGE>
shall first supply to the Parent an opinion of counsel (which opinion and
counsel shall be satisfactory to the Parent) that such exemption or exclusion is
available, or (iii) a registration statement filed by the Parent with the SEC
under the 1933 Act (which the Partnership acknowledges the Parent has no
obligation to file).
9. ACKNOWLEDGMENT OF RESTRICTIONS. The Partnership acknowledges that,
------------------------------
under current SEC interpretations of Rule 145, the Partnership is subject to
restrictions on transfer of the Shares for a period of two years following the
date of the Servicemark Closing and that an exemption from the requirement to
register the Shares for public resale is provided by Rule 145(d).
10. EVIDENCE OF COMPLIANCE. The Partnership further covenants and agrees
----------------------
that the Parent will be supplied with such written evidence of compliance by it
and its broker with Rule 145(d) as in effect at the time of any sale by it
pursuant thereto, as the Parent may reasonably request.
11. LEGEND. The Partnership agrees that the certificates for the Shares
------
received shall bear the following legend:
The Shares represented by this certificate are subject to
the provisions of Rule 145(d) promulgated under the
Securities Act of 1933, and may not be transferred or
disposed of by the holder without compliance with said Rule
unless registered under said Act or pursuant to another
applicable exemption from the requirements of said Act.
and that the Parent may place stop transfer orders with its transfer agents with
respect to such certificates. The appropriate portions of the legend will be
removed at such time or times as the Partnership may reasonably request if at
the time of such request the Partnership is not an Affiliate (as defined in the
1933 Act) of the Parent, upon the expiration of the two year holding period
provided in Rule 145(d).
12. BINDING EFFECT. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and assigns. Time
is of the essence of this Agreement. In the event of a default hereunder by
either of the Partnership, ESA or Baker, the non-defaulting party shall have all
rights and remedies available at law and equity including, without limitation, a
right of specific performance.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
"PARTNERSHIP"
Acknowledged before me as APARTMENT/INN, L.P., a
of this 24th day of Georgia limited partnership
June, 1996.
By: A/I NORCROSS, INC., a Georgia
corporation
_______________________________ By:___________________________
Notary Public
Title:__________________________
My Commission expires:
[CORPORATE SEAL]
_______________________________
[NOTARY SEAL]
"ESA"
Acknowledged before me as ESA 0996, INC.,
of this 24th day of a Georgia corporation
June, 1996.
________________________________ By:__________________________________
Notary Public
Title:_______________________________
My Commission expires:
[CORPORATE SEAL]
________________________________
[NOTARY SEAL]
"BAKER"
Acknowledged before me as
of this 24th day of
June, 1996.
________________________________ _____________________________(SEAL)
Notary Public JOHN W. BAKER
My Commission expires:
________________________________
5
<PAGE>
[NOTARY SEAL]
6
<PAGE>
EXHIBIT "A" TO AGREEMENT
------------------------
ASSIGNMENT OF SERVICE MARK AGREEMENT
------------------------------------
THIS LICENSE OF SERVICE MARK AGREEMENT (the "Agreement") is made and
entered this ____ day of ______________, 1996, into by and between
APARTMENT/INN, L.P., a Georgia limited partnership ("Partnership"), ESA 0996,
INC., a Georgia corporation, having an address of 500 East Broward Boulevard,
Suite 950, Fort Lauderdale, Florida 33394, Attention: Robert A. Brannon
("ESA"), and JOHN W. BAKER ("Baker").
W I T N E S S E T H T H A T:
WHEREAS, through an agreement with Baker, the owner of all right and title
in and to the Service Mark "The Apartment Inn" (the "Mark"), which Mark is
registered with the United States Patent and Trademark Office, Registration No.
1,588,399;
WHEREAS, the Partnership desires to assign ESA the right to use the Mark
upon the terms and conditions set forth below, and Baker is executing this
Agreement to agree to be bound by the terms hereof as the owner of the Mark;
NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars ($10.00)
and other good and valuable consideration in hand, the parties agree as follows:
1. The Partnership hereby grants to ESA the right to use the Mark in
perpetuity from and after the date hereof to be used only in connection with the
ownership and operation of the existing accommodation facility of ESA (the
"Facility") located at 474 West Pike Street, Lawrenceville, Georgia 30245 and
at no other facility. ESA shall have no right to sub-assign the Mark in any
manner whatsoever but shall have the right to assign its rights to use the Mark
hereunder in connection with a sale of the Facility.
2. During the term hereof, the Partnership agrees to not grant to any
third party the right to use the Mark at any lodging facility located within a
five (5) mile radius of the Facility.
3. The Partnership and ESA acknowledge and agree concurrently with the
execution hereof that ESA has made payment in full for the right to use the Mark
during the term hereof and no payments are due from ESA to the Partnership
subsequent to the date hereof with respect to the use of the Mark.
4. The Partnership warrants and represents that the Partnership has the
power and right to assign the right to use the Mark and the full, power and
authority to enter into this Agreement.
<PAGE>
5. Baker hereby acknowledges Baker's prior assignment of the Mark to
Partnership and grant to Partnership of the right to sub-assign the use of the
Mark. Accordingly, Baker hereby acknowledges the validity of Partnership's sub-
assignment to ESA to use the Mark in connection with the operation of the
Facility.
6. This Agreement shall be binding upon and inure to the benefit of the
Partnership, ESA and their respective successors and assigns subject to the
foregoing restrictions.
IN WITNESS WHEREOF, the parties have executed this Assignment of Service
Mark Agreement the day and year first above written.
"PARTNERSHIP"
Acknowledge before me as APARTMENT/INN, L.P., a
of this 24 day Georgia limited partnership
of June, 1996.
By: A/I NORCROSS, INC., a Georgia
corporation
By:_________________________
_______________________
Notary Public
Title: _____________________
My Commission expires:
[CORPORATE SEAL]
__________________________
[NOTARY SEAL]
"ESA"
Acknowledge before me as ESA 0996, INC.,
of this 24th day of a Georgia corporation
June, 1996.
__________________________ By: ___________________________
Notary Public
Title: ________________________
My Commission expires:
[CORPORATE SEAL]
__________________________
8
<PAGE>
[NOTARY SEAL]
"BAKER"
Acknowledge before me as
of this 24th day of
June, 1996.
_________________________ _________________________(SEAL)
Notary Public JOHN W. BAKER
My Commission expires:
__________________________
[NOTARY SEAL]
9
<PAGE>
AGREEMENT TO PURCHASE HOTEL
by and between
BOULDER MANOR, INC.
and
ESA PROPERTIES, INC.
JUNE 25, 1996
<PAGE>
Exhibit A: Land
Exhibit B: Excluded Assets
Exhibit C: Permitted Exceptions
Exhibit D: Submitted Financial Statements
Exhibit E: Allocation of Purchase Price
Exhibit F: Permits
Exhibit G: Hotel Contracts and Commissions
Exhibit H: Employee and Employment Arrangements
Exhibit I: Bookings
Exhibit J: Space Leases and Commissions
Exhibit J-1: Spaces Lessee Estoppel Letter
Exhibit K: Notices of Violations
Exhibit L: Pending or Threatened Litigation
Exhibit M: Documents
Exhibit N: Impositions
Exhibit O: Hotel Names
Exhibit P: Employee Benefit Plans
Exhibit Q: FIRPTA Certificate
Exhibit R: Non-Compete Agreement
Exhibit S: Note
Exhibit T: Escrow Agreement
Exhibit U: Environmental Matters
<PAGE>
AGREEMENT TO PURCHASE HOTEL
---------------------------
THIS AGREEMENT is made this 25th day of June, 1996, by and between Boulder
Manor, Inc., a Nevada corporation ("Seller"), and ESA Properties, Inc., a
Delaware corporation ("Purchaser").
R E C I T A L S:
A. Seller is the fee owner of that certain parcel of land (and the
improvements and buildings located thereon) legally described in Exhibit A and
commonly referred to as the Boulder Manor, 4823 Boulder Highway, Las Vegas,
Nevada (the "Hotel") and the owner of the Fixtures and Tangible Personal
Property, Operating Equipment, Consumables, and Miscellaneous Hotel Assets (all
as hereinafter defined).
B. The Hotel's facilities include guest and public facilities consisting
of 211 rooms, administrative offices, and service areas.
C. Seller desires to sell, and Purchaser desires to purchase, the
Property upon and subject to the terms and conditions hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, agreements, covenants and conditions
herein contained, and other good and valuable consideration, Seller and
Purchaser agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
1.1 Definitions. As used herein, the following terms shall have the
-----------
respective meanings indicated below:
Affiliate: With respect to a specific entity, any natural person or any
---------
firm, corporation, partnership, association, trust or other entity which,
directly or indirectly, controls, or is under common control with, the subject
entity, and with respect to any specific entity or person, any firm,
corporation, partnership, association, trust or other entity which is controlled
by the subject entity or person. For purposes hereof, the term "control" shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of any such entity or
<PAGE>
the power to veto major policy decision of any such entity, whether through the
ownership of voting securities, by contract, or otherwise.
Agreement: This Agreement to Purchase Hotel, including the Exhibits.
---------
Bookings: Contracts for the use or occupancy of guest rooms of the Hotel.
--------
Closing: As defined in Section 6.1.
-------
Compensation: The direct salaries and wages paid to, or accrued for the
------------
benefit of, any Employee, incentive compensation, vacation pay, severance pay,
employer's contributions under F.I.C.A., unemployment compensation, workmen's
compensation, or other employment taxes, and payments under Employee Benefit
Plans (as hereinafter defined).
Consumables: All food and beverages (alcoholic, to the extent transferable
-----------
under applicable law, and non-alcoholic); engineering, maintenance and
housekeeping supplies, including soap, cleaning materials and matches;
stationery and printing; and other supplies of all kinds, in each case whether
partially used, unused, or held in reserve storage for future use in connection
with the maintenance and operation of the Hotel, which are on hand (which shall
include off-site storage) on the date hereof, subject to such depletion and
restocking as shall occur and be made in the normal course of business but in
accordance with present standards, excluding, however, (i) Operating Equipment
and (ii) all items of personal property owned by Space Lessees, guests,
employees, or persons (other than Seller or any Affiliate of Seller, unless
denominated as an Excluded Asset hereunder) furnishing food or services to the
Hotel.
Cut-off Time: 12:01 A.M. on the Closing Date.
------------
Department: Nevada Department of Revenue.
----------
Deposit: As defined in Section 3.2.
-------
Documents: Reproducible copies of all plans, specifications, drawings,
---------
blueprints, surveys, environmental reports and other similar documents which
Seller has in its possession, or has a right to, as the same relate to the Real
Property, including, but not limited to those relating to any prior or ongoing
construction or rehabilitation of the Real Property.
Employee(s): All persons employed by Seller pursuant to Employment
-----------
Arrangements.
Employee Benefit Plans: All employee benefit plans, as that term is
----------------------
defined in Section 3(2)(a) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including "multi-employer pension plans" as defined
in Section 3(37) of ERISA, and each other employee benefit plan or program
(including welfare benefit plans as defined in Section 3(1) of ERISA) to
-2-
<PAGE>
which Seller contributes on behalf of any of the Employees.
Employment Arrangement(s): Those agreements, oral or written, with all or
-------------------------
any of the executives, staff and employees of Seller for work in or in
connection with the Hotel including, but not limited to, individual employment
agreements, union agreements, employee handbooks, group health insurance plans,
life insurance plans and disability insurance plans (other than Employee Benefit
Plans).
Environmental Laws: As defined in Section 5.1(u).
------------------
Environmental Study: As defined in Section 4.3.
-------------------
Excluded Assets: The following: (i) those assets, if any, listed on
---------------
Exhibit B hereto owned and to be retained by Seller; (ii) receivables; and (iii)
except as provided to the contrary in Section 17.1(e) hereof, all records, files
and proprietary operating manuals in the Hotel.
Excluded Permits: Permits and licenses required for the ownership and
----------------
operation of the Hotel which, under applicable law, are nontransferable.
Fixtures and Tangible Personal Property: All fixtures, furniture,
---------------------------------------
furnishings, fittings, equipment, cars, trucks, machinery, apparatus, signage,
appliances, draperies, carpeting, and other articles of personal property now
located on the Real Property or held in storage for future use at the Hotel and
used or usable in connection with any part of the Hotel, subject to such
depletions, resupplies, substitutions and replacements as shall occur and be
made in the normal course of business but in accordance with present standards
excluding, however: (i) Consumables; (ii) Operating Equipment; (iii) equipment
and property leased pursuant to Hotel Contracts; (iv) property owned by Space
Lessees, guests, employees or other persons (other than Seller or any affiliate
of Seller, unless denominated as an Excluded Asset hereunder) furnishing goods
or services to the Hotel; and (v) Improvements.
FIRPTA Certificate: As defined in Section 17.1(l).
------------------
Hazardous Material: As defined in Section 5.1(u).
------------------
Hotel: The hotel referred to in the Recitals.
-----
Hotel Contracts: All management, service, maintenance, material purchase
---------------
orders, leases and other contracts or agreements, including equipment leases
capitalized for accounting purposes, and any amendments thereto, with respect to
the ownership, maintenance, operation, provisioning, or equipping of the Hotel,
or any of the Property, as well as written warranties and guaranties relating
thereto, if any, including, but not limited to, those relating to heating and
cooling equipment and/or mechanical equipment, but exclusive, however, of (i)
insurance policies, (ii) the Bookings, (iii) the
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<PAGE>
Space Leases, (iv) the Employment Arrangements, and (v) the Employee Benefit
Plans.
Hotel Names: All names or other identifications used in connection with
-----------
the operation of Hotel.
Impositions: All taxes and other governmental charges of any kind
-----------
whatsoever that may at any time be assessed or levied against or with respect to
the Property, or any part thereof or any interest therein, including, without
limitation, all general and special real estate taxes and assessments or taxes
assessed specifically in whole or in part in substitution of general real estate
taxes or assessments; any taxes levied upon or with respect to the revenue,
income or profits of Seller from all or any part of the Property which, if not
paid, will become a lien on all or any part of the Property, or a lien or charge
on the rents, revenues or receipts therefrom; all assessed ad valorem taxes; all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep of the Property and all assessments and other charges made by any
governmental agency for improvements that may be secured by a lien on the
Property.
Improvements: The buildings, structures (surface and sub-surface) and
------------
other improvements, including such fixtures as shall constitute real property,
located on the Land.
Inspection Period: As defined in Section 4.1.
-----------------
Land: The parcel of real estate described in Exhibit A hereto, together
----
with all rights, title and interest, if any, of Seller in and to all land lying
in any street, alley, road or avenue, open or proposed, in front of or adjoining
said Land, to the centerline thereof, and all right, title and interest of
Seller in and to any award made or to be made in lieu thereof and in and to any
unpaid award for the damage to said Land by reason of change of grade of any
street.
Legal Requirements: All laws, statutes, codes, acts, ordinances, orders,
------------------
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments and governmental
authorities having jurisdiction of the Hotel (including, for purposes hereof,
any local Board of Fire Underwriters), and the operation thereof.
Material Bookings: All Bookings for meetings and banquet facilities and,
-----------------
with respect to guest rooms, any contract for seven (7) or more room nights.
Material Contracts: All Hotel Contracts which cannot be cancelled by 30
------------------
days' or less notice without penalty or premium payment.
Miscellaneous Hotel Assets: All contract rights, leases, concessions,
--------------------------
trademarks, logos, copyrights, assignable warranties and other items of
intangible personal property relating to the ownership or operation of Hotel,
but such term shall not include (i) Bookings; (ii) Hotel Contracts; (iii) Space
Leases; (iv) Permits; (v) cash or other funds, whether in petty cash or house
banks, or on
-4-
<PAGE>
deposit in bank accounts or in transit for deposit; (vi) books and records
(except as provided in Section 17.1(e); (vii) refunds, rebates, or other claims,
or any interest thereon, for periods or events occurring prior to the Cut-off
Time; (viii) utility and similar deposits; (ix) prepaid insurance or other
prepaid items; or (x) prepaid license and permit fees; except to the extent that
Seller receives a credit at Closing for any such item or matter.
Non-Compete Agreements: The Non-Compete Agreements delivered by Seller to
----------------------
Purchaser pursuant to the terms of Section 7.1 hereof.
Obligations: All payments required to be made and all representations,
-----------
warranties, covenants, agreements and commitments required to be performed under
the provisions of this Agreement by Seller or Purchaser, as applicable.
Operating Equipment: All china, glassware, linens, silverware and
-------------------
uniforms, whether in use or held in reserve storage for future use, in
connection with the operation of the Hotel, which are on hand (including off-
site storage) on the date hereof, subject to such depletion and restocking as
shall be made in the normal course of business but in accordance with present
standards.
Parent: Extended Stay America, Inc., a Delaware corporation.
------
Permits: All licenses, franchises and permits, certificates of occupancy,
-------
authorizations and approvals used in or relating to the ownership, occupancy or
operation of any part of the Hotel.
Permitted Exceptions: Any liens, encumbrances, restrictions, exceptions
--------------------
and other matters specified in Exhibit C to which title to the Property may be
subject on the Closing Date.
Personal Property: All of the Property other than the Real Property.
-----------------
Property: (i) The Real Property; (ii) the Fixtures and Tangible Personal
--------
Property; (iii) the Operating Equipment; (iv) the Consumables; (v) the
transferable right, title and interest of Seller in, to and under the Hotel
Contracts and Space Leases; (vi) the Bookings; (vii) the Permits (other than
Excluded Permits); (viii) the Hotel Names; (ix) the Documents; and (x) all other
Miscellaneous Hotel Assets, provided, however, that Property shall not include
the Excluded Assets.
Proratable Compensation: Compensation exclusive of severance pay and
-----------------------
Employee Benefit Plans.
Purchase Price: As defined in Section 3.1.
--------------
Real Property: The Land together with the Improvements located on the
-------------
Land.
Searches: As defined in Section 6.3(c).
--------
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<PAGE>
Section 1445: As defined in Section 17.1(l).
------------
Space Leases: All leases, licenses, concessions and other occupancy
------------
agreements, and any amendments thereto, whether or not of record, for the use or
occupancy of any portion of the Real Property excluding, however, Bookings.
Space Lessee: Any person or entity entitled to occupancy of any portion of
------------
the Real Property under a Space Lease.
Submittals: As defined in Section 4.2.
----------
Submitted Financial Statements: Those financial statements of the Hotel
------------------------------
identified in Exhibit D hereto.
Survey: The survey for the Property prepared in accordance with Section
------
6.3(a).
Title Commitment: The commitment for title insurance issued in accordance
----------------
with Section 6.3(b).
Title Company: United Title of Nevada.
-------------
Title Defect: A lien, claim, charge, security interest or encumbrance
------------
other than a Permitted Exception.
Title Documents: As defined in Section 6.3.
---------------
Title Papers: As defined in Section 6.3(b).
------------
Title Policy: As defined in Section 10.1(g).
------------
UCC: The Uniform Commercial Code in effect in Nevada.
---
Violation: Any condition with respect to the Property which constitutes a
---------
violation of any Legal Requirements.
1.2 References. Except as otherwise specifically indicated, all
----------
references to Section and Subsection numbers refer to Sections and Subsections
of this Agreement, and all references to Exhibits refer to the Exhibits attached
hereto. The words "hereby," "hereof," "herein," "hereto," "hereunder,"
"hereinafter," and words of similar import refer to this Agreement as a whole
and not to any particular Section or Subsection hereof. The word "hereafter"
shall mean after, and the term "heretofore" shall mean before, the date of this
Agreement. Captions used herein are for convenience only and shall not be used
to construe the meaning of any part of this Agreement.
-6-
<PAGE>
ARTICLE II
SALE AND PURCHASE
2.1 Sale and Purchase. Seller hereby agrees to sell (or to cause to be
-----------------
sold) to Purchaser, and Purchaser hereby agrees to purchase from Seller, the
Property on the terms and subject to the conditions of this Agreement.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price; Allocation Thereof. The purchase price ("Purchase
----------------------------------
Price") for the Property and the Non-Compete Agreements shall be Nine Million
One Hundred Thousand Dollars ($9,100,000.00) payable by delivery of a Note from
Purchaser to Seller in the form attached hereto as Exhibit S.
The Purchase Price shall be allocated in accordance with the values
reasonably attributable to the components of the Property and the Non-Compete
Agreements as set forth on Exhibit E hereto.
3.2 Deposit. Concurrently herewith, Purchaser is depositing the sum of
-------
$50,000.00 (the "Deposit") with Title Company to secure performance of
Purchaser's obligations hereunder. The Deposit and interest earned thereon
shall be held in an interest bearing account until the Closing Date (except as
otherwise provided herein) at which time the Deposit shall be paid as a credit
against the Purchase Price. Except as hereinafter provided, if the transaction
contemplated hereby does not close because of a default by Purchaser hereunder,
the parties agree that the Deposit and interest earned thereon shall be
delivered to Seller as Seller's sole and exclusive liquidated damages, which
amount the parties agree is a reasonable sum considering all of the
circumstances existing on the date of this Agreement, including, without
limitation, the relationship of such sum to the amount of harm to Seller that
reasonably could be anticipated, Seller's anticipated use of the proceeds of
sale, and the fact that proof of actual damages would be impossible to
determine. Notwithstanding the foregoing, if the transaction contemplated
hereby does not close and Purchaser shall not have defaulted hereunder, the
Deposit and all interest earned thereon shall be returned promptly to Purchaser
and Purchaser shall be entitled to pursue against Seller any and all remedies
available to Purchaser, at law or in equity.
3.3 No Assumption of Seller's Obligations. Except as specifically
-------------------------------------
provided herein to the contrary, Purchaser shall not assume, or become obligated
with respect to, any obligation of Seller, including, but not limited to, the
following:
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<PAGE>
(a) Obligations of Seller now existing or which may arise prior to
the Cut-off Time with respect to any accounts payable or other payables;
(b) Obligations prior to the Closing Date of any term, covenant or
provision of any Employee Benefit Plan, Employment Contract, Hotel Contract or
Space Lease;
(c) Obligations of Seller now existing or which may hereafter exist
by reason of or in connection with any alleged misfeasance or malfeasance by
Seller in the conduct of its business, and with respect to any tort liability;
(d) Obligations to Employees with respect to any Compensation (or
pursuant to any Employment Contract or Employee Benefit Plan); and
(e) Obligations of Seller incurred in connection with or relating to
the transfer of the Property pursuant to this Agreement, including without
limitation, any Federal, state or local income, sales, transfer or other tax
incurred by reason of said transfer, all of which shall be the sole
responsibility of Seller.
3.4 Payment of the Note. Purchaser shall satisfy its obligations under
--------------------
the Note by delivering shares ("Shares") of common stock, par value $.01 per
share, of Parent, and/or cash to Seller, as the case may be, on or before the
Note's maturity date specified in the Note, subject to the following:
(a) Purchaser and Seller acknowledge that Purchaser shall deliver
Shares to Seller only if such Shares are the subject of Approved Sales (defined
below). The net proceeds realized by Seller from the sale of the Shares shall
be deducted from the balance of the Note. Seller agrees that it shall sell such
Shares only in bona fide private placements which are approved by Purchaser in
its absolute discretion to a person or persons not affiliated with, related to,
or associated with Seller ("Approved Sales"). Purchaser shall deliver to Seller
that number of Shares equal to the number of Shares which are sold pursuant to
Approved Sales and such delivery shall be accomplished so as to allow the
Approved Sales to be consummated on a timely basis.
(b) If the net proceeds actually received from Approved Sales are
less than the amount due under the Note, Purchaser shall also deliver cash to
Seller prior to the maturity date of the Note having a value equal to the
difference between the amount due under the Note and the net proceeds received
from Approved Sales. In the event no Approved Sales occur prior to the maturity
date of the Note, the Note shall be payable in cash on or before its stated
maturity date. Seller shall use the net proceeds received from Approved Sales
first to satisfy any mortgages or deeds of trust created or suffered by Seller
which are a lien on the Property. Notwithstanding the above, if net proceeds
received from Approved Sales are insufficient to satisfy any mortgages or deeds
of trust created or suffered by Seller which are a lien on the Property,
Purchaser shall set off against amounts due under the Note an amount equal to
such insufficiency and Purchaser shall apply such amount to satisfy and release
such liens.
-8-
<PAGE>
(c) The Note shall be paid pursuant to an escrow agreement to be
entered into between Purchaser, Seller and an escrow agent mutually agreed upon
by Purchaser and Seller, the form of which is attached hereto as Exhibit T. All
costs of such escrow shall be borne by Purchaser.
(d) Purchaser shall indemnify, defend, and hold Seller harmless
against and with respect to all losses, damages, liabilities, costs, and
expenses to which Seller may become subject under the Securities Act of 1933, as
amended, or otherwise in connection with or arising out of Approved Sales.
ARTICLE IV
INSPECTION PERIOD
4.1 Inspection Period. The "Inspection Period" shall be the period from
-----------------
the date hereof to 11:59 P.M. on June 30, 1996 (provided that such period shall
be extended on a day-for-day basis in the event Purchaser does not receive the
survey referenced in Section 6.3(a) hereof on or before June 23, 1996).
4.2 Submittals to Purchaser. Seller, at its expense, shall deliver (if
-----------------------
such are within Seller's possession or are reasonably available to Seller) to
Purchaser on or before June 26, 1996, true and correct copies of the following:
(a) the Permits, Hotel Contracts, Employment Arrangements, Employee
Benefit Plans, a summary of the amounts, dates, and credit information of
Material Bookings (whether for periods before or after the Closing Date), Space
Leases and notices of Violations (if any);
(b) a descriptive summary of the manner in which all Bookings are
made, whether oral or written, with or without deposits or firm or contingent
commitments for reservations, along with a copy of the written agreements or
confirmation letters used in connection with the Bookings;
(c) a descriptive summary of all pending or threatened litigation
listed on Exhibit L;
(d) the most recent real estate and personal property tax statements
for the Property;
(e) all Documents, including, but not limited to, the plans and
specifications;
(f) the most current inventory of all Fixtures and Tangible Personal
Property, Operating Equipment and Consumables;
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<PAGE>
(g) all other documents or instruments of record or otherwise
relating to the Property available to Seller;
(h) copies of all financial reports prepared by the accountant for
Seller for the fiscal year of Seller for the three (3) years preceding the date
hereof ("Submitted Financial Statements"); and
(i) information reflecting the insurance loss history of the Property
for the period from January 1, 1994 to the present and copies of all insurance
policies relating to the Property.
4.3 Review and Inspection. During the Inspection Period, Purchaser shall
---------------------
review the Submittals and shall have the right to enter upon the Real Property
to inspect the Property and to conduct tests and investigations at its sole cost
and expense, except as provided herein. Seller shall cooperate with Purchaser,
or its agents, in arranging such inspections. Without limitation of the
foregoing, Purchaser or Purchaser's accountants or both may review the Submitted
Financial Statements and, in connection therewith, Seller shall supply such
documentation as Purchaser or Purchaser's accountants may reasonably request to
facilitate such review. Purchaser shall conduct all such inspections and reviews
in confidence and so as not to interfere unreasonably with the operation of the
Hotel. During the Inspection Period, Purchaser may order an environmental
report, at Purchaser's sole cost and expense, to be conducted by an
environmental engineering firm selected by Purchaser (the "Environmental
Study").
4.4 Purchaser's Acceptance or Rejection. If, in its sole and absolute
-----------------------------------
discretion, Purchaser accepts the condition of the Property and the Submittals,
it shall give Seller written notice of such acceptance before expiration of the
Inspection Period. If Purchaser shall give Seller a notice of disapproval
before expiration of the Inspection Period or fails to give such notice, then,
without the necessity of further documentation, this Agreement shall be deemed
terminated and the Deposit and all interest earned thereon shall be returned to
Purchaser. Purchaser shall pay to Seller the sum of $100.00 as fixed and
liquidated compensation for such termination, and neither party shall have any
further obligation or liability to the other party hereunder. The parties
hereto acknowledge that Purchaser has incurred substantial costs in connection
with the negotiation and execution of this Agreement, will incur additional
substantial costs in conducting the inspections contemplated by Section 4.3 and
would not have entered into this Agreement without the availability of the
Inspection Period. Therefore, the parties agree that adequate consideration
exists to support the obligations of the parties hereunder, even before
expiration of the Inspection Period. Notwithstanding the above, if the
Inspection Period is extended due to Purchaser's receipt of the survey after
June 23, 1996, Purchaser may terminate this Agreement pursuant to the terms of
this Section 4.4 after June 30, 1996, only due to matters raised on such survey.
4.5 Extension of Inspection Period. Purchaser shall have the option to
-------------------------------
extend the Inspection Period to July 15, 1996, subject to the following
provisions:
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<PAGE>
(a) Purchaser shall notify Seller on or before June 30, 1996 of
Purchaser's exercise of its option to extend the Inspection Period; and
(b) Purchaser shall deliver to Seller $25,000.00 which shall be
earned by Seller but treated as an additional Deposit provided, however, that
such additional Deposit shall not be subject to return to Purchaser pursuant to
the terms of Section 4.4 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Seller. Seller hereby represents
-----------------------------------------
and warrants the following to Purchaser:
(a) Due Organization, etc. Seller is a Nevada corporation duly
---------------------
formed and validly existing in good standing under the laws of its state of
formation and has full power and authority (i) to own or lease its properties
and to carry on its business as it is now being conducted, (ii) to enter into
this Agreement and to sell, convey, transfer, assign, and deliver the Property
to Purchaser as provided herein, and (iii) to carry out the other transactions
and agreements contemplated hereby. This Agreement has been duly authorized by
all requisite action on the part of Seller. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby (other
than the issuance and sale of Shares pursuant to the Note), except as otherwise
provided herein, do not require the consent or approval of any governmental
authority, nor shall such execution and delivery result in a breach or Violation
of any Legal Requirement, or constitute a default (or an event which with notice
and passage of time or both will constitute a default) under any contract or
agreement to which Seller is a party or by which it or the Property is bound.
(b) Intentionally Omitted.
(c) Title to Personal Property. Seller has good and marketable title
--------------------------
to the Personal Property, subject only to the Permitted Exceptions. All items
of Personal Property have been fully paid for to the extent that normal business
practice permits, except those items which are subject to installment payments
and with respect to which there are no installments due which are delinquent.
(d) Permits. To Seller's knowledge, (i) Exhibit F identifies all
-------
existing Permits and is complete and correct in all material respects; (ii) such
Permits constitute all of the Permits currently necessary for the ownership and
operation of the Hotel; (iii) no default has occurred in the due observance or
condition of any Permit which has not been heretofore corrected; and (iv) no
Space Lessee has received any notice from any source to the effect that there is
lacking any Permit needed in connection with the operation of the Hotel or any
other operation connected therewith.
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<PAGE>
(e) Hotel Contracts. Exhibit G identifies all material Hotel
---------------
Contracts and the information noted therein is complete and correct in all
material respects. Except as disclosed in Exhibit G, there is no default under
any Hotel Contract. Seller has provided (or will provide during the Inspection
Period) true and correct copies of all Hotel Contracts to Purchaser. Each Hotel
Contract (other than the Hotel Contracts designated as Material Contracts on
Exhibit G) may be cancelled upon 30 days' or less notice without penalty or
premium payment.
(f) Hotel Names. Exhibit O hereto identifies all Hotel Names and is
-----------
complete and correct in all respects. Seller has not received any notice that
the use of any thereof infringes on the rights of a third party.
(g) Space Leases. Exhibit J identifies all Space Leases and is
------------
complete and correct in all material respects. Except as disclosed in Exhibit
J, there is no default, under any Space Lease. Seller has given (or will give,
during the Inspection Period) to Purchaser true and correct copies of all Space
Leases. Seller owns all right, title and interest of the lessor under each
Space Lease.
(h) Commissions, etc. Except as may be disclosed on Exhibits G or J
----------------
and other than in the ordinary course of business in connection with Bookings,
there are no commissions or referral fees relating to the Hotel currently
outstanding, nor will there be any such commissions or referral fees
outstanding, on or before the Closing Date. Seller has not entered into any
agreements with any referral organization or booking agent which contain any
obligations that extend beyond the Closing Date.
(i) Impositions.
-----------
(i) Except as described on Exhibit N hereto, Seller has timely
filed all returns and reports for sales, use and property taxes required to
be filed by it with respect to the operation of the Property and has paid
in full or made adequate provision by the establishment of reserves for
Impositions which have become due with respect to the operation of the
Property. There is no sales, use or property tax deficiency proposed or
threatened against Seller with respect to the operation of the Property.
There are no tax liens upon any property or assets of Seller. Seller has
made all payments of sales, use and property taxes when due in amounts
sufficient to avoid the imposition of any penalty with respect to the
Property.
(ii) Impositions which Seller was required by law to withhold
or to collect with respect to the Property have been duly withheld and
collected, and have been paid over to the proper governmental entity or are
being held by Seller for such payment, and all such withholdings and
collections and all other payments due in connection therewith as of the
date of the Submitted Financial Statements are duly reflected on the
Submitted Financial Statements.
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<PAGE>
(iii) Seller is not currently being audited by, and has not
received any notice of intention to audit from, any federal, state or local
sales, use or property taxing authority.
(j) Fixtures, Tangible Personal Property, etc. Each guest room
-----------------------------------------
contains furniture and furnishings consistent with Seller's historical
furnishing of such guest rooms. The quantities of Fixtures and Tangible
Personal Property, Consumables and Operating Equipment in the Hotel, including
physical reserves, are sufficient for the proper and efficient operation of the
Hotel in accordance with the standards of operation heretofore maintained by
Seller. Seller shall continue to maintain the same at a level consistent with
the average maintenance for the 12 months preceding the date hereof until the
Cut-off Time.
(k) Submitted Financial Statements. The Submitted Financial
------------------------------
Statements for the Hotel (which shall include the income of restaurants, bars,
retail rental space and garage portions of the Hotel, if any) fairly present the
results of operation of the Hotel for the periods indicated, and, except as set
forth as Exhibit D, were prepared in accordance with generally accepted
accounting principles, on a consistent basis, and there has been no material
adverse change in the results of the operations of the Hotel since the statement
dated for the period ended December 31, 1995.
(l) Bookings. Exhibit I identifies all Bookings for periods from and
--------
after the date hereof.
(m) Pending Litigation. Except as described in Exhibit L, there are
------------------
no actions, suits, or proceedings, pending or to Seller's knowledge threatened
against Seller or affecting any of Seller's rights, in each case, with respect
to the Property, at law or in equity, or before any federal, state, municipal,
or other governmental agency or instrumentality, which might result in any
order, injunction, decree or judgment having a material adverse effect on the
Hotel or the Property, nor is Seller aware of any facts which to its knowledge
might result in any action, suit or proceedings. Except as noted in Exhibit K,
to Seller's knowledge the Hotel complies with all Legal Requirements. Except as
noted in Exhibit K, Seller has not received any notice of any Violation of a
Legal Requirement which has not been heretofore corrected. Prior to the Closing
Date, any uncured Violations listed in Exhibit K and any other Violations that
arise shall be cured by Seller at its sole expense.
(n) Condemnation. To the knowledge of Seller, there are no pending,
------------
or, threatened, condemnation proceedings or condemnation actions against the
Real Property or any of the rights-of-way located adjacent thereto.
(o) Intentionally Omitted.
(p) Assessments. To Seller's knowledge, no governmental assessment
-----------
for sewer, sidewalk, water, paving, electrical, power or other improvements is
pending or threatened, except as may be set forth on Exhibit C.
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<PAGE>
(q) Labor Disputes. During the three (3) years preceding the date
--------------
hereof, Seller has not experienced any labor disputes or labor trouble other
than routine grievances or organizational efforts, none of which have had a
material adverse effect on the operations of the Property.
(r) Employees. Exhibit H is a complete list of all Employees with
---------
their salaries, position and terms of employment; and (i) except as set forth on
Exhibit H, Seller is not a party to any Employment Arrangement and no union is
presently serving as collective bargaining agent for any Employees; (ii) to the
best of Seller's knowledge, no union presently is conducting or planning to
conduct an organizational campaign for any Employees; and (iii) with the
exception of the Employee Benefit Plans listed on Exhibit P, there is no
pension, profit-sharing, bonus or other employee benefit plan relating to
current or past Employees.
(s) Utilities. All utility equipment and facilities required for the
---------
operation and use of the Hotel are located on the Property and all agreements
for providing utilities are with direct providers.
(t) Material Changes. There are no facts or circumstances having
----------------
specific application to the Hotel (other than general economic or industry
conditions) not disclosed to Purchaser of which Seller has knowledge, which have
or could have a material adverse effect upon the Hotel. Seller agrees to notify
Purchaser immediately of such facts or circumstances if it becomes aware of the
same prior to the Closing Date.
(u) Environmental Matters.
---------------------
(i) Seller has not transported, stored, treated, or disposed
of, nor has it allowed or arranged for any third parties to transport,
store, handle, treat, or dispose (as hereinafter defined) of Hazardous
Substances or other waste to or at any location other than a site lawfully
permitted to receive such Hazardous Substances or other waste for such
purposes, nor has it performed, arranged for, or allowed by any method or
procedure such transportation, storage, treatment, or disposal in
contravention of any laws or regulations or in a manner giving rise to any
liability whatsoever. Seller has not stored, handled, treated, or disposed
of, nor allowed or arranged for any third parties to store, handle, treat,
or dispose of Hazardous Substances or other waste upon property owned or
leased by it, except as permitted by law. For purposes of this Section
5.1(u), the term "Hazardous Substances" shall include, without limitation,
any material or substance that is one or more of the following: (i) defined
as a conventional, hazardous, toxic, regulated or solid pollutant,
contaminant, substance or waste pursuant to any Environmental Law (as
hereinafter defined), (ii) petroleum, (iii) asbestos, (iv) corrosive,
toxic, flammable, explosive, reactive, mutagenic, carcinogenic, infectious
or radioactive, (v) materials mixed with, containing or derived from any of
the foregoing or (xvii) any material
-14-
<PAGE>
which is or becomes regulated by any Environmental Law which is released
(as hereinafter defined) at or from the Real Property or which has migrated
to or from the Real Property or is found on the Real Property or any other
site affected by such release at, to, on or from the Real Property. The
terms release(d), transport(ed), store(d), treat(ed), handle(d),
arrange(d), dispose(d) and disposal shall have the meanings assigned by the
Comprehensive Environmental Response Compensation and Liability Act, 42
U.S.C.A. Section 9601 et seq. ("CERCLA") or the Resource Conservation and
Recovery Act, 42 U.S.C.A. Section 6901 et seq. (42 U.S.C.A. Section 6903
("RCRA").
(ii) To Seller's knowledge, there has not occurred during
Seller's occupancy nor is there currently occurring, a release of any
Hazardous Substance to, from, on, into, or beneath the surface of the Land.
(iii) The Seller has not shipped, transported, or disposed of,
nor has it allowed or arranged, by contract, agreement, or otherwise, for
any third parties to ship, transport, or dispose of, any Hazardous
Substance or other waste to or at a site which, pursuant to CERCLA or any
similar state law, (i) has been placed on the National Priorities List or
its state equivalent, or (ii) the Environmental Protection Agency or the
relevant state agency has proposed or is proposing to place on the National
Priorities List or its state equivalent. Seller has not received written
notice, nor does it have knowledge of any facts which could give rise to
any written notice, that Seller is a potentially responsible party for a
federal or state environmental cleanup site or for corrective action under
CERCLA or any other applicable law or regulation. Seller has not submitted
nor was it required to submit any notice pursuant to Section 103(c) of
CERCLA, or pursuant to any federal, state or local requirement for
notification of a release with respect to the Real Property. Seller has
not received any written request for information from any federal, state or
local governmental authority in connection with any release. Seller has
not been required to or has not undertaken any response, investigation,
monitoring, or remedial actions or clean-up actions of any kind at the
request of any federal, state, or local governmental entity, or at the
request of any other person or entity.
(iv) Seller does not use, and has not used, any Underground
Storage Tanks, and there are not now nor to Seller's knowledge have there
ever been any Underground Storage Tanks on the Land. For purposes of this
Section 5.1(u)(iv), the term "Underground Storage Tanks" shall have the
meaning given it in the Resource Conservation and Recovery Act (42 U.S.C.
Sections 6901 et seq.).
(v) There is no asbestos in or on the Real Property.
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(vi) Seller has not received written notice of any violation,
noncompliance or breach of any environmental or worker safety laws or
regulations which require any work, repairs, construction, or capital
expenditures with respect to the assets or properties of Seller.
(vii) Exhibit U identifies: (i) all environmental audits,
assessments, or occupational health studies undertaken by Seller or its
respective agents or known to have been undertaken by or at the order or
request of governmental agencies; (ii) the results of any ground, water,
soil, air, or asbestos monitoring or investigation undertaken with respect
to the Real Property; (iii) all written communications between Seller and
any environmental agencies; and (iv) all citations issued under the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.).
(viii) Seller's Environmental Indemnity.
(a) Definitions. Notwithstanding anything contained in
-----------
this Agreement to the contrary, for purposes of this Agreement the
following terms shall have the following meanings:
"Environmental Claim" means any written claim, demand,
-------------------
notice of violation, injunction or order for personal injury,
including sickness, disease or death, tangible or intangible property
damage, environmental stigma, lost profits or other business losses,
impaired financial value, damage to the environment, nuisance,
pollution, contamination or reimbursement of cleanup costs or other
adverse effects on the environment, or for fines, penalties or
restrictions, arising or resulting from, based on, caused by or
related to the existence or the continuation of the existence of
Hazardous Substances made, asserted or prosecuted by or on behalf of
any third party. Environmental Claim shall include, without
limitation, any costs or expenses incurred to investigate, contain,
remove, remedy, treat, or monitor any Hazardous Substances and any
media, including soil and groundwater, impacted by Hazardous
Substances, as required by any Environmental Law or by regulatory
enforcement officials acting under or pursuant to any Environmental
Law, or by federal or state courts, lost profits, loss of use,
diminution in value, liens against the Real Property relating to
Hazardous Substances and any failure or defect in title to the Real
Property occasioned by the migration from or presence of Hazardous
Substances or Seller's failure to comply with any Environmental Law.
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<PAGE>
"Environmental Law" means any federal, state, or local
-----------------
statute, ordinance, rule, regulation, order, consent decree, judgment
or common law doctrine, or interpretation thereof, as amended, and
provisions and conditions of permits, licenses and other operating
authorizations, as amended, related to protection, remediation or
restoration of the environment, including natural resources, or
protection of human health, worker safety, industrial, agricultural or
silvicultural chemicals, pesticides, insecticides, fungicides,
rodenticides, fertilizers, toxic substances, surface, subsurface or
drinking water, food, drugs, or cosmetics or related to cleanup,
fines, orders, injunctions, penalties, notification, contribution,
cost recovery, losses or injuries to person or property resulting from
contamination or pollution or hazards to human health or welfare or
the environment which are now or may hereafter become in effect
including, without limitation, CERCLA and RCRA, (collectively, as
amended and together with all regulations promulgated thereunder,
"Environmental Laws").
(b) Indemnification. Seller shall defend, indemnify and
---------------
hold harmless Purchaser, its nominees, officers, directors, agents,
employees, successors, lenders, assigns, affiliates, subsidiaries,
parent companies (if any), shareholders, lenders, representatives and
the successors and assigns of all of the foregoing from and against:
1. Environmental Claims; and
2. Fines and penalties imposed on Purchaser, its
successors, assigns, parents, subsidiaries, officers, directors,
shareholders, agents, employees, lenders and representatives and the
successors and assigns of all of the foregoing as a result of a
violation by Seller of any Environmental Law arising from or related
to any Hazardous Substances; and/or
3. Any breach of any of representations and warranties
of Seller set out herein at Section 5.1(u)(i) through 5.1(u)(vii).
(c) Discharge of Environmental Claims. In the event that
---------------------------------
Purchaser notifies Seller of any claim that may be subject to an
indemnification obligation under this Section 5.1(u), Seller shall,
within thirty (30) days from the date of receipt of notice,
acknowledge and assume the liability asserted. During such thirty
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(30) day period, Purchaser shall not take any action or incur any
expense with respect to the claim, except to the extent that such
action or expense is legally required or reasonably necessary under
the circumstances.
Seller shall have the right and obligation to control,
manage and direct all discussions, proceedings and activities
regarding the satisfaction or discharge of any claim which is assumed
by Seller or any liability or obligation that such a claim seeks to
impose on Seller.
Purchaser shall have the right, at its own expense, to
consult with Seller, through counsel or otherwise, with respect to all
meetings and proceedings with adverse parties or governmental
authorities regarding any Environmental Claim and with respect to all
activities pertaining to that matter. Prior to initiating or
participating in any meeting or proceeding in which decisions or
discussions adverse to Purchaser may be made, Seller shall consult
with Purchaser. This right of consultation shall not apply to
confidential meetings or documents in cases where Seller or Purchaser
are disputing or litigating claims against each other in a judicial or
administrative proceeding. Seller shall promptly notify Purchaser in
writing before Seller initiates or participates in any meeting or
proceeding in which decisions or discussions adverse to Purchaser may
be made, including without limitation decisions or discussions
concerning matters not covered by this Agreement. Purchaser shall
have the right, but not the obligation, to participate in such
meetings or proceedings.
(d) Remedies. If Seller fails to perform its obligations
--------
under this Section 5.1(u), Purchaser may, at its option (1) bring an
action for injunction or specific performance of this Section 5.1(u)
or this Agreement, and in such action, recover damages suffered by
Purchaser as a result of Seller's breach or delay in performing its
obligations, or (2) bring an action for damages for Seller's breach of
its obligations, or (3) bring an action for response costs or other
relief under federal or state environmental laws or regulations, or
(4) any combination of the above. In the event that Purchaser
prevails in such an action, it shall be entitled to recover from
Seller the costs and expenses of bringing the action, including
reasonable attorneys' fees. No delay or omission in the exercise of
any right or remedy accruing to Purchaser upon any breach by Seller
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under this Agreement shall impair any such right or remedy or
be construed as a waiver of such breach theretofore or
thereafter occurring. The waiver by Purchaser of any condition
or of any breach of any term, covenant or condition contained
in this Agreement shall not be deemed to be a waiver of any
other condition or of any subsequent breach of the same or of
any other term, covenant or condition of this Agreement. All
rights, powers, options or remedies afforded to Purchaser
either under this Section 5.1(u) or this Agreement or by law or
by equity, shall be cumulative and not alternative and the
exercise of any right, power, privilege or remedy shall not bar
other rights, powers, privileges or remedies.
(e) Survival. Seller's obligations under this
--------
Section 5.1(u) shall survive (i) the closing of the sale that
is the subject of this Agreement for a period of two (2) years
and (ii) the termination of this Agreement. All claims for
indemnification pursuant to this Section 5.1(u) must be made
within two (2) years from the Closing Date.
(v) Intentionally Omitted.
(w) Documents. Seller has made available to Purchaser all of the
---------
Documents; Seller knows of no other document or instrument relating to the
Hotel, or the ownership or operation thereof.
(x) Seller's Knowledge. For the purposes of this Section 5.1, the
------------------
phrases "to the best of Seller's knowledge," "to Seller's knowledge" and similar
phrases shall imply a reasonable inquiry by Seller of its employees (but shall
not require Seller to hire third party consultants).
(y) Third Party Property. Seller is not in possession of any
--------------------
property owned by third parties other than (i) property leased by Seller
pursuant to leases disclosed to Purchaser pursuant to this Agreement; (ii)
baggage of current guests which has been checked with or left in the care of
Seller; and (iii) contents in safe deposit boxes deposited by current guests.
(z) Investment Representations. Seller represents that it and its
--------------------------
shareholders have received a prospectus of Parent dated June 17, 1996.
(aa) Notices. No filing is required with any state or local taxing
--------
authority as a result of the bulk sale of Seller's business assets.
5.2 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants the following to Seller:
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(a) Authority. Purchaser has all requisite power and authority to
---------
execute and deliver this Agreement and to consummate the transactions
contemplated hereby pursuant to the terms and conditions hereof.
(b) No Conflict. The execution and delivery of this Agreement and
-----------
the consummation of the transactions contemplated hereby will not conflict with,
breach, result in a default under, or violate any commitment, document or
instrument to which Purchaser is a party or by which it is bound.
(c) Parent Shares. The Shares have been registered by the Parent
-------------
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "SEC"), a so-called "shelf" registration statement (the
"Registration Statement"), in accordance with the provisions of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "1933 Act"). Upon the issuance and delivery of the Shares to the Seller in
accordance with this Agreement, such shares will constitute legally and validly
authorized and issued, fully paid, and nonassessable shares of Common Stock. At
Closing, the Registration Statement shall have been declared effective under the
1933 Act and the Parent shall be in compliance with the undertakings contained
in the Registration Statement.
5.3 Duration of Representations and Warranties. All representations and
------------------------------------------
warranties contained in Sections 5.1 and 5.2 shall be deemed restated on and as
of the Closing Date.
ARTICLE VI
CLOSING MATTERS
6.1 Closing. The closing of the transaction contemplated hereby (the
-------
"Closing") shall take place at the offices of the Title Company on July 15, 1996
(the "Closing Date") unless Purchaser extended the Inspection Period pursuant to
Section 4.5 hereof, in which event the Closing Date shall be July 31, 1996, or
such other date as may be mutually agreed by the parties.
6.2 Manner of Closing. The transaction shall be closed with the
-----------------
concurrent delivery of the documents of title, transfer of interests, delivery
of the title policy described in Section 7.1(e) and the payment of the Purchase
Price.
6.3 Survey, Title Commitment and Searches.
-------------------------------------
(a) Survey. Purchaser intends to obtain a plat of survey ("Survey")
------
of the Property prepared by a surveyor licensed by the State of Nevada, in
conformity with Class A minimum detail requirements and the current standards
for Land Title Surveys of the American Title Association and American Congress
on Surveying and Mapping and such standards as are required
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by the Title Insurer as a condition to the removal of any survey exceptions from
the Title Commitment, certified to Purchaser, Parent, its lender, if any, and
the Title Insurer after the date hereof, showing, without limitation of the
foregoing requirements, the following information with respect to the Property:
(i) the legal description and boundaries thereof;
(ii) the location and street and common addresses of all
improvements situated thereon;
(iii) the location, course and recording numbers, if applicable,
of all water, gas, electric, sewer line and other easements, either visible
or recorded, and party walls;
(iv) public and private streets, roads, alleys and highways and
their common or official names;
(v) record and physical access to and from a public road or
way;
(vi) no encroachments thereon or by any Improvements located
thereon on adjacent property;
(vii) the amount of gross square feet and net square feet (that
is, after deducting the area of that portion of the Property, if any, lying
in the existing or proposed right-of-way of a public street or road)
contained in the Real Property;
(viii) building lines or other restrictions affecting the
Property; and
(ix) whether any portion of the Property is located in an area
designated as being subject to flood hazards or flood risks or wetlands by
any agency of the United States of America.
(b) Title Commitment. Seller shall deliver to Purchaser, on or
----------------
before June 23, 1996, a title commitment for an ALTA Owner's Insurance Policy
issued by the Title Company ("Title Commitment") showing title to the Real
Property in the Seller, subject only to the Permitted Exceptions, containing
full extended coverage over all general exceptions, a 3.1 zoning endorsement
(amended to include parking), location, survey and contiguity endorsements, an
endorsement that the real estate tax bills for the Property do not include taxes
pertaining to other real estate, and such other endorsements as may be
reasonably requested by Purchaser, and dated after the date hereof. Seller shall
also deliver full and legible copies of all documents ("Title Papers") referred
to in the Title Commitment.
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(c) Defects. If the Survey, Title Commitment, or UCC, judgment, and
-------
tax lien searches on the names of Seller (collectively, "Title Documents") shall
reflect any facts that would result in a Title Defect, Seller shall have thirty
(30) days from the expiration of the Inspection Period within which to cure or
remove the Title Defect. Seller shall be obligated to remove mortgages, deeds
of trust and other liens or encumbrances for the payment of money of a definite
and ascertainable amount, which the parties agree may be removed by the use of
the proceeds of sale at Closing as provided in Section 6.3(d) below. In the
alternative, Seller may make arrangements satisfactory to the Title Company for
the cure (including insurance over) or removal of record of any such Title
Defect. If any such Title Defect is not cured or otherwise provided for as
aforesaid on or prior to the thirtieth (30th) day, the Purchaser shall either:
(i) terminate this Agreement, in which event (hereinafter referred to as
"Election No. 1") the Deposit and all interest earned thereon shall be returned
to Purchaser and the parties shall have no further obligation or liability to
each other hereunder; or (ii) accept the Title Commitment, Survey, or Searches
as is, with the right, however, to deduct the amount of Title Defects
represented by liens or encumbrances for the payment of money of a definite or
ascertainable amount from the Purchase Price payable at Closing (hereinafter
referred to as "Election No. 2"). Title Defects which are acceptable as part of
Election No. 2 shall thereupon be deemed to be Permitted Exceptions and Exhibit
C shall be amended, if necessary, to include such additional Permitted
Exceptions. Election No. 2 shall be made by the Purchaser giving Seller written
notice thereof within five (5) days after notice of Seller's inability to cure
or remove the Title Defect and in the absence of notice of Election No. 2 within
such five (5) day period, Purchaser shall be deemed to have elected Election No.
1. In the event Purchaser elects Election No. 1 and a Title Defect was created
or consented to by Seller, Purchaser shall be paid by Seller the actual costs of
Purchaser's investigation not to exceed $25,000.00 in addition to recovery of
the Deposit.
(d) Removal of Liens, etc. If on the Closing Date there shall be any
---------------------
Title Defect created to secure the payment of money, then Seller shall either
(a) use a portion of the Purchase Price to satisfy the same, provided Seller
shall simultaneously either deliver to Purchaser at Closing instruments, in
recordable form, sufficient to satisfy such Title Defect of record, together
with the cost of recording or filing said instrument; or (b) in the alternative,
make arrangements with the Title Company, in advance of Closing, whereby Seller
will deposit with the Title Company sufficient monies, acceptable to the Title
Company to induce the Title Company to issue the Title Policy to Purchaser,
either free of any such Title Defect or with insurance which "insures over" such
Title Defect. Purchaser agrees to provide at Closing separate certified checks
as requested, to facilitate the satisfaction of any such Title Defects, if
request is made within a reasonable time prior to the Closing Date. The
existence of any Title Defects capable of satisfaction by the payment of money
shall not be deemed to be Title Defects for the purposes of cure periods, as
discussed supra in Section 6.3(c), if Seller shall comply with the foregoing
-----
requirements.
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ARTICLE VII
CLOSING DELIVERIES
7.1 Seller's Deliveries. At Closing, Seller shall deliver, or cause
-------------------
to be delivered to Purchaser, the following, each of which shall be in form and
substance reasonbly acceptable to counsel for Purchaser and, in the case of
documents of transfer or conveyance, shall be accepted or consented to by all
parties required to make such transfer or conveyance effective:
(a) a recordable grant, bargain, and sale deed from Seller to
Purchaser subject only to the Permitted Exceptions;
(b) a Bill of Sale, with special covenants of title,
transferring to Purchaser all of Seller's right, title and interest in and to
each and every item of Fixtures and Tangible Personal Property, Documents,
Consumables and Operating Equipment to be transferred hereunder subject only to
Permitted Exceptions, and with respect to any vehicles included therein, such
separate forms of assignment as are required to be filed with any governmental
agency to effect such change in registration of ownership;
(c) all of the Bookings, Hotel Contracts, Space Leases, Permits
and other tangible Miscellaneous Hotel Assets, together with an Assignment
conveying and transferring to Purchaser all of Seller's right, title and
interest in, to and under the Bookings, Hotel Contracts, Space Leases, Permits
(other than Excluded Permits) and all other Miscellaneous Hotel Assets;
(d) the certificates referred to in Section 10.1(b) hereof;
(e) a FIRPTA Certificate;
(f) evidence of termination of the Employees;
(g) the opinion of Seller's counsel as provided by Section
10.1(c);
(h) certified copies of resolutions of the shareholders and
directors of Seller authorizing the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby;
(i) a certificate of the secretary of Seller, dated as of the
Closing Date, certifying the incumbency of the officer(s) of Seller executing
the documents delivered by Seller pursuant to this Agreement;
(j) a Non-Compete Agreement substantially in the form of Exhibit
R executed by Michael J. Mona, Jr. and Rhonda H. Mona; and
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(k) evidence, satisfactory to Purchaser, of the termination of all
management agreements and other management arrangements with respect to the
Hotel.
7.2 Purchaser's Deliveries. At the Closing, Purchaser shall cause to be
----------------------
delivered to Seller:
(a) the Note;
(b) the certificate referred to in Section 9.1(b) hereof;
(c) the opinion of Purchaser's counsel as provided by Section 9.1(c);
and
(d) the written undertaking of Purchaser as provided by Section
9.1(d).
7.3 Concurrent Transactions. All documents or other deliveries required
-----------------------
to be made by Purchaser or Seller at Closing, and all transactions required to
be consummated concurrently with Closing, shall be deemed to have been delivered
and to have been consummated simultaneously with all other transactions and all
other deliveries, and no delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until all deliveries
required by Purchaser, or its designee, and Seller shall have been made, and all
concurrent or other transactions shall have been consummated.
7.4 Further Assurances. Seller and Purchaser will, at the Closing, or at
------------------
any time or from time to time thereafter, upon request of either party, execute
such additional instruments, documents or certificates as either party deems
reasonably necessary in order to convey, assign and transfer the Property to
Purchaser, hereunder.
7.5 Possession. Possession of the Property shall be delivered at Closing.
----------
Subject to the provisions of Section 17.1(e), Excluded Assets (other than any
thereof under leases to be assumed by Purchaser) shall be removed from the Hotel
by Seller, at its expense, on or before the Closing Date. Seller, at its expense
shall make all repairs necessitated by such removal but shall have no obligation
to replace any Excluded Asset so removed.
ARTICLE VIII
ADJUSTMENTS AND PRORATIONS
8.1 Adjustments and Prorations. The following matters and items
--------------------------
shall be apportioned between the parties hereto or, where appropriate, credited
in total to a particular party, as of the Cut-off Time as provided below:
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(a) Down Payments for Reservations. Any pre-closing down payments
------------------------------
made to Seller on confirmed reservations for dates after the Closing Date will
be credited to Purchaser as of the Closing. Any post-closing down payments made
to Seller on confirmed reservations for dates after the Closing Date will be
forwarded to Purchaser upon receipt.
(b) Taxes and Assessments. All ad valorem taxes, special or general
---------------------
assessments, personal property taxes, attorneys' fees directly related to the
reduction of taxes or assessments, water and sewer rents, rates and charges,
vault charges, canopy permit fees, and other municipal permit fees. If the
amount of any such item is not ascertainable on the date the proration schedule
is completed pursuant to Section 8.3, the credit therefor shall be based on one
hundred percent (100%) of the most recent available bill and shall be reprorated
upon receipt of the actual tax bill. Notwithstanding the above, special real
property tax assessments for which the work is substantially completed as of the
Closing Date shall be paid by Seller.
(c) Utility Contracts. Telephone and telex contracts and contracts
-----------------
for the supply of heat, steam, electric power, gas, lighting and any other
utility service, with Seller receiving a credit for each deposit, if any, made
by Seller as security under any such public service contracts if the same is
transferable and provided such deposit remains on deposit for the benefit of
Purchaser. Where possible, cut-off readings will be secured for all utilities on
the Closing Date.
(d) Hotel Contracts and Space Leases. Any amounts prepaid or payable
--------------------------------
under any Hotel Contracts and Space Leases shall be apportioned between the
parties. Any percentage rentals under Space Leases shall be prorated on the
basis of the ratio of the number of days expired before Closing to the number of
days after Closing, for the current percentage rent period of the Space Lease.
All security deposits held by Seller shall be transferred to Purchaser and all
obligations with respect to such security deposits shall be assumed by
Purchaser.
(e) License Fees. Fees paid or payable for Permits (other than
------------
Excluded Permits) shall be apportioned between the parties.
(f) Hotel Matters.
-------------
(i) Advance payments, if any, under Bookings for Hotel
facilities (which shall include prepaid amounts by current guests);
(ii) Coin machine, telephone, washroom and checkroom income;
and
(iii) Commissions to credit and referral organizations.
(g) Employment Arrangements. Seller shall be responsible for, and
-----------------------
shall pay when due, all Compensation of Employees. Purchaser assumes no
Employment Arrangements or
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other obligation with respect to any Employee Benefits, all of
which, together with any sums due any Employee as a consequence of the
termination of his employment, shall be the responsibility of Seller.
(h) Consumable Items. The cost of any Consumables or Operating
----------------
Equipment which are at a level below the level required to be maintained under
this Agreement shall be credited to Purchaser.
(i) Other. Such other items as are provided for in this Agreement or
-----
as are normally prorated and adjusted in the sale of a hotel, including without
limitation, all petty cash funds and cash in house banks, and all deposits and
prepaid items which inure to the benefit of the Purchaser.
8.2 Receivables. Purchaser is not purchasing any of the receivables of
-----------
the Hotel and Seller shall be solely responsible for the collection of accounts
receivable arising prior to the Closing Date. If Purchaser shall receive any
payment made on any unpurchased accounts receivable within ninety (90) days
after the Closing Date, it shall promptly remit such payment to Seller. With
regard to any collection made from any person or entity who is indebted to the
Hotel both with respect to accounts receivable accruing prior to the Closing
Date and to the accounts receivable accruing subsequent to the Closing Date,
such collection shall be applied as designated by the payor, but if there is no
designation, then any such collections received within ninety (90) days after
the Closing Date shall be applied first to the indebtedness accrued prior to the
Closing Date, but thereafter, any such collections shall be applied first to the
payment in full of any amounts due to Purchaser on accounts accruing subsequent
to the Closing Date.
8.3 Proration Schedule.
------------------
(a) Preparation and Review. A schedule setting forth the adjustments
----------------------
and prorations to be made pursuant to Section 8.1 above shall be prepared by
Purchaser and forwarded to Seller within thirty (30) days after the Closing
Date. Seller shall be afforded the opportunity to review all work papers and
computations used by Purchaser in the preparation of the adjustments and
prorations. The schedule as delivered shall be deemed accepted by Seller except
to the extent, if any, that Seller, within ten (10) days after the date of
delivery thereof to Seller, has delivered a written notice to Purchaser stating
any exceptions Seller may have to such schedule. If within such period Seller
shall give written notice to Purchaser of any exceptions to the schedule as
delivered by Purchaser, the parties shall attempt to resolve all of the
exceptions. To the extent that any such exceptions are not resolved within
fifteen (15) days after the delivery to Purchaser of Seller's exceptions to the
schedule, such differences shall be submitted as soon as practicable thereafter
to such "Big Six" accounting firm upon which the parties shall agree, for final
determination thereof. If the parties are not able to agree upon an accounting
firm, each shall designate a "Big Six" accounting firm and give written notice
to the other of the name and address of the firm so
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<PAGE>
designated. The two firms shall consult with each other and, if possible,
determine the exceptions in question by mutual agreement, and their
determination so agreed upon, if certified to the parties prior to their
reaching agreement independently of arbitration, shall be final and conclusive.
If the two firms are not able to agree upon the exceptions in question, they
jointly shall designate a third firm whose determination concerning the
exceptions shall be final and conclusive, if certified to the parties prior to
their reaching agreement independent of arbitration. Any determination by such
accounting firm(s) as to the proper determination of any such item submitted to
it for determination shall be conclusive and binding upon the parties for
purposes of this Agreement. Seller and Purchaser shall each pay one-half of
such fees charged by such accounting firm(s) in connection with any matter
submitted to it hereunder.
(b) Payment of Adjustments. The net amount due pursuant to the
----------------------
adjustments and prorations made as required by this Section 8.3 shall be paid by
cash or bank cashier's check payable in immediately available funds in United
States currency to the order of the party to whom the same shall be due upon
final determination of the adjustments and prorations required hereunder. Seller
agrees that prior to the time that payment is made pursuant to Section 8.3(b),
it shall not make final liquidating distributions.
(c) Period for Recalculation. Notwithstanding the foregoing, if at
------------------------
any time within six (6) months following the Closing Date, either party
discovers any items which should have been included in the prorations but were
omitted therefrom, then such items shall be adjusted in the same manner as if
their existence had been known at the time of the preparation of the prorations.
The foregoing limitations shall not apply to any items which, by their nature,
cannot be finally determined within the periods specified.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
9.1 Conditions. Seller's obligation to close hereunder shall be subject
----------
to the occurrence of each of the following conditions, any one or more of which
may be waived by Seller in writing:
(a) Purchaser's Compliance with Obligations. Purchaser shall have
---------------------------------------
complied with all obligations required by this Agreement to be complied with by
Purchaser.
(b) Truth of Purchaser's Representations and Warranties. The
---------------------------------------------------
representations and warranties of Purchaser contained in Section 5.2 were true
in all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Seller shall have received a
certificate to that effect signed by an authorized agent of Purchaser.
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(c) Opinion of Purchaser's Counsel. Purchaser shall have delivered
------------------------------
to Seller a favorable written opinion of Pedersen & Houpt in connection with
this transaction, dated the Closing Date, as to (i) the power and authority of
Purchaser to execute and deliver this Agreement, (ii) the due authorization,
execution and delivery by Purchaser of this Agreement, and (iii) the legality,
validity and, as to Purchaser, the binding effect of this Agreement (subject to
the effect of bankruptcy and similar laws affecting the enforcement of
creditors' rights generally and to the discretion of a court of equity to
enforce equitable remedies).
(d) Opinion of Purchaser's Securities Counsel. Purchaser shall have
-----------------------------------------
delivered to Seller the written undertaking of Purchaser to provide to Seller
the favorable written opinion of Bell, Boyd & Lloyd, dated at the time of each
Approved Sale, that such Approved Sale complies or will comply with the
requirements of this Agreement, the 1933 Act and any state blue sky or other
securities laws applicable to the Approved Sale.
(e) Delivery of Current Prospectus. Seller shall have received
------------------------------
Parent's current, effective prospectus that does not reflect any material
adverse change from the prospectus of Parent dated June 17, 1996.
9.2 Failure of Conditions. If any of the conditions enumerated in Section
---------------------
9.1 are not fulfilled and, as a consequence thereof, Seller elects to terminate
this Agreement, such failure shall be deemed a default by Purchaser hereunder
and the consequences thereof shall be governed by the provisions of Section 3.2.
ARTICLE X
CONDITIONS TO PURCHASER'S OBLIGATIONS
10.1 Conditions. Purchaser's obligation to close hereunder shall be
----------
subject to the occurrence of each of the following conditions, any one or more
of which may be waived by Purchaser in writing:
(a) Seller's Compliance with Obligations. Seller shall have complied
------------------------------------
with all obligations required by this Agreement to be complied with by Seller.
(b) Truth of Seller's Representations and Warranties. The
------------------------------------------------
representations and warranties of Seller contained in Section 5.1 were true in
all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Purchaser shall have received a
certificate to that effect signed by an authorized agent of Seller.
(c) Opinion of Seller's Counsel. There shall have been delivered to
---------------------------
Purchaser a favorable opinion of Jones, Jones, Close & Brown, counsel to Seller
in connection with this
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transaction, dated the Closing Date as to (i) the power and authority of Seller
to execute and deliver this Agreement; (ii) the due authorization, execution and
delivery by Seller of this Agreement and all other documents required to be
executed and delivered by Seller pursuant to Section 7.1 hereof; and (iii) the
legality, validity and, as to Seller, the binding effect of this Agreement and
all other documents required to be executed and delivered by Seller pursuant to
Section 7.1 hereof (subject in each case to the effect of bankruptcy and similar
laws affecting creditors' rights generally and to the discretion of a court of
equity to enforce equitable remedies).
(d) Estoppel Certificates--Hotel Contracts. Purchaser shall notify
--------------------------------------
Seller, in writing at least thirty (30) days prior to the Closing Date, of the
Material Contracts for which Purchaser requires estoppel certificates. Each of
said estoppel certificates shall be in writing from the parties to such Material
Contract stating that such Material Contract is in full force and effect, has
not been amended or modified except as therein indicated, that such party
consents to the assignment to Purchaser and that no party is then in default
under such Material Contract (or if any default is known to exist, or would
arise with the giving of notice or the passage of time, stating the nature of
such default). The estoppel certificates herein referred to shall be in form
and substance reasonably satisfactory to Purchaser and dated not more than
thirty (30) days prior to the Closing Date.
(e) No Pending Adverse Litigation. On the Closing Date, there shall
-----------------------------
not then be pending or, to the knowledge of either Purchaser or Seller,
threatened, any litigation, administrative proceeding, investigation or other
form of governmental enforcement, or executive or legislative proceeding which,
if determined adversely, would restrain the consummation of any of the
transactions herein referred to, declare illegal, invalid or non-binding any of
the covenants or obligations of the parties herein, or have a material and
adverse effect on the operations or cash flow of the Hotel, or materially and
adversely affect the value of the Property or the ability of Purchaser, after
the Closing, to operate the Hotel in the manner contemplated hereby, other than
those matters previously disclosed and approved by Purchaser.
(f) Related Transactions. The transactions contemplated by (i) the
--------------------
certain Agreement to Purchase Hotel of even date herewith by and between St.
Louis Manor, Inc. and ESA Properties, Inc., (ii) the certain Agreement to
Purchase Hotel of even date herewith by and between Melrose Suites, Inc. and ESA
Properties, Inc., and (iii) the certain Agreement to Purchase Hotel of even date
herewith by and between Santa Fe Springs Partners and ESA Properties, Inc.,
shall have been consummated.
(g) Title Policy. Purchaser shall have received an ALTA Owner's
------------
Insurance Policy issued by the Title Company in exact conformity with the Title
Commitment in favor of Purchaser, in the amount of the Purchase Price, showing
good and marketable fee simple title in the Real Property to be vested in
Purchaser, subject only to Permitted Exceptions (the "Title Policy").
10.2 Failure of Conditions. If any of the conditions enumerated in
---------------------
subsections (d)
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and (e), of Section 10.1 are not fulfilled, then the sole remedy of Purchaser
shall be to terminate this Agreement (whereupon the Deposit and all interest
earned thereon shall be returned to Purchaser and neither party shall have any
further obligation or liability hereunder), unless the failure to fulfill such
condition constitutes, or results from, either (i) a material breach of an
express representation or warranty made by Seller hereunder, or (ii) a material
default of an express covenant made by Seller hereunder, in which event
Purchaser shall be entitled to pursue against Seller any and all remedies
available to Purchaser, at law or in equity. If any of the conditions
enumerated in subsections (a), (b) and (c) of Section 10.1 are not fulfilled
and, as a consequence thereof, Purchaser elects to terminate this Agreement,
such failure shall be deemed a default by Seller hereunder, the Deposit and all
interest earned thereon referred to in Section 3.2 shall be promptly returned to
Purchaser, and Purchaser shall be entitled to pursue against Seller any and all
remedies available to Purchaser, at law or in equity.
ARTICLE XI
ACTIONS AND OPERATIONS PENDING CLOSING
11.1 Actions and Operations Pending Closing. Seller agrees that after the
--------------------------------------
expiration of the Inspection Period and until the Closing Date:
(a) The Hotel will continue to be operated and maintained
substantially in accordance with present standards.
(b) Seller will not enter into any new Material Contract or Space
Lease, or cancel, modify or renew any existing Material Contract or Space Lease,
without the prior written consent of Purchaser, which consent shall not be
unreasonably withheld. If Purchaser fails to respond to a request for consent
within 15 business days after receipt of such request, such consent shall be
deemed given.
(c) Seller shall have the right, without notice to or consent of
Purchaser, to make Bookings in the ordinary course of business, at no less than
the Hotel's standard rates including customary discounted rates. Additionally,
Seller agrees to entertain in good faith Purchaser's suggestions relating to the
policy of the Hotel with respect to future Bookings and extension of credit.
(d) Seller shall use commercially reasonable efforts to preserve in
force all existing Permits and to cause all those expiring to be renewed prior
to the Closing Date. If any such Permit shall be suspended or revoked, Seller
shall promptly so notify Purchaser and shall take all measures necessary to
cause the reinstatement of such Permit without any additional limitation or
condition.
(e) Seller shall notify Purchaser promptly if Seller becomes aware of
any
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transaction or occurrence prior to the Closing Date which would make any of the
representations or warranties of Seller contained in Section 5.1 not true in any
material respect.
(f) Seller will maintain in effect, all policies of casualty and
liability insurance, or similar policies of insurance, with the same limits of
coverage which it now carries with respect to the Hotel.
(g) Seller will not dispose of any of the Property, except in the
ordinary course of business and in accordance with this Agreement.
(h) Seller shall allow Purchaser and its agents or representatives to
inspect the Property, and all books and records relating thereto, at such times
as Purchaser may reasonably request, provided such inspection does not
unreasonably interfere with the continued operation of the Hotel in the ordinary
course of business. Purchaser shall also have the right to have, and Seller
shall provide accommodations for, a full-time on-site representative to observe
the operations of the Hotel. Such accommodations shall be rent-free except for
those nights when all other guest rooms at the Hotel are fully occupied, in
which event Purchaser shall reimburse Seller for such nights at the Hotel's
lowest corporate rate for such accommodations. Purchaser agrees that the
results of all such observations will be treated as confidential, and Purchaser
shall not disclose the same to any other person or entity except for Purchaser's
counsel, accountants, and other agents or representatives consulted in
connection with the acquisition of the Hotel. In the event that the sale is not
consummated, any and all Documents, reports, financial and operating information
obtained by Purchaser or its representatives shall be returned to the Seller.
ARTICLE XII
CASUALTIES AND TAKINGS
12.1 Casualties.
----------
(a) If any damage to the Property shall occur prior to the Closing
Date by reason of fire, windstorm, hail, explosion or other casualty, and if, in
Purchaser's reasonable judgment, the cost of repairing such damage will exceed
Fifty Thousand Dollars ($50,000.00), Purchaser may elect to: (i) terminate this
Agreement by giving written notice to Seller in which event the Deposit and all
interest earned thereon shall be returned to Purchaser and neither party shall
have any further obligations or liability whatsoever to the other hereunder or
(ii) receive an assignment of all of Seller's rights to any insurance proceeds
(including business interruption proceeds) relating to such damage and acquire
the Property without any adjustment in the purchase price provided that, in such
latter event, Seller shall pay to Purchaser the amount of any deductible under
applicable insurance policies.
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(b) If, in the reasonable business judgment of the insurance adjuster
or other representative of the insurer of the Property, the cost of repairing
such damage will not exceed Fifty Thousand Dollars ($50,000.00), the
transactions contemplated hereby shall close without any adjustment in the
Purchase Price, Purchaser shall receive an assignment of all of Seller's rights
to any insurance proceeds (including business interruption proceeds), and Seller
shall pay to Purchaser the amount of any deductible under applicable insurance
policies.
12.2 Takings. In the event of the actual or threatened taking (either
-------
temporary or permanent) in any condemnation proceedings by exercise of right of
eminent domain, of all or any part of the Real Property, between the date hereof
and the Closing Date, and if, in Purchaser's reasonable judgment, such taking
will result in the inability to conduct the operations of the Hotel
substantially in accordance with the present standards, Purchaser may elect to:
(i) terminate this Agreement by giving written notice to Seller, in which event
the Deposit and all interest earned thereon shall be returned to Purchaser and
neither party shall have any further obligations or liability whatsoever to the
other hereunder or (ii) receive an assignment of all of Seller's rights to any
condemnation award relating to such taking and acquire the Property without any
adjustment in the Purchase Price.
ARTICLE XIII
EMPLOYEES
13.1 Employees, Compensation and Indemnification. Purchaser shall have the
-------------------------------------------
continuing right to review all employment records and files of, and to
interview, Employees. Seller shall terminate its employer-employee relationship
with all Employees as of the Cut-off Time. Seller shall be solely responsible
for all Compensation and other liabilities with respect to Employees and
liabilities and obligations to Employees pursuant to any Employment Arrangement.
Purchaser shall not be responsible for any such liability or obligations and
Seller agrees to indemnify and hold Purchaser harmless from and against any such
liability or obligations. All Compensation, obligations, liabilities and claims
(including any under the Fair Labor Standards Act) to or by any Employee of
Seller arising or occurring prior to the Cut-off Time shall be the
responsibility of Seller. Purchaser shall not be responsible for any
Compensation thereof and Seller agrees to indemnify and hold Purchaser harmless
from and against same. Purchaser shall not assume or be liable upon any
Employment Arrangement of Seller.
ARTICLE XIV
INDEMNITIES
14.1 Seller's Indemnity. Seller agrees to indemnify, defend (with
------------------
Purchaser having the
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right to retain counsel for the purpose of participating in such defense, at its
sole cost and expense) and hold Purchaser harmless against and with respect to
the following:
(a) any and all obligations, liabilities, claims, accounts, demands,
liens or encumbrances, whether direct or contingent and no matter how arising
("Indemnifiable Damages"), in any way related to the Property and arising or
accruing on or before the Closing Date (including, but not limited to, any
damage to property or injury to or death of any person); without limitation on
the generality of the foregoing, Seller indemnifies Purchaser from any claim or
judgment under any lawsuit or proceeding filed or pending prior to the Closing
Date against the Property, or any part thereof, and any costs or expenses
(including reasonable attorneys' fees) heretofore or hereafter incurred in
connection with any such lawsuit or proceeding;
(b) any loss or damage to Purchaser resulting from any inaccuracy in
or breach of any representation or warranty of Seller or resulting from any
breach or default by Seller of any obligation of Seller under this Agreement;
and
(c) all costs and expenses, including reasonable attorneys' fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.2 Purchaser's Indemnity. Purchaser agrees to indemnify, defend (with
---------------------
Seller having the right to retain counsel for the purpose of participating in
such defense, at its sole cost and expense), and hold Seller harmless against
and with respect to the following:
(a) any loss or damage to Seller, subsequent to the Closing Date,
resulting from any inaccuracy in or breach of any representation or warranty of
Purchaser under this Agreement;
(b) any injury to person or property causing any loss or damage to
Seller resulting from or arising out of work performed by Purchaser pursuant to
Section 11.1(h) hereof;
(c) any and all Indemnifiable Damages in any way related to the
Property and arising or accruing after the Closing Date (including, but not
limited to, any damage to property or injury to or death of any person); and
(d) all costs and expenses, including reasonable attorney's fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.3 Notice of Claims. Seller and Purchaser, as applicable, shall promptly
----------------
notify the other in the event any claim is made against Seller or Purchaser as
to which the other party has agreed to indemnify and the indemnitor shall
thereupon undertake to defend and hold the indemnitee saved and harmless
therefrom.
ARTICLE XV
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ARTICLE XV
SECURITIES LAW MATTERS
15.1 Disposition of Shares. The Seller represents and warrants that
---------------------
the Shares are being acquired and will be acquired for its own account and will
not be sold or otherwise disposed of except pursuant to (i) the provisions of
Rule 145(d) under the 1933 Act, as in effect at the time of sale, (ii) some
other exemption or exclusion from the registration requirements under the 1933
Act, which does not require the filing by the Parent with the SEC of any
registration statement, offering circular, or other document, in which case the
Seller shall first supply to the Parent an opinion of counsel (which opinion and
counsel shall be satisfactory to the Parent) that such exemption or exclusion is
available, or (iii) the Registration Statement provided that (a) sales pursuant
to the Registration Statement are made to or through a broker, dealer, or market
maker, (b) in connection with such sales, the Seller delivers a copy of a
current Prospectus forming a part of the Registration Statement which prospectus
identifies the Seller as being able to use such Prospectus to make resales in
the public market of Shares acquired pursuant to this Agreement, and (c) the
Seller notifies the Parent in writing at least five business days prior to the
first day the Seller intends to execute a sale transaction of the Shares
pursuant to the Registration Statement and the Parent consents in writing to
such sale. The Seller hereby acknowledges that the Parent is entitled in its
absolute discretion to withhold such consent if, and for such period of time as,
in the opinion of the management of the Parent, (i) securities laws applicable
to such sale of Shares by the Seller pursuant to the Registration Statement
would require the Parent to disclose material non-public information, or (ii)
such sale would occur during (a) the measurement period for determining the
amount of Common Stock or other consideration, the amount of which will be based
on the price of the Common Stock, to be paid in connection with the acquisition
of a business or assets to which the Parent or any of its subsidiaries is a
party or (b) the marketing period of an offering of securities of the Parent.
15.2 Acknowledgment of Restrictions. The Seller acknowledges that, under
------------------------------
current SEC interpretations of Rule 145, the Seller is subject to restrictions
on transfer of the Shares for a period of two years following the Closing Date
and that an exemption from the requirement to register the Shares for public
resale is provided by Rule 145(d).
15.3 Evidence of Compliance. The Seller further covenants and agrees that
----------------------
the Parent will be supplied with such written evidence of compliance by it and
its broker with Rule 145(d) as in effect at the time of any sale by it pursuant
thereto, as the Parent may reasonably request.
15.4 Legend. The Seller agrees that the certificates for the Shares
------
received shall bear the following legend:
The Shares represented by this certificate are subject to the
provisions of Rule 145(d) promulgated under the Securities Act of
1933, and may not be transferred or disposed of by the holder without
compliance with said Rule unless registered under said Act or pursuant
to another applicable exemption from the requirements of said Act.
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and that the Parent may place stop transfer orders with its transfer agents with
respect to such certificates. The appropriate portions of the legend will be
removed at such time or times as the Seller may reasonably request if at the
time of such request the Seller is not an Affiliate (as defined in the 1933 Act)
of the Parent, upon the expiration of the two-year holding period provided in
Rule 145(d).
ARTICLE XVI
NOTICES
16.1 Notices. Except as otherwise provided in this Agreement, all notices,
-------
demands, requests, consents, approvals and other communications (herein
collectively called "Notices") required or permitted to be given hereunder, or
which are to be given with respect to this Agreement, shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by overnight express courier, postage
prepaid, addressed to the party to be so notified as follows:
If intended for Seller, to: Mr. Michael J. Mona, Jr.
M&M Development
1785 E. Sahara, Suite 315
Las Vegas, Nevada 89104
Copies to: Jones, Jones, Close & Brown
3773 Howard Hughes Parkway
Third Floor South
Las Vegas, Nevada 89109
Attn: Ms. Jodi R. Goodheart
If intended for Extended Stay America, Inc.
Purchaser, to: 500 East Broward Blvd., #950
Ft. Lauderdale, Florida 33394
Attn: Mr. Robert A. Brannon
Copies to: Pedersen & Houpt
161 North Clark, Suite 3100
Chicago, Illinois 60601
Attn: Mr. Michael W. Black
Notice mailed by registered or certified mail shall be deemed received by
the addressee three (3) days after mailing thereof. Notice personally delivered
shall be deemed received when delivered.
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<PAGE>
after mailing thereof. Either party may at any time change the address for
notice to such party by mailing a Notice as aforesaid.
ARTICLE XVII
ADDITIONAL COVENANTS
17.1 Additional Covenants. In addition, the parties agree as follows:
--------------------
(a) Expenses. Seller shall be responsible for the payment of all
--------
sales and use taxes and fifty percent (50%) of all transfer taxes. Purchaser
shall be responsible for the payment of all recording fees, fifty percent (50%)
of all transfer taxes, all escrow fees, all costs of the Survey, all title
insurance premiums and charges for the issuance of the Title Policy and all
other closing charges. The fees and expenses of Seller's designated
representatives, accountants and attorneys shall be borne by Seller, and the
fees and expenses of Purchaser's designated representatives, accountants and
attorneys shall be borne by Purchaser.
(b) Brokerage. Seller and Purchaser each hereby represent and
---------
warrant to the other that neither has dealt with any broker or finder in
connection with the transaction contemplated hereby, and each hereby agrees to
indemnify, defend and hold the other harmless against and from any and all
manner of claims, liabilities, loss, damage, attorneys' fees and expenses,
incurred by either party and arising out of, or resulting from, any claim by any
such broker or finder in contravention of its representation and warranty herein
contained.
(c) Guest Baggage. All baggage of guests who are still in the Hotel
-------------
on the Closing Date, which has been checked with or left in the care of Seller
shall be inventoried, sealed, and tagged jointly by Seller and Purchaser on the
Closing Date. Purchaser hereby indemnifies Seller against any claims, losses or
liabilities in connection with such baggage arising out of the acts or omissions
of Purchaser after the Closing Date. Seller hereby indemnifies Purchaser
against any claim, losses or liabilities with respect to such baggage arising
out of the acts or omissions of Seller prior to the Closing Date.
(d) Safe Deposits. Immediately after the Closing, Seller shall send
-------------
written notice to guests or tenants or other persons who have safe deposit
boxes, advising of the sale of the Hotel to Purchaser and requesting immediate
removal of the contents thereof or the removal thereof and concurrent re-deposit
of such contents pursuant to new safe deposit agreements with Purchaser. Seller,
at its own expense, shall have a representative present when the boxes are
opened, in the presence of a representative of the Purchaser. Purchaser shall
not be liable or responsible for any items claimed to have been in such boxes
unless such items are so removed and re-deposited, and Seller agrees to
indemnify and hold harmless Purchaser from and against any such liability or
responsibility.
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(e) Books and Records. The transaction contemplated hereby shall not
-----------------
include the books and records of Seller pertaining strictly to the business of
the Hotel. Seller covenants and agrees that such books and records will remain
in the control of M&M Development for examination and audit by Purchaser and
its agents after the Closing as provided in this clause (e). Seller agrees to
preserve all books and records, files and correspondence, for at least five (5)
years after the Closing Date, and not to destroy or dispose of the same, for at
least five (5) years after the Closing Date. Seller agrees to provide access to
Purchaser and its representatives, to such books, records, files and
correspondence at all reasonable times.
(f) Hart-Scott-Rodino Act. If it shall be determined that the within
---------------------
transaction is subject to the reporting requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, 15 U.S.C. (S)18(a) (1976) (the "Act"), then
notwithstanding anything to the contrary contained in Section 10.1(e) hereof,
each party shall forthwith proceed to make the necessary filings, and take all
other actions necessary to comply with the Act and the rules and regulations
thereunder. If such requirements have not been fulfilled by the Closing Date,
then the Closing Date shall be adjourned until such requirements have been
fulfilled, but not more than sixty (60) days. If such requirements have not
been fulfilled prior to the expiration of such sixty (60) day period, Seller or
Purchaser, by notice to the other, may terminate this Agreement in which event
the Deposit and all interest earned thereon shall be returned to Purchaser and
neither party shall have any further obligation or liability to the other party
hereunder.
(g) Survival of Covenants, etc. The representations, warranties,
---------------------------
obligations, covenants, agreements, undertakings and indemnifications of Seller
and Purchaser contained herein shall survive the Closing for a period of two (2)
years except that (i) the representation and warranty made by Seller in Section
5.1(i) shall expire at the time the period of limitations (including any
extensions thereof pursuant to the delivery of waivers of the applicable period
of limitations) expires for the assessment by the taxing authority of additional
taxes with respect to which the representation and warranty relate; and (ii) the
representation and warranty made by Purchaser in Section 3.4(d) shall not
expire. All claims for indemnification must be made within the aforementioned
periods.
(h) Purchaser's Investigation and Inspections. Any investigation or
-----------------------------------------
inspection conducted by Purchaser, or any agent or representative of Purchaser,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Purchaser's obligations hereunder or
to determine whether Seller's warranties are true and accurate, shall not or
constitute a waiver by Purchaser of any of Seller's obligations hereunder or
Purchaser's reliance thereon.
(i) Construction. This Agreement shall not be construed more
------------
strictly against one party than against the other, merely by virtue of the fact
that it may have been prepared primarily by counsel for one of the parties, it
being recognized that both Purchaser and Seller have contributed substantially
and materially to the preparation of this Agreement.
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(j) Publicity. All notice to third parties and all other publicity
---------
concerning the transactions contemplated hereby shall be jointly planned and
coordinated by and between Purchaser and Seller. None of the parties shall act
unilaterally in this regard without the prior written approval of the other;
however, this approval shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Purchaser (or Parent) may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning Parent's publicly traded securities;
Purchaser agrees to give Seller notice of any such public disclosure.
(k) General. This Agreement may be executed in any number of
-------
counterparts, each of which shall constitute an original but all of which, taken
together, shall constitute but one and the same instrument. This Agreement
(including all exhibits hereto) contains the entire agreement between the
parties with respect to the subject matter hereof, supersedes all prior
understandings, if any, with respect thereto and may not be amended,
supplemented or terminated, nor shall any obligation hereunder or condition
hereof be deemed waived, except by a written instrument to such effect signed by
the party to be charged. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada. The warranties,
representations, agreements and undertakings contained herein shall not be
deemed to have been made for the benefit of any person or entity, other than the
parties hereto and their permitted successors and assigns. Seller has no right
to assign its rights (except as set forth in (m) below) or to delegate its
duties hereunder. Purchaser may assign its rights and duties under this
Agreement to any of its Affiliates. Captions used herein are for convenience
only and shall not be used to construe the meaning of any part of this
Agreement.
(l) FIRPTA. Seller agrees to furnish Purchaser with an executed
-------
Certification in the form attached hereto as Exhibit Q ("FIRPTA Certificate"),
and such other evidence as Purchaser may reasonably request, to establish that
Seller is not a foreign person for the purpose of Section 1445 of the Internal
Revenue Code of 1986, as amended ("Section 1445"). In the event that Seller
does not furnish such Certification or a qualifying statement for the U.S.
Treasury Department that the transaction is exempt from the withholding
requirements of Section 1445, Seller agrees that Purchaser shall be directed to
pay such amount required by law to the Internal Revenue Service in accordance
with the laws and regulations regarding the withholding requirements of Section
1445.
(m) Like-Kind Exchange. Seller shall have the right, at Seller's
------------------
option, to sell the Property to Purchaser through a transaction that is
structured to qualify as a like-kind exchange of property within the meaning of
Section 1031 of the Internal Revenue Code of 1986 ("Code"). Purchaser agrees to
reasonably cooperate with Seller in effecting a qualifying like-kind exchange
through a trust, escrow or other means as determined by Seller, provided,
however, Purchaser shall not be required to incur any obligation or liability to
a third party as a part of the exchange. In any event Seller shall have the
right to assign its rights under this contract, in whole or in part, to a
qualified intermediary (as defined under current Code regulations governing
like-kind exchanges) or as otherwise necessary or appropriate to effectuate a
like-kind exchange, provided that Seller shall remain liable for its obligations
hereunder (and that Michael J. Mona, Jr. shall remain liable pursuant
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to his guaranty as hereinafter set forth) and Seller (and Michael J. Mona) shall
execute such additional documentation as Purchaser may reasonably request to
evidence such continuing liability. Seller shall bear the additional transaction
costs and all costs and expenses incurred by Purchaser and attributable to
exchange procedures in this transaction that are requested or implemented by
Seller. Seller shall be solely responsible for assuring the effectiveness of
the exchange for Seller's tax purposes. In no event shall any like-kind
exchange contemplated by this provision cause an extension of the date of
closing set forth herein nor shall Purchaser be required to take title to any
property other than the Property.
(n) Jurisdiction. Any action or proceeding seeking to enforce any
------------
provision of, or based on any right arising out of, this Agreement shall be
brought against any of the parties in the courts of the State of Nevada, County
of Clark, or, if it can acquire jurisdiction, in the United States District
Court for the District of Nevada.
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IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
BOULDER MANOR, INC., a Nevada corporation
By:/s/ Michael J. Mona, Jr
---------------------------------------
Michael J. Mona, Jr., President
Attest:___________________________________
Its:______________________________________
PURCHASER:
ESA PROPERTIES, INC., a Delaware corporation
By:________________________________________
Attest:____________________________________
Its:_______________________________________
The undersigned hereby guaranties the collection by Purchaser of all
amounts due from Seller pursuant to the terms hereof.
/s/ Michael J. Mona, Jr.
-------------------------------------------
Michael J. Mona, Jr.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
BOULDER MANOR, INC., a Nevada corporation
By:________________________________________
Michael J. Mona, Jr., President
Attest:___________________________________
Its:______________________________________
PURCHASER:
ESA PROPERTIES, INC., a Delaware corporation
By:/s/ Robert A. Brannon
----------------------------------------
Robert A. Brannon, Vice President
Attest: Robert Brannon
------------------------------------
Its: Secretary
---------------------------------------
The undersigned hereby guaranties the collection by Purchaser of all
amounts due from Seller pursuant to the terms hereof.
___________________________________________
Michael J. Mona, Jr.
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<PAGE>
AGREEMENT TO PURCHASE HOTEL
by and between
MELROSE SUITES, INC.
and
ESA PROPERTIES, INC.
JUNE 25, 1996
<PAGE>
EXHIBIT A LAND
EXHIBIT B EXCLUDED ASSETS
EXHIBIT C PERMITTED EXCEPTIONS
EXHIBIT D SUBMITTED FINANCIAL STATEMENTS
EXHIBIT E ALLOCATION OF PURCHASE PRICE
EXHIBIT F PERMITS
EXHIBIT G HOTEL CONTRACTS AND COMMISSIONS
EXHIBIT H EMPLOYEE AND EMPLOYMENT ARRANGEMENTS
EXHIBIT I BOOKINGS
EXHIBIT J SPACE LEASES AND COMMISSIONS
EXHIBIT J-1 SPACE LESSEE ESTOPPEL LETTER
EXHIBIT K NOTICES OF VIOLATIONS
EXHIBIT L PENDING OR THREATENED LITIGATION
EXHIBIT M DOCUMENTS
EXHIBIT N IMPOSITIONS
EXHIBIT O HOTEL NAMES
EXHIBIT P EMPLOYEE BENEFIT PLANS
EXHIBIT Q FIRPTA CERTIFICATE
EXHIBIT R NON-COMPETE AGREEMENT
EXHIBIT S NOTE
EXHIBIT T ESCROW AGREEMENT
EXHIBIT U ENVIRONMENTAL MATTERS
<PAGE>
AGREEMENT TO PURCHASE HOTEL
---------------------------
THIS AGREEMENT is made this 25th day of June, 1996, by and between Melrose
Suites, Inc., a Nevada corporation ("Seller"), and ESA Properties, Inc., a
Delaware corporation ("Purchaser").
R E C I T A L S:
A. Seller is the fee owner of that certain parcel of land (and the
improvements and buildings located thereon) legally described in Exhibit A and
commonly referred to as the Melrose Suites, 4270 South Valley View Boulevard,
Las Vegas, Nevada (the "Hotel") and the owner of the Fixtures and Tangible
Personal Property, Operating Equipment, Consumables, and Miscellaneous Hotel
Assets (all as hereinafter defined).
B. The Hotel's facilities include guest and public facilities consisting
of 177 rooms, administrative offices, and service areas.
C. Seller desires to sell, and Purchaser desires to purchase, the
Property upon and subject to the terms and conditions hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, agreements, covenants and conditions
herein contained, and other good and valuable consideration, Seller and
Purchaser agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
1.1 Definitions. As used herein, the following terms shall have the
-----------
respective meanings indicated below:
Affiliate: With respect to a specific entity, any natural person or any
---------
firm, corporation, partnership, association, trust or other entity which,
directly or indirectly, controls, or is under common control with, the subject
entity, and with respect to any specific entity or person, any firm,
corporation, partnership, association, trust or other entity which is controlled
by the subject entity or person. For purposes hereof, the term "control" shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of any such entity or
<PAGE>
the power to veto major policy decision of any such entity, whether through the
ownership of voting securities, by contract, or otherwise.
Agreement: This Agreement to Purchase Hotel, including the Exhibits.
---------
Bookings: Contracts for the use or occupancy of guest rooms of the Hotel.
--------
Closing: As defined in Section 6.1.
-------
Compensation: The direct salaries and wages paid to, or accrued for the
------------
benefit of, any Employee, incentive compensation, vacation pay, severance pay,
employer's contributions under F.I.C.A., unemployment compensation, workmen's
compensation, or other employment taxes, and payments under Employee Benefit
Plans (as hereinafter defined).
Consumables: All food and beverages (alcoholic, to the extent transferable
-----------
under applicable law, and non-alcoholic); engineering, maintenance and
housekeeping supplies, including soap, cleaning materials and matches;
stationery and printing; and other supplies of all kinds, in each case whether
partially used, unused, or held in reserve storage for future use in connection
with the maintenance and operation of the Hotel, which are on hand (which shall
include off-site storage) on the date hereof, subject to such depletion and
restocking as shall occur and be made in the normal course of business but in
accordance with present standards, excluding, however, (i) Operating Equipment
and (ii) all items of personal property owned by Space Lessees, guests,
employees, or persons (other than Seller or any Affiliate of Seller, unless
denominated as an Excluded Asset hereunder) furnishing food or services to the
Hotel.
Cut-off Time: 12:01 A.M. on the Closing Date.
------------
Department: Nevada Department of Revenue.
----------
Deposit: As defined in Section 3.2.
-------
Documents: Reproducible copies of all plans, specifications, drawings,
---------
blueprints, surveys, environmental reports and other similar documents which
Seller has in its possession, or has a right to, as the same relate to the Real
Property, including, but not limited to those relating to any prior or ongoing
construction or rehabilitation of the Real Property.
Employee(s): All persons employed by Seller pursuant to Employment
-----------
Arrangements.
Employee Benefit Plans: All employee benefit plans, as that term is
----------------------
defined in Section 3(2)(a) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including "multi-employer pension plans" as defined
in Section 3(37) of ERISA, and each other employee benefit plan or program
(including welfare benefit plans as defined in Section 3(1) of ERISA) to
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<PAGE>
which Seller contributes on behalf of any of the Employees.
Employment Arrangement(s): Those agreements, oral or written, with all or
-------------------------
any of the executives, staff and employees of Seller for work in or in
connection with the Hotel including, but not limited to, individual employment
agreements, union agreements, employee handbooks, group health insurance plans,
life insurance plans and disability insurance plans (other than Employee Benefit
Plans).
Environmental Laws: As defined in Section 5.1(u).
------------------
Environmental Study: As defined in Section 4.3.
-------------------
Excluded Assets: The following: (i) those assets, if any, listed on
---------------
Exhibit B hereto owned and to be retained by Seller; (ii) receivables; and (iii)
except as provided to the contrary in Section 17.1(e) hereof, all records, files
and proprietary operating manuals in the Hotel.
Excluded Permits: Permits and licenses required for the ownership and
----------------
operation of the Hotel which, under applicable law, are nontransferable.
Fixtures and Tangible Personal Property: All fixtures, furniture,
---------------------------------------
furnishings, fittings, equipment, cars, trucks, machinery, apparatus, signage,
appliances, draperies, carpeting, and other articles of personal property now
located on the Real Property or held in storage for future use at the Hotel and
used or usable in connection with any part of the Hotel, subject to such
depletions, resupplies, substitutions and replacements as shall occur and be
made in the normal course of business but in accordance with present standards
excluding, however: (i) Consumables; (ii) Operating Equipment; (iii) equipment
and property leased pursuant to Hotel Contracts; (iv) property owned by Space
Lessees, guests, employees or other persons (other than Seller or any affiliate
of Seller, unless denominated as an Excluded Asset hereunder) furnishing goods
or services to the Hotel; and (v) Improvements.
FIRPTA Certificate: As defined in Section 17.1(l).
------------------
Hazardous Material: As defined in Section 5.1(u).
------------------
Hotel: The hotel referred to in the Recitals.
-----
Hotel Contracts: All management, service, maintenance, material purchase
---------------
orders, leases and other contracts or agreements, including equipment leases
capitalized for accounting purposes, and any amendments thereto, with respect to
the ownership, maintenance, operation, provisioning, or equipping of the Hotel,
or any of the Property, as well as written warranties and guaranties relating
thereto, if any, including, but not limited to, those relating to heating and
cooling equipment and/or mechanical equipment, but exclusive, however, of (i)
insurance policies, (ii) the Bookings, (iii) the
-3-
<PAGE>
Space Leases, (iv) the Employment Arrangements, and (v) the Employee Benefit
Plans.
Hotel Names: All names or other identifications used in connection with
-----------
the operation of Hotel.
Impositions: All taxes and other governmental charges of any kind
-----------
whatsoever that may at any time be assessed or levied against or with respect to
the Property, or any part thereof or any interest therein, including, without
limitation, all general and special real estate taxes and assessments or taxes
assessed specifically in whole or in part in substitution of general real estate
taxes or assessments; any taxes levied upon or with respect to the revenue,
income or profits of Seller from all or any part of the Property which, if not
paid, will become a lien on all or any part of the Property, or a lien or charge
on the rents, revenues or receipts therefrom; all assessed ad valorem taxes; all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep of the Property and all assessments and other charges made by any
governmental agency for improvements that may be secured by a lien on the
Property.
Improvements: The buildings, structures (surface and sub-surface) and
------------
other improvements, including such fixtures as shall constitute real property,
located on the Land.
Inspection Period: As defined in Section 4.1.
-----------------
Land: The parcel of real estate described in Exhibit A hereto, together
----
with all rights, title and interest, if any, of Seller in and to all land lying
in any street, alley, road or avenue, open or proposed, in front of or adjoining
said Land, to the centerline thereof, and all right, title and interest of
Seller in and to any award made or to be made in lieu thereof and in and to any
unpaid award for the damage to said Land by reason of change of grade of any
street.
Legal Requirements: All laws, statutes, codes, acts, ordinances, orders,
------------------
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments and governmental
authorities having jurisdiction of the Hotel (including, for purposes hereof,
any local Board of Fire Underwriters), and the operation thereof.
Material Bookings: All Bookings for meetings and banquet facilities and,
-----------------
with respect to guest rooms, any contract for seven (7) or more room nights.
Material Contracts: All Hotel Contracts which cannot be cancelled by 30
------------------
days' or less notice without penalty or premium payment.
Miscellaneous Hotel Assets: All contract rights, leases, concessions,
--------------------------
trademarks, logos, copyrights, assignable warranties and other items of
intangible personal property relating to the ownership or operation of Hotel,
but such term shall not include (i) Bookings; (ii) Hotel Contracts; (iii) Space
Leases; (iv) Permits; (v) cash or other funds, whether in petty cash or house
banks, or on
-4-
<PAGE>
deposit in bank accounts or in transit for deposit; (vi) books and records
(except as provided in Section 17.1(e); (vii) refunds, rebates, or other claims,
or any interest thereon, for periods or events occurring prior to the Cut-off
Time; (viii) utility and similar deposits; (ix) prepaid insurance or other
prepaid items; or (x) prepaid license and permit fees; except to the extent that
Seller receives a credit at Closing for any such item or matter.
Non-Compete Agreements: The Non-Compete Agreements delivered by Seller to
----------------------
Purchaser pursuant to the terms of Section 7.1 hereof.
Obligations: All payments required to be made and all representations,
-----------
warranties, covenants, agreements and commitments required to be performed under
the provisions of this Agreement by Seller or Purchaser, as applicable.
Operating Equipment: All china, glassware, linens, silverware and
-------------------
uniforms, whether in use or held in reserve storage for future use, in
connection with the operation of the Hotel, which are on hand (including off-
site storage) on the date hereof, subject to such depletion and restocking as
shall be made in the normal course of business but in accordance with present
standards.
Parent: Extended Stay America, Inc., a Delaware corporation.
------
Permits: All licenses, franchises and permits, certificates of occupancy,
-------
authorizations and approvals used in or relating to the ownership, occupancy or
operation of any part of the Hotel.
Permitted Exceptions: Any liens, encumbrances, restrictions, exceptions
--------------------
and other matters specified in Exhibit C to which title to the Property may be
subject on the Closing Date.
Personal Property: All of the Property other than the Real Property.
-----------------
Property: (i) The Real Property; (ii) the Fixtures and Tangible Personal
--------
Property; (iii) the Operating Equipment; (iv) the Consumables; (v) the
transferable right, title and interest of Seller in, to and under the Hotel
Contracts and Space Leases; (vi) the Bookings; (vii) the Permits (other than
Excluded Permits); (viii) the Hotel Names; (ix) the Documents; and (x) all other
Miscellaneous Hotel Assets, provided, however, that Property shall not include
the Excluded Assets.
Proratable Compensation: Compensation exclusive of severance pay and
-----------------------
Employee Benefit Plans.
Purchase Price: As defined in Section 3.1.
--------------
Real Property: The Land together with the Improvements located on the
-------------
Land.
Searches: As defined in Section 6.3(c).
--------
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<PAGE>
Section 1445: As defined in Section 17.1(l).
------------
Space Leases: All leases, licenses, concessions and other occupancy
------------
agreements, and any amendments thereto, whether or not of record, for the use or
occupancy of any portion of the Real Property excluding, however, Bookings.
Space Lessee: Any person or entity entitled to occupancy of any portion of
------------
the Real Property under a Space Lease.
Submittals: As defined in Section 4.2.
----------
Submitted Financial Statements: Those financial statements of the Hotel
------------------------------
identified in Exhibit D hereto.
Survey: The survey for the Property prepared in accordance with Section
------
6.3(a).
Title Commitment: The commitment for title insurance issued in accordance
----------------
with Section 6.3(b).
Title Company: United Title of Nevada.
-------------
Title Defect: A lien, claim, charge, security interest or encumbrance
------------
other than a Permitted Exception.
Title Documents: As defined in Section 6.3.
---------------
Title Papers: As defined in Section 6.3(b).
------------
Title Policy: As defined in Section 10.1(g).
------------
UCC: The Uniform Commercial Code in effect in Nevada.
---
Violation: Any condition with respect to the Property which constitutes a
---------
violation of any Legal Requirements.
1.2 References. Except as otherwise specifically indicated, all
----------
references to Section and Subsection numbers refer to Sections and Subsections
of this Agreement, and all references to Exhibits refer to the Exhibits attached
hereto. The words "hereby," "hereof," "herein," "hereto," "hereunder,"
"hereinafter," and words of similar import refer to this Agreement as a whole
and not to any particular Section or Subsection hereof. The word "hereafter"
shall mean after, and the term "heretofore" shall mean before, the date of this
Agreement. Captions used herein are for convenience only and shall not be used
to construe the meaning of any part of this Agreement.
-6-
<PAGE>
ARTICLE II
SALE AND PURCHASE
2.1 Sale and Purchase. Seller hereby agrees to sell (or to cause to be
-----------------
sold) to Purchaser, and Purchaser hereby agrees to purchase from Seller, the
Property on the terms and subject to the conditions of this Agreement.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price; Allocation Thereof. The purchase price ("Purchase
----------------------------------
Price") for the Property and the Non-Compete Agreements shall be Fourteen
Million Dollars ($14,000,000.00) payable by delivery of a Note from Purchaser to
Seller in the form attached hereto as Exhibit S.
The Purchase Price shall be allocated in accordance with the values
reasonably attributable to the components of the Property and the Non-Compete
Agreements as set forth on Exhibit E hereto.
3.2 Deposit. Concurrently herewith, Purchaser is depositing the sum of
-------
$50,000.00 (the "Deposit") with Title Company to secure performance of
Purchaser's obligations hereunder. The Deposit and interest earned thereon
shall be held in an interest bearing account until the Closing Date (except as
otherwise provided herein) at which time the Deposit shall be paid as a credit
against the Purchase Price. Except as hereinafter provided, if the transaction
contemplated hereby does not close because of a default by Purchaser hereunder,
the parties agree that the Deposit and interest earned thereon shall be
delivered to Seller as Seller's sole and exclusive liquidated damages, which
amount the parties agree is a reasonable sum considering all of the
circumstances existing on the date of this Agreement, including, without
limitation, the relationship of such sum to the amount of harm to Seller that
reasonably could be anticipated, Seller's anticipated use of the proceeds of
sale, and the fact that proof of actual damages would be impossible to
determine. Notwithstanding the foregoing, if the transaction contemplated
hereby does not close and Purchaser shall not have defaulted hereunder, the
Deposit and all interest earned thereon shall be returned promptly to Purchaser
and Purchaser shall be entitled to pursue against Seller any and all remedies
available to Purchaser, at law or in equity.
3.3 No Assumption of Seller's Obligations. Except as specifically
-------------------------------------
provided herein to the contrary, Purchaser shall not assume, or become obligated
with respect to, any obligation of Seller, including, but not limited to, the
following:
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<PAGE>
(a) Obligations of Seller now existing or which may arise prior to
the Cut-off Time with respect to any accounts payable or other payables;
(b) Obligations prior to the Closing Date of any term, covenant or
provision of any Employee Benefit Plan, Employment Contract, Hotel Contract or
Space Lease;
(c) Obligations of Seller now existing or which may hereafter exist
by reason of or in connection with any alleged misfeasance or malfeasance by
Seller in the conduct of its business, and with respect to any tort liability;
(d) Obligations to Employees with respect to any Compensation (or
pursuant to any Employment Contract or Employee Benefit Plan); and
(e) Obligations of Seller incurred in connection with or relating to
the transfer of the Property pursuant to this Agreement, including without
limitation, any Federal, state or local income, sales, transfer or other tax
incurred by reason of said transfer, all of which shall be the sole
responsibility of Seller.
3.4 Payment of the Note. Purchaser shall satisfy its obligations under
--------------------
the Note by delivering shares ("Shares") of common stock, par value $.01 per
share, of Parent, and/or cash to Seller, as the case may be, on or before the
Note's maturity date specified in the Note, subject to the following:
(a) Purchaser and Seller acknowledge that Purchaser shall deliver
Shares to Seller only if such Shares are the subject of Approved Sales (defined
below). The net proceeds realized by Seller from the sale of the Shares shall
be deducted from the balance of the Note. Seller agrees that it shall sell such
Shares only in bona fide private placements which are approved by Purchaser in
its absolute discretion to a person or persons not affiliated with, related to,
or associated with Seller ("Approved Sales"). Purchaser shall deliver to Seller
that number of Shares equal to the number of Shares which are sold pursuant to
Approved Sales and such delivery shall be accomplished so as to allow the
Approved Sales to be consummated on a timely basis.
(b) If the net proceeds actually received from Approved Sales are
less than the amount due under the Note, Purchaser shall also deliver cash to
Seller prior to the maturity date of the Note having a value equal to the
difference between the amount due under the Note and the net proceeds received
from Approved Sales. In the event no Approved Sales occur prior to the maturity
date of the Note, the Note shall be payable in cash on or before its stated
maturity date. Seller shall use the net proceeds received from Approved Sales
first to satisfy any mortgages or deeds of trust created or suffered by Seller
which are a lien on the Property. Notwithstanding the above, if net proceeds
received from Approved Sales are insufficient to satisfy any mortgages or deeds
of trust created or suffered by Seller which are a lien on the Property,
Purchaser shall set off against amounts due under the Note an amount equal to
such insufficiency and Purchaser shall apply such amount to satisfy and release
such liens.
-8-
<PAGE>
(c) The Note shall be paid pursuant to an escrow agreement to be
entered into between Purchaser, Seller and an escrow agent mutually agreed upon
by Purchaser and Seller, the form of which is attached hereto as Exhibit T. All
costs of such escrow shall be borne by Purchaser.
(d) Purchaser shall indemnify, defend, and hold Seller harmless
against and with respect to all losses, damages, liabilities, costs, and
expenses to which Seller may become subject under the Securities Act of 1933, as
amended, or otherwise in connection with or arising out of Approved Sales.
ARTICLE IV
INSPECTION PERIOD
4.1 Inspection Period. The "Inspection Period" shall be the period from
-----------------
the date hereof to 11:59 P.M. on June 30, 1996 (provided that such period shall
be extended on a day-for-day basis in the event Purchaser does not receive the
survey referenced in Section 6.3(a) hereof on or before June 23, 1996).
4.2 Submittals to Purchaser. Seller, at its expense, shall deliver (if
-----------------------
such are within Seller's possession or are reasonably available to Seller) to
Purchaser on or before June 26, 1996, true and correct copies of the following:
(a) the Permits, Hotel Contracts, Employment Arrangements, Employee
Benefit Plans, a summary of the amounts, dates, and credit information of
Material Bookings (whether for periods before or after the Closing Date), Space
Leases and notices of Violations (if any);
(b) a descriptive summary of the manner in which all Bookings are
made, whether oral or written, with or without deposits or firm or contingent
commitments for reservations, along with a copy of the written agreements or
confirmation letters used in connection with the Bookings;
(c) a descriptive summary of all pending or threatened litigation
listed on Exhibit L;
(d) the most recent real estate and personal property tax statements
for the Property;
(e) all Documents, including, but not limited to, the plans and
specifications;
(f) the most current inventory of all Fixtures and Tangible Personal
Property, Operating Equipment and Consumables;
-9-
<PAGE>
(g) all other documents or instruments of record or otherwise
relating to the Property available to Seller;
(h) copies of all financial reports prepared by the accountant for
Seller for the fiscal year of Seller for the three (3) years preceding the date
hereof ("Submitted Financial Statements"); and
(i) information reflecting the insurance loss history of the Property
for the period from January 1, 1994 to the present and copies of all insurance
policies relating to the Property.
4.3 Review and Inspection. During the Inspection Period, Purchaser shall
---------------------
review the Submittals and shall have the right to enter upon the Real Property
to inspect the Property and to conduct tests and investigations at its sole cost
and expense, except as provided herein. Seller shall cooperate with Purchaser,
or its agents, in arranging such inspections. Without limitation of the
foregoing, Purchaser or Purchaser's accountants or both may review the Submitted
Financial Statements and, in connection therewith, Seller shall supply such
documentation as Purchaser or Purchaser's accountants may reasonably request to
facilitate such review. Purchaser shall conduct all such inspections and reviews
in confidence and so as not to interfere unreasonably with the operation of the
Hotel. During the Inspection Period, Purchaser may order an environmental
report, at Purchaser's sole cost and expense, to be conducted by an
environmental engineering firm selected by Purchaser (the "Environmental
Study").
4.4 Purchaser's Acceptance or Rejection. If, in its sole and absolute
-----------------------------------
discretion, Purchaser accepts the condition of the Property and the Submittals,
it shall give Seller written notice of such acceptance before expiration of the
Inspection Period. If Purchaser shall give Seller a notice of disapproval
before expiration of the Inspection Period or fails to give such notice, then,
without the necessity of further documentation, this Agreement shall be deemed
terminated and the Deposit and all interest earned thereon shall be returned to
Purchaser. Purchaser shall pay to Seller the sum of $100.00 as fixed and
liquidated compensation for such termination, and neither party shall have any
further obligation or liability to the other party hereunder. The parties
hereto acknowledge that Purchaser has incurred substantial costs in connection
with the negotiation and execution of this Agreement, will incur additional
substantial costs in conducting the inspections contemplated by Section 4.3 and
would not have entered into this Agreement without the availability of the
Inspection Period. Therefore, the parties agree that adequate consideration
exists to support the obligations of the parties hereunder, even before
expiration of the Inspection Period. Notwithstanding the above, if the
Inspection Period is extended due to Purchaser's receipt of the survey after
June 23, 1996, Purchaser may terminate this Agreement pursuant to the terms of
this Section 4.4 after June 30, 1996, only due to matters raised on such survey.
4.5 Extension of Inspection Period. Purchaser shall have the option to
-------------------------------
extend the Inspection Period to July 15, 1996, subject to the following
provisions:
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<PAGE>
(a) Purchaser shall notify Seller on or before June 30, 1996 of
Purchaser's exercise of its option to extend the Inspection Period; and
(b) Purchaser shall deliver to Seller $25,000.00 which shall be
earned by Seller but treated as an additional Deposit provided, however, that
such additional Deposit shall not be subject to return to Purchaser pursuant to
the terms of Section 4.4 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Seller. Seller hereby represents
-----------------------------------------
and warrants the following to Purchaser:
(a) Due Organization, etc. Seller is a Nevada corporation duly formed
---------------------
and validly existing in good standing under the laws of its state of formation
and has full power and authority (i) to own or lease its properties and to carry
on its business as it is now being conducted, (ii) to enter into this Agreement
and to sell, convey, transfer, assign, and deliver the Property to Purchaser as
provided herein, and (iii) to carry out the other transactions and agreements
contemplated hereby. This Agreement has been duly authorized by all requisite
action on the part of Seller. The execution and delivery of this Agreement, and
the consummation of the transactions contemplated hereby (other than the
issuance and sale of Shares pursuant to the Note), except as otherwise provided
herein, do not require the consent or approval of any governmental authority,
nor shall such execution and delivery result in a breach or Violation of any
Legal Requirement, or constitute a default (or an event which with notice and
passage of time or both will constitute a default) under any contract or
agreement to which Seller is a party or by which it or the Property is bound.
(b) Intentionally Omitted.
(c) Title to Personal Property. Seller has good and marketable title
--------------------------
to the Personal Property, subject only to the Permitted Exceptions. All items
of Personal Property have been fully paid for to the extent that normal business
practice permits, except those items which are subject to installment payments
and with respect to which there are no installments due which are delinquent.
(d) Permits. To Seller's knowledge, (i) Exhibit F identifies all
-------
existing Permits and is complete and correct in all material respects; (ii) such
Permits constitute all of the Permits currently necessary for the ownership and
operation of the Hotel; (iii) no default has occurred in the due observance or
condition of any Permit which has not been heretofore corrected; and (iv) no
Space Lessee has received any notice from any source to the effect that there is
lacking any Permit needed in connection with the operation of the Hotel or any
other operation connected therewith.
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<PAGE>
(e) Hotel Contracts. Exhibit G identifies all material Hotel
---------------
Contracts and the information noted therein is complete and correct in all
material respects. Except as disclosed in Exhibit G, there is no default under
any Hotel Contract. Seller has provided (or will provide during the Inspection
Period) true and correct copies of all Hotel Contracts to Purchaser. Each Hotel
Contract (other than the Hotel Contracts designated as Material Contracts on
Exhibit G) may be cancelled upon 30 days' or less notice without penalty or
premium payment.
(f) Hotel Names. Exhibit O hereto identifies all Hotel Names and is
-----------
complete and correct in all respects. Seller has not received any notice that
the use of any thereof infringes on the rights of a third party.
(g) Space Leases. Exhibit J identifies all Space Leases and is
------------
complete and correct in all material respects. Except as disclosed in Exhibit
J, there is no default, under any Space Lease. Seller has given (or will give,
during the Inspection Period) to Purchaser true and correct copies of all Space
Leases. Seller owns all right, title and interest of the lessor under each
Space Lease.
(h) Commissions, etc. Except as may be disclosed on Exhibits G or J
----------------
and other than in the ordinary course of business in connection with Bookings,
there are no commissions or referral fees relating to the Hotel currently
outstanding, nor will there be any such commissions or referral fees
outstanding, on or before the Closing Date. Seller has not entered into any
agreements with any referral organization or booking agent which contain any
obligations that extend beyond the Closing Date.
(i) Impositions.
-----------
(i) Except as described on Exhibit N hereto, Seller has timely
filed all returns and reports for sales, use and property taxes required to
be filed by it with respect to the operation of the Property and has paid
in full or made adequate provision by the establishment of reserves for
Impositions which have become due with respect to the operation of the
Property. There is no sales, use or property tax deficiency proposed or
threatened against Seller with respect to the operation of the Property.
There are no tax liens upon any property or assets of Seller. Seller has
made all payments of sales, use and property taxes when due in amounts
sufficient to avoid the imposition of any penalty with respect to the
Property.
(ii) Impositions which Seller was required by law to withhold
or to collect with respect to the Property have been duly withheld and
collected, and have been paid over to the proper governmental entity or are
being held by Seller for such payment, and all such withholdings and
collections and all other payments due in connection therewith as of the
date of the Submitted Financial Statements are duly reflected on the
Submitted Financial Statements.
-12-
<PAGE>
(iii) Seller is not currently being audited by, and has not
received any notice of intention to audit from, any federal, state or local
sales, use or property taxing authority.
(j) Fixtures, Tangible Personal Property, etc. Each guest room
-----------------------------------------
contains furniture and furnishings consistent with Seller's historical
furnishing of such guest rooms. The quantities of Fixtures and Tangible
Personal Property, Consumables and Operating Equipment in the Hotel, including
physical reserves, are sufficient for the proper and efficient operation of the
Hotel in accordance with the standards of operation heretofore maintained by
Seller. Seller shall continue to maintain the same at a level consistent with
the average maintenance for the 12 months preceding the date hereof until the
Cut-off Time.
(k) Submitted Financial Statements. The Submitted Financial
------------------------------
Statements for the Hotel (which shall include the income of restaurants, bars,
retail rental space and garage portions of the Hotel, if any) fairly present the
results of operation of the Hotel for the periods indicated, and, except as set
forth as Exhibit D, were prepared in accordance with generally accepted
accounting principles, on a consistent basis, and there has been no material
adverse change in the results of the operations of the Hotel since the statement
dated for the period ended December 31, 1995.
(l) Bookings. Exhibit I identifies all Bookings for periods from and
--------
after the date hereof.
(m) Pending Litigation. Except as described in Exhibit L, there are
------------------
no actions, suits, or proceedings, pending or to Seller's knowledge threatened
against Seller or affecting any of Seller's rights, in each case, with respect
to the Property, at law or in equity, or before any federal, state, municipal,
or other governmental agency or instrumentality, which might result in any
order, injunction, decree or judgment having a material adverse effect on the
Hotel or the Property, nor is Seller aware of any facts which to its knowledge
might result in any action, suit or proceedings. Except as noted in Exhibit K,
to Seller's knowledge the Hotel complies with all Legal Requirements. Except as
noted in Exhibit K, Seller has not received any notice of any Violation of a
Legal Requirement which has not been heretofore corrected. Prior to the Closing
Date, any uncured Violations listed in Exhibit K and any other Violations that
arise shall be cured by Seller at its sole expense.
(n) Condemnation. To the knowledge of Seller, there are no pending,
------------
or, threatened, condemnation proceedings or condemnation actions against the
Real Property or any of the rights-of-way located adjacent thereto.
(o) Intentionally Omitted.
(p) Assessments. To Seller's knowledge, no governmental assessment
-----------
for sewer, sidewalk, water, paving, electrical, power or other improvements is
pending or threatened, except as may be set forth on Exhibit C.
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<PAGE>
(q) Labor Disputes. During the three (3) years preceding the date
--------------
hereof, Seller has not experienced any labor disputes or labor trouble other
than routine grievances or organizational efforts, none of which have had a
material adverse effect on the operations of the Property.
(r) Employees. Exhibit H is a complete list of all Employees with
---------
their salaries, position and terms of employment; and (i) except as set forth on
Exhibit H, Seller is not a party to any Employment Arrangement and no union is
presently serving as collective bargaining agent for any Employees; (ii) to the
best of Seller's knowledge, no union presently is conducting or planning to
conduct an organizational campaign for any Employees; and (iii) with the
exception of the Employee Benefit Plans listed on Exhibit P, there is no
pension, profit-sharing, bonus or other employee benefit plan relating to
current or past Employees.
(s) Utilities. All utility equipment and facilities required for the
---------
operation and use of the Hotel are located on the Property and all agreements
for providing utilities are with direct providers.
(t) Material Changes. There are no facts or circumstances having
----------------
specific application to the Hotel (other than general economic or industry
conditions) not disclosed to Purchaser of which Seller has knowledge, which have
or could have a material adverse effect upon the Hotel. Seller agrees to notify
Purchaser immediately of such facts or circumstances if it becomes aware of the
same prior to the Closing Date.
(u) Environmental Matters.
---------------------
(i) Seller has not transported, stored, treated, or disposed
of, nor has it allowed or arranged for any third parties to transport,
store, handle, treat, or dispose (as hereinafter defined) of Hazardous
Substances or other waste to or at any location other than a site lawfully
permitted to receive such Hazardous Substances or other waste for such
purposes, nor has it performed, arranged for, or allowed by any method or
procedure such transportation, storage, treatment, or disposal in
contravention of any laws or regulations or in a manner giving rise to any
liability whatsoever. Seller has not stored, handled, treated, or disposed
of, nor allowed or arranged for any third parties to store, handle, treat,
or dispose of Hazardous Substances or other waste upon property owned or
leased by it, except as permitted by law. For purposes of this Section
5.1(u), the term "Hazardous Substances" shall include, without limitation,
any material or substance that is one or more of the following: (i) defined
as a conventional, hazardous, toxic, regulated or solid pollutant,
contaminant, substance or waste pursuant to any Environmental Law (as
hereinafter defined), (ii) petroleum, (iii) asbestos, (iv) corrosive,
toxic, flammable, explosive, reactive, mutagenic, carcinogenic, infectious
or radioactive, (v) materials mixed with, containing or derived from any of
the foregoing or (xvii) any material
-14-
<PAGE>
which is or becomes regulated by any Environmental Law which is released
(as hereinafter defined) at or from the Real Property or which has migrated
to or from the Real Property or is found on the Real Property or any other
site affected by such release at, to, on or from the Real Property. The
terms release(d), transport(ed), store(d), treat(ed), handle(d),
arrange(d), dispose(d) and disposal shall have the meanings assigned by the
Comprehensive Environmental Response Compensation and Liability Act, 42
U.S.C.A. Section 9601 et seq. ("CERCLA") or the Resource Conservation and
Recovery Act, 42 U.S.C.A. Section 6901 et seq. (42 U.S.C.A. Section 6903
("RCRA").
(ii) To Seller's knowledge, there has not occurred during
Seller's occupancy nor is there currently occurring, a release of any
Hazardous Substance to, from, on, into, or beneath the surface of the Land.
(iii) The Seller has not shipped, transported, or disposed of,
nor has it allowed or arranged, by contract, agreement, or otherwise, for
any third parties to ship, transport, or dispose of, any Hazardous
Substance or other waste to or at a site which, pursuant to CERCLA or any
similar state law, (i) has been placed on the National Priorities List or
its state equivalent, or (ii) the Environmental Protection Agency or the
relevant state agency has proposed or is proposing to place on the National
Priorities List or its state equivalent. Seller has not received written
notice, nor does it have knowledge of any facts which could give rise to
any written notice, that Seller is a potentially responsible party for a
federal or state environmental cleanup site or for corrective action under
CERCLA or any other applicable law or regulation. Seller has not submitted
nor was it required to submit any notice pursuant to Section 103(c) of
CERCLA, or pursuant to any federal, state or local requirement for
notification of a release with respect to the Real Property. Seller has
not received any written request for information from any federal, state or
local governmental authority in connection with any release. Seller has
not been required to or has not undertaken any response, investigation,
monitoring, or remedial actions or clean-up actions of any kind at the
request of any federal, state, or local governmental entity, or at the
request of any other person or entity.
(iv) Seller does not use, and has not used, any Underground
Storage Tanks, and there are not now nor to Seller's knowledge have there
ever been any Underground Storage Tanks on the Land. For purposes of this
Section 5.1(u)(iv), the term "Underground Storage Tanks" shall have the
meaning given it in the Resource Conservation and Recovery Act (42 U.S.C.
Sections 6901 et seq.).
(v) There is no asbestos in or on the Real Property.
-15-
<PAGE>
(vi) Seller has not received written notice of any violation,
noncompliance or breach of any environmental or worker safety laws or
regulations which require any work, repairs, construction, or capital
expenditures with respect to the assets or properties of Seller.
(vii) Exhibit U identifies: (i) all environmental audits,
assessments, or occupational health studies undertaken by Seller or its
respective agents or known to have been undertaken by or at the order or
request of governmental agencies; (ii) the results of any ground, water,
soil, air, or asbestos monitoring or investigation undertaken with respect
to the Real Property; (iii) all written communications between Seller and
any environmental agencies; and (iv) all citations issued under the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.).
(viii) Seller's Environmental Indemnity.
(a) Definitions. Notwithstanding anything
-----------
contained in this Agreement to the contrary, for purposes of
this Agreement the following terms shall have the following
meanings:
"Environmental Claim" means any written claim,
-------------------
demand, notice of violation, injunction or order for
personal injury, including sickness, disease or death,
tangible or intangible property damage, environmental
stigma, lost profits or other business losses, impaired
financial value, damage to the environment, nuisance,
pollution, contamination or reimbursement of cleanup costs
or other adverse effects on the environment, or for fines,
penalties or restrictions, arising or resulting from, based
on, caused by or related to the existence or the
continuation of the existence of Hazardous Substances made,
asserted or prosecuted by or on behalf of any third party.
Environmental Claim shall include, without limitation, any
costs or expenses incurred to investigate, contain, remove,
remedy, treat, or monitor any Hazardous Substances and any
media, including soil and groundwater, impacted by Hazardous
Substances, as required by any Environmental Law or by
regulatory enforcement officials acting under or pursuant to
any Environmental Law, or by federal or state courts, lost
profits, loss of use, diminution in value, liens against the
Real Property relating to Hazardous Substances and any
failure or defect in title to the Real Property occasioned
by the migration from or presence of Hazardous Substances or
Seller's failure to comply with any Environmental Law.
-16-
<PAGE>
"Environmental Law" means any federal, state,
-----------------
or local statute, ordinance, rule, regulation, order,
consent decree, judgment or common law doctrine, or
interpretation thereof, as amended, and provisions and
conditions of permits, licenses and other operating
authorizations, as amended, related to protection,
remediation or restoration of the environment, including
natural resources, or protection of human health, worker
safety, industrial, agricultural or silvicultural chemicals,
pesticides, insecticides, fungicides, rodenticides,
fertilizers, toxic substances, surface, subsurface or
drinking water, food, drugs, or cosmetics or related to
cleanup, fines, orders, injunctions, penalties,
notification, contribution, cost recovery, losses or
injuries to person or property resulting from contamination
or pollution or hazards to human health or welfare or the
environment which are now or may hereafter become in effect
including, without limitation, CERCLA and RCRA,
(collectively, as amended and together with all regulations
promulgated thereunder, "Environmental Laws").
(b) Indemnification. Seller shall defend,
---------------
indemnify and hold harmless Purchaser, its nominees,
officers, directors, agents, employees, successors, lenders,
assigns, affiliates, subsidiaries, parent companies (if
any), shareholders, lenders, representatives and the
successors an d assigns of all of the foregoing from and
against:
1. Environmental Claims; and
2. Fines and penalties imposed on Purchaser,
its successors, assigns, parents, subsidiaries, officers,
directors, shareholders, agents, employees, lenders and
representatives and the successors and assigns of all of the
foregoing as a result of a violation by Seller of any
Environmental Law arising from or related to any Hazardous
Substances; and/or
3. Any breach of any of representations and
warranties of Seller set out herein at Section 5.1(u)(i)
through 5.1(u)(vii).
(c) Discharge of Environmental Claims. In the
---------------------------------
event that Purchaser notifies Seller of any claim that may
be subject to an indemnification obligation under this
Section 5.1(u), Seller shall, within thirty (30) days from
the date of receipt of notice, acknowledge and assume the
liability asserted. During such thirty
-17-
<PAGE>
(30) day period, Purchaser shall not take any action or
incur any expense with respect to the claim, except to the
extent that such action or expense is legally required or
reasonably necessary under the circumstances.
Seller shall have the right and obligation to
control, manage and direct all discussions, proceedings and
activities regarding the satisfaction or discharge of any
claim which is assumed by Seller or any liability or
obligation that such a claim seeks to impose on Seller.
Purchaser shall have the right, at its own
expense, to consult with Seller, through counsel or
otherwise, with respect to all meetings and proceedings with
adverse parties or governmental authorities regarding any
Environmental Claim and with respect to all activities
pertaining to that matter. Prior to initiating or
participating in any meeting or proceeding in which
decisions or discussions adverse to Purchaser may be made,
Seller shall consult with Purchaser. This right of
consultation shall not apply to confidential meetings or
documents in cases where Seller or Purchaser are disputing
or litigating claims against each other in a judicial or
administrative proceeding. Seller shall promptly notify
Purchaser in writing before Seller initiates or participates
in any meeting or proceeding in which decisions or
discussions adverse to Purchaser may be made, including
without limitation decisions or discussions concerning
matters not covered by this Agreement. Purchaser shall have
the right, but not the obligation, to participate in such
meetings or proceedings.
(d) Remedies. If Seller fails to perform its
--------
obligations under this Section 5.1(u), Purchaser may, at its
option (1) bring an action for injunction or specific
performance of this Section 5.1(u) or this Agreement, and in
such action, recover damages suffered by Purchaser as a
result of Seller's breach or delay in performing its
obligations, or (2) bring an action for damages for Seller's
breach of its obligations, or (3) bring an action for
response costs or other relief under federal or state
environmental laws or regulations, or (4) any combination of
the above. In the event that Purchaser prevails in such an
action, it shall be entitled to recover from Seller the
costs and expenses of bringing the action, including
reasonable attorneys' fees. No delay or omission in the
exercise of any right or remedy accruing to Purchaser upon
any breach by Seller
-18-
<PAGE>
under this Agreement shall impair any such right or remedy
or be construed as a waiver of such breach theretofore or
thereafter occurring. The waiver by Purchaser of any
condition or of any breach of any term, covenant or
condition contained in this Agreement shall not be deemed to
be a waiver of any other condition or of any subsequent
breach of the same or of any other term, covenant or
condition of this Agreement. All rights, powers, options or
remedies afforded to Purchaser either under this Section
5.1(u) or this Agreement or by law or by equity, shall be
cumulative and not alternative and the exercise of any
right, power, privilege or remedy shall not bar other
rights, powers, privileges or remedies.
(e) Survival. Seller's obligations under this
--------
Section 5.1(u) shall survive (i) the closing of the sale
that is the subject of this Agreement for a period of two
(2) years and (ii) the termination of this Agreement. All
claims for indemnification pursuant to this Section 5.1(u)
must be made within two (2) years from the Closing Date.
(v) Intentionally Omitted.
(w) Documents. Seller has made available to Purchaser all of the
---------
Documents; Seller knows of no other document or instrument relating to the
Hotel, or the ownership or operation thereof.
(x) Seller's Knowledge. For the purposes of this Section 5.1, the
------------------
phrases "to the best of Seller's knowledge," "to Seller's knowledge" and similar
phrases shall imply a reasonable inquiry by Seller of its employees (but shall
not require Seller to hire third party consultants).
(y) Third Party Property. Seller is not in possession of any
--------------------
property owned by third parties other than (i) property leased by Seller
pursuant to leases disclosed to Purchaser pursuant to this Agreement; (ii)
baggage of current guests which has been checked with or left in the care of
Seller; and (iii) contents in safe deposit boxes deposited by current guests.
(z) Investment Representations. Seller represents that it and its
--------------------------
shareholders have received a prospectus of Parent dated June 17, 1996.
(aa) Notices. No filing is required with any state or local taxing
--------
authority as a result of the bulk sale of Seller's business assets.
5.2 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants the following to Seller:
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<PAGE>
(a) Authority. Purchaser has all requisite power and authority to
---------
execute and deliver this Agreement and to consummate the transactions
contemplated hereby pursuant to the terms and conditions hereof.
(b) No Conflict. The execution and delivery of this Agreement and the
-----------
consummation of the transactions contemplated hereby will not conflict with,
breach, result in a default under, or violate any commitment, document or
instrument to which Purchaser is a party or by which it is bound.
(c) Parent Shares. The Shares have been registered by the Parent
-------------
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "SEC"), a so-called "shelf" registration statement (the
"Registration Statement"), in accordance with the provisions of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "1933 Act"). Upon the issuance and delivery of the Shares to the Seller in
accordance with this Agreement, such shares will constitute legally and validly
authorized and issued, fully paid, and nonassessable shares of Common Stock. At
Closing, the Registration Statement shall have been declared effective under the
1933 Act and the Parent shall be in compliance with the undertakings contained
in the Registration Statement
5.3 Duration of Representations and Warranties. All representations and
------------------------------------------
warranties contained in Sections 5.1 and 5.2 shall be deemed restated on and as
of the Closing Date.
ARTICLE VI
CLOSING MATTERS
6.1 Closing. The closing of the transaction contemplated hereby (the
-------
"Closing") shall take place at the offices of the Title Company on July 15, 1996
(the "Closing Date") unless Purchaser extended the Inspection Period pursuant to
Section 4.5 hereof, in which event the Closing Date shall be July 31, 1996, or
such other date as may be mutually agreed by the parties.
6.2 Manner of Closing. The transaction shall be closed with the
-----------------
concurrent delivery of the documents of title, transfer of interests, delivery
of the title policy described in Section 7.1(e) and the payment of the Purchase
Price.
6.3 Survey, Title Commitment and Searches.
-------------------------------------
(a) Survey. Purchaser intends to obtain a plat of survey ("Survey")
------
of the Property prepared by a surveyor licensed by the State of Nevada, in
conformity with Class A minimum detail requirements and the current standards
for Land Title Surveys of the American Title
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<PAGE>
Association and American Congress on Surveying and Mapping and such standards as
are required by the Title Insurer as a condition to the removal of any survey
exceptions from the Title Commitment, certified to Purchaser, Parent, its
lender, if any, and the Title Insurer after the date hereof, showing, without
limitation of the foregoing requirements, the following information with respect
to the Property:
(i) the legal description and boundaries thereof;
(ii) the location and street and common addresses of
all improvements situated thereon;
(iii) the location, course and recording numbers, if
applicable, of all water, gas, electric, sewer line and other
easements, either visible or recorded, and party walls;
(iv) public and private streets, roads, alleys and
highways and their common or official names;
(v) record and physical access to and from a public
road or way;
(vi) no encroachments thereon or by any Improvements
located thereon on adjacent property;
(vii) the amount of gross square feet and net square
feet (that is, after deducting the area of that portion of the
Property, if any, lying in the existing or proposed right-of-way
of a public street or road) contained in the Real Property;
(viii) building lines or other restrictions affecting
the Property; and
(ix) whether any portion of the Property is located
in an area designated as being subject to flood hazards or flood
risks or wetlands by any agency of the United States of America.
(b) Title Commitment. Seller shall deliver to Purchaser, on or
----------------
before June 23, 1996, a title commitment for an ALTA Owner's Insurance
Policy issued by the Title Company ("Title Commitment") showing title to
the Real Property in the Seller, subject only to the Permitted Exceptions,
containing full extended coverage over all general exceptions, a 3.1 zoning
endorsement (amended to include parking), location, survey and contiguity
endorsements, an endorsement that the real estate tax bills for the
Property do not include taxes pertaining to other real estate, and such
other endorsements as may be reasonably requested by Purchaser, and dated
after the date hereof. Seller shall also deliver full and legible copies of
all documents ("Title Papers") referred to in the Title Commitment.
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<PAGE>
(c) Defects. If the Survey, Title Commitment, or UCC, judgment, and
-------
tax lien searches on the names of Seller (collectively, "Title Documents") shall
reflect any facts that would result in a Title Defect, Seller shall have thirty
(30) days from the expiration of the Inspection Period within which to cure or
remove the Title Defect. Seller shall be obligated to remove mortgages, deeds
of trust and other liens or encumbrances for the payment of money of a definite
and ascertainable amount, which the parties agree may be removed by the use of
the proceeds of sale at Closing as provided in Section 6.3(d) below. In the
alternative, Seller may make arrangements satisfactory to the Title Company for
the cure (including insurance over) or removal of record of any such Title
Defect. If any such Title Defect is not cured or otherwise provided for as
aforesaid on or prior to the thirtieth (30th) day, the Purchaser shall either:
(i) terminate this Agreement, in which event (hereinafter referred to as
"Election No. 1") the Deposit and all interest earned thereon shall be returned
to Purchaser and the parties shall have no further obligation or liability to
each other hereunder; or (ii) accept the Title Commitment, Survey, or Searches
as is, with the right, however, to deduct the amount of Title Defects
represented by liens or encumbrances for the payment of money of a definite or
ascertainable amount from the Purchase Price payable at Closing (hereinafter
referred to as "Election No. 2"). Title Defects which are acceptable as part of
Election No. 2 shall thereupon be deemed to be Permitted Exceptions and Exhibit
C shall be amended, if necessary, to include such additional Permitted
Exceptions. Election No. 2 shall be made by the Purchaser giving Seller written
notice thereof within five (5) days after notice of Seller's inability to cure
or remove the Title Defect and in the absence of notice of Election No. 2 within
such five (5) day period, Purchaser shall be deemed to have elected Election No.
1. In the event Purchaser elects Election No. 1 and a Title Defect was created
or consented to by Seller, Purchaser shall be paid by Seller the actual costs of
Purchaser's investigation not to exceed $25,000.00 in addition to recovery of
the Deposit.
(d) Removal of Liens, etc. If on the Closing Date there shall be any
---------------------
Title Defect created to secure the payment of money, then Seller shall either
(a) use a portion of the Purchase Price to satisfy the same, provided Seller
shall simultaneously either deliver to Purchaser at Closing instruments, in
recordable form, sufficient to satisfy such Title Defect of record, together
with the cost of recording or filing said instrument; or (b) in the alternative,
make arrangements with the Title Company, in advance of Closing, whereby Seller
will deposit with the Title Company sufficient monies, acceptable to the Title
Company to induce the Title Company to issue the Title Policy to Purchaser,
either free of any such Title Defect or with insurance which "insures over" such
Title Defect. Purchaser agrees to provide at Closing separate certified checks
as requested, to facilitate the satisfaction of any such Title Defects, if
request is made within a reasonable time prior to the Closing Date. The
existence of any Title Defects capable of satisfaction by the payment of money
shall not be deemed to be Title Defects for the purposes of cure periods, as
discussed supra in Section 6.3(c), if Seller shall comply with the foregoing
-----
requirements.
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<PAGE>
ARTICLE VII
CLOSING DELIVERIES
7.1 Seller's Deliveries. At Closing, Seller shall deliver, or cause to be
-------------------
delivered to Purchaser, the following, each of which shall be in form and
substance reasonably acceptable to counsel for Purchaser and, in the case of
documents of transfer or conveyance, shall be accepted or consented to by all
parties required to make such transfer or conveyance effective:
(a) a recordable grant, bargain, and sale deed from Seller to
Purchaser subject only to the Permitted Exceptions;
(b) a Bill of Sale, with special covenants of title, transferring to
Purchaser all of Seller's right, title and interest in and to each and every
item of Fixtures and Tangible Personal Property, Documents, Consumables and
Operating Equipment to be transferred hereunder subject only to Permitted
Exceptions, and with respect to any vehicles included therein, such separate
forms of assignment as are required to be filed with any governmental agency to
effect such change in registration of ownership;
(c) all of the Bookings, Hotel Contracts, Space Leases, Permits and
other tangible Miscellaneous Hotel Assets, together with an Assignment conveying
and transferring to Purchaser all of Seller's right, title and interest in, to
and under the Bookings, Hotel Contracts, Space Leases, Permits (other than
Excluded Permits) and all other Miscellaneous Hotel Assets;
(d) the certificates referred to in Section 10.1(b) hereof;
(e) a FIRPTA Certificate;
(f) evidence of termination of the Employees;
(g) the opinion of Seller's counsel as provided by Section 10.1(c);
(h) certified copies of resolutions of the shareholders and directors
of Seller authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby;
(i) a certificate of the secretary of Seller, dated as of the Closing
Date, certifying the incumbency of the officer(s) of Seller executing the
documents delivered by Seller pursuant to this Agreement;
(j) a Non-Compete Agreement substantially in the form of Exhibit R
executed by Michael J. Mona, Jr. and Rhonda H. Mona; and
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<PAGE>
(k) evidence, satisfactory to Purchaser, of the termination of all
management agreements and other management arrangements with respect to the
Hotel.
7.2 Purchaser's Deliveries. At the Closing, Purchaser shall cause to be
----------------------
delivered to Seller:
(a) the Note;
(b) the certificate referred to in Section 9.1(b) hereof;
(c) the opinion of Purchaser's counsel as provided by Section 9.1(c);
and
(d) the written undertaking of Purchaser as provided by Section
9.1(d).
7.3 Concurrent Transactions. All documents or other deliveries required
-----------------------
to be made by Purchaser or Seller at Closing, and all transactions required to
be consummated concurrently with Closing, shall be deemed to have been delivered
and to have been consummated simultaneously with all other transactions and all
other deliveries, and no delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until all deliveries
required by Purchaser, or its designee, and Seller shall have been made, and all
concurrent or other transactions shall have been consummated.
7.4 Further Assurances. Seller and Purchaser will, at the Closing, or at
------------------
any time or from time to time thereafter, upon request of either party, execute
such additional instruments, documents or certificates as either party deems
reasonably necessary in order to convey, assign and transfer the Property to
Purchaser, hereunder.
7.5 Possession. Possession of the Property shall be delivered at Closing.
----------
Subject to the provisions of Section 17.1(e), Excluded Assets (other than any
thereof under leases to be assumed by Purchaser) shall be removed from the Hotel
by Seller, at its expense, on or before the Closing Date. Seller, at its
expense shall make all repairs necessitated by such removal but shall have no
obligation to replace any Excluded Asset so removed.
ARTICLE VIII
ADJUSTMENTS AND PRORATIONS
8.1 Adjustments and Prorations. The following matters and items shall be
--------------------------
apportioned between the parties hereto or, where appropriate, credited in total
to a particular party, as of the Cut-off Time as provided below:
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(a) Down Payments for Reservations. Any pre-closing down payments
------------------------------
made to Seller on confirmed reservations for dates after the Closing Date will
be credited to Purchaser as of the Closing. Any post-closing down payments made
to Seller on confirmed reservations for dates after the Closing Date will be
forwarded to Purchaser upon receipt.
(b) Taxes and Assessments. All ad valorem taxes, special or general
---------------------
assessments, personal property taxes, attorneys' fees directly related to the
reduction of taxes or assessments, water and sewer rents, rates and charges,
vault charges, canopy permit fees, and other municipal permit fees. If the
amount of any such item is not ascertainable on the date the proration schedule
is completed pursuant to Section 8.3, the credit therefor shall be based on one
hundred percent (100%) of the most recent available bill and shall be reprorated
upon receipt of the actual tax bill. Notwithstanding the above, special real
property tax assessments for which the work is substantially completed as of the
Closing Date shall be paid by Seller.
(c) Utility Contracts. Telephone and telex contracts and contracts
-----------------
for the supply of heat, steam, electric power, gas, lighting and any other
utility service, with Seller receiving a credit for each deposit, if any, made
by Seller as security under any such public service contracts if the same is
transferable and provided such deposit remains on deposit for the benefit of
Purchaser. Where possible, cut-off readings will be secured for all utilities on
the Closing Date.
(d) Hotel Contracts and Space Leases. Any amounts prepaid or payable
--------------------------------
under any Hotel Contracts and Space Leases shall be apportioned between the
parties. Any percentage rentals under Space Leases shall be prorated on the
basis of the ratio of the number of days expired before Closing to the number of
days after Closing, for the current percentage rent period of the Space Lease.
All security deposits held by Seller shall be transferred to Purchaser and all
obligations with respect to such security deposits shall be assumed by
Purchaser.
(e) License Fees. Fees paid or payable for Permits (other than
------------
Excluded Permits) shall be apportioned between the parties.
(f) Hotel Matters.
-------------
(i) Advance payments, if any, under Bookings for Hotel
facilities (which shall include prepaid amounts by current guests);
(ii) Coin machine, telephone, washroom and checkroom income;
and
(iii) Commissions to credit and referral organizations.
(g) Employment Arrangements. Seller shall be responsible for, and
-----------------------
shall pay when due, all Compensation of Employees. Purchaser assumes no
Employment Arrangements or
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other obligation with respect to any Employee Benefits, all of which, together
with any sums due any Employee as a consequence of the termination of his
employment, shall be the responsibility of Seller.
(h) Consumable Items. The cost of any Consumables or Operating
----------------
Equipment which are at a level below the level required to be maintained under
this Agreement shall be credited to Purchaser.
(i) Other. Such other items as are provided for in this Agreement or
-----
as are normally prorated and adjusted in the sale of a hotel, including without
limitation, all petty cash funds and cash in house banks, and all deposits and
prepaid items which inure to the benefit of the Purchaser.
8.2 Receivables. Purchaser is not purchasing any of the receivables of
-----------
the Hotel and Seller shall be solely responsible for the collection of accounts
receivable arising prior to the Closing Date. If Purchaser shall receive any
payment made on any unpurchased accounts receivable within ninety (90) days
after the Closing Date, it shall promptly remit such payment to Seller. With
regard to any collection made from any person or entity who is indebted to the
Hotel both with respect to accounts receivable accruing prior to the Closing
Date and to the accounts receivable accruing subsequent to the Closing Date,
such collection shall be applied as designated by the payor, but if there is no
designation, then any such collections received within ninety (90) days after
the Closing Date shall be applied first to the indebtedness accrued prior to the
Closing Date, but thereafter, any such collections shall be applied first to the
payment in full of any amounts due to Purchaser on accounts accruing subsequent
to the Closing Date.
8.3 Proration Schedule.
------------------
(a) Preparation and Review. A schedule setting forth the adjustments
----------------------
and prorations to be made pursuant to Section 8.1 above shall be prepared by
Purchaser and forwarded to Seller within thirty (30) days after the Closing
Date. Seller shall be afforded the opportunity to review all work papers and
computations used by Purchaser in the preparation of the adjustments and
prorations. The schedule as delivered shall be deemed accepted by Seller except
to the extent, if any, that Seller, within ten (10) days after the date of
delivery thereof to Seller, has delivered a written notice to Purchaser stating
any exceptions Seller may have to such schedule. If within such period Seller
shall give written notice to Purchaser of any exceptions to the schedule as
delivered by Purchaser, the parties shall attempt to resolve all of the
exceptions. To the extent that any such exceptions are not resolved within
fifteen (15) days after the delivery to Purchaser of Seller's exceptions to the
schedule, such differences shall be submitted as soon as practicable thereafter
to such "Big Six" accounting firm upon which the parties shall agree, for final
determination thereof. If the parties are not able to agree upon an accounting
firm, each shall designate a "Big Six" accounting firm and give written notice
to the other of the name and address of the firm so designated. The two firms
shall consult with each other and, if possible, determine the exceptions
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in question by mutual agreement, and their determination so agreed upon, if
certified to the parties prior to their reaching agreement independently of
arbitration, shall be final and conclusive. If the two firms are not able to
agree upon the exceptions in question, they jointly shall designate a third firm
whose determination concerning the exceptions shall be final and conclusive, if
certified to the parties prior to their reaching agreement independent of
arbitration. Any determination by such accounting firm(s) as to the proper
determination of any such item submitted to it for determination shall be
conclusive and binding upon the parties for purposes of this Agreement. Seller
and Purchaser shall each pay one-half of such fees charged by such accounting
firm(s) in connection with any matter submitted to it hereunder.
(b) Payment of Adjustments. The net amount due pursuant to the
----------------------
adjustments and prorations made as required by this Section 8.3 shall be paid by
cash or bank cashier's check payable in immediately available funds in United
States currency to the order of the party to whom the same shall be due upon
final determination of the adjustments and prorations required hereunder. Seller
agrees that prior to the time that payment is made pursuant to Section 8.3(b),
it shall not make final liquidating distributions.
(c) Period for Recalculation. Notwithstanding the foregoing, if at
------------------------
any time within six (6) months following the Closing Date, either party
discovers any items which should have been included in the prorations but were
omitted therefrom, then such items shall be adjusted in the same manner as if
their existence had been known at the time of the preparation of the prorations.
The foregoing limitations shall not apply to any items which, by their nature,
cannot be finally determined within the periods specified.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
9.1 Conditions. Seller's obligation to close hereunder shall be subject
----------
to the occurrence of each of the following conditions, any one or more of which
may be waived by Seller in writing:
(a) Purchaser's Compliance with Obligations. Purchaser shall have
---------------------------------------
complied with all obligations required by this Agreement to be complied with by
Purchaser.
(b) Truth of Purchaser's Representations and Warranties. The
---------------------------------------------------
representations and warranties of Purchaser contained in Section 5.2 were true
in all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Seller shall have received a
certificate to that effect signed by an authorized agent of Purchaser.
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(c) Opinion of Purchaser's Counsel. Purchaser shall have delivered to
------------------------------
Seller a favorable written opinion of Pedersen & Houpt in connection with this
transaction, dated the Closing Date, as to (i) the power and authority of
Purchaser to execute and deliver this Agreement, (ii) the due authorization,
execution and delivery by Purchaser of this Agreement, and (iii) the legality,
validity and, as to Purchaser, the binding effect of this Agreement (subject to
the effect of bankruptcy and similar laws affecting the enforcement of
creditors' rights generally and to the discretion of a court of equity to
enforce equitable remedies).
(d) Opinion of Purchaser's Securities Counsel. Purchaser shall have
-----------------------------------------
delivered to Seller the written undertaking of Purchaser to provide to Seller
the favorable written opinion of Bell, Boyd & Lloyd, dated at the time of each
Approved Sale, that such Approved Sale complies or will comply with the
requirements of this Agreement, the 1933 Act and any state blue sky or other
securities laws applicable to the Approved Sale.
(e) Delivery of Current Prospectus. Seller shall have received
------------------------------
Parent's current, effective prospectus that does not reflect any material
adverse change from the prospectus of Parent dated June 17, 1996.
9.2 Failure of Conditions. If any of the conditions enumerated in Section
---------------------
9.1 are not fulfilled and, as a consequence thereof, Seller elects to terminate
this Agreement, such failure shall be deemed a default by Purchaser hereunder
and the consequences thereof shall be governed by the provisions of Section 3.2.
ARTICLE X
CONDITIONS TO PURCHASER'S OBLIGATIONS
10.1 Conditions. Purchaser's obligation to close hereunder shall be
----------
subject to the occurrence of each of the following conditions, any one or more
of which may be waived by Purchaser in writing:
(a) Seller's Compliance with Obligations. Seller shall have complied
------------------------------------
with all obligations required by this Agreement to be complied with by Seller.
(b) Truth of Seller's Representations and Warranties. The
------------------------------------------------
representations and warranties of Seller contained in Section 5.1 were true in
all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Purchaser shall have received a
certificate to that effect signed by an authorized agent of Seller.
(c) Opinion of Seller's Counsel. There shall have been delivered to
---------------------------
Purchaser a favorable opinion of Jones, Jones, Close & Brown, counsel to Seller
in connection with this
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<PAGE>
transaction, dated the Closing Date as to (i) the power and authority of Seller
to execute and deliver this Agreement; (ii) the due authorization, execution and
delivery by Seller of this Agreement and all other documents required to be
executed and delivered by Seller pursuant to Section 7.1 hereof; and (iii) the
legality, validity and, as to Seller, the binding effect of this Agreement and
all other documents required to be executed and delivered by Seller pursuant to
Section 7.1 hereof (subject in each case to the effect of bankruptcy and similar
laws affecting creditors' rights generally and to the discretion of a court of
equity to enforce equitable remedies).
(d) Estoppel Certificates--Hotel Contracts. Purchaser shall notify
--------------------------------------
Seller, in writing at least thirty (30) days prior to the Closing Date, of the
Material Contracts for which Purchaser requires estoppel certificates. Each of
said estoppel certificates shall be in writing from the parties to such Material
Contract stating that such Material Contract is in full force and effect, has
not been amended or modified except as therein indicated, that such party
consents to the assignment to Purchaser and that no party is then in default
under such Material Contract (or if any default is known to exist, or would
arise with the giving of notice or the passage of time, stating the nature of
such default). The estoppel certificates herein referred to shall be in form
and substance reasonably satisfactory to Purchaser and dated not more than
thirty (30) days prior to the Closing Date.
(e) No Pending Adverse Litigation. On the Closing Date, there shall
-----------------------------
not then be pending or, to the knowledge of either Purchaser or Seller,
threatened, any litigation, administrative proceeding, investigation or other
form of governmental enforcement, or executive or legislative proceeding which,
if determined adversely, would restrain the consummation of any of the
transactions herein referred to, declare illegal, invalid or non-binding any of
the covenants or obligations of the parties herein, or have a material and
adverse effect on the operations or cash flow of the Hotel, or materially and
adversely affect the value of the Property or the ability of Purchaser, after
the Closing, to operate the Hotel in the manner contemplated hereby, other than
those matters previously disclosed and approved by Purchaser.
(f) Related Transactions. The transactions contemplated by (i) the
--------------------
certain Agreement to Purchase Hotel of even date herewith by and between Boulder
Manor, Inc. and ESA Properties, Inc., (ii) the certain Agreement to Purchase
Hotel of even date herewith by and between St. Louis Manor, Inc. and ESA
Properties, Inc., and (iii) the certain Agreement to Purchase Hotel of even date
herewith by and between Santa Fe Springs Partners and ESA Properties, Inc.,
shall have been consummated.
(g) Title Policy. Purchaser shall have received an ALTA Owner's
------------
Insurance Policy issued by the Title Company in exact conformity with the Title
Commitment in favor of Purchaser, in the amount of the Purchase Price, showing
good and marketable fee simple title in the Real Property to be vested in
Purchaser, subject only to Permitted Exceptions (the "Title Policy").
10.2 Failure of Conditions. If any of the conditions enumerated
---------------------
in subsections (d)
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<PAGE>
and (e), of Section 10.1 are not fulfilled, then the sole remedy of Purchaser
shall be to terminate this Agreement (whereupon the Deposit and all interest
earned thereon shall be returned to Purchaser and neither party shall have any
further obligation or liability hereunder), unless the failure to fulfill such
condition constitutes, or results from, either (i) a material breach of an
express representation or warranty made by Seller hereunder, or (ii) a material
default of an express covenant made by Seller hereunder, in which event
Purchaser shall be entitled to pursue against Seller any and all remedies
available to Purchaser, at law or in equity. If any of the conditions
enumerated in subsections (a), (b) and (c) of Section 10.1 are not fulfilled
and, as a consequence thereof, Purchaser elects to terminate this Agreement,
such failure shall be deemed a default by Seller hereunder, the Deposit and all
interest earned thereon referred to in Section 3.2 shall be promptly returned to
Purchaser, and Purchaser shall be entitled to pursue against Seller any and all
remedies available to Purchaser, at law or in equity.
ARTICLE XI
ACTIONS AND OPERATIONS PENDING CLOSING
11.1 Actions and Operations Pending Closing. Seller agrees that after the
--------------------------------------
expiration of the Inspection Period and until the Closing Date:
(a) The Hotel will continue to be operated and maintained
substantially in accordance with present standards.
(b) Seller will not enter into any new Material Contract or Space
Lease, or cancel, modify or renew any existing Material Contract or Space Lease,
without the prior written consent of Purchaser, which consent shall not be
unreasonably withheld. If Purchaser fails to respond to a request for consent
within 15 business days after receipt of such request, such consent shall be
deemed given.
(c) Seller shall have the right, without notice to or consent of
Purchaser, to make Bookings in the ordinary course of business, at no less than
the Hotel's standard rates including customary discounted rates. Additionally,
Seller agrees to entertain in good faith Purchaser's suggestions relating to the
policy of the Hotel with respect to future Bookings and extension of credit.
(d) Seller shall use commercially reasonable efforts to preserve in
force all existing Permits and to cause all those expiring to be renewed prior
to the Closing Date. If any such Permit shall be suspended or revoked, Seller
shall promptly so notify Purchaser and shall take all measures necessary to
cause the reinstatement of such Permit without any additional limitation or
condition.
(e) Seller shall notify Purchaser promptly if Seller becomes aware of
any
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<PAGE>
transaction or occurrence prior to the Closing Date which would make any of the
representations or warranties of Seller contained in Section 5.1 not true in any
material respect.
(f) Seller will maintain in effect, all policies of casualty and
liability insurance, or similar policies of insurance, with the same limits of
coverage which it now carries with respect to the Hotel.
(g) Seller will not dispose of any of the Property, except in the
ordinary course of business and in accordance with this Agreement.
(h) Seller shall allow Purchaser and its agents or representatives to
inspect the Property, and all books and records relating thereto, at such times
as Purchaser may reasonably request, provided such inspection does not
unreasonably interfere with the continued operation of the Hotel in the ordinary
course of business. Purchaser shall also have the right to have, and Seller
shall provide accommodations for, a full-time on-site representative to observe
the operations of the Hotel. Such accommodations shall be rent-free except for
those nights when all other guest rooms at the Hotel are fully occupied, in
which event Purchaser shall reimburse Seller for such nights at the Hotel's
lowest corporate rate for such accommodations. Purchaser agrees that the
results of all such observations will be treated as confidential, and Purchaser
shall not disclose the same to any other person or entity except for Purchaser's
counsel, accountants, and other agents or representatives consulted in
connection with the acquisition of the Hotel. In the event that the sale is not
consummated, any and all Documents, reports, financial and operating information
obtained by Purchaser or its representatives shall be returned to the Seller.
ARTICLE XII
CASUALTIES AND TAKINGS
12.1 Casualties.
----------
(a) If any damage to the Property shall occur prior to the Closing
Date by reason of fire, windstorm, hail, explosion or other casualty, and if, in
Purchaser's reasonable judgment, the cost of repairing such damage will exceed
Fifty Thousand Dollars ($50,000.00), Purchaser may elect to: (i) terminate this
Agreement by giving written notice to Seller in which event the Deposit and all
interest earned thereon shall be returned to Purchaser and neither party shall
have any further obligations or liability whatsoever to the other hereunder or
(ii) receive an assignment of all of Seller's rights to any insurance proceeds
(including business interruption proceeds) relating to such damage and acquire
the Property without any adjustment in the purchase price provided that, in such
latter event, Seller shall pay to Purchaser the amount of any deductible under
applicable insurance policies.
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<PAGE>
(b) If, in the reasonable business judgment of the insurance adjuster
or other representative of the insurer of the Property, the cost of repairing
such damage will not exceed Fifty Thousand Dollars ($50,000.00), the
transactions contemplated hereby shall close without any adjustment in the
Purchase Price, Purchaser shall receive an assignment of all of Seller's rights
to any insurance proceeds (including business interruption proceeds), and Seller
shall pay to Purchaser the amount of any deductible under applicable insurance
policies.
12.2 Takings. In the event of the actual or threatened taking (either
-------
temporary or permanent) in any condemnation proceedings by exercise of right of
eminent domain, of all or any part of the Real Property, between the date hereof
and the Closing Date, and if, in Purchaser's reasonable judgment, such taking
will result in the inability to conduct the operations of the Hotel
substantially in accordance with the present standards, Purchaser may elect to:
(i) terminate this Agreement by giving written notice to Seller, in which event
the Deposit and all interest earned thereon shall be returned to Purchaser and
neither party shall have any further obligations or liability whatsoever to the
other hereunder or (ii) receive an assignment of all of Seller's rights to any
condemnation award relating to such taking and acquire the Property without any
adjustment in the Purchase Price.
ARTICLE XIII
EMPLOYEES
13.1 Employees, Compensation and Indemnification. Purchaser shall have the
-------------------------------------------
continuing right to review all employment records and files of, and to
interview, Employees. Seller shall terminate its employer-employee relationship
with all Employees as of the Cut-off Time. Seller shall be solely responsible
for all Compensation and other liabilities with respect to Employees and
liabilities and obligations to Employees pursuant to any Employment Arrangement.
Purchaser shall not be responsible for any such liability or obligations and
Seller agrees to indemnify and hold Purchaser harmless from and against any such
liability or obligations. All Compensation, obligations, liabilities and claims
(including any under the Fair Labor Standards Act) to or by any Employee of
Seller arising or occurring prior to the Cut-off Time shall be the
responsibility of Seller. Purchaser shall not be responsible for any
Compensation thereof and Seller agrees to indemnify and hold Purchaser harmless
from and against same. Purchaser shall not assume or be liable upon any
Employment Arrangement of Seller.
ARTICLE XIV
INDEMNITIES
14.1 Seller's Indemnity. Seller agrees to indemnify, defend (with
------------------
Purchaser having the
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right to retain counsel for the purpose of participating in such defense, at its
sole cost and expense) and hold Purchaser harmless against and with respect to
the following:
(a) any and all obligations, liabilities, claims, accounts, demands,
liens or encumbrances, whether direct or contingent and no matter how arising
("Indemnifiable Damages"), in any way related to the Property and arising or
accruing on or before the Closing Date (including, but not limited to, any
damage to property or injury to or death of any person); without limitation on
the generality of the foregoing, Seller indemnifies Purchaser from any claim or
judgment under any lawsuit or proceeding filed or pending prior to the Closing
Date against the Property, or any part thereof, and any costs or expenses
(including reasonable attorneys' fees) heretofore or hereafter incurred in
connection with any such lawsuit or proceeding;
(b) any loss or damage to Purchaser resulting from any inaccuracy in
or breach of any representation or warranty of Seller or resulting from any
breach or default by Seller of any obligation of Seller under this Agreement;
and
(c) all costs and expenses, including reasonable attorneys' fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.2 Purchaser's Indemnity. Purchaser agrees to indemnify, defend (with
---------------------
Seller having the right to retain counsel for the purpose of participating in
such defense, at its sole cost and expense), and hold Seller harmless against
and with respect to the following:
(a) any loss or damage to Seller, subsequent to the Closing Date,
resulting from any inaccuracy in or breach of any representation or warranty of
Purchaser under this Agreement;
(b) any injury to person or property causing any loss or damage to
Seller resulting from or arising out of work performed by Purchaser pursuant to
Section 11.1(h) hereof;
(c) any and all Indemnifiable Damages in any way related to the
Property and arising or accruing after the Closing Date (including, but not
limited to, any damage to property or injury to or death of any person); and
(d) all costs and expenses, including reasonable attorney's fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.3 Notice of Claims. Seller and Purchaser, as applicable, shall
----------------
promptly notify the other in the event any claim is made against Seller or
Purchaser as to which the other party has agreed to indemnify and the indemnitor
shall thereupon undertake to defend and hold the indemnitee saved and harmless
therefrom.
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<PAGE>
ARTICLE XV
SECURITIES LAW MATTERS
15.1 Disposition of Shares. The Seller represents and warrants that the
---------------------
Shares are being acquired and will be acquired for its own account and will not
be sold or otherwise disposed of except pursuant to (i) the provisions of Rule
145(d) under the 1933 Act, as in effect at the time of sale, (ii) some other
exemption or exclusion from the registration requirements under the 1933 Act,
which does not require the filing by the Parent with the SEC of any registration
statement, offering circular, or other document, in which case the Seller shall
first supply to the Parent an opinion of counsel (which opinion and counsel
shall be satisfactory to the Parent) that such exemption or exclusion is
available, or (iii) the Registration Statement provided that (a) sales pursuant
to the Registration Statement are made to or through a broker, dealer, or market
maker, (b) in connection with such sales, the Seller delivers a copy of a
current Prospectus forming a part of the Registration Statement which prospectus
identifies the Seller as being able to use such Prospectus to make resales in
the public market of Shares acquired pursuant to this Agreement, and (c) the
Seller notifies the Parent in writing at least five business days prior to the
first day the Seller intends to execute a sale transaction of the Shares
pursuant to the Registration Statement and the Parent consents in writing to
such sale. The Seller hereby acknowledges that the Parent is entitled in its
absolute discretion to withhold such consent if, and for such period of time as,
in the opinion of the management of the Parent, (i) securities laws applicable
to such sale of Shares by the Seller pursuant to the Registration Statement
would require the Parent to disclose material non-public information, or (ii)
such sale would occur during (a) the measurement period for determining the
amount of Common Stock or other consideration, the amount of which will be based
on the price of the Common Stock, to be paid in connection with the acquisition
of a business or assets to which the Parent or any of its subsidiaries is a
party or (b) the marketing period of an offering of securities of the Parent.
15.2 Acknowledgment of Restrictions. The Seller acknowledges that, under
------------------------------
current SEC interpretations of Rule 145, the Seller is subject to restrictions
on transfer of the Shares for a period of two years following the Closing Date
and that an exemption from the requirement to register the Shares for public
resale is provided by Rule 145(d).
15.3 Evidence of Compliance. The Seller further covenants and agrees that
----------------------
the Parent will be supplied with such written evidence of compliance by it and
its broker with Rule 145(d) as in effect at the time of any sale by it pursuant
thereto, as the Parent may reasonably request.
15.4 Legend. The Seller agrees that the certificates for the Shares
------
received shall bear the following legend:
The Shares represented by this certificate are subject to the
provisions of Rule 145(d) promulgated under the Securities Act of
1933, and may not be transferred or disposed of by the holder without
compliance with said Rule unless registered under said Act or pursuant
to another applicable exemption from the requirements of said Act.
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<PAGE>
and that the Parent may place stop transfer orders with its transfer agents with
respect to such certificates. The appropriate portions of the legend will be
removed at such time or times as the Seller may reasonably request if at the
time of such request the Seller is not an Affiliate (as defined in the 1933 Act)
of the Parent, upon the expiration of the two-year holding period provided in
Rule 145(d).
ARTICLE XVI
NOTICES
16.1 Notices. Except as otherwise provided in this Agreement, all notices,
-------
demands, requests, consents, approvals and other communications (herein
collectively called "Notices") required or permitted to be given hereunder, or
which are to be given with respect to this Agreement, shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by overnight express courier, postage
prepaid, addressed to the party to be so notified as follows:
If intended for Seller, to: Mr. Michael J. Mona, Jr.
M&M Development
1785 E. Sahara, Suite 315
Las Vegas, Nevada 89104
Copies to: Jones, Jones, Close & Brown
3773 Howard Hughes Parkway
Third Floor South
Las Vegas, Nevada 89109
Attn: Ms. Jodi R. Goodheart
If intended for Extended Stay America, Inc.
Purchaser, to: 500 East Broward Blvd., #950
Ft. Lauderdale, Florida 33394
Attn: Mr. Robert A. Brannon
Copies to: Pedersen & Houpt
161 North Clark, Suite 3100
Chicago, Illinois 60601
Attn: Mr. Michael W. Black
Notice mailed by registered or certified mail shall be deemed received by
the addressee three (3) days after mailing thereof. Notice personally delivered
shall be deemed received when delivered.
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Notice mailed by overnight express courier shall be deemed received by the
addressee two (2) days after mailing thereof. Either party may at any time
change the address for notice to such party by mailing a Notice as aforesaid.
ARTICLE XVII
ADDITIONAL COVENANTS
17.1 Additional Covenants. In addition, the parties agree as follows:
--------------------
(a) Expenses. Seller shall be responsible for the payment of all
--------
sales and use taxes and fifty percent (50%) of all transfer taxes. Purchaser
shall be responsible for the payment of all recording fees, fifty percent (50%)
of all transfer taxes, all escrow fees, all costs of the Survey, all title
insurance premiums and charges for the issuance of the Title Policy and all
other closing charges. The fees and expenses of Seller's designated
representatives, accountants and attorneys shall be borne by Seller, and the
fees and expenses of Purchaser's designated representatives, accountants and
attorneys shall be borne by Purchaser.
(b) Brokerage. Seller and Purchaser each hereby represent and warrant
---------
to the other that neither has dealt with any broker or finder in connection with
the transaction contemplated hereby, and each hereby agrees to indemnify, defend
and hold the other harmless against and from any and all manner of claims,
liabilities, loss, damage, attorneys' fees and expenses, incurred by either
party and arising out of, or resulting from, any claim by any such broker or
finder in contravention of its representation and warranty herein contained.
(c) Guest Baggage. All baggage of guests who are still in the Hotel
-------------
on the Closing Date, which has been checked with or left in the care of Seller
shall be inventoried, sealed, and tagged jointly by Seller and Purchaser on the
Closing Date. Purchaser hereby indemnifies Seller against any claims, losses or
liabilities in connection with such baggage arising out of the acts or omissions
of Purchaser after the Closing Date. Seller hereby indemnifies Purchaser
against any claim, losses or liabilities with respect to such baggage arising
out of the acts or omissions of Seller prior to the Closing Date.
(d) Safe Deposits. Immediately after the Closing, Seller shall send
-------------
written notice to guests or tenants or other persons who have safe deposit
boxes, advising of the sale of the Hotel to Purchaser and requesting immediate
removal of the contents thereof or the removal thereof and concurrent re-deposit
of such contents pursuant to new safe deposit agreements with Purchaser. Seller,
at its own expense, shall have a representative present when the boxes are
opened, in the presence of a representative of the Purchaser. Purchaser shall
not be liable or responsible for any items claimed to have been in such boxes
unless such items are so removed and re-deposited, and
-36-
<PAGE>
Seller agrees to indemnify and hold harmless Purchaser from and against any such
liability or responsibility.
(e) Books and Records. The transaction contemplated hereby shall not
-----------------
include the books and records of Seller pertaining strictly to the business of
the Hotel. Seller covenants and agrees that such books and records will remain
in the control of M&M Development for examination and audit by Purchaser and
its agents after the Closing as provided in this clause (e). Seller agrees to
preserve all books and records, files and correspondence, for at least five (5)
years after the Closing Date, and not to destroy or dispose of the same, for at
least five (5) years after the Closing Date. Seller agrees to provide access to
Purchaser and its representatives, to such books, records, files and
correspondence at all reasonable times.
(f) Hart-Scott-Rodino Act. If it shall be determined that the within
---------------------
transaction is subject to the reporting requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, 15 U.S.C. (S)18(a) (1976) (the "Act"), then
notwithstanding anything to the contrary contained in Section 10.1(e) hereof,
each party shall forthwith proceed to make the necessary filings, and take all
other actions necessary to comply with the Act and the rules and regulations
thereunder. If such requirements have not been fulfilled by the Closing Date,
then the Closing Date shall be adjourned until such requirements have been
fulfilled, but not more than sixty (60) days. If such requirements have not
been fulfilled prior to the expiration of such sixty (60) day period, Seller or
Purchaser, by notice to the other, may terminate this Agreement in which event
the Deposit and all interest earned thereon shall be returned to Purchaser and
neither party shall have any further obligation or liability to the other party
hereunder.
(g) Survival of Covenants, etc. The representations, warranties,
---------------------------
obligations, covenants, agreements, undertakings and indemnifications of Seller
and Purchaser contained herein shall survive the Closing for a period of two (2)
years except that (i) the representation and warranty made by Seller in Section
5.1(i) shall expire at the time the period of limitations (including any
extensions thereof pursuant to the delivery of waivers of the applicable period
of limitations) expires for the assessment by the taxing authority of additional
taxes with respect to which the representation and warranty relate; and (ii) the
representation and warranty made by Purchaser in Section 3.4(d) shall not
expire. All claims for indemnification must be made within the aforementioned
periods.
(h) Purchaser's Investigation and Inspections. Any investigation or
-----------------------------------------
inspection conducted by Purchaser, or any agent or representative of Purchaser,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Purchaser's obligations hereunder or
to determine whether Seller's warranties are true and accurate, shall not or
constitute a waiver by Purchaser of any of Seller's obligations hereunder or
Purchaser's reliance thereon.
(i) Construction. This Agreement shall not be construed more strictly
------------
against one party than against the other, merely by virtue of the fact that it
may have been prepared primarily
-37-
<PAGE>
by counsel for one of the parties, it being recognized that both Purchaser and
Seller have contributed substantially and materially to the preparation of this
Agreement.
(j) Publicity. All notice to third parties and all other publicity
---------
concerning the transactions contemplated hereby shall be jointly planned and
coordinated by and between Purchaser and Seller. None of the parties shall act
unilaterally in this regard without the prior written approval of the other;
however, this approval shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Purchaser (or Parent) may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning Parent's publicly traded securities;
Purchaser agrees to give Seller notice of any such public disclosure.
(k) General. This Agreement may be executed in any number of
-------
counterparts, each of which shall constitute an original but all of which, taken
together, shall constitute but one and the same instrument. This Agreement
(including all exhibits hereto) contains the entire agreement between the
parties with respect to the subject matter hereof, supersedes all prior
understandings, if any, with respect thereto and may not be amended,
supplemented or terminated, nor shall any obligation hereunder or condition
hereof be deemed waived, except by a written instrument to such effect signed by
the party to be charged. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada. The warranties,
representations, agreements and undertakings contained herein shall not be
deemed to have been made for the benefit of any person or entity, other than the
parties hereto and their permitted successors and assigns. Seller has no right
to assign its rights (except as set forth in (m) below) or to delegate its
duties hereunder. Purchaser may assign its rights and duties under this
Agreement to any of its Affiliates. Captions used herein are for convenience
only and shall not be used to construe the meaning of any part of this
Agreement.
(l) FIRPTA. Seller agrees to furnish Purchaser with an executed
-------
Certification in the form attached hereto as Exhibit Q ("FIRPTA Certificate"),
and such other evidence as Purchaser may reasonably request, to establish that
Seller is not a foreign person for the purpose of Section 1445 of the Internal
Revenue Code of 1986, as amended ("Section 1445"). In the event that Seller
does not furnish such Certification or a qualifying statement for the U.S.
Treasury Department that the transaction is exempt from the withholding
requirements of Section 1445, Seller agrees that Purchaser shall be directed to
pay such amount required by law to the Internal Revenue Service in accordance
with the laws and regulations regarding the withholding requirements of Section
1445.
(m) Like-Kind Exchange. Seller shall have the right, at Seller's
------------------
option, to sell the Property to Purchaser through a transaction that is
structured to qualify as a like-kind exchange of property within the meaning of
Section 1031 of the Internal Revenue Code of 1986 ("Code"). Purchaser agrees to
reasonably cooperate with Seller in effecting a qualifying like-kind exchange
through a trust, escrow or other means as determined by Seller, provided,
however, Purchaser shall not be required to incur any obligation or liability to
a third party as a part of the exchange. In any event Seller shall have the
right to assign its rights under this contract, in whole or in part, to a
-38-
<PAGE>
qualified intermediary (as defined under current Code regulations governing
like-kind exchanges) or as otherwise necessary or appropriate to effectuate a
like-kind exchange, provided that Seller shall remain liable for its obligations
hereunder (and that Michael J. Mona, Jr. shall remain liable pursuant to his
guaranty as hereinafter set forth) and Seller (and Michael J. Mona) shall
execute such additional documentation as Purchaser may reasonably request to
evidence such continuing liability. Seller shall bear the additional transaction
costs and all costs and expenses incurred by Purchaser and attributable to
exchange procedures in this transaction that are requested or implemented by
Seller. Seller shall be solely responsible for assuring the effectiveness of
the exchange for Seller's tax purposes. In no event shall any like-kind
exchange contemplated by this provision cause an extension of the date of
closing set forth herein nor shall Purchaser be required to take title to any
property other than the Property.
(n) Jurisdiction. Any action or proceeding seeking to enforce any
------------
provision of, or based on any right arising out of, this Agreement shall be
brought against any of the parties in the courts of the State of Nevada, County
of Clark, or, if it can acquire jurisdiction, in the United States District
Court for the District of Nevada.
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
MELROSE SUITES, INC., a Nevada corporation
By:/s/ Michael J. Mona Jr.
-----------------------------------------
Michael J. Mona, Jr., President
Attest:_____________________________________
Its:________________________________________
PURCHASER:
ESA PROPERTIES, INC., a Delaware corporation
By:_________________________________________
Robert A. Brannon, Vice President
Attest:_____________________________________
Its:________________________________________
The undersigned hereby guaranties the collection by Purchaser of all
amounts due from Seller pursuant to the terms hereof.
/s/ Michael J. Mona Jr.
--------------------------------------------
Michael J. Mona, Jr.
-40-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
MELROSE SUITES, INC., a Nevada corporation
By:_________________________________________
Michael J. Mona, Jr., President
Attest:_____________________________________
Its:________________________________________
PURCHASER:
ESA PROPERTIES, INC., a Delaware corporation
By: /s/Robert A. Brannon
----------------------------------------
Robert A. Brannon, Vice President
Attest: /s/Robert Brannon
-------------------------------------
Its: Secretary
---------------------------------------
The undersigned hereby guaranties the collection by Purchaser of all
amounts due from Seller pursuant to the terms hereof.
____________________________________________
Michael J. Mona, Jr.
-40-
<PAGE>
AGREEMENT TO PURCHASE HOTEL
by and between
ST. LOUIS MANOR, INC.
and
ESA PROPERTIES, INC.
JUNE 25, 1996
<PAGE>
AGREEMENT TO PURCHASE HOTEL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I DEFINITIONS AND REFERENCES................................. 1
1.1 Definitions........................................ 1
-----------
1.2 References......................................... 6
----------
II SALE AND PURCHASE...........................................7
2.1 Sale and Purchase...................................7
-----------------
III PURCHASE PRICE..............................................7
3.1 Purchase Price; Allocation Thereof..................7
----------------------------------
3.2 Deposit.............................................7
-------
3.3 No Assumption of Seller's Obligations...............7
-------------------------------------
IV INSPECTION PERIOD...........................................9
4.1 Inspection Period...................................9
-----------------
4.2 Submittals to Purchaser.............................9
-----------------------
4.3 Review and Inspection..............................10
---------------------
4.4 Purchaser's Acceptance or Rejection................10
-----------------------------------
V REPRESENTATIONS AND WARRANTIES.............................11
5.1 Representations and Warranties of Seller...........11
----------------------------------------
5.2 Representations and Warranties of Purchaser........19
-------------------------------------------
5.3 Duration of Representations and Warranties.........20
-------------------------------------------
VI CLOSING MATTERS............................................20
6.1 Closing............................................20
-------
6.2 Manner of Closing..................................20
-----------------
6.3 Survey, Title Commitment and Searches..............20
-------------------------------------
VII CLOSING DELIVERIES.........................................23
7.1 Seller's Deliveries................................23
-------------------
7.2 Purchaser's Deliveries.............................24
----------------------
7.3 Concurrent Transactions............................24
-----------------------
7.4 Further Assurances.................................24
------------------
7.5 Possession.........................................24
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
VIII ADJUSTMENTS AND PRORATIONS.................................24
8.1 Adjustments and Prorations.........................24
--------------------------
8.2 Receivables........................................26
-----------
8.3 Proration Schedule.................................26
------------------
IX CONDITIONS TO SELLER'S OBLIGATIONS.........................27
9.1 Conditions.........................................27
----------
9.2 Failure of Conditions..............................28
---------------------
X CONDITIONS TO PURCHASER'S OBLIGATIONS......................28
10.1 Conditions.........................................28
----------
10.2 Failure of Conditions..............................29
---------------------
XI ACTIONS AND OPERATIONS PENDING CLOSING.....................30
11.1 Actions and Operations Pending Closing.............30
--------------------------------------
XII CASUALTIES AND TAKINGS.....................................31
12.1 Casualties.........................................31
----------
12.2 Takings............................................32
-------
XIII EMPLOYEES..................................................32
13.1 Employees, Compensation and Indemnification........32
-------------------------------------------
XIV INDEMNITIES................................................32
14.1 Seller's Indemnity.................................32
------------------
14.2 Purchaser's Indemnity..............................33
---------------------
14.3 Notice of Claims...................................33
----------------
XV SECURITIES LAW MATTERS.....................................33
15.1 Disposition of Shares..............................34
---------------------
15.2 Acknowledgment of Restrictions.....................34
------------------------------
15.3 Evidence of Compliance.............................34
----------------------
15.4 Legend.............................................34
------
XVI NOTICES....................................................35
16.1 Notices............................................35
-------
XVII ADDITIONAL COVENANTS.......................................36
17.1 Additional Covenants...............................36
--------------------
</TABLE>
<PAGE>
Exhibit A: Land
Exhibit B: Excluded Assets
Exhibit C: Permitted Exceptions
Exhibit D: Submitted Financial Statements
Exhibit E: Allocation of Purchase Price
Exhibit F: Permits
Exhibit G: Hotel Contracts and Commissions
Exhibit H: Employee and Employment Arrangements
Exhibit I: Bookings
Exhibit J: Space Leases and Commissions
Exhibit J-1: Spaces Lessee Estoppel Letter
Exhibit K: Notices of Violations
Exhibit L: Pending or Threatened Litigation
Exhibit M: Documents
Exhibit N: Impositions
Exhibit O: Hotel Names
Exhibit P: Employee Benefit Plans
Exhibit Q: FIRPTA Certificate
Exhibit R: Non-Compete Agreement
Exhibit S: Note
Exhibit T: Escrow Agreement
Exhibit U: Environmental Matters
<PAGE>
AGREEMENT TO PURCHASE HOTEL
---------------------------
THIS AGREEMENT is made this 25th day of June, 1996, by and between St.
Louis Manor, Inc., a Nevada corporation ("Seller"), and ESA Properties, Inc., a
Delaware corporation ("Purchaser").
R E C I T A L S:
A. Seller is the fee owner of that certain parcel of land (and the
improvements and buildings located thereon) legally described in Exhibit A and
commonly referred to as the St. Louis Manor, 2000 Paradise Road, Las Vegas,
Nevada (the "Hotel") and the owner of the Fixtures and Tangible Personal
Property, Operating Equipment, Consumables, and Miscellaneous Hotel Assets (all
as hereinafter defined).
B. The Hotel's facilities include guest and public facilities consisting
of 125 rooms, administrative offices, and service areas.
C. Seller desires to sell, and Purchaser desires to purchase, the
Property upon and subject to the terms and conditions hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, agreements, covenants and conditions
herein contained, and other good and valuable consideration, Seller and
Purchaser agree as follows:
ARTICLE
DEFINITIONS AND REFERENCES
1.1 Definitions. As used herein, the following terms shall have the
-----------
respective meanings indicated below:
Affiliate: With respect to a specific entity, any natural person or any
---------
firm, corporation, partnership, association, trust or other entity which,
directly or indirectly, controls, or is under common control with, the subject
entity, and with respect to any specific entity or person, any firm,
corporation, partnership, association, trust or other entity which is controlled
by the subject entity or person. For purposes hereof, the term "control" shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of any such entity or
<PAGE>
the power to veto major policy decision of any such entity, whether through the
ownership of voting securities, by contract, or otherwise.
Agreement: This Agreement to Purchase Hotel, including the Exhibits.
---------
Bookings: Contracts for the use or occupancy of guest rooms of the Hotel.
--------
Closing: As defined in Section 6.1.
-------
Compensation: The direct salaries and wages paid to, or accrued for the
------------
benefit of, any Employee, incentive compensation, vacation pay, severance pay,
employer's contributions under F.I.C.A., unemployment compensation, workmen's
compensation, or other employment taxes, and payments under Employee Benefit
Plans (as hereinafter defined).
Consumables: All food and beverages (alcoholic, to the extent transferable
-----------
under applicable law, and non-alcoholic); engineering, maintenance and
housekeeping supplies, including soap, cleaning materials and matches;
stationery and printing; and other supplies of all kinds, in each case whether
partially used, unused, or held in reserve storage for future use in connection
with the maintenance and operation of the Hotel, which are on hand (which shall
include off-site storage) on the date hereof, subject to such depletion and
restocking as shall occur and be made in the normal course of business but in
accordance with present standards, excluding, however, (i) Operating Equipment
and (ii) all items of personal property owned by Space Lessees, guests,
employees, or persons (other than Seller or any Affiliate of Seller, unless
denominated as an Excluded Asset hereunder) furnishing food or services to the
Hotel.
Cut-off Time: 12:01 A.M. on the Closing Date.
------------
Department: Nevada Department of Revenue.
----------
Deposit: As defined in Section 3.2.
-------
Documents: Reproducible copies of all plans, specifications, drawings,
---------
blueprints, surveys, environmental reports and other similar documents which
Seller has in its possession, or has a right to, as the same relate to the Real
Property, including, but not limited to those relating to any prior or ongoing
construction or rehabilitation of the Real Property.
Employee(s): All persons employed by Seller pursuant to Employment
-----------
Arrangements.
Employee Benefit Plans: All employee benefit plans, as that term is
----------------------
defined in Section 3(2)(a) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including "multi-employer pension plans" as defined
in Section 3(37) of ERISA, and each other employee benefit plan or program
(including welfare benefit plans as defined in Section 3(1) of ERISA) to
-2-
<PAGE>
which Seller contributes on behalf of any of the Employees.
Employment Arrangement(s): Those agreements, oral or written, with all or
-------------------------
any of the executives, staff and employees of Seller for work in or in
connection with the Hotel including, but not limited to, individual employment
agreements, union agreements, employee handbooks, group health insurance plans,
life insurance plans and disability insurance plans (other than Employee Benefit
Plans).
Environmental Laws: As defined in Section 5.1(u).
------------------
Environmental Study: As defined in Section 4.3.
-------------------
Excluded Assets: The following: (i) those assets, if any, listed on
---------------
Exhibit B hereto owned and to be retained by Seller; (ii) receivables; and (iii)
except as provided to the contrary in Section 17.1(e) hereof, all records, files
and proprietary operating manuals in the Hotel.
Excluded Permits: Permits and licenses required for the ownership and
----------------
operation of the Hotel which, under applicable law, are nontransferable.
Fixtures and Tangible Personal Property: All fixtures, furniture,
---------------------------------------
furnishings, fittings, equipment, cars, trucks, machinery, apparatus, signage,
appliances, draperies, carpeting, and other articles of personal property now
located on the Real Property or held in storage for future use at the Hotel and
used or usable in connection with any part of the Hotel, subject to such
depletions, resupplies, substitutions and replacements as shall occur and be
made in the normal course of business but in accordance with present standards
excluding, however: (i) Consumables; (ii) Operating Equipment; (iii) equipment
and property leased pursuant to Hotel Contracts; (iv) property owned by Space
Lessees, guests, employees or other persons (other than Seller or any affiliate
of Seller, unless denominated as an Excluded Asset hereunder) furnishing goods
or services to the Hotel; and (v) Improvements.
FIRPTA Certificate: As defined in Section 17.1(l).
------------------
Hazardous Material: As defined in Section 5.1(u).
------------------
Hotel: The hotel referred to in the Recitals.
-----
Hotel Contracts: All management, service, maintenance, material purchase
---------------
orders, leases and other contracts or agreements, including equipment leases
capitalized for accounting purposes, and any amendments thereto, with respect to
the ownership, maintenance, operation, provisioning, or equipping of the Hotel,
or any of the Property, as well as written warranties and guaranties relating
thereto, if any, including, but not limited to, those relating to heating and
cooling equipment and/or mechanical equipment, but exclusive, however, of (i)
insurance policies, (ii) the Bookings, (iii) the
-3-
<PAGE>
Space Leases, (iv) the Employment Arrangements, and (v) the Employee Benefit
Plans.
Hotel Names: All names or other identifications used in connection with
-----------
the operation of Hotel.
Impositions: All taxes and other governmental charges of any kind
-----------
whatsoever that may at any time be assessed or levied against or with respect to
the Property, or any part thereof or any interest therein, including, without
limitation, all general and special real estate taxes and assessments or taxes
assessed specifically in whole or in part in substitution of general real estate
taxes or assessments; any taxes levied upon or with respect to the revenue,
income or profits of Seller from all or any part of the Property which, if not
paid, will become a lien on all or any part of the Property, or a lien or charge
on the rents, revenues or receipts therefrom; all assessed ad valorem taxes; all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep of the Property and all assessments and other charges made by any
governmental agency for improvements that may be secured by a lien on the
Property.
Improvements: The buildings, structures (surface and sub-surface) and
------------
other improvements, including such fixtures as shall constitute real property,
located on the Land.
Inspection Period: As defined in Section 4.1.
-----------------
Land: The parcel of real estate described in Exhibit A hereto, together
----
with all rights, title and interest, if any, of Seller in and to all land lying
in any street, alley, road or avenue, open or proposed, in front of or adjoining
said Land, to the centerline thereof, and all right, title and interest of
Seller in and to any award made or to be made in lieu thereof and in and to any
unpaid award for the damage to said Land by reason of change of grade of any
street.
Legal Requirements: All laws, statutes, codes, acts, ordinances, orders,
------------------
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments and governmental
authorities having jurisdiction of the Hotel (including, for purposes hereof,
any local Board of Fire Underwriters), and the operation thereof.
Material Bookings: All Bookings for meetings and banquet facilities and,
-----------------
with respect to guest rooms, any contract for seven (7) or more room nights.
Material Contracts: All Hotel Contracts which cannot be cancelled by 30
------------------
days' or less notice without penalty or premium payment.
Miscellaneous Hotel Assets: All contract rights, leases, concessions,
--------------------------
trademarks, logos, copyrights, assignable warranties and other items of
intangible personal property relating to the ownership or operation of Hotel,
but such term shall not include (i) Bookings; (ii) Hotel Contracts; (iii) Space
Leases; (iv) Permits; (v) cash or other funds, whether in petty cash or house
banks, or on
-4-
<PAGE>
deposit in bank accounts or in transit for deposit; (vi) books and
records (except as provided in Section 17.1(e); (vii) refunds, rebates, or other
claims, or any interest thereon, for periods or events occurring prior to the
Cut-off Time; (viii) utility and similar deposits; (ix) prepaid insurance or
other prepaid items; or (x) prepaid license and permit fees; except to the
extent that Seller receives a credit at Closing for any such item or matter.
Non-Compete Agreements: The Non-Compete Agreements delivered by Seller to
----------------------
Purchaser pursuant to the terms of Section 7.1 hereof.
Obligations: All payments required to be made and all representations,
-----------
warranties, covenants, agreements and commitments required to be performed under
the provisions of this Agreement by Seller or Purchaser, as applicable.
Operating Equipment: All china, glassware, linens, silverware and
-------------------
uniforms, whether in use or held in reserve storage for future use, in
connection with the operation of the Hotel, which are on hand (including off-
site storage) on the date hereof, subject to such depletion and restocking as
shall be made in the normal course of business but in accordance with present
standards.
Parent: Extended Stay America, Inc., a Delaware corporation.
------
Permits: All licenses, franchises and permits, certificates of occupancy,
-------
authorizations and approvals used in or relating to the ownership, occupancy or
operation of any part of the Hotel.
Permitted Exceptions: Any liens, encumbrances, restrictions, exceptions
--------------------
and other matters specified in Exhibit C to which title to the Property may be
subject on the Closing Date.
Personal Property: All of the Property other than the Real Property.
-----------------
Property: (i) The Real Property; (ii) the Fixtures and Tangible Personal
--------
Property; (iii) the Operating Equipment; (iv) the Consumables; (v) the
transferable right, title and interest of Seller in, to and under the Hotel
Contracts and Space Leases; (vi) the Bookings; (vii) the Permits (other than
Excluded Permits); (viii) the Hotel Names; (ix) the Documents; and (x) all other
Miscellaneous Hotel Assets, provided, however, that Property shall not include
the Excluded Assets.
Proratable Compensation: Compensation exclusive of severance pay and
-----------------------
Employee Benefit Plans.
Purchase Price: As defined in Section 3.1.
--------------
Real Property: The Land together with the Improvements located on the
-------------
Land.
Searches: As defined in Section 6.3(c).
--------
-5-
<PAGE>
Section 1445: As defined in Section 17.1(l).
------------
Space Leases: All leases, licenses, concessions and other occupancy
------------
agreements, and any amendments thereto, whether or not of record, for the use or
occupancy of any portion of the Real Property excluding, however, Bookings.
Space Lessee: Any person or entity entitled to occupancy of any portion of
------------
the Real Property under a Space Lease.
Submittals: As defined in Section 4.2.
----------
Submitted Financial Statements: Those financial statements of the Hotel
------------------------------
identified in Exhibit D hereto.
Survey: The survey for the Property prepared in accordance with Section
------
6.3(a).
Title Commitment: The commitment for title insurance issued in accordance
----------------
with Section 6.3(b).
Title Company: United Title of Nevada.
-------------
Title Defect: A lien, claim, charge, security interest or encumbrance
------------
other than a Permitted Exception.
Title Documents: As defined in Section 6.3.
---------------
Title Papers: As defined in Section 6.3(b).
------------
Title Policy: As defined in Section 10.1(g).
------------
UCC: The Uniform Commercial Code in effect in Nevada.
---
Violation: Any condition with respect to the Property which constitutes a
---------
violation of any Legal Requirements.
1.2 References. Except as otherwise specifically indicated, all
----------
references to Section and Subsection numbers refer to Sections and Subsections
of this Agreement, and all references to Exhibits refer to the Exhibits attached
hereto. The words "hereby," "hereof," "herein," "hereto," "hereunder,"
"hereinafter," and words of similar import refer to this Agreement as a whole
and not to any particular Section or Subsection hereof. The word "hereafter"
shall mean after, and the term "heretofore" shall mean before, the date of this
Agreement. Captions used herein are for convenience only and shall not be used
to construe the meaning of any part of this Agreement.
-6-
<PAGE>
ARTICLE II
SALE AND PURCHASE
2.1 Sale and Purchase. Seller hereby agrees to sell (or to cause to be
-----------------
sold) to Purchaser, and Purchaser hereby agrees to purchase from Seller, the
Property on the terms and subject to the conditions of this Agreement.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price; Allocation Thereof. The purchase price ("Purchase
----------------------------------
Price") for the Property and the Non-Compete Agreements shall be Five Million
Four Hundred Thousand Dollars ($5,400,000.00) payable by delivery of a Note from
Purchaser to Seller in the form attached hereto as Exhibit S.
The Purchase Price shall be allocated in accordance with the values
reasonably attributable to the components of the Property and the Non-Compete
Agreements as set forth on Exhibit E hereto.
3.2 Deposit. Concurrently herewith, Purchaser is depositing the sum of
-------
$50,000.00 (the "Deposit") with Title Company to secure performance of
Purchaser's obligations hereunder. The Deposit and interest earned thereon
shall be held in an interest bearing account until the Closing Date (except as
otherwise provided herein) at which time the Deposit shall be paid as a credit
against the Purchase Price. Except as hereinafter provided, if the transaction
contemplated hereby does not close because of a default by Purchaser hereunder,
the parties agree that the Deposit and interest earned thereon shall be
delivered to Seller as Seller's sole and exclusive liquidated damages, which
amount the parties agree is a reasonable sum considering all of the
circumstances existing on the date of this Agreement, including, without
limitation, the relationship of such sum to the amount of harm to Seller that
reasonably could be anticipated, Seller's anticipated use of the proceeds of
sale, and the fact that proof of actual damages would be impossible to
determine. Notwithstanding the foregoing, if the transaction contemplated
hereby does not close and Purchaser shall not have defaulted hereunder, the
Deposit and all interest earned thereon shall be returned promptly to Purchaser
and Purchaser shall be entitled to pursue against Seller any and all remedies
available to Purchaser, at law or in equity.
3.3 No Assumption of Seller's Obligations. Except as specifically
-------------------------------------
provided herein to the contrary, Purchaser shall not assume, or become obligated
with respect to, any obligation of Seller, including, but not limited to, the
following:
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(a) Obligations of Seller now existing or which may arise prior to
the Cut-off Time with respect to any accounts payable or other payables;
(b) Obligations prior to the Closing Date of any term, covenant or
provision of any Employee Benefit Plan, Employment Contract, Hotel Contract or
Space Lease;
(c) Obligations of Seller now existing or which hereafter exist by
reason of or in connection with any alleged misfeasance or malfeasance by Seller
in the conduct of its business, and with respect to any tort liability;
(d) Obligations to Employees with respect to any Compensation (or
pursuant to any Employment Contract or Employee Benefit Plan); and
(e) Obligations of Seller incurred in connection with or relating to
the transfer of the Property pursuant to this Agreement, including without
limitation, any Federal, state or local income, sales, transfer or other tax
incurred by reason of said transfer, all of which shall be the sole
responsibility of Seller.
3.4 Payment of the Note. Purchaser shall satisfy its obligations under
--------------------
the Note by delivering shares ("Shares") of common stock, par value $.01 per
share, of Parent, and/or cash to Seller, as the case may be, on or before the
Note's maturity date specified in the Note, subject to the following:
(a) Purchaser and Seller acknowledge that Purchaser shall deliver
Shares to Seller only if such Shares are the subject of Approved Sales (defined
below). The net proceeds realized by Seller from the sale of the Shares shall
be deducted from the balance of the Note. Seller agrees that it shall sell such
Shares only in bona fide private placements which are approved by Purchaser in
its absolute discretion to a person or persons not affiliated with, related to,
or associated with Seller ("Approved Sales"). Purchaser shall deliver to Seller
that number of Shares equal to the number of Shares which are sold pursuant to
Approved Sales and such delivery shall be accomplished so as to allow the
Approved Sales to be consummated on a timely basis.
(b) If the net proceeds actually received from Approved Sales are
less than the amount due under the Note, Purchaser shall also deliver cash to
Seller prior to the maturity date of the Note having a value equal to the
difference between the amount due under the Note and the net proceeds received
from Approved Sales. In the event no Approved Sales occur prior to the maturity
date of the Note, the Note shall be payable in cash on or before its stated
maturity date. Seller shall use the net proceeds received from Approved Sales
first to satisfy any mortgages or deeds of trust created or suffered by Seller
which are a lien on the Property. Notwithstanding the above, if net proceeds
received from Approved Sales are insufficient to satisfy any mortgages or deeds
of trust created or suffered by Seller which are a lien on the Property,
Purchaser shall set off against amounts due under the Note an amount equal to
such insufficiency and Purchaser shall apply such amount to satisfy and release
such liens.
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<PAGE>
(c) The Note shall be paid pursuant to an escrow agreement to be
entered into between Purchaser, Seller and an escrow agent mutually agreed upon
by Purchaser and Seller, the form of which is attached hereto as Exhibit T. All
costs of such escrow shall be borne by Purchaser.
(d) Purchaser shall indemnify, defend, and hold Seller harmless
against and with respect to all losses, damages, liabilities, costs, and
expenses to which Seller may become subject under the Securities Act of 1933, as
amended, or otherwise in connection with or arising out of Approved Sales.
ARTICLE IV
INSPECTION PERIOD
4.1 Inspection Period. The "Inspection Period" shall be the period from
-----------------
the date hereof to 11:59 P.M. on June 30, 1996 (provided that such period shall
be extended on a day-for-day basis in the event Purchaser does not receive the
survey referenced in Section 6.3(a) hereof on or before June 23, 1996).
4.2 Submittals to Purchaser. Seller, at its expense, shall deliver (if
-----------------------
such are within Seller's possession or are reasonably available to Seller) to
Purchaser on or before June 26, 1996, true and correct copies of the following:
(a) the Permits, Hotel Contracts, Employment Arrangements, Employee
Benefit Plans, a summary of the amounts, dates, and credit information of
Material Bookings (whether for periods before or after the Closing Date), Space
Leases and notices of Violations (if any);
(b) a descriptive summary of the manner in which all Bookings are
made, whether oral or written, with or without deposits or firm or contingent
commitments for reservations, along with a copy of the written agreements or
confirmation letters used in connection with the Bookings;
(c) a descriptive summary of all pending or threatened litigation
listed on Exhibit L;
(d) the most recent real estate and personal property tax statements
for the Property;
(e) all Documents, including, but not limited to, the plans and
specifications;
(f) the most current inventory of all Fixtures and Tangible Personal
Property, Operating Equipment and Consumables;
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(g) all other documents or instruments of record or otherwise
relating to the Property available to Seller;
(h) copies of all financial reports prepared by the accountant for
Seller for the fiscal year of Seller for the three (3) years preceding the date
hereof ("Submitted Financial Statements"); and
(i) information reflecting the insurance loss history of the Property
for the period from January 1, 1994 to the present and copies of all insurance
policies relating to the Property.
4.3 Review and Inspection. During the Inspection Period, Purchaser shall
---------------------
review the Submittals and shall have the right to enter upon the Real Property
to inspect the Property and to conduct tests and investigations at its sole cost
and expense, except as provided herein. Seller shall cooperate with Purchaser,
or its agents, in arranging such inspections. Without limitation of the
foregoing, Purchaser or Purchaser's accountants or both may review the Submitted
Financial Statements and, in connection therewith, Seller shall supply such
documentation as Purchaser or Purchaser's accountants may reasonably request to
facilitate such review. Purchaser shall conduct all such inspections and reviews
in confidence and so as not to interfere unreasonably with the operation of the
Hotel. During the Inspection Period, Purchaser may order an environmental
report, at Purchaser's sole cost and expense, to be conducted by an
environmental engineering firm selected by Purchaser (the "Environmental
Study").
4.4 Purchaser's Acceptance or Rejection. If, in its sole and absolute
-----------------------------------
discretion, Purchaser accepts the condition of the Property and the Submittals,
it shall give Seller written notice of such acceptance before expiration of the
Inspection Period. If Purchaser shall give Seller a notice of disapproval
before expiration of the Inspection Period or fails to give such notice, then,
without the necessity of further documentation, this Agreement shall be deemed
terminated and the Deposit and all interest earned thereon shall be returned to
Purchaser. Purchaser shall pay to Seller the sum of $100.00 as fixed and
liquidated compensation for such termination, and neither party shall have any
further obligation or liability to the other party hereunder. The parties
hereto acknowledge that Purchaser has incurred substantial costs in connection
with the negotiation and execution of this Agreement, will incur additional
substantial costs in conducting the inspections contemplated by Section 4.3 and
would not have entered into this Agreement without the availability of the
Inspection Period. Therefore, the parties agree that adequate consideration
exists to support the obligations of the parties hereunder, even before
expiration of the Inspection Period. Notwithstanding the above, if the
Inspection Period is extended due to Purchaser's receipt of the survey after
June 23, 1996, Purchaser may terminate this Agreement pursuant to the terms of
this Section 4.4 after June 30, 1996, only due to matters raised on such survey.
4.5 Extension of Inspection Period. Purchaser shall have the option to
-------------------------------
extend the Inspection Period to July 15, 1996, subject to the following
provisions:
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(a) Purchaser shall notify Seller on or before June 30, 1996 of
Purchaser's exercise of its option to extend the Inspection Period; and
(b) Purchaser shall deliver to Seller $25,000.00 which shall be
earned by Seller but treated as an additional Deposit provided, however, that
such additional Deposit shall not be subject to return to Purchaser pursuant to
the terms of Section 4.4 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Seller. Seller hereby represents
-----------------------------------------
and warrants the following to Purchaser:
(a) Due Organization, etc. Seller is a Nevada corporation duly formed
---------------------
and validly existing in good standing under the laws of its state of formation
and has full power and authority (i) to own or lease its properties and to carry
on its business as it is now being conducted, (ii) to enter into this Agreement
and to sell, convey, transfer, assign, and deliver the Property to Purchaser as
provided herein, and (iii) to carry out the other transactions and agreements
contemplated hereby. This Agreement has been duly authorized by all requisite
action on the part of Seller. The execution and delivery of this Agreement, and
the consummation of the transactions contemplated hereby (other than the
issuance and sale of Shares pursuant to the Note), except as otherwise provided
herein, do not require the consent or approval of any governmental authority,
nor shall such execution and delivery result in a breach or Violation of any
Legal Requirement, or constitute a default (or an event which with notice and
passage of time or both will constitute a default) under any contract or
agreement to which Seller is a party or by which it or the Property is bound.
(b) Intentionally Omitted.
(c) Title to Personal Property. Seller has good and marketable title
--------------------------
to the Personal Property, subject only to the Permitted Exceptions. All items
of Personal Property have been fully paid for to the extent that normal business
practice permits, except those items which are subject to installment payments
and with respect to which there are no installments due which are delinquent.
(d) Permits. To Seller's knowledge, (i) Exhibit F identifies all
-------
existing Permits and is complete and correct in all material respects; (ii) such
Permits constitute all of the Permits currently necessary for the ownership and
operation of the Hotel; (iii) no default has occurred in the due observance or
condition of any Permit which has not been heretofore corrected; and (iv) no
Space Lessee has received any notice from any source to the effect that there is
lacking any Permit needed in connection with the operation of the Hotel or any
other operation connected therewith.
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<PAGE>
(e) Hotel Contracts. Exhibit G identifies all material Hotel
---------------
Contracts and the information noted therein is complete and correct in all
material respects. Except as disclosed in Exhibit G, there is no default under
any Hotel Contract. Seller has provided (or will provide during the Inspection
Period) true and correct copies of all Hotel Contracts to Purchaser. Each Hotel
Contract (other than the Hotel Contracts designated as Material Contracts on
Exhibit G) may be cancelled upon 30 days' or less notice without penalty or
premium payment.
(f) Hotel Names. Exhibit O hereto identifies all Hotel Names and is
-----------
complete and correct in all respects. Seller has not received any notice that
the use of any thereof infringes on the rights of a third party.
(g) Space Leases. Exhibit J identifies all Space Leases and is
------------
complete and correct in all material respects. Except as disclosed in Exhibit
J, there is no default, under any Space Lease. Seller has given (or will give,
during the Inspection Period) to Purchaser true and correct copies of all Space
Leases. Seller owns all right, title and interest of the lessor under each
Space Lease.
(h) Commissions, etc. Except as may be disclosed on Exhibits G or J
----------------
and other than in the ordinary course of business in connection with Bookings,
there are no commissions or referral fees relating to the Hotel currently
outstanding, nor will there be any such commissions or referral fees
outstanding, on or before the Closing Date. Seller has not entered into any
agreements with any referral organization or booking agent which contain any
obligations that extend beyond the Closing Date.
(i) Impositions.
-----------
(i) Except as described on Exhibit N hereto, Seller
has timely filed all returns and reports for sales, use and
property taxes required to be filed by it with respect to the
operation of the Property and has paid in full or made adequate
provision by the establishment of reserves for Impositions which
have become due with respect to the operation of the Property.
There is no sales, use or property tax deficiency proposed or
threatened against Seller with respect to the operation of the
Property. There are no tax liens upon any property or assets of
Seller. Seller has made all payments of sales, use and property
taxes when due in amounts sufficient to avoid the imposition of
any penalty with respect to the Property.
(ii) Impositions which Seller was required by law to withhold
or to collect with respect to the Property have been duly withheld and
collected, and have been paid over to the proper governmental entity or are
being held by Seller for such payment, and all such withholdings and
collections and all other payments due in connection therewith as of the
date of the Submitted Financial Statements are duly reflected on the
Submitted Financial Statements.
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<PAGE>
(iii) Seller is not currently being audited by, and has not
received any notice of intention to audit from, any federal, state or local
sales, use or property taxing authority.
(j) Fixtures, Tangible Personal Property, etc. Each guest room
-----------------------------------------
contains furniture and furnishings consistent with Seller's historical
furnishing of such guest rooms. The quantities of Fixtures and Tangible
Personal Property, Consumables and Operating Equipment in the Hotel, including
physical reserves, are sufficient for the proper and efficient operation of the
Hotel in accordance with the standards of operation heretofore maintained by
Seller. Seller shall continue to maintain the same at a level consistent with
the average maintenance for the 12 months preceding the date hereof until the
Cut-off Time.
(k) Submitted Financial Statements. The Submitted Financial
------------------------------
Statements for the Hotel (which shall include the income of restaurants, bars,
retail rental space and garage portions of the Hotel, if any) fairly present the
results of operation of the Hotel for the periods indicated, and, except as set
forth as Exhibit D, were prepared in accordance with generally accepted
accounting principles, on a consistent basis, and there has been no material
adverse change in the results of the operations of the Hotel since the statement
dated for the period ended December 31, 1995.
(l) Bookings. Exhibit I identifies all Bookings for periods from and
--------
after the date hereof.
(m) Pending Litigation. Except as described in Exhibit L, there are
------------------
no actions, suits, or proceedings, pending or to Seller's knowledge threatened
against Seller or affecting any of Seller's rights, in each case, with respect
to the Property, at law or in equity, or before any federal, state, municipal,
or other governmental agency or instrumentality, which might result in any
order, injunction, decree or judgment having a material adverse effect on the
Hotel or the Property, nor is Seller aware of any facts which to its knowledge
might result in any action, suit or proceedings. Except as noted in Exhibit K,
to Seller's knowledge the Hotel complies with all Legal Requirements. Except as
noted in Exhibit K, Seller has not received any notice of any Violation of a
Legal Requirement which has not been heretofore corrected. Prior to the Closing
Date, any uncured Violations listed in Exhibit K and any other Violations that
arise shall be cured by Seller at its sole expense.
(n) Condemnation. To the knowledge of Seller, there are no pending,
------------
or, threatened, condemnation proceedings or condemnation actions against the
Real Property or any of the rights-of-way located adjacent thereto.
(o) Intentionally Omitted.
(p) Assessments. To Seller's knowledge, no governmental assessment
-----------
for sewer, sidewalk, water, paving, electrical, power or other improvements is
pending or threatened, except as may be set forth on Exhibit C.
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<PAGE>
(q) Labor Disputes. During the three (3) years preceding the date
--------------
hereof, Seller has not experienced any labor disputes or labor trouble other
than routine grievances or organizational efforts, none of which have had a
material adverse effect on the operations of the Property.
(r) Employees. Exhibit H is a complete list of all Employees with
---------
their salaries, position and terms of employment; and (i) except as set forth on
Exhibit H, Seller is not a party to any Employment Arrangement and no union is
presently serving as collective bargaining agent for any Employees; (ii) to the
best of Seller's knowledge, no union presently is conducting or planning to
conduct an organizational campaign for any Employees; and (iii) with the
exception of the Employee Benefit Plans listed on Exhibit P, there is no
pension, profit-sharing, bonus or other employee benefit plan relating to
current or past Employees.
(s) Utilities. All utility equipment and facilities required for the
---------
operation and use of the Hotel are located on the Property and all agreements
for providing utilities are with direct providers.
(t) Material Changes. There are no facts or circumstances having
----------------
specific application to the Hotel (other than general economic or industry
conditions) not disclosed to Purchaser of which Seller has knowledge, which have
or could have a material adverse effect upon the Hotel. Seller agrees to notify
Purchaser immediately of such facts or circumstances if it becomes aware of the
same prior to the Closing Date.
(u) Environmental Matters.
---------------------
(i) Seller has not transported, stored, treated, or
disposed of, nor has it allowed or arranged for any third parties
to transport, store, handle, treat, or dispose (as hereinafter
defined) of Hazardous Substances or other waste to or at any
location other than a site lawfully permitted to receive such
Hazardous Substances or other waste for such purposes, nor has it
performed, arranged for, or allowed by any method or procedure such
transportation, storage, treatment, or disposal in contravention of
any laws or regulations or in a manner giving rise to any liability
whatsoever. Seller has not stored, handled, treated, or disposed
of, nor allowed or arranged for any third parties to store, handle,
treat, or dispose of Hazardous Substances or other waste upon
property owned or leased by it, except as permitted by law. For
purposes of this Section 5.1(u), the term "Hazardous Substances"
shall include, without limitation, any material or substance that
is one or more of the following: (i) defined as a conventional,
hazardous, toxic, regulated or solid pollutant, contaminant,
substance or waste pursuant to any Environmental Law (as
hereinafter defined), (ii) petroleum, (iii) asbestos, (iv)
corrosive, toxic, flammable, explosive, reactive, mutagenic,
carcinogenic, infectious or radioactive, (v) materials mixed with,
containing or derived from any of the foregoing or (xvii) any
material
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<PAGE>
which is or becomes regulated by any Environmental Law which is
released (as hereinafter defined) at or from the Real Property or
which has migrated to or from the Real Property or is found on the
Real Property or any other site affected by such release at, to, on
or from the Real Property. The terms release(d), transport(ed),
store(d), treat(ed), handle(d), arrange(d), dispose(d) and disposal
shall have the meanings assigned by the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C.A. Section 9601
et seq. ("CERCLA") or the Resource Conservation and Recovery Act,
42 U.S.C.A. Section 6901 et seq. (42 U.S.C.A. Section 6903
("RCRA").
(ii) To Seller's knowledge, there has not occurred during
Seller's occupancy nor is there currently occurring, a release of
any Hazardous Substance to, from, on, into, or beneath the surface
of the Land.
(iii) The Seller has not shipped, transported, or
disposed of, nor has it allowed or arranged, by contract,
agreement, or otherwise, for any third parties to ship, transport,
or dispose of, any Hazardous Substance or other waste to or at a
site which, pursuant to CERCLA or any similar state law, (i) has
been placed on the National Priorities List or its state
equivalent, or (ii) the Environmental Protection Agency or the
relevant state agency has proposed or is proposing to place on the
National Priorities List or its state equivalent. Seller has not
received written notice, nor does it have knowledge of any facts
which could give rise to any written notice, that Seller is a
potentially responsible party for a federal or state environmental
cleanup site or for corrective action under CERCLA or any other
applicable law or regulation. Seller has not submitted nor was it
required to submit any notice pursuant to Section 103(c) of CERCLA,
or pursuant to any federal, state or local requirement for
notification of a release with respect to the Real Property. Seller
has not received any written request for information from any
federal, state or local governmental authority in connection with
any release. Seller has not been required to or has not undertaken
any response, investigation, monitoring, or remedial actions or
clean-up actions of any kind at the request of any federal, state,
or local governmental entity, or at the request of any other person
or entity.
(iv) Seller does not use, and has not used, any
Underground Storage Tanks, and there are not now nor to Seller's
knowledge have there ever been any Underground Storage Tanks on the
Land. For purposes of this Section 5.1(u)(iv), the term
"Underground Storage Tanks" shall have the meaning given it in the
Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et
seq.).
(v) There is no asbestos in or on the Real Property.
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<PAGE>
(vi) Seller has not received written notice of any violation,
noncompliance or breach of any environmental or worker safety laws or
regulations which require any work, repairs, construction, or capital
expenditures with respect to the assets or properties of Seller.
(vii) Exhibit U identifies: (i) all environmental audits,
assessments, or occupational health studies undertaken by Seller or its
respective agents or known to have been undertaken by or at the order or
request of governmental agencies; (ii) the results of any ground, water,
soil, air, or asbestos monitoring or investigation undertaken with respect
to the Real Property; (iii) all written communications between Seller and
any environmental agencies; and (iv) all citations issued under the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.).
(viii) Seller's Environmental Indemnity.
(a) Definitions. Notwithstanding anything
-----------
contained in this Agreement to the contrary, for purposes of
this Agreement the following terms shall have the following
meanings:
"Environmental Claim" means any written claim,
-------------------
demand, notice of violation, injunction or order for
personal injury, including sickness, disease or death,
tangible or intangible property damage, environmental
stigma, lost profits or other business losses, impaired
financial value, damage to the environment, nuisance,
pollution, contamination or reimbursement of cleanup costs
or other adverse effects on the environment, or for fines,
penalties or restrictions, arising or resulting from, based
on, caused by or related to the existence or the
continuation of the existence of Hazardous Substances made,
asserted or prosecuted by or on behalf of any third party.
Environmental Claim shall include, without limitation, any
costs or expenses incurred to investigate, contain, remove,
remedy, treat, or monitor any Hazardous Substances and any
media, including soil and groundwater, impacted by Hazardous
Substances, as required by any Environmental Law or by
regulatory enforcement officials acting under or pursuant to
any Environmental Law, or by federal or state courts, lost
profits, loss of use, diminution in value, liens against the
Real Property relating to Hazardous Substances and any
failure or defect in title to the Real Property occasioned
by the migration from or presence of Hazardous Substances or
Seller's failure to comply with any Environmental Law.
-16-
<PAGE>
"Environmental Law" means any federal, state, or
-----------------
local statute, ordinance, rule, regulation, order, consent
decree, judgment or common law doctrine, or interpretation
thereof, as amended, and provisions and conditions of
permits, licenses and other operating authorizations, as
amended, related to protection, remediation or restoration
of the environment, including natural resources, or
protection of human health, worker safety, industrial,
agricultural or silvicultural chemicals, pesticides,
insecticides, fungicides, rodenticides, fertilizers, toxic
substances, surface, subsurface or drinking water, food,
drugs, or cosmetics or related to cleanup, fines, orders,
injunctions, penalties, notification, contribution, cost
recovery, losses or injuries to person or property resulting
from contamination or pollution or hazards to human health
or welfare or the environment which are now or may hereafter
become in effect including, without limitation, CERCLA and
RCRA, (collectively, as amended and together with all
regulations promulgated thereunder, "Environmental Laws").
(b) Indemnification. Seller shall defend,
---------------
indemnify and hold harmless Purchaser, its nominees,
officers, directors, agents, employees, successors, lenders,
assigns, affiliates, subsidiaries, parent companies (if
any), shareholders, lenders, representatives and the
successors and assigns of all of the foregoing from and
against:
1. Environmental Claims; and
2. Fines and penalties imposed on Purchaser, its
successors, assigns, parents, subsidiaries, officers,
directors, shareholders, agents, employees, lenders and
representatives and the successors and assigns of all of the
foregoing as a result of a violation by Seller of any
Environmental Law arising from or related to any Hazardous
Substances; and/or
3. Any breach of any of representations and
warranties of Seller set out herein at Section 5.1(u)(i)
through 5.1(u)(vii).
(c) Discharge of Environmental Claims. In the
---------------------------------
event that Purchaser notifies Seller of any claim that may
be subject to an indemnification obligation under this
Section 5.1(u), Seller shall, within thirty (30) days from
the date of receipt of notice, acknowledge and assume the
liability asserted. During such thirty
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<PAGE>
(30) day period, Purchaser shall not take any action or
incur any expense with respect to the claim, except to the
extent that such action or expense is legally required or
reasonably necessary under the circumstances.
Seller shall have the right and obligation to
control, manage and direct all discussions, proceedings and
activities regarding the satisfaction or discharge of any
claim which is assumed by Seller or any liability or
obligation that such a claim seeks to impose on Seller.
Purchaser shall have the right, at its own
expense, to consult with Seller, through counsel or
otherwise, with respect to all meetings and proceedings with
adverse parties or governmental authorities regarding any
Environmental Claim and with respect to all activities
pertaining to that matter. Prior to initiating or
participating in any meeting or proceeding in which
decisions or discussions adverse to Purchaser may be made,
Seller shall consult with Purchaser. This right of
consultation shall not apply to confidential meetings or
documents in cases where Seller or Purchaser are disputing
or litigating claims against each other in a judicial or
administrative proceeding. Seller shall promptly notify
Purchaser in writing before Seller initiates or participates
in any meeting or proceeding in which decisions or
discussions adverse to Purchaser may be made, including
without limitation decisions or discussions concerning
matters not covered by this Agreement. Purchaser shall have
the right, but not the obligation, to participate in such
meetings or proceedings.
(d) Remedies. If Seller fails to perform its
--------
obligations under this Section 5.1(u), Purchaser may, at its
option (1) bring an action for injunction or specific
performance of this Section 5.1(u) or this Agreement, and in
such action, recover damages suffered by Purchaser as a
result of Seller's breach or delay in performing its
obligations, or (2) bring an action for damages for Seller's
breach of its obligations, or (3) bring an action for
response costs or other relief under federal or state
environmental laws or regulations, or (4) any combination of
the above. In the event that Purchaser prevails in such an
action, it shall be entitled to recover from Seller the
costs and expenses of bringing the action, including
reasonable attorneys' fees. No delay or omission in the
exercise of any right or remedy accruing to Purchaser upon
any breach by Seller
-18-
<PAGE>
under this Agreement shall impair any such right or remedy
or be construed as a waiver of such breach theretofore or
thereafter occurring. The waiver by Purchaser of any
condition or of any breach of any term, covenant or
condition contained in this Agreement shall not be deemed to
be a waiver of any other condition or of any subsequent
breach of the same or of any other term, covenant or
condition of this Agreement. All rights, powers, options or
remedies afforded to Purchaser either under this Section
5.1(u) or this Agreement or by law or by equity, shall be
cumulative and not alternative and the exercise of any
right, power, privilege or remedy shall not bar other
rights, powers, privileges or remedies.
(e) Survival. Seller's obligations under this
--------
Section 5.1(u) shall survive (i) the closing of the sale
that is the subject of this Agreement for a period of two
(2) years and (ii) the termination of this Agreement. All
claims for indemnification pursuant to this Section 5.1(u)
must be made within two (2) years from the Closing Date.
(v) Intentionally Omitted.
(w) Documents. Seller has made available to Purchaser all of the
---------
Documents; Seller knows of no other document or instrument relating to the
Hotel, or the ownership or operation thereof.
(x) Seller's Knowledge. For the purposes of this Section 5.1, the
------------------
phrases "to the best of Seller's knowledge," "to Seller's knowledge" and similar
phrases shall imply a reasonable inquiry by Seller of its employees (but shall
not require Seller to hire third party consultants).
(y) Third Party Property. Seller is not in possession of any property
--------------------
owned by third parties other than (i) property leased by Seller pursuant to
leases disclosed to Purchaser pursuant to this Agreement; (ii) baggage of
current guests which has been checked with or left in the care of Seller; and
(iii) contents in safe deposit boxes deposited by current guests.
(z) Investment Representations. Seller represents that it and its
--------------------------
shareholders have received a prospectus of Parent dated June 17, 1996.
(aa) Notices. No filing is required with any state or local taxing
-------
authority as a result of the bulk sale of Seller's business assets.
5.2 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants the following to Seller:
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(a) Authority. Purchaser has all requisite power and authority to
---------
execute and deliver this Agreement and to consummate the transactions
contemplated hereby pursuant to the terms and conditions hereof.
(b) No Conflict. The execution and delivery of this Agreement and the
-----------
consummation of the transactions contemplated hereby will not conflict with,
breach, result in a default under, or violate any commitment, document or
instrument to which Purchaser is a party or by which it is bound.
(c) Parent Shares. The Shares have been registered by the Parent
-------------
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "SEC"), a so-called "shelf" registration statement (the
"Registration Statement"), in accordance with the provisions of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "1933 Act"). Upon the issuance and delivery of the Shares to the Seller in
accordance with this Agreement, such shares will constitute legally and validly
authorized and issued, fully paid, and nonassessable shares of Common Stock. At
Closing, the Registration Statement shall have been declared effective under the
1933 Act and the Parent shall be in compliance with the undertakings contained
in the Registration Statement.
5.3 Duration of Representations and Warranties. All representations and
------------------------------------------
warranties contained in Sections 5.1 and 5.2 shall be deemed restated on and as
of the Closing Date.
ARTICLE VI
CLOSING MATTERS
6.1 Closing. The closing of the transaction contemplated hereby (the
-------
"Closing") shall take place at the offices of the Title Company on July 15, 1996
(the "Closing Date") unless Purchaser extended the Inspection Period pursuant to
Section 4.5 hereof, in which event the Closing Date shall be July 31, 1996, or
such other date as may be mutually agreed by the parties.
6.2 Manner of Closing. The transaction shall be closed with the
-----------------
concurrent delivery of the documents of title, transfer of interests, delivery
of the title policy described in Section 7.1(e) and the payment of the Purchase
Price.
6.3 Survey, Title Commitment and Searches.
-------------------------------------
(a) Survey. Purchaser intends to obtain a plat of survey ("Survey")
------
of the Property prepared by a surveyor licensed by the State of Nevada, in
conformity with Class A minimum detail requirements and the current standards
for Land Title Surveys of the American Title Association and American Congress
on Surveying and Mapping and such standards as are required
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by the Title Insurer as a condition to the removal of any survey exceptions from
the Title Commitment, certified to Purchaser, Parent, its lender, if any, and
the Title Insurer after the date hereof, showing, without limitation of the
foregoing requirements, the following information with respect to the Property:
(i) the legal description and boundaries thereof;
(ii) the location and street and common addresses of all
improvements situated thereon;
(iii) the location, course and recording numbers, if applicable,
of all water, gas, electric, sewer line and other easements, either visible
or recorded, and party walls;
(iv) public and private streets, roads, alleys and highways and
their common or official names;
(v) record and physical access to and from a public road or
way;
(vi) no encroachments thereon or by any Improvements located
thereon on adjacent property;
(vii) the amount of gross square feet and net square feet (that
is, after deducting the area of that portion of the Property, if any, lying
in the existing or proposed right-of-way of a public street or road)
contained in the Real Property;
(viii) building lines or other restrictions affecting the
Property; and
(ix) whether any portion of the Property is located in an area
designated as being subject to flood hazards or flood risks or wetlands by
any agency of the United States of America.
(b) Title Commitment. Seller shall deliver to Purchaser, on or before
----------------
June 23, 1996, a title commitment for an ALTA Owner's Insurance Policy issued by
the Title Company ("Title Commitment") showing title to the Real Property in the
Seller, subject only to the Permitted Exceptions, containing full extended
coverage over all general exceptions, a 3.1 zoning endorsement (amended to
include parking), location, survey and contiguity endorsements, an endorsement
that the real estate tax bills for the Property do not include taxes pertaining
to other real estate, and such other endorsements as may be reasonably requested
by Purchaser, and dated after the date hereof. Seller shall also deliver full
and legible copies of all documents ("Title Papers") referred to in the Title
Commitment.
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(c) Defects. If the Survey, Title Commitment, or UCC, judgment, and
-------
tax lien searches on the names of Seller (collectively, "Title Documents") shall
reflect any facts that would result in a Title Defect, Seller shall have thirty
(30) days from the expiration of the Inspection Period within which to cure or
remove the Title Defect. Seller shall be obligated to remove mortgages, deeds
of trust and other liens or encumbrances for the payment of money of a definite
and ascertainable amount, which the parties agree may be removed by the use of
the proceeds of sale at Closing as provided in Section 6.3(d) below. In the
alternative, Seller may make arrangements satisfactory to the Title Company for
the cure (including insurance over) or removal of record of any such Title
Defect. If any such Title Defect is not cured or otherwise provided for as
aforesaid on or prior to the thirtieth (30th) day, the Purchaser shall either:
(i) terminate this Agreement, in which event (hereinafter referred to as
"Election No. 1") the Deposit and all interest earned thereon shall be returned
to Purchaser and the parties shall have no further obligation or liability to
each other hereunder; or (ii) accept the Title Commitment, Survey, or Searches
as is, with the right, however, to deduct the amount of Title Defects
represented by liens or encumbrances for the payment of money of a definite or
ascertainable amount from the Purchase Price payable at Closing (hereinafter
referred to as "Election No. 2"). Title Defects which are acceptable as part of
Election No. 2 shall thereupon be deemed to be Permitted Exceptions and Exhibit
C shall be amended, if necessary, to include such additional Permitted
Exceptions. Election No. 2 shall be made by the Purchaser giving Seller written
notice thereof within five (5) days after notice of Seller's inability to cure
or remove the Title Defect and in the absence of notice of Election No. 2 within
such five (5) day period, Purchaser shall be deemed to have elected Election No.
1. In the event Purchaser elects Election No. 1 and a Title Defect was created
or consented to by Seller, Purchaser shall be paid by Seller the actual costs of
Purchaser's investigation not to exceed $25,000.00 in addition to recovery of
the Deposit.
(d) Removal of Liens, etc. If on the Closing Date there shall be any
---------------------
Title Defect created to secure the payment of money, then Seller shall either
(a) use a portion of the Purchase Price to satisfy the same, provided Seller
shall simultaneously either deliver to Purchaser at Closing instruments, in
recordable form, sufficient to satisfy such Title Defect of record, together
with the cost of recording or filing said instrument; or (b) in the alternative,
make arrangements with the Title Company, in advance of Closing, whereby Seller
will deposit with the Title Company sufficient monies, acceptable to the Title
Company to induce the Title Company to issue the Title Policy to Purchaser,
either free of any such Title Defect or with insurance which "insures over" such
Title Defect. Purchaser agrees to provide at Closing separate certified checks
as requested, to facilitate the satisfaction of any such Title Defects, if
request is made within a reasonable time prior to the Closing Date. The
existence of any Title Defects capable of satisfaction by the payment of money
shall not be deemed to be Title Defects for the purposes of cure periods, as
discussed supra in Section 6.3(c), if Seller shall comply with the foregoing
-----
requirements.
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ARTICLE VII
CLOSING DELIVERIES
7.1 Seller's Deliveries. At Closing, Seller shall deliver, or cause to be
-------------------
delivered to Purchaser, the following, each of which shall be in form and
substance reasonably acceptable to counsel for Purchaser and, in the case of
documents of transfer or conveyance, shall be accepted or consented to by all
parties required to make such transfer or conveyance effective:
(a) a recordable grant, bargain, and sale deed from Seller to
Purchaser subject only to the Permitted Exceptions;
(b) a Bill of Sale, with special covenants of title, transferring to
Purchaser all of Seller's right, title and interest in and to each and every
item of Fixtures and Tangible Personal Property, Documents, Consumables and
Operating Equipment to be transferred hereunder subject only to Permitted
Exceptions, and with respect to any vehicles included therein, such separate
forms of assignment as are required to be filed with any governmental agency to
effect such change in registration of ownership;
(c) all of the Bookings, Hotel Contracts, Space Leases, Permits and
other tangible Miscellaneous Hotel Assets, together with an Assignment conveying
and transferring to Purchaser all of Seller's right, title and interest in, to
and under the Bookings, Hotel Contracts, Space Leases, Permits (other than
Excluded Permits) and all other Miscellaneous Hotel Assets;
(d) the certificates referred to in Section 10.1(b) hereof;
(e) a FIRPTA Certificate;
(f) evidence of termination of the Employees;
(g) the opinion of Seller's counsel as provided by Section 10.1(c);
(h) certified copies of resolutions of the shareholders and directors
of Seller authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby;
(i) a certificate of the secretary of Seller, dated as of the Closing
Date, certifying the incumbency of the officer(s) of Seller executing the
documents delivered by Seller pursuant to this Agreement;
(j) a Non-Compete Agreement substantially in the form of Exhibit R
executed by Michael J. Mona, Jr., Rhonda H. Mona, and Bertha Elizabeth Mona; and
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(k) evidence, satisfactory to Purchaser, of the termination of all
management agreements and other management arrangements with respect to the
Hotel.
7.2 Purchaser's Deliveries. At the Closing, Purchaser shall cause to be
----------------------
delivered to Seller:
(a) the Note;
(b) the certificate referred to in Section 9.1(b) hereof;
(c) the opinion of Purchaser's counsel as provided by Section 9.1(c);
and
(d) the written undertaking of Purchaser as provided by Section
9.1(d).
7.3 Concurrent Transactions. All documents or other deliveries required
-----------------------
to be made by Purchaser or Seller at Closing, and all transactions required to
be consummated concurrently with Closing, shall be deemed to have been delivered
and to have been consummated simultaneously with all other transactions and all
other deliveries, and no delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until all deliveries
required by Purchaser, or its designee, and Seller shall have been made, and all
concurrent or other transactions shall have been consummated.
7.4 Further Assurances. Seller and Purchaser will, at the Closing, or at
------------------
any time or from time to time thereafter, upon request of either party, execute
such additional instruments, documents or certificates as either party deems
reasonably necessary in order to convey, assign and transfer the Property to
Purchaser, hereunder.
7.5 Possession. Possession of the Property shall be delivered at Closing.
----------
Subject to the provisions of Section 17.1(e), Excluded Assets (other than any
thereof under leases to be assumed by Purchaser) shall be removed from the Hotel
by Seller, at its expense, on or before the Closing Date. Seller, at its
expense shall make all repairs necessitated by such removal but shall have no
obligation to replace any Excluded Asset so removed.
ARTICLE VIII
ADJUSTMENTS AND PRORATIONS
8.1 Adjustments and Prorations. The following matters and items shall be
--------------------------
apportioned between the parties hereto or, where appropriate, credited in total
to a particular party, as of the Cut-off Time as provided below:
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(a) Down Payments for Reservations. Any pre-closing down payments
------------------------------
made to Seller on confirmed reservations for dates after the Closing Date will
be credited to Purchaser as of the Closing. Any post-closing down payments made
to Seller on confirmed reservations for dates after the Closing Date will be
forwarded to Purchaser upon receipt.
(b) Taxes and Assessments. All ad valorem taxes, special or general
---------------------
assessments, personal property taxes, attorneys' fees directly related to the
reduction of taxes or assessments, water and sewer rents, rates and charges,
vault charges, canopy permit fees, and other municipal permit fees. If the
amount of any such item is not ascertainable on the date the proration schedule
is completed pursuant to Section 8.3, the credit therefor shall be based on one
hundred percent (100%) of the most recent available bill and shall be reprorated
upon receipt of the actual tax bill. Notwithstanding the above, special real
property tax assessments for which the work is substantially completed as of the
Closing Date shall be paid by Seller.
(c) Utility Contracts. Telephone and telex contracts and contracts
-----------------
for the supply of heat, steam, electric power, gas, lighting and any other
utility service, with Seller receiving a credit for each deposit, if any, made
by Seller as security under any such public service contracts if the same is
transferable and provided such deposit remains on deposit for the benefit of
Purchaser. Where possible, cut-off readings will be secured for all utilities on
the Closing Date.
(d) Hotel Contracts and Space Leases. Any amounts prepaid or payable
--------------------------------
under any Hotel Contracts and Space Leases shall be apportioned between the
parties. Any percentage rentals under Space Leases shall be prorated on the
basis of the ratio of the number of days expired before Closing to the number of
days after Closing, for the current percentage rent period of the Space Lease.
All security deposits held by Seller shall be transferred to Purchaser and all
obligations with respect to such security deposits shall be assumed by
Purchaser.
(e) License Fees. Fees paid or payable for Permits (other than
------------
Excluded Permits) shall be apportioned between the parties.
(f) Hotel Matters.
-------------
(i) Advance payments, if any, under Bookings for Hotel
facilities (which shall include prepaid amounts by current guests);
(ii) Coin machine, telephone, washroom and checkroom income;
and
(iii) Commissions to credit and referral organizations.
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(g) Employment Arrangements. Seller shall be responsible for, and
-----------------------
shall pay when due, all Compensation of Employees. Purchaser assumes no
Employment Arrangements or other obligation with respect to any Employee
Benefits, all of which, together with any sums due any Employee as a consequence
of the termination of his employment, shall be the responsibility of Seller.
(h) Consumable Items. The cost of any Consumables or Operating
----------------
Equipment which are at a level below the level required to be maintained under
this Agreement shall be credited to Purchaser.
(i) Other. Such other items as are provided for in this Agreement or
-----
as are normally prorated and adjusted in the sale of a hotel, including without
limitation, all petty cash funds and cash in house banks, and all deposits and
prepaid items which inure to the benefit of the Purchaser.
8.2 Receivables. Purchaser is not purchasing any of the receivables of
-----------
the Hotel and Seller shall be solely responsible for the collection of accounts
receivable arising prior to the Closing Date. If Purchaser shall receive any
payment made on any unpurchased accounts receivable within ninety (90) days
after the Closing Date, it shall promptly remit such payment to Seller. With
regard to any collection made from any person or entity who is indebted to the
Hotel both with respect to accounts receivable accruing prior to the Closing
Date and to the accounts receivable accruing subsequent to the Closing Date,
such collection shall be applied as designated by the payor, but if there is no
designation, then any such collections received within ninety (90) days after
the Closing Date shall be applied first to the indebtedness accrued prior to the
Closing Date, but thereafter, any such collections shall be applied first to the
payment in full of any amounts due to Purchaser on accounts accruing subsequent
to the Closing Date.
8.3 Proration Schedule.
------------------
(a) Preparation and Review. A schedule setting forth the adjustments
----------------------
and prorations to be made pursuant to Section 8.1 above shall be prepared by
Purchaser and forwarded to Seller within thirty (30) days after the Closing
Date. Seller shall be afforded the opportunity to review all work papers and
computations used by Purchaser in the preparation of the adjustments and
prorations. The schedule as delivered shall be deemed accepted by Seller except
to the extent, if any, that Seller, within ten (10) days after the date of
delivery thereof to Seller, has delivered a written notice to Purchaser stating
any exceptions Seller may have to such schedule. If within such period Seller
shall give written notice to Purchaser of any exceptions to the schedule as
delivered by Purchaser, the parties shall attempt to resolve all of the
exceptions. To the extent that any such exceptions are not resolved within
fifteen (15) days after the delivery to Purchaser of Seller's exceptions to the
schedule, such differences shall be submitted as soon as practicable thereafter
to such "Big Six"
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accounting firm upon which the parties shall agree, for final determination
thereof. If the parties are not able to agree upon an accounting firm, each
shall designate a "Big Six" accounting firm and give written notice to the other
of the name and address of the firm so designated. The two firms shall consult
with each other and, if possible, determine the exceptions in question by mutual
agreement, and their determination so agreed upon, if certified to the parties
prior to their reaching agreement independently of arbitration, shall be final
and conclusive. If the two firms are not able to agree upon the exceptions in
question, they jointly shall designate a third firm whose determination
concerning the exceptions shall be final and conclusive, if certified to the
parties prior to their reaching agreement independent of arbitration. Any
determination by such accounting firm(s) as to the proper determination of any
such item submitted to it for determination shall be conclusive and binding upon
the parties for purposes of this Agreement. Seller and Purchaser shall each pay
one-half of such fees charged by such accounting firm(s) in connection with any
matter submitted to it hereunder.
(b) Payment of Adjustments. The net amount due pursuant to the
----------------------
adjustments and prorations made as required by this Section 8.3 shall be paid by
cash or bank cashier's check payable in immediately available funds in United
States currency to the order of the party to whom the same shall be due upon
final determination of the adjustments and prorations required hereunder. Seller
agrees that prior to the time that payment is made pursuant to Section 8.3(b),
it shall not make final liquidating distributions.
(c) Period for Recalculation. Notwithstanding the foregoing, if at
------------------------
any time within six (6) months following the Closing Date, either party
discovers any items which should have been included in the prorations but were
omitted therefrom, then such items shall be adjusted in the same manner as if
their existence had been known at the time of the preparation of the prorations.
The foregoing limitations shall not apply to any items which, by their nature,
cannot be finally determined within the periods specified.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
9.1 Conditions. Seller's obligation to close hereunder shall be subject
----------
to the occurrence of each of the following conditions, any one or more of which
may be waived by Seller in writing:
(a) Purchaser's Compliance with Obligations. Purchaser shall have
---------------------------------------
complied with all obligations required by this Agreement to be complied with by
Purchaser.
(b) Truth of Purchaser's Representations and Warranties. The
---------------------------------------------------
representations and warranties of Purchaser contained in Section 5.2 were true
in all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Seller shall have received a
certificate to that effect signed by an authorized agent of Purchaser.
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(c) Opinion of Purchaser's Counsel. Purchaser shall have delivered to
------------------------------
Seller a favorable written opinion of Pedersen & Houpt in connection with this
transaction, dated the Closing Date, as to (i) the power and authority of
Purchaser to execute and deliver this Agreement, (ii) the due authorization,
execution and delivery by Purchaser of this Agreement, and (iii) the legality,
validity and, as to Purchaser, the binding effect of this Agreement (subject to
the effect of bankruptcy and similar laws affecting the enforcement of
creditors' rights generally and to the discretion of a court of equity to
enforce equitable remedies).
(d) Opinion of Purchaser's Securities Counsel. Purchaser shall have
-----------------------------------------
delivered to Seller the written undertaking of Purchaser to provide to Seller
the favorable written opinion of Bell, Boyd & Lloyd, dated at the time of each
Approved Sale, that such Approved Sale complies or will comply with the
requirements of this Agreement, the 1933 Act and any state blue sky or other
securities laws applicable to the Approved Sale.
(e) Delivery of Current Prospectus. Seller shall have received
------------------------------
Parent's current, effective prospectus that does not reflect any material
adverse change from the prospectus of Parent dated June 17, 1996.
9.2 Failure of Conditions. If any of the conditions enumerated in Section
---------------------
9.1 are not fulfilled and, as a consequence thereof, Seller elects to terminate
this Agreement, such failure shall be deemed a default by Purchaser hereunder
and the consequences thereof shall be governed by the provisions of Section 3.2.
ARTICLE X
CONDITIONS TO PURCHASER'S OBLIGATIONS
10.1 Conditions. Purchaser's obligation to close hereunder shall be
----------
subject to the occurrence of each of the following conditions, any one or more
of which may be waived by Purchaser in writing:
(a) Seller's Compliance with Obligations. Seller shall have complied
------------------------------------
with all obligations required by this Agreement to be complied with by Seller.
(b) Truth of Seller's Representations and Warranties. The
------------------------------------------------
representations and warranties of Seller contained in Section 5.1 were true in
all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Purchaser shall have received a
certificate to that effect signed by an authorized agent of Seller.
(c) Opinion of Seller's Counsel. There shall have been delivered to
---------------------------
Purchaser a favorable opinion of Jones, Jones, Close & Brown, counsel to Seller
in connection with this
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transaction, dated the Closing Date as to (i) the power and authority of Seller
to execute and deliver this Agreement; (ii) the due authorization, execution and
delivery by Seller of this Agreement and all other documents required to be
executed and delivered by Seller pursuant to Section 7.1 hereof; and (iii) the
legality, validity and, as to Seller, the binding effect of this Agreement and
all other documents required to be executed and delivered by Seller pursuant to
Section 7.1 hereof (subject in each case to the effect of bankruptcy and similar
laws affecting creditors' rights generally and to the discretion of a court of
equity to enforce equitable remedies).
(d) Estoppel Certificates--Hotel Contracts. Purchaser shall notify
--------------------------------------
Seller, in writing at least thirty (30) days prior to the Closing Date, of the
Material Contracts for which Purchaser requires estoppel certificates. Each of
said estoppel certificates shall be in writing from the parties to such Material
Contract stating that such Material Contract is in full force and effect, has
not been amended or modified except as therein indicated, that such party
consents to the assignment to Purchaser and that no party is then in default
under such Material Contract (or if any default is known to exist, or would
arise with the giving of notice or the passage of time, stating the nature of
such default). The estoppel certificates herein referred to shall be in form
and substance reasonably satisfactory to Purchaser and dated not more than
thirty (30) days prior to the Closing Date.
(e) No Pending Adverse Litigation. On the Closing Date, there shall
-----------------------------
not then be pending or, to the knowledge of either Purchaser or Seller,
threatened, any litigation, administrative proceeding, investigation or other
form of governmental enforcement, or executive or legislative proceeding which,
if determined adversely, would restrain the consummation of any of the
transactions herein referred to, declare illegal, invalid or non-binding any of
the covenants or obligations of the parties herein, or have a material and
adverse effect on the operations or cash flow of the Hotel, or materially and
adversely affect the value of the Property or the ability of Purchaser, after
the Closing, to operate the Hotel in the manner contemplated hereby, other than
those matters previously disclosed and approved by Purchaser.
(f) Related Transactions. The transactions contemplated by (i) the
--------------------
certain Agreement to Purchase Hotel of even date herewith by and between Boulder
Manor, Inc. and ESA Properties, Inc., (ii) the certain Agreement to Purchase
Hotel of even date herewith by and between Melrose Suites, Inc. and ESA
Properties, Inc., and (iii) the certain Agreement to Purchase Hotel of even date
herewith by and between Santa Fe Springs Partners and ESA Properties, Inc.,
shall have been consummated.
(g) Title Policy. Purchaser shall have received an ALTA Owner's
------------
Insurance Policy issued by the Title Company in exact conformity with the Title
Commitment in favor of Purchaser, in the amount of the Purchase Price, showing
good and marketable fee simple title in the Real Property to be vested in
Purchaser, subject only to Permitted Exceptions (the "Title Policy").
10.2 Failure of Conditions. If any of the conditions enumerated in
---------------------
subsections (d)
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and (e), of Section 10.1 are not fulfilled, then the sole remedy of Purchaser
shall be to terminate this Agreement (whereupon the Deposit and all interest
earned thereon shall be returned to Purchaser and neither party shall have any
further obligation or liability hereunder), unless the failure to fulfill such
condition constitutes, or results from, either (i) a material breach of an
express representation or warranty made by Seller hereunder, or (ii) a material
default of an express covenant made by Seller hereunder, in which event
Purchaser shall be entitled to pursue against Seller any and all remedies
available to Purchaser, at law or in equity. If any of the conditions enumerated
in subsections (a), (b) and (c) of Section 10.1 are not fulfilled and, as a
consequence thereof, Purchaser elects to terminate this Agreement, such failure
shall be deemed a default by Seller hereunder, the Deposit and all interest
earned thereon referred to in Section 3.2 shall be promptly returned to
Purchaser, and Purchaser shall be entitled to pursue against Seller any and all
remedies available to Purchaser, at law or in equity.
ARTICLE XI
ACTIONS AND OPERATIONS PENDING CLOSING
11.1 Actions and Operations Pending Closing. Seller agrees that after the
--------------------------------------
expiration of the Inspection Period and until the Closing Date:
(a) The Hotel will continue to be operated and maintained
substantially in accordance with present standards.
(b) Seller will not enter into any new Material Contract or Space
Lease, or cancel, modify or renew any existing Material Contract or Space Lease,
without the prior written consent of Purchaser, which consent shall not be
unreasonably withheld. If Purchaser fails to respond to a request for consent
within 15 business days after receipt of such request, such consent shall be
deemed given.
(c) Seller shall have the right, without notice to or consent of
Purchaser, to make Bookings in the ordinary course of business, at no less than
the Hotel's standard rates including customary discounted rates. Additionally,
Seller agrees to entertain in good faith Purchaser's suggestions relating to the
policy of the Hotel with respect to future Bookings and extension of credit.
(d) Seller shall use commercially reasonable efforts to preserve in
force all existing Permits and to cause all those expiring to be renewed prior
to the Closing Date. If any such Permit shall be suspended or revoked, Seller
shall promptly so notify Purchaser and shall take all measures necessary to
cause the reinstatement of such Permit without any additional limitation or
condition.
(e) Seller shall notify Purchaser promptly if Seller becomes aware of
any
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<PAGE>
transaction or occurrence prior to the Closing Date which would make any of
the representations or warranties of Seller contained in Section 5.1 not true in
any material respect.
(f) Seller will maintain in effect, all policies of casualty and
liability insurance, or similar policies of insurance, with the same limits of
coverage which it now carries with respect to the Hotel.
(g) Seller will not dispose of any of the Property, except in the
ordinary course of business and in accordance with this Agreement.
(h) Seller shall allow Purchaser and its agents or representatives to
inspect the Property, and all books and records relating thereto, at such times
as Purchaser may reasonably request, provided such inspection does not
unreasonably interfere with the continued operation of the Hotel in the ordinary
course of business. Purchaser shall also have the right to have, and Seller
shall provide accommodations for, a full-time on-site representative to observe
the operations of the Hotel. Such accommodations shall be rent-free except for
those nights when all other guest rooms at the Hotel are fully occupied, in
which event Purchaser shall reimburse Seller for such nights at the Hotel's
lowest corporate rate for such accommodations. Purchaser agrees that the
results of all such observations will be treated as confidential, and Purchaser
shall not disclose the same to any other person or entity except for Purchaser's
counsel, accountants, and other agents or representatives consulted in
connection with the acquisition of the Hotel. In the event that the sale is not
consummated, any and all Documents, reports, financial and operating information
obtained by Purchaser or its representatives shall be returned to the Seller.
ARTICLE XII
CASUALTIES AND TAKINGS
12.1 Casualties.
----------
(a) If any damage to the Property shall occur prior to the Closing
Date by reason of fire, windstorm, hail, explosion or other casualty, and if, in
Purchaser's reasonable judgment, the cost of repairing such damage will exceed
Fifty Thousand Dollars ($50,000.00), Purchaser may elect to: (i) terminate this
Agreement by giving written notice to Seller in which event the Deposit and all
interest earned thereon shall be returned to Purchaser and neither party shall
have any further obligations or liability whatsoever to the other hereunder or
(ii) receive an assignment of all of Seller's rights to any insurance proceeds
(including business interruption proceeds) relating to such damage and acquire
the Property without any adjustment in the purchase price provided that, in such
latter event, Seller shall pay to Purchaser the amount of any deductible under
applicable insurance policies.
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<PAGE>
(b) If, in the reasonable business judgment of the insurance adjuster
or other representative of the insurer of the Property, the cost of repairing
such damage will not exceed Fifty Thousand Dollars ($50,000.00), the
transactions contemplated hereby shall close without any adjustment in the
Purchase Price, Purchaser shall receive an assignment of all of Seller's rights
to any insurance proceeds (including business interruption proceeds), and Seller
shall pay to Purchaser the amount of any deductible under applicable insurance
policies.
12.2 Takings. In the event of the actual or threatened taking (either
-------
temporary or permanent) in any condemnation proceedings by exercise of right of
eminent domain, of all or any part of the Real Property, between the date hereof
and the Closing Date, and if, in Purchaser's reasonable judgment, such taking
will result in the inability to conduct the operations of the Hotel
substantially in accordance with the present standards, Purchaser may elect to:
(i) terminate this Agreement by giving written notice to Seller, in which event
the Deposit and all interest earned thereon shall be returned to Purchaser and
neither party shall have any further obligations or liability whatsoever to the
other hereunder or (ii) receive an assignment of all of Seller's rights to any
condemnation award relating to such taking and acquire the Property without any
adjustment in the Purchase Price.
ARTICLE XIII
EMPLOYEES
13.1 Employees, Compensation and Indemnification. Purchaser shall have the
-------------------------------------------
continuing right to review all employment records and files of, and to
interview, Employees. Seller shall terminate its employer-employee relationship
with all Employees as of the Cut-off Time. Seller shall be solely responsible
for all Compensation and other liabilities with respect to Employees and
liabilities and obligations to Employees pursuant to any Employment Arrangement.
Purchaser shall not be responsible for any such liability or obligations and
Seller agrees to indemnify and hold Purchaser harmless from and against any such
liability or obligations. All Compensation, obligations, liabilities and claims
(including any under the Fair Labor Standards Act) to or by any Employee of
Seller arising or occurring prior to the Cut-off Time shall be the
responsibility of Seller. Purchaser shall not be responsible for any
Compensation thereof and Seller agrees to indemnify and hold Purchaser harmless
from and against same. Purchaser shall not assume or be liable upon any
Employment Arrangement of Seller.
ARTICLE XIV
INDEMNITIES
14.1 Seller's Indemnity. Seller agrees to indemnify, defend (with
------------------
Purchaser having the
-32-
<PAGE>
right to retain counsel for the purpose of participating in such defense, at its
sole cost and expense) and hold Purchaser harmless against and with respect to
the following:
(a) any and all obligations, liabilities, claims, accounts, demands,
liens or encumbrances, whether direct or contingent and no matter how arising
("Indemnifiable Damages"), in any way related to the Property and arising or
accruing on or before the Closing Date (including, but not limited to, any
damage to property or injury to or death of any person); without limitation on
the generality of the foregoing, Seller indemnifies Purchaser from any claim or
judgment under any lawsuit or proceeding filed or pending prior to the Closing
Date against the Property, or any part thereof, and any costs or expenses
(including reasonable attorneys' fees) heretofore or hereafter incurred in
connection with any such lawsuit or proceeding;
(b) any loss or damage to Purchaser resulting from any inaccuracy in
or breach of any representation or warranty of Seller or resulting from any
breach or default by Seller of any obligation of Seller under this Agreement;
and
(c) all costs and expenses, including reasonable attorneys' fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.2 Purchaser's Indemnity. Purchaser agrees to indemnify, defend (with
---------------------
Seller having the right to retain counsel for the purpose of participating in
such defense, at its sole cost and expense), and hold Seller harmless against
and with respect to the following:
(a) any loss or damage to Seller, subsequent to the Closing Date,
resulting from any inaccuracy in or breach of any representation or warranty of
Purchaser under this Agreement;
(b) any injury to person or property causing any loss or damage to
Seller resulting from or arising out of work performed by Purchaser pursuant to
Section 11.1(h) hereof;
(c) any and all Indemnifiable Damages in any way related to the
Property and arising or accruing after the Closing Date (including, but not
limited to, any damage to property or injury to or death of any person); and
(d) all costs and expenses, including reasonable attorney's fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.3 Notice of Claims. Seller and Purchaser, as applicable, shall promptly
----------------
notify the other in the event any claim is made against Seller or Purchaser as
to which the other party has agreed to indemnify and the indemnitor shall
thereupon undertake to defend and hold the indemnitee saved and harmless
therefrom.
-33-
<PAGE>
ARTICLE XV
SECURITIES LAW MATTERS
15.1 Disposition of Shares. The Seller represents and warrants that the
---------------------
Shares are being acquired and will be acquired for its own account and will not
be sold or otherwise disposed of except pursuant to (i) the provisions of Rule
145(d) under the 1933 Act, as in effect at the time of sale, (ii) some other
exemption or exclusion from the registration requirements under the 1933 Act,
which does not require the filing by the Parent with the SEC of any registration
statement, offering circular, or other document, in which case the Seller shall
first supply to the Parent an opinion of counsel (which opinion and counsel
shall be satisfactory to the Parent) that such exemption or exclusion is
available, or (iii) the Registration Statement provided that (a) sales pursuant
to the Registration Statement are made to or through a broker, dealer, or market
maker, (b) in connection with such sales, the Seller delivers a copy of a
current Prospectus forming a part of the Registration Statement which prospectus
identifies the Seller as being able to use such Prospectus to make resales in
the public market of Shares acquired pursuant to this Agreement, and (c) the
Seller notifies the Parent in writing at least five business days prior to the
first day the Seller intends to execute a sale transaction of the Shares
pursuant to the Registration Statement and the Parent consents in writing to
such sale. The Seller hereby acknowledges that the Parent is entitled in its
absolute discretion to withhold such consent if, and for such period of time as,
in the opinion of the management of the Parent, (i) securities laws applicable
to such sale of Shares by the Seller pursuant to the Registration Statement
would require the Parent to disclose material non-public information, or (ii)
such sale would occur during (a) the measurement period for determining the
amount of Common Stock or other consideration, the amount of which will be based
on the price of the Common Stock, to be paid in connection with the acquisition
of a business or assets to which the Parent or any of its subsidiaries is a
party or (b) the marketing period of an offering of securities of the Parent.
15.2 Acknowledgment of Restrictions. The Seller acknowledges that, under
------------------------------
current SEC interpretations of Rule 145, the Seller is subject to restrictions
on transfer of the Shares for a period of two years following the Closing Date
and that an exemption from the requirement to register the Shares for public
resale is provided by Rule 145(d).
15.3 Evidence of Compliance. The Seller further covenants and agrees that
----------------------
the Parent will be supplied with such written evidence of compliance by it and
its broker with Rule 145(d) as in effect at the time of any sale by it pursuant
thereto, as the Parent may reasonably request.
15.4 Legend. The Seller agrees that the certificates for the Shares
------
received shall bear the following legend:
The Shares represented by this certificate are subject to the
provisions of Rule 145(d) promulgated under the Securities Act of
1933, and may not be transferred or disposed of by the holder without
compliance with said Rule unless registered under said Act or pursuant
to another applicable exemption from the requirements of said Act.
-34-
<PAGE>
and that the Parent may place stop transfer orders with its transfer agents with
respect to such certificates. The appropriate portions of the legend will be
removed at such time or times as the Seller may reasonably request if at the
time of such request the Seller is not an Affiliate (as defined in the 1933 Act)
of the Parent, upon the expiration of the two-year holding period provided in
Rule 145(d).
ARTICLE XVI
NOTICES
16.1 Notices. Except as otherwise provided in this Agreement, all notices,
-------
demands, requests, consents, approvals and other communications (herein
collectively called "Notices") required or permitted to be given hereunder, or
which are to be given with respect to this Agreement, shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by overnight express courier, postage
prepaid, addressed to the party to be so notified as follows:
If intended for Seller, to: Mr. Michael J. Mona, Jr.
M&M Development
1785 E. Sahara, Suite 315
Las Vegas, Nevada 89104
Copies to: Jones, Jones, Close & Brown
3773 Howard Hughes Parkway
Third Floor South
Las Vegas, Nevada 89109
Attn: Ms. Jodi R. Goodheart
If intended for Extended Stay America, Inc.
Purchaser, to: 500 East Broward Blvd., #950
Ft. Lauderdale, Florida 33394
Attn: Mr. Robert A. Brannon
Copies to: Pedersen & Houpt
161 North Clark, Suite 3100
Chicago, Illinois 60601
Attn: Mr. Michael W. Black
Notice mailed by registered or certified mail shall be deemed received by
the addressee three (3) days after mailing thereof. Notice personally delivered
shall be deemed received when delivered. Notice mailed by overnight express
courier shall be deemed received by the addressee two (2) days
-35-
<PAGE>
after mailing thereof. Either party may at any time change the address for
notice to such party by mailing a Notice as aforesaid.
ARTICLE XVII
ADDITIONAL COVENANTS
17.1 Additional Covenants. In addition, the parties agree as follows:
--------------------
(a) Expenses. Seller shall be responsible for the payment of all
--------
sales and use taxes and fifty percent (50%) of all transfer taxes. Purchaser
shall be responsible for the payment of all recording fees, fifty percent (50%)
of all transfer taxes, all escrow fees, all costs of the Survey, all title
insurance premiums and charges for the issuance of the Title Policy and all
other closing charges. The fees and expenses of Seller's designated
representatives, accountants and attorneys shall be borne by Seller, and the
fees and expenses of Purchaser's designated representatives, accountants and
attorneys shall be borne by Purchaser.
(b) Brokerage. Seller and Purchaser each hereby represent and warrant
---------
to the other that neither has dealt with any broker or finder in connection with
the transaction contemplated hereby, and each hereby agrees to indemnify, defend
and hold the other harmless against and from any and all manner of claims,
liabilities, loss, damage, attorneys' fees and expenses, incurred by either
party and arising out of, or resulting from, any claim by any such broker or
finder in contravention of its representation and warranty herein contained.
(c) Guest Baggage. All baggage of guests who are still in the Hotel
-------------
on the Closing Date, which has been checked with or left in the care of Seller
shall be inventoried, sealed, and tagged jointly by Seller and Purchaser on the
Closing Date. Purchaser hereby indemnifies Seller against any claims, losses or
liabilities in connection with such baggage arising out of the acts or omissions
of Purchaser after the Closing Date. Seller hereby indemnifies Purchaser
against any claim, losses or liabilities with respect to such baggage arising
out of the acts or omissions of Seller prior to the Closing Date.
(d) Safe Deposits. Immediately after the Closing, Seller shall send
-------------
written notice to guests or tenants or other persons who have safe deposit
boxes, advising of the sale of the Hotel to Purchaser and requesting immediate
removal of the contents thereof or the removal thereof and concurrent re-deposit
of such contents pursuant to new safe deposit agreements with Purchaser. Seller,
at its own expense, shall have a representative present when the boxes are
opened, in the presence of a representative of the Purchaser. Purchaser shall
not be liable or responsible for any items claimed to have been in such boxes
unless such items are so removed and re-deposited, and Seller agrees to
indemnify and hold harmless Purchaser from and against any such liability or
responsibility.
-36-
<PAGE>
(e) Books and Records. The transaction contemplated hereby shall not
-----------------
include the books and records of Seller pertaining strictly to the business of
the Hotel. Seller covenants and agrees that such books and records will remain
in the control of M&M Development for examination and audit by Purchaser and
its agents after the Closing as provided in this clause (e). Seller agrees to
preserve all books and records, files and correspondence, for at least five (5)
years after the Closing Date, and not to destroy or dispose of the same, for at
least five (5) years after the Closing Date. Seller agrees to provide access to
Purchaser and its representatives, to such books, records, files and
correspondence at all reasonable times.
(f) Hart-Scott-Rodino Act. If it shall be determined that the within
---------------------
transaction is subject to the reporting requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, 15 U.S.C. (S)18(a) (1976) (the "Act"), then
notwithstanding anything to the contrary contained in Section 10.1(e) hereof,
each party shall forthwith proceed to make the necessary filings, and take all
other actions necessary to comply with the Act and the rules and regulations
thereunder. If such requirements have not been fulfilled by the Closing Date,
then the Closing Date shall be adjourned until such requirements have been
fulfilled, but not more than sixty (60) days. If such requirements have not
been fulfilled prior to the expiration of such sixty (60) day period, Seller or
Purchaser, by notice to the other, may terminate this Agreement in which event
the Deposit and all interest earned thereon shall be returned to Purchaser and
neither party shall have any further obligation or liability to the other party
hereunder.
(g) Survival of Covenants, etc. The representations, warranties,
---------------------------
obligations, covenants, agreements, undertakings and indemnifications of Seller
and Purchaser contained herein shall survive the Closing for a period of two (2)
years except that (i) the representation and warranty made by Seller in Section
5.1(i) shall expire at the time the period of limitations (including any
extensions thereof pursuant to the delivery of waivers of the applicable period
of limitations) expires for the assessment by the taxing authority of additional
taxes with respect to which the representation and warranty relate; and (ii) the
representation and warranty made by Purchaser in Section 3.4(d) shall not
expire. All claims for indemnification must be made within the aforementioned
periods.
(h) Purchaser's Investigation and Inspections. Any investigation or
-----------------------------------------
inspection conducted by Purchaser, or any agent or representative of Purchaser,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Purchaser's obligations hereunder or
to determine whether Seller's warranties are true and accurate, shall not or
constitute a waiver by Purchaser of any of Seller's obligations hereunder or
Purchaser's reliance thereon.
(i) Construction. This Agreement shall not be construed more strictly
------------
against one party than against the other, merely by virtue of the fact that it
may have been prepared primarily by counsel for one of the parties, it being
recognized that both Purchaser and Seller have contributed substantially and
materially to the preparation of this Agreement.
-37-
<PAGE>
(j) Publicity. All notice to third parties and all other publicity
---------
concerning the transactions contemplated hereby shall be jointly planned and
coordinated by and between Purchaser and Seller. None of the parties shall act
unilaterally in this regard without the prior written approval of the other;
however, this approval shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Purchaser (or Parent) may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning Parent's publicly traded securities;
Purchaser agrees to give Seller notice of any such public disclosure.
(k) General. This Agreement may be executed in any number of
-------
counterparts, each of which shall constitute an original but all of which, taken
together, shall constitute but one and the same instrument. This Agreement
(including all exhibits hereto) contains the entire agreement between the
parties with respect to the subject matter hereof, supersedes all prior
understandings, if any, with respect thereto and may not be amended,
supplemented or terminated, nor shall any obligation hereunder or condition
hereof be deemed waived, except by a written instrument to such effect signed by
the party to be charged. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada. The warranties,
representations, agreements and undertakings contained herein shall not be
deemed to have been made for the benefit of any person or entity, other than the
parties hereto and their permitted successors and assigns. Seller has no right
to assign its rights (except as set forth in (m) below) or to delegate its
duties hereunder. Purchaser may assign its rights and duties under this
Agreement to any of its Affiliates. Captions used herein are for convenience
only and shall not be used to construe the meaning of any part of this
Agreement.
(l) FIRPTA. Seller agrees to furnish Purchaser with an executed
-------
Certification in the form attached hereto as Exhibit Q ("FIRPTA Certificate"),
and such other evidence as Purchaser may reasonably request, to establish that
Seller is not a foreign person for the purpose of Section 1445 of the Internal
Revenue Code of 1986, as amended ("Section 1445"). In the event that Seller
does not furnish such Certification or a qualifying statement for the U.S.
Treasury Department that the transaction is exempt from the withholding
requirements of Section 1445, Seller agrees that Purchaser shall be directed to
pay such amount required by law to the Internal Revenue Service in accordance
with the laws and regulations regarding the withholding requirements of Section
1445.
(m) Like-Kind Exchange. Seller shall have the right, at Seller's
------------------
option, to sell the Property to Purchaser through a transaction that is
structured to qualify as a like-kind exchange of property within the meaning of
Section 1031 of the Internal Revenue Code of 1986 ("Code"). Purchaser agrees to
reasonably cooperate with Seller in effecting a qualifying like-kind exchange
through a trust, escrow or other means as determined by Seller, provided,
however, Purchaser shall not be required to incur any obligation or liability to
a third party as a part of the exchange. In any event Seller shall have the
right to assign its rights under this contract, in whole or in part, to a
qualified intermediary (as defined under current Code regulations governing
like-kind exchanges) or as otherwise necessary or appropriate to effectuate a
like-kind exchange, provided that Seller shall remain liable for its obligations
hereunder (and that Michael J. Mona, Jr. shall remain liable pursuant
-38-
<PAGE>
to his guaranty as hereinafter set forth) and Seller (and Michael J. Mona) shall
execute such additional documentation as Purchaser may reasonably request to
evidence such continuing liability. Seller shall bear the additional transaction
costs and all costs and expenses incurred by Purchaser and attributable to
exchange procedures in this transaction that are requested or implemented by
Seller. Seller shall be solely responsible for assuring the effectiveness of the
exchange for Seller's tax purposes. In no event shall any like-kind exchange
contemplated by this provision cause an extension of the date of closing set
forth herein nor shall Purchaser be required to take title to any property other
than the Property.
(n) Jurisdiction. Any action or proceeding seeking to enforce any
------------
provision of, or based on any right arising out of, this Agreement shall be
brought against any of the parties in the courts of the State of Nevada, County
of Clark, or, if it can acquire jurisdiction, in the United States District
Court for the District of Nevada.
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
ST. LOUIS MANOR, INC., a Nevada corporation
By:__________________________________________
Michael J. Mona, Jr., President
Attest:______________________________________
Its:_________________________________________
PURCHASER:
ESA PROPERTIES, INC., a Delaware corporation
By:__________________________________________
Robert A. Brannon, Vice President
Attest:______________________________________
Its:_________________________________________
The undersigned hereby guaranties the collection by Purchaser of all
amounts due from Seller pursuant to the terms hereof.
/s/ Michael J. Mona, Jr.
---------------------------------------------
Michael J. Mona, Jr. President
-40-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
ST. LOUIS MANOR, INC., a Nevada corporation
By:__________________________________________
Michael J. Mona, Jr., President
Attest:______________________________________
Its:_________________________________________
PURCHASER:
ESA PROPERTIES, INC., a Delaware corporation
By:/s/ Robert Brannon
------------------------------------------
Robert A. Brannon, Vice President
Attest: Robert Brannon
--------------------------------------
Its: Secretary
-----------------------------------------
The undersigned hereby guaranties the collection by Purchaser of all
amounts due from Seller pursuant to the terms hereof.
/s/ Michael J. Mona, Jr.
---------------------------------------------
Michael J. Mona, Jr. President
-40-
<PAGE>
AGREEMENT TO PURCHASE HOTEL
by and among
MICHAEL J. MONA, JR.,
DEAN O'BANNON
and
ESA PROPERTIES, INC.
June 25, 1996
<PAGE>
AGREEMENT TO PURCHASE HOTEL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I DEFINITIONS AND REFERENCES ............................................1
1.1 Definitions ...................................................1
-----------
1.2 References ....................................................6
----------
II SALE AND PURCHASE .....................................................7
2.1 Sale and Purchase..............................................7
III PURCHASE PRICE ........................................................7
3.1 Purchase Price; Allocation Thereof.............................7
----------------------------------
3.2 Deposit .......................................................7
-------
3.3 No Assumption of Seller's Obligations..........................7
-------------------------------------
IV INSPECTION PERIOD .....................................................9
4.1 Inspection Period .............................................9
-----------------
4.2 Submittals to Purchaser .......................................9
-----------------------
4.3 Review and Inspection ........................................10
---------------------
4.4 Purchaser's Acceptance or Rejection ..........................10
-----------------------------------
V REPRESENTATIONS AND WARRANTIES........................................11
5.1 Representations and Warranties of Seller......................11
----------------------------------------
5.2 Representations and Warranties of Purchaser...................20
-------------------------------------------
5.3 Duration of Representations and Warranties....................20
-------------------------------------------
VI CLOSING MATTERS ......................................................20
6.1 Closing ......................................................20
-------
6.2 Manner of Closing.............................................21
-----------------
6.3 Survey, Title Commitment and Searches.........................21
-------------------------------------
VII CLOSING DELIVERIES....................................................23
7.1 Seller's Deliveries...........................................23
-------------------
7.2 Purchaser's Deliveries .......................................24
----------------------
7.3 Concurrent Transactions ......................................24
-----------------------
7.4 Further Assurances ...........................................24
------------------
7.5 Possession ...................................................24
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
VIII ADJUSTMENTS AND PRORATIONS ...........................................24
8.1 Adjustments and Prorations ...................................24
--------------------------
8.2 Receivables ..................................................26
-----------
8.3 Proration Schedule............................................26
------------------
IX CONDITIONS TO SELLER'S OBLIGATIONS....................................27
9.1 Conditions ...................................................27
----------
9.2 Failure of Conditions.........................................28
---------------------
X CONDITIONS TO PURCHASER'S OBLIGATIONS.................................28
10.1 Conditions....................................................28
----------
10.2 Failure of Conditions.........................................29
---------------------
XI ACTIONS AND OPERATIONS PENDING CLOSING................................30
11.1 Actions and Operations Pending Closing........................30
--------------------------------------
XII CASUALTIES AND TAKINGS................................................31
12.1 Casualties....................................................31
----------
12.2 Takings.......................................................32
-------
XIII EMPLOYEES.............................................................32
13.1 Employees, Compensation and Indemnification...................32
-------------------------------------------
XIV INDEMNITIES...........................................................32
14.1 Seller's Indemnity............................................32
------------------
14.2 Purchaser's Indemnity.........................................33
---------------------
14.3 Notice of Claims..............................................33
----------------
XV SECURITIES LAW MATTERS................................................33
15.1 Disposition of Shares.........................................33
---------------------
15.2 Acknowledgment of Restrictions................................34
------------------------------
15.3 Evidence of Compliance........................................34
----------------------
15.4 Legend........................................................34
------
XVI NOTICES...............................................................35
16.1 Notices.......................................................35
-------
XVII ADDITIONAL COVENANT ..................................................35
17.1 Additional Covenants...........................................36
--------------------
</TABLE>
<PAGE>
Exhibit A: Land
Exhibit B: Excluded Assets
Exhibit C: Permitted Exceptions
Exhibit D: Submitted Financial Statements
Exhibit E: Allocation of Purchase Price
Exhibit F: Permits
Exhibit G: Hotel Contracts and Commissions
Exhibit H: Employee and Employment Arrangements
Exhibit I: Bookings
Exhibit J: Space Leases and Commissions
Exhibit J-1: Spaces Lessee Estoppel Letter
Exhibit K: Notices of Violations
Exhibit L: Pending or Threatened Litigation
Exhibit M: Documents
Exhibit N: Impositions
Exhibit O: Hotel Names
Exhibit P: Employee Benefit Plans
Exhibit Q: FIRPTA Certificate
Exhibit R: Non-Compete Agreement
Exhibit S: Note
Exhibit T: Escrow Agreement
Exhibit U: Environmental Matters
<PAGE>
AGREEMENT TO PURCHASE HOTEL
---------------------------
THIS AGREEMENT is made this 25th day of June, 1996, by and between Michael
J. Mona, Jr. ("Mona"), Dean O'Bannon ("O'Bannon") (Mona and O'Bannon are
sometimes hereinafter referred to, collectively as well as individually, as
"Seller"), and ESA Properties, Inc., a Delaware corporation ("Purchaser").
R E C I T A L S:
A. Mona and O'Bannon (each owning an undivided 50% interest, as tenants
in common) are the fee owners of that certain parcel of land (and the
improvements and buildings located thereon) legally described in Exhibit A and
commonly referred to as the Nicolle Manor, 4240 Boulder Highway, Las Vegas,
Nevada (the "Hotel") and the owner of the Fixtures and Tangible Personal
Property, Operating Equipment, Consumables, and Miscellaneous Hotel Assets (all
as hereinafter defined).
B. The Hotel's facilities include guest and public facilities consisting
of 123 rooms, administrative offices, and service areas.
C. Seller desires to sell, and Purchaser desires to purchase, the
Property upon and subject to the terms and conditions hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, agreements, covenants and conditions
herein contained, and other good and valuable consideration, Seller and
Purchaser agree as follows:
ARTICLE
DEFINITIONS AND REFERENCES
1.1 Definitions. As used herein, the following terms shall have the
-----------
respective meanings indicated below:
Affiliate: With respect to a specific entity, any natural person or any
---------
firm, corporation, partnership, association, trust or other entity which,
directly or indirectly, controls, or is under common control with, the subject
entity, and with respect to any specific entity or person, any firm,
corporation, partnership, association, trust or other entity which is controlled
by the subject entity or person. For purposes hereof, the term "control" shall
mean the possession, directly or indirectly,
<PAGE>
of the power to direct or cause the direction of the management and policies of
any such entity or the power to veto major policy decision of any such entity,
whether through the ownership of voting securities, by contract, or otherwise.
Agreement: This Agreement to Purchase Hotel, including the Exhibits.
---------
Bookings: Contracts for the use or occupancy of guest rooms of the Hotel.
--------
Closing: As defined in Section 6.1.
-------
Compensation: The direct salaries and wages paid to, or accrued for the
------------
benefit of, any Employee, incentive compensation, vacation pay, severance pay,
employer's contributions under F.I.C.A., unemployment compensation, workmen's
compensation, or other employment taxes, and payments under Employee Benefit
Plans (as hereinafter defined).
Consumables: All food and beverages (alcoholic, to the extent transferable
-----------
under applicable law, and non-alcoholic); engineering, maintenance and
housekeeping supplies, including soap, cleaning materials and matches;
stationery and printing; and other supplies of all kinds, in each case whether
partially used, unused, or held in reserve storage for future use in connection
with the maintenance and operation of the Hotel, which are on hand (which shall
include off-site storage) on the date hereof, subject to such depletion and
restocking as shall occur and be made in the normal course of business but in
accordance with present standards, excluding, however, (i) Operating Equipment
and (ii) all items of personal property owned by Space Lessees, guests,
employees, or persons (other than Seller or any Affiliate of Seller, unless
denominated as an Excluded Asset hereunder) furnishing food or services to the
Hotel.
Cut-off Time: 12:01 A.M. on the Closing Date.
------------
Department: Nevada Department of Revenue.
----------
Deposit: As defined in Section 3.2.
-------
Documents: Reproducible copies of all plans, specifications, drawings,
---------
blueprints, surveys, environmental reports and other similar documents which
Seller has in its possession, or has a right to, as the same relate to the Real
Property, including, but not limited to those relating to any prior or ongoing
construction or rehabilitation of the Real Property.
Employee(s): All persons employed by Seller pursuant to Employment
-----------
Arrangements.
Employee Benefit Plans: All employee benefit plans, as that term is
----------------------
defined in Section 3(2)(a) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including "multi-employer pension plans" as defined
in Section 3(37) of ERISA, and each other employee benefit plan or program
(including welfare benefit plans as defined in Section 3(1) of ERISA) to
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<PAGE>
which Seller contributes on behalf of any of the Employees.
Employment Arrangement(s): Those agreements, oral or written, with all or
-------------------------
any of the executives, staff and employees of Seller for work in or in
connection with the Hotel including, but not limited to, individual employment
agreements, union agreements, employee handbooks, group health insurance plans,
life insurance plans and disability insurance plans (other than Employee Benefit
Plans).
Environmental Laws: As defined in Section 5.1(u).
------------------
Environmental Study: As defined in Section 4.3.
-------------------
Excluded Assets: The following: (i) those assets, if any, listed on
---------------
Exhibit B hereto owned and to be retained by Seller; (ii) receivables; and (iii)
except as provided to the contrary in Section 17.1(e) hereof, all records, files
and proprietary operating manuals in the Hotel.
Excluded Permits: Permits and licenses required for the ownership and
----------------
operation of the Hotel which, under applicable law, are nontransferable.
Fixtures and Tangible Personal Property: All fixtures, furniture,
---------------------------------------
furnishings, fittings, equipment, cars, trucks, machinery, apparatus, signage,
appliances, draperies, carpeting, and other articles of personal property now
located on the Real Property or held in storage for future use at the Hotel and
used or usable in connection with any part of the Hotel, subject to such
depletions, resupplies, substitutions and replacements as shall occur and be
made in the normal course of business but in accordance with present standards
excluding, however: (i) Consumables; (ii) Operating Equipment; (iii) equipment
and property leased pursuant to Hotel Contracts; (iv) property owned by Space
Lessees, guests, employees or other persons (other than Seller or any affiliate
of Seller, unless denominated as an Excluded Asset hereunder) furnishing goods
or services to the Hotel; and (v) Improvements.
FIRPTA Certificate: As defined in Section 17.1(l).
------------------
Hazardous Material: As defined in Section 5.1(u).
------------------
Hotel: The hotel referred to in the Recitals.
-----
Hotel Contracts: All management, service, maintenance, material purchase
---------------
orders, leases and other contracts or agreements, including equipment leases
capitalized for accounting purposes, and any amendments thereto, with respect to
the ownership, maintenance, operation, provisioning, or equipping of the Hotel,
or any of the Property, as well as written warranties and guaranties relating
thereto, if any, including, but not limited to, those relating to heating and
cooling equipment and/or mechanical equipment, but exclusive, however, of (i)
insurance policies, (ii) the Bookings, (iii) the
- 3 -
<PAGE>
Space Leases, (iv) the Employment Arrangements, and (v) the Employee Benefit
Plans.
Hotel Names: All names or other identifications used in connection with
-----------
the operation of Hotel.
Impositions: All taxes and other governmental charges of any kind
-----------
whatsoever that may at any time be assessed or levied against or with respect to
the Property, or any part thereof or any interest therein, including, without
limitation, all general and special real estate taxes and assessments or taxes
assessed specifically in whole or in part in substitution of general real estate
taxes or assessments; any taxes levied upon or with respect to the revenue,
income or profits of Seller from all or any part of the Property which, if not
paid, will become a lien on all or any part of the Property, or a lien or charge
on the rents, revenues or receipts therefrom; all assessed ad valorem taxes; all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep of the Property and all assessments and other charges made by any
governmental agency for improvements that may be secured by a lien on the
Property.
Improvements: The buildings, structures (surface and sub-surface) and
------------
other improvements, including such fixtures as shall constitute real property,
located on the Land.
Inspection Period: As defined in Section 4.1.
-----------------
Land: The parcel of real estate described in Exhibit A hereto, together
----
with all rights, title and interest, if any, of Seller in and to all land lying
in any street, alley, road or avenue, open or proposed, in front of or adjoining
said Land, to the centerline thereof, and all right, title and interest of
Seller in and to any award made or to be made in lieu thereof and in and to any
unpaid award for the damage to said Land by reason of change of grade of any
street.
Legal Requirements: All laws, statutes, codes, acts, ordinances, orders,
------------------
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments and governmental
authorities having jurisdiction of the Hotel (including, for purposes hereof,
any local Board of Fire Underwriters), and the operation thereof.
Material Bookings: All Bookings for meetings and banquet facilities and,
-----------------
with respect to guest rooms, any contract for seven (7) or more room nights.
Material Contracts: All Hotel Contracts which cannot be cancelled by 30
------------------
days' or less notice without penalty or premium payment.
Miscellaneous Hotel Assets: All contract rights, leases, concessions,
--------------------------
trademarks, logos, copyrights, assignable warranties and other items of
intangible personal property relating to the ownership or operation of Hotel,
but such term shall not include (i) Bookings; (ii) Hotel Contracts; (iii) Space
Leases; (iv) Permits; (v) cash or other funds, whether in petty cash or house
banks, or on
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<PAGE>
deposit in bank accounts or in transit for deposit; (vi) books and
records (except as provided in Section 17.1(e); (vii) refunds, rebates, or other
claims, or any interest thereon, for periods or events occurring prior to the
Cut-off Time; (viii) utility and similar deposits; (ix) prepaid insurance or
other prepaid items; or (x) prepaid license and permit fees; except to the
extent that Seller receives a credit at Closing for any such item or matter.
Non-Compete Agreements: The Non-Compete Agreements delivered by Seller to
----------------------
Purchaser pursuant to the terms of Section 7.1 hereof.
Obligations: All payments required to be made and all representations,
-----------
warranties, covenants, agreements and commitments required to be performed under
the provisions of this Agreement by Seller or Purchaser, as applicable.
Operating Equipment: All china, glassware, linens, silverware and
-------------------
uniforms, whether in use or held in reserve storage for future use, in
connection with the operation of the Hotel, which are on hand (including off-
site storage) on the date hereof, subject to such depletion and restocking as
shall be made in the normal course of business but in accordance with present
standards.
Parent: Extended Stay America, Inc., a Delaware corporation.
------
Permits: All licenses, franchises and permits, certificates of occupancy,
-------
authorizations and approvals used in or relating to the ownership, occupancy or
operation of any part of the Hotel.
Permitted Exceptions: Any liens, encumbrances, restrictions, exceptions
--------------------
and other matters specified in Exhibit C to which title to the Property may be
subject on the Closing Date.
Personal Property: All of the Property other than the Real Property.
-----------------
Property: (i) The Real Property; (ii) the Fixtures and Tangible Personal
--------
Property; (iii) the Operating Equipment; (iv) the Consumables; (v) the
transferable right, title and interest of Seller in, to and under the Hotel
Contracts and Space Leases; (vi) the Bookings; (vii) the Permits (other than
Excluded Permits); (viii) the Hotel Names; (ix) the Documents; and (x) all other
Miscellaneous Hotel Assets, provided, however, that Property shall not include
the Excluded Assets.
Proratable Compensation: Compensation exclusive of severance pay and
-----------------------
Employee Benefit Plans.
Purchase Price: As defined in Section 3.1.
--------------
Real Property: The Land together with the Improvements located on the
-------------
Land.
Searches: As defined in Section 6.3(c).
--------
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<PAGE>
Section 1445: As defined in Section 17.1(l).
------------
Space Leases: All leases, licenses, concessions and other occupancy
------------
agreements, and any amendments thereto, whether or not of record, for the use or
occupancy of any portion of the Real Property excluding, however, Bookings.
Space Lessee: Any person or entity entitled to occupancy of any portion of
------------
the Real Property under a Space Lease.
Submittals: As defined in Section 4.2.
----------
Submitted Financial Statements: Those financial statements of the Hotel
------------------------------
identified in Exhibit D hereto.
Survey: The survey for the Property prepared in accordance with Section
------
6.3(a).
Title Commitment: The commitment for title insurance issued in accordance
----------------
with Section 6.3(b).
Title Company: United Title of Nevada.
-------------
Title Defect: A lien, claim, charge, security interest or encumbrance
------------
other than a Permitted Exception.
Title Documents: As defined in Section 6.3.
---------------
Title Papers: As defined in Section 6.3(b).
------------
Title Policy: As defined in Section 10.1(g).
------------
UCC: The Uniform Commercial Code in effect in Nevada.
---
Violation: Any condition with respect to the Property which constitutes a
---------
violation of any Legal Requirements.
1.2 References. Except as otherwise specifically indicated, all
----------
references to Section and Subsection numbers refer to Sections and Subsections
of this Agreement, and all references to Exhibits refer to the Exhibits attached
hereto. The words "hereby," "hereof," "herein," "hereto," "hereunder,"
"hereinafter," and words of similar import refer to this Agreement as a whole
and not to any particular Section or Subsection hereof. The word "hereafter"
shall mean after, and the term "heretofore" shall mean before, the date of this
Agreement. Captions used herein are for convenience only and shall not be used
to construe the meaning of any part of this Agreement.
- 6 -
<PAGE>
ARTICLE II
SALE AND PURCHASE
2.1 Sale and Purchase. Seller hereby agrees to sell (or to cause to be
-----------------
sold) to Purchaser, and Purchaser hereby agrees to purchase from Seller, the
Property on the terms and subject to the conditions of this Agreement.
ARTICLE
PURCHASE PRICE
3.1 Purchase Price; Allocation Thereof. The purchase price ("Purchase
----------------------------------
Price") for the Property and the Non-Compete Agreements shall be Five Million
Five Hundred Thousand Dollars ($5,500,000.00) payable by delivery of a Note from
Purchaser to Seller in the form attached hereto as Exhibit S.
The Purchase Price shall be allocated in accordance with the values
reasonably attributable to the components of the Property and the Non-Compete
Agreements as set forth on Exhibit E hereto.
3.2 Deposit. Concurrently herewith, Purchaser is depositing the sum of
-------
$50,000.00 (the "Deposit") with Title Company to secure performance of
Purchaser's obligations hereunder. The Deposit and interest earned thereon
shall be held in an interest bearing account until the Closing Date (except as
otherwise provided herein) at which time the Deposit shall be paid as a credit
against the Purchase Price. Except as hereinafter provided, if the transaction
contemplated hereby does not close because of a default by Purchaser hereunder,
the parties agree that the Deposit and interest earned thereon shall be
delivered to Seller as Seller's sole and exclusive liquidated damages, which
amount the parties agree is a reasonable sum considering all of the
circumstances existing on the date of this Agreement, including, without
limitation, the relationship of such sum to the amount of harm to Seller that
reasonably could be anticipated, Seller's anticipated use of the proceeds of
sale, and the fact that proof of actual damages would be impossible to
determine. Notwithstanding the foregoing, if the transaction contemplated
hereby does not close and Purchaser shall not have defaulted hereunder, the
Deposit and all interest earned thereon shall be returned promptly to Purchaser
and Purchaser shall be entitled to pursue against Seller any and all remedies
available to Purchaser, at law or in equity, provided, however, that Seller
shall have no liability for any reduction in the market price of Parent's
publicly traded stock as a result of such default.
3.3 No Assumption of Seller's Obligations. Except as specifically
-------------------------------------
provided herein to the contrary, Purchaser shall not assume, or become obligated
with respect to, any obligation of Seller, including, but not limited to, the
following:
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<PAGE>
(a) Obligations of Seller now existing or which may arise prior to the
Cut-off Time with respect to any accounts payable or other payables;
(b) Obligations prior to the Closing Date of any term, covenant or
provision of any Employee Benefit Plan, Employment Contract, Hotel Contract or
Space Lease;
(c) Obligations of Seller now existing or which may hereafter exist
by reason of or in connection with any alleged misfeasance or malfeasance by
Seller in the conduct of its business, and with respect to any tort liability;
(d) Obligations to Employees with respect to any Compensation (or
pursuant to any Employment Contract or Employee Benefit Plan); and
(e) Obligations of Seller incurred in connection with or relating to
the transfer of the Property pursuant to this Agreement, including without
limitation, any Federal, state or local income, sales, transfer or other tax
incurred by reason of said transfer, all of which shall be the sole
responsibility of Seller.
3.4 Payment of the Note. Purchaser shall satisfy its obligations under
--------------------
the Note by delivering shares ("Shares") of common stock, par value $.01 per
share, of Parent, and/or cash to Seller, as the case may be, on or before the
Note's maturity date specified in the Note, subject to the following:
(a) Purchaser and Seller acknowledge that Purchaser shall deliver
Shares to Seller only if such Shares are the subject of Approved Sales (defined
below). The net proceeds realized by Seller from the sale of the Shares shall
be deducted from the balance of the Note. Seller agrees that it shall sell such
Shares only in bona fide private placements which are approved by Purchaser in
its absolute discretion to a person or persons not affiliated with, related to,
or associated with Seller ("Approved Sales"). Purchaser shall deliver to Seller
that number of Shares equal to the number of Shares which are sold pursuant to
Approved Sales and such delivery shall be accomplished so as to allow the
Approved Sales to be consummated on a timely basis.
(b) If the net proceeds actually received from Approved Sales are
less than the amount due under the Note, Purchaser shall also deliver cash to
Seller prior to the maturity date of the Note having a value equal to the
difference between the amount due under the Note and the net proceeds received
from Approved Sales. In the event no Approved Sales occur prior to the maturity
date of the Note, the Note shall be payable in cash on or before its stated
maturity date. Seller shall use the net proceeds received from Approved Sales
first to satisfy any mortgages or deeds of trust created or suffered by Seller
which are a lien on the Property. Notwithstanding the above, if net proceeds
received from Approved Sales are insufficient to satisfy any mortgages or deeds
of trust created or suffered by Seller which are a lien on the Property,
Purchaser shall set off against amounts due under the Note an amount equal to
such insufficiency and Purchaser shall apply such amount to satisfy and release
such liens.
- 8 -
<PAGE>
(c) The Note shall be paid pursuant to an escrow agreement to be
entered into between Purchaser, Seller and an escrow agent mutually agreed upon
by Purchaser and Seller, the form of which is attached hereto as Exhibit T. All
costs of such escrow shall be borne by Purchaser.
(d) Purchaser shall indemnify, defend, and hold Seller harmless
against and with respect to all losses, damages, liabilities, costs, and
expenses to which Seller may become subject under the Securities Act of 1933, as
amended, or otherwise in connection with or arising out of Approved Sales.
ARTICLE
INSPECTION PERIOD
4.1 Inspection Period. The "Inspection Period" shall be the period from
-----------------
the date hereof to 11:59 P.M. on June 30, 1996 (provided that such period shall
be extended on a day-for-day basis in the event Purchaser does not receive the
survey referenced in Section 6.3(a) hereof on or before June 23, 1996).
4.2 Submittals to Purchaser. Seller, at its expense, shall deliver (if
-----------------------
such are within Seller's possession or are reasonably available to Seller) to
Purchaser on or before June 26, 1996, true and correct copies of the following:
(a) the Permits, Hotel Contracts, Employment Arrangements, Employee
Benefit Plans, a summary of the amounts, dates, and credit information of
Material Bookings (whether for periods before or after the Closing Date), Space
Leases and notices of Violations (if any);
(b) a descriptive summary of the manner in which all Bookings are
made, whether oral or written, with or without deposits or firm or contingent
commitments for reservations, along with a copy of the written agreements or
confirmation letters used in connection with the Bookings;
(c) a descriptive summary of all pending or threatened litigation
listed on Exhibit L;
(d) the most recent real estate and personal property tax statements
for the Property;
(e) all Documents, including, but not limited to, the plans and
specifications;
(f) the most current inventory of all Fixtures and Tangible Personal
Property, Operating Equipment and Consumables;
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<PAGE>
(g) all other documents or instruments of record or otherwise
relating to the Property available to Seller;
(h) copies of all financial reports prepared by the accountant for
Seller for the fiscal year of Seller for the three (3) years preceding the date
hereof ("Submitted Financial Statements"); and
(i) information reflecting the insurance loss history of the Property
for the period from January 1, 1994 to the present and copies of all insurance
policies relating to the Property.
4.3 Review and Inspection. During the Inspection Period, Purchaser shall
---------------------
review the Submittals and shall have the right to enter upon the Real Property
to inspect the Property and to conduct tests and investigations at its sole cost
and expense, except as provided herein. Seller shall cooperate with Purchaser,
or its agents, in arranging such inspections. Without limitation of the
foregoing, Purchaser or Purchaser's accountants or both may review the Submitted
Financial Statements and, in connection therewith, Seller shall supply such
documentation as Purchaser or Purchaser's accountants may reasonably request to
facilitate such review. Purchaser shall conduct all such inspections and reviews
in confidence and so as not to interfere unreasonably with the operation of the
Hotel. During the Inspection Period, Purchaser may order an environmental
report, at Purchaser's sole cost and expense, to be conducted by an
environmental engineering firm selected by Purchaser (the "Environmental
Study").
4.4 Purchaser's Acceptance or Rejection. If, in its sole and absolute
-----------------------------------
discretion, Purchaser accepts the condition of the Property and the Submittals,
it shall give Seller written notice of such acceptance before expiration of the
Inspection Period. If Purchaser shall give Seller a notice of disapproval
before expiration of the Inspection Period or fails to give such notice, then,
without the necessity of further documentation, this Agreement shall be deemed
terminated and the Deposit and all interest earned thereon shall be returned to
Purchaser. Purchaser shall pay to Seller the sum of $100.00 as fixed and
liquidated compensation for such termination, and neither party shall have any
further obligation or liability to the other party hereunder. The parties
hereto acknowledge that Purchaser has incurred substantial costs in connection
with the negotiation and execution of this Agreement, will incur additional
substantial costs in conducting the inspections contemplated by Section 4.3 and
would not have entered into this Agreement without the availability of the
Inspection Period. Therefore, the parties agree that adequate consideration
exists to support the obligations of the parties hereunder, even before
expiration of the Inspection Period. Notwithstanding the above, if the
Inspection Period is extended due to Purchaser's receipt of the survey after
June 23, 1996, Purchaser may terminate this Agreement pursuant to the terms of
this Section 4.4 after June 30, 1996, only due to matters raised on such survey.
- 10 -
<PAGE>
4.5 Extension of Inspection Period. Purchaser shall have the option to
-------------------------------
extend the Inspection Period to July 15, 1996, subject to the following
provisions:
(a) Purchaser shall notify Seller on or before June 30, 1996 of
Purchaser's exercise of its option to extend the Inspection Period; and
(b) Purchaser shall deliver to Seller $25,000.00 which shall be earned
by Seller but treated as an additional Deposit provided, however, that such
additional Deposit shall not be subject to return to Purchaser pursuant to the
terms of Section 4.4 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Seller. Mona and O'Bannon, jointly
-----------------------------------------
and severally, hereby represent and warrant the following to Purchaser:
(a) Due Organization, etc. Seller has full power and authority (i) to
---------------------
own or lease its properties and to carry on its business as it is now being
conducted, (ii) to enter into this Agreement and to sell, convey, transfer,
assign, and deliver the Property to Purchaser as provided herein, and (iii) to
carry out the other transactions and agreements contemplated hereby. The
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby (other than the issuance and sale of Shares
pursuant to the Note), except as otherwise provided herein, do not require the
consent or approval of any governmental authority, nor shall such execution and
delivery result in a breach or Violation of any Legal Requirement, or constitute
a default (or an event which with notice and passage of time or both will
constitute a default) under any contract or agreement to which Seller is a party
or by which it or the Property is bound.
(b) Intentionally Omitted.
(c) Title to Personal Property. Seller has good and marketable title
--------------------------
to the Personal Property, subject only to the Permitted Exceptions. All items
of Personal Property have been fully paid for to the extent that normal business
practice permits, except those items which are subject to installment payments
and with respect to which there are no installments due which are delinquent.
(d) Permits. To Seller's knowledge, (i) Exhibit F identifies all
-------
existing Permits and is complete and correct in all material respects; (ii) such
Permits constitute all of the Permits
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<PAGE>
currently necessary for the ownership and operation of the Hotel; (iii) no
default has occurred in the due observance or condition of any Permit which has
not been heretofore corrected; and (iv) no Space Lessee has received any notice
from any source to the effect that there is lacking any Permit needed in
connection with the operation of the Hotel or any other operation connected
therewith.
(e) Hotel Contracts. Exhibit G identifies all material Hotel
---------------
Contracts and the information noted therein is complete and correct in all
material respects. Except as disclosed in Exhibit G, there is no default under
any Hotel Contract. Seller has provided (or will provide during the Inspection
Period) true and correct copies of all Hotel Contracts to Purchaser. Each Hotel
Contract (other than the Hotel Contracts designated as Material Contracts on
Exhibit G) may be cancelled upon 30 days' or less notice without penalty or
premium payment.
(f) Hotel Names. Exhibit O hereto identifies all Hotel Names and is
-----------
complete and correct in all respects. Seller has not received any notice that
the use of any thereof infringes on the rights of a third party.
(g) Space Leases. Exhibit J identifies all Space Leases and is
------------
complete and correct in all material respects. Except as disclosed in Exhibit
J, there is no default, under any Space Lease. Seller has given (or will give,
during the Inspection Period) to Purchaser true and correct copies of all Space
Leases. Seller owns all right, title and interest of the lessor under each
Space Lease.
(h) Commissions, etc. Except as may be disclosed on Exhibits G or J
----------------
and other than in the ordinary course of business in connection with Bookings,
there are no commissions or referral fees relating to the Hotel currently
outstanding, nor will there be any such commissions or referral fees
outstanding, on or before the Closing Date. Seller has not entered into any
agreements with any referral organization or booking agent which contain any
obligations that extend beyond the Closing Date.
(i) Impositions.
-----------
(i) Except as described on Exhibit N hereto, Seller has timely
filed all returns and reports for sales, use and property taxes required to
be filed by it with respect to the operation of the Property and has paid
in full or made adequate provision by the establishment of reserves for
Impositions which have become due with respect to the operation of the
Property. There is no sales, use or property tax deficiency proposed or
threatened against Seller with respect to the operation of the Property.
There are no tax liens upon any property or assets of Seller. Seller has
made all payments of sales, use and property taxes when due in amounts
sufficient to avoid the imposition of any penalty with respect to the
Property.
-12-
<PAGE>
(ii) Impositions which Seller was required by law to withhold
or to collect with respect to the Property have been duly withheld and
collected, and have been paid over to the proper governmental entity or are
being held by Seller for such payment, and all such withholdings and
collections and all other payments due in connection therewith as of the
date of the Submitted Financial Statements are duly reflected on the
Submitted Financial Statements.
(iii) Seller is not currently being audited by, and has not
received any notice of intention to audit from, any federal, state or local
sales, use or property taxing authority.
(j) Fixtures, Tangible Personal Property, etc. Each guest room
-----------------------------------------
contains furniture and furnishings consistent with Seller's historical
furnishing of such guest rooms. The quantities of Fixtures and Tangible
Personal Property, Consumables and Operating Equipment in the Hotel, including
physical reserves, are sufficient for the proper and efficient operation of the
Hotel in accordance with the standards of operation heretofore maintained by
Seller. Seller shall continue to maintain the same at a level consistent with
the average maintenance for the 12 months preceding the date hereof until the
Cut-off Time.
(k) Submitted Financial Statements. The Submitted Financial
------------------------------
Statements for the Hotel (which shall include the income of restaurants, bars,
retail rental space and garage portions of the Hotel, if any) fairly present the
results of operation of the Hotel for the periods indicated, and, except as set
forth as Exhibit D, were prepared in accordance with generally accepted
accounting principles, on a consistent basis, and there has been no material
adverse change in the results of the operations of the Hotel since the statement
dated for the period ended December 31, 1995.
(l) Bookings. Exhibit I identifies all Bookings for periods from and
--------
after the date hereof.
(m) Pending Litigation. Except as described in Exhibit L, there are
------------------
no actions, suits, or proceedings, pending or to Seller's knowledge threatened
against Seller or affecting any of Seller's rights, in each case, with respect
to the Property, at law or in equity, or before any federal, state, municipal,
or other governmental agency or instrumentality, which might result in any
order, injunction, decree or judgment having a material adverse effect on the
Hotel or the Property, nor is Seller aware of any facts which to its knowledge
might result in any action, suit or proceedings. Except as noted in Exhibit K,
to Seller's knowledge the Hotel complies with all Legal Requirements. Except as
noted in Exhibit K, Seller has not received any notice of any Violation of a
Legal Requirement which has not been heretofore corrected. Prior to the Closing
Date, any uncured Violations listed in Exhibit K and any other Violations that
arise shall be cured by Seller at its sole expense.
-13-
<PAGE>
(n) Condemnation. To the knowledge of Seller, there are no pending,
------------
or, threatened, condemnation proceedings or condemnation actions against the
Real Property or any of the rights-of-way located adjacent thereto.
(o) Intentionally Omitted.
(p) Assessments. To Seller's knowledge, no governmental assessment
-----------
for sewer, sidewalk, water, paving, electrical, power or other improvements is
pending or threatened, except as may be set forth on Exhibit C.
(q) Labor Disputes. During the three (3) years preceding the date
--------------
hereof, Seller has not experienced any labor disputes or labor trouble other
than routine grievances or organizational efforts, none of which have had a
material adverse effect on the operations of the Property.
(r) Employees. Exhibit H is a complete list of all Employees with
---------
their salaries, position and terms of employment; and (i) except as set forth on
Exhibit H, Seller is not a party to any Employment Arrangement and no union is
presently serving as collective bargaining agent for any Employees; (ii) to the
best of Seller's knowledge, no union presently is conducting or planning to
conduct an organizational campaign for any Employees; and (iii) with the
exception of the Employee Benefit Plans listed on Exhibit P, there is no
pension, profit-sharing, bonus or other employee benefit plan relating to
current or past Employees.
(s) Utilities. All utility equipment and facilities required for the
---------
operation and use of the Hotel are located on the Property and all agreements
for providing utilities are with direct providers.
(t) Material Changes. There are no facts or circumstances having
----------------
specific application to the Hotel (other than general economic or industry
conditions) not disclosed to Purchaser of which Seller has knowledge, which have
or could have a material adverse effect upon the Hotel. Seller agrees to notify
Purchaser immediately of such facts or circumstances if it becomes aware of the
same prior to the Closing Date.
(u) Environmental Matters.
---------------------
(i) Seller has not transported, stored, treated, or
disposed of, nor has it allowed or arranged for any third parties
to transport, store, handle, treat, or dispose (as hereinafter
defined) of Hazardous Substances or other waste to or at any
location other than a site lawfully permitted to receive such
Hazardous Substances or other waste for such purposes, nor has it
performed, arranged for, or allowed by any method or procedure
such transportation, storage, treatment, or disposal in
contravention of any laws or regulations or in a manner giving
rise to any liability
-14-
<PAGE>
whatsoever. Seller has not stored, handled, treated, or disposed
of, nor allowed or arranged for any third parties to store,
handle, treat, or dispose of Hazardous Substances or other waste
upon property owned or leased by it, except as permitted by law.
For purposes of this Section 5.1(u), the term "Hazardous
Substances" shall include, without limitation, any material or
substance that is one or more of the following: (i) defined as a
conventional, hazardous, toxic, regulated or solid pollutant,
contaminant, substance or waste pursuant to any Environmental Law
(as hereinafter defined), (ii) petroleum, (iii) asbestos, (iv)
corrosive, toxic, flammable, explosive, reactive, mutagenic,
carcinogenic, infectious or radioactive, (v) materials mixed
with, containing or derived from any of the foregoing or (xvii)
any material which is or becomes regulated by any Environmental
Law which is released (as hereinafter defined) at or from the
Real Property or which has migrated to or from the Real Property
or is found on the Real Property or any other site affected by
such release at, to, on or from the Real Property. The terms
release(d), transport(ed), store(d), treat(ed), handle(d),
arrange(d), dispose(d) and disposal shall have the meanings
assigned by the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C.A. Section 9601 et seq. ("CERCLA") or
the Resource Conservation and Recovery Act, 42 U.S.C.A. Section
6901 et seq. (42 U.S.C.A. Section 6903 ("RCRA").
(ii) To Seller's knowledge, there has not occurred
during Seller's occupancy nor is there currently occurring, a
release of any Hazardous Substance to, from, on, into, or beneath
the surface of the Land.
(iii) The Seller has not shipped, transported, or
disposed of, nor has it allowed or arranged, by contract,
agreement, or otherwise, for any third parties to ship,
transport, or dispose of, any Hazardous Substance or other waste
to or at a site which, pursuant to CERCLA or any similar state
law, (i) has been placed on the National Priorities List or its
state equivalent, or (ii) the Environmental Protection Agency or
the relevant state agency has proposed or is proposing to place
on the National Priorities List or its state equivalent. Seller
has not received written notice, nor does it have knowledge of
any facts which could give rise to any written notice, that
Seller is a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under CERCLA
or any other applicable law or regulation. Seller has not
submitted nor was it required to submit any notice pursuant to
Section 103(c) of CERCLA, or pursuant to any federal, state or
local requirement for notification of a release with respect to
the Real Property. Seller has not received any written request
for information from any federal, state or local governmental
authority in connection with any release. Seller has not been
required to or has not undertaken any response, investigation,
monitoring, or remedial actions or clean-up actions of any kind
at the request of any federal, state, or local governmental
entity, or at the request of any other person or entity.
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<PAGE>
(iv) Seller does not use, and has not used, any
Underground Storage Tanks, and there are not now nor to Seller's
knowledge have there ever been any Underground Storage Tanks on
the Land. For purposes of this Section 5.1(u)(iv), the term
"Underground Storage Tanks" shall have the meaning given it in
the Resource Conservation and Recovery Act (42 U.S.C. Sections
6901 et seq.).
(v) There is no asbestos in or on the Real Property.
(vi) Seller has not received written notice of any
violation, noncompliance or breach of any environmental or worker
safety laws or regulations which require any work, repairs,
construction, or capital expenditures with respect to the assets
or properties of Seller.
(vii) Exhibit U identifies: (i) all environmental
audits, assessments, or occupational health studies undertaken by
Seller or its respective agents or known to have been undertaken
by or at the order or request of governmental agencies; (ii) the
results of any ground, water, soil, air, or asbestos monitoring
or investigation undertaken with respect to the Real Property;
(iii) all written communications between Seller and any
environmental agencies; and (iv) all citations issued under the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et
seq.).
(viii) Seller's Environmental Indemnity.
(a) Definitions. Notwithstanding anything
-----------
contained in this Agreement to the contrary, for
purposes of this Agreement the following terms shall
have the following meanings:
"Environmental Claim" means any written
-------------------
claim, demand, notice of violation, injunction or order
for personal injury, including sickness, disease or
death, tangible or intangible property damage,
environmental stigma, lost profits or other business
losses, impaired financial value, damage to the
environment, nuisance, pollution, contamination or
reimbursement of cleanup costs or other adverse effects
on the environment, or for fines, penalties or
restrictions, arising or resulting from, based on,
caused by or related to the existence or the
continuation of the existence of Hazardous Substances
made, asserted or prosecuted by or on behalf of any
third party. Environmental Claim shall include, without
limitation, any costs or expenses incurred to
investigate, contain, remove, remedy, treat, or monitor
any Hazardous Substances and any media, including soil
and groundwater, impacted by Hazardous Substances, as
required
-16-
<PAGE>
by any Environmental Law or by regulatory enforcement
officials acting under or pursuant to any Environmental
Law, or by federal or state courts, lost profits, loss
of use, diminution in value, liens against the Real
Property relating to Hazardous Substances and any
failure or defect in title to the Real Property
occasioned by the migration from or presence of
Hazardous Substances or Seller's failure to comply with
any Environmental Law.
"Environmental Law" means any federal, state,
-----------------
or local statute, ordinance, rule, regulation, order,
consent decree, judgment or common law doctrine, or
interpretation thereof, as amended, and provisions and
conditions of permits, licenses and other operating
authorizations, as amended, related to protection,
remediation or restoration of the environment,
including natural resources, or protection of human
health, worker safety, industrial, agricultural or
silvicultural chemicals, pesticides, insecticides,
fungicides, rodenticides, fertilizers, toxic
substances, surface, subsurface or drinking water,
food, drugs, or cosmetics or related to cleanup, fines,
orders, injunctions, penalties, notification,
contribution, cost recovery, losses or injuries to
person or property resulting from contamination or
pollution or hazards to human health or welfare or the
environment which are now or may hereafter become in
effect including, without limitation, CERCLA and RCRA,
(collectively, as amended and together with all
regulations promulgated thereunder, "Environmental
Laws").
(b) Indemnification. Seller shall defend,
---------------
indemnify and hold harmless Purchaser, its nominees,
officers, directors, agents, employees, successors,
lenders, assigns, affiliates, subsidiaries, parent
companies (if any), shareholders, lenders,
representatives and the successors and assigns of all
of the foregoing from and against:
1. Environmental Claims; and
2. Fines and penalties imposed on Purchaser,
its successors, assigns, parents, subsidiaries,
officers, directors, shareholders, agents, employees,
lenders and representatives and the successors and
assigns of all of the foregoing as a result of a
violation by Seller of any Environmental Law arising
from or related to any Hazardous Substances; and/or
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<PAGE>
3. Any breach of any of representations and
warranties of Seller set out herein at Section
5.1(u)(i) through 5.1(u)(vii).
(c) Discharge of Environmental Claims. In
---------------------------------
the event that Purchaser notifies Seller of any claim
that may be subject to an indemnification obligation
under this Section 5.1(u), Seller shall, within thirty
(30) days from the date of receipt of notice,
acknowledge and assume the liability asserted. During
such thirty (30) day period, Purchaser shall not take
any action or incur any expense with respect to the
claim, except to the extent that such action or expense
is legally required or reasonably necessary under the
circumstances.
Seller shall have the right and obligation to
control, manage and direct all discussions, proceedings
and activities regarding the satisfaction or discharge
of any claim which is assumed by Seller or any
liability or obligation that such a claim seeks to
impose on Seller.
Purchaser shall have the right, at its own
expense, to consult with Seller, through counsel or
otherwise, with respect to all meetings and proceedings
with adverse parties or governmental authorities
regarding any Environmental Claim and with respect to
all activities pertaining to that matter. Prior to
initiating or participating in any meeting or
proceeding in which decisions or discussions adverse to
Purchaser may be made, Seller shall consult with
Purchaser. This right of consultation shall not apply
to confidential meetings or documents in cases where
Seller or Purchaser are disputing or litigating claims
against each other in a judicial or administrative
proceeding. Seller shall promptly notify Purchaser in
writing before Seller initiates or participates in any
meeting or proceeding in which decisions or discussions
adverse to Purchaser may be made, including without
limitation decisions or discussions concerning matters
not covered by this Agreement. Purchaser shall have the
right, but not the obligation, to participate in such
meetings or proceedings.
(d) Remedies. If Seller fails to perform its
--------
obligations under this Section 5.1(u), Purchaser may,
at its option (1) bring an action for injunction or
specific performance of this Section 5.1(u) or this
Agreement, and in such action, recover damages
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<PAGE>
suffered by Purchaser as a result of Seller's breach or
delay in performing its obligations, or (2) bring an
action for damages for Seller's breach of its
obligations, or (3) bring an action for response costs
or other relief under federal or state environmental
laws or regulations, or (4) any combination of the
above. In the event that Purchaser prevails in such an
action, it shall be entitled to recover from Seller the
costs and expenses of bringing the action, including
reasonable attorneys' fees. No delay or omission in the
exercise of any right or remedy accruing to Purchaser
upon any breach by Seller under this Agreement shall
impair any such right or remedy or be construed as a
waiver of such breach theretofore or thereafter
occurring. The waiver by Purchaser of any condition or
of any breach of any term, covenant or condition
contained in this Agreement shall not be deemed to be a
waiver of any other condition or of any subsequent
breach of the same or of any other term, covenant or
condition of this Agreement. All rights, powers,
options or remedies afforded to Purchaser either under
this Section 5.1(u) or this Agreement or by law or by
equity, shall be cumulative and not alternative and the
exercise of any right, power, privilege or remedy shall
not bar other rights, powers, privileges or remedies.
(e) Survival. Seller's obligations under
--------
this Section 5.1(u) shall survive (i) the closing of
the sale that is the subject of this Agreement for a
period of two (2) years and (ii) the termination of
this Agreement. All claims for indemnification pursuant
to this Section 5.1(u) must be made within two (2)
years from the Closing Date.
(v) Intentionally Omitted.
(w) Documents. Seller has made available to Purchaser all of the
---------
Documents; Seller knows of no other document or instrument relating to the
Hotel, or the ownership or operation thereof.
(x) Seller's Knowledge. For the purposes of this Section 5.1, the
------------------
phrases "to the best of Seller's knowledge," "to Seller's knowledge" and similar
phrases shall imply a reasonable inquiry by Seller of its employees (but shall
not require Seller to hire third party consultants).
(y) Third Party Property. Seller is not in possession of any property
--------------------
owned by third parties other than (i) property leased by Seller pursuant to
leases disclosed to Purchaser pursuant to this Agreement; (ii) baggage of
current guests which has been checked with or left in the care of Seller; and
(iii) contents in safe deposit boxes deposited by current guests.
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<PAGE>
(z) Investment Representations. Seller represents that it and its
--------------------------
partners have received a prospectus of Parent dated June 17, 1996.
(aa) Notices. No filing is required with any state or local taxing
--------
authority as a result of the bulk sale of Seller's business assets.
(bb) Seller's Predecessor. Any representation or warranty herein
--------------------
which is limited to Seller's ownership, occupancy or operation of the Property
shall include the period that the Property was owned, occupied, or operated by
Santa Fe Springs Partners, a Nevada general partnership.
5.2 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants the following to Seller:
(a) Authority. Purchaser has all requisite power and authority to
---------
execute and deliver this Agreement and to consummate the transactions
contemplated hereby pursuant to the terms and conditions hereof.
(b) No Conflict. The execution and delivery of this Agreement and the
-----------
consummation of the transactions contemplated hereby will not conflict with,
breach, result in a default under, or violate any commitment, document or
instrument to which Purchaser is a party or by which it is bound.
(c) Parent Shares. The Shares have been registered by the Parent
-------------
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "SEC"), a so-called "shelf" registration statement (the
"Registration Statement"), in accordance with the provisions of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "1933 Act"). Upon the issuance and delivery of the Shares to the Seller in
accordance with this Agreement, such shares will constitute legally and validly
authorized and issued, fully paid, and nonassessable shares of Common Stock. At
Closing, the Registration Statement shall have been declared effective under the
1933 Act and the Parent shall be in compliance with the undertakings contained
in the Registration Statement.
5.3 Duration of Representations and Warranties. All representations and
------------------------------------------
warranties contained in Sections 5.1 and 5.2 shall be deemed restated on and as
of the Closing Date.
ARTICLE VI
CLOSING MATTERS
6.1 Closing. The closing of the transaction contemplated hereby (the
-------
"Closing") shall take place at the offices of the Title Company on July 15, 1996
(the "Closing Date") unless Purchaser extended the Inspection Period pursuant to
Section 4.5 hereof, in which event the Closing Date shall be July 31, 1996, or
such other date as may be mutually agreed by the parties.
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<PAGE>
6.2 Manner of Closing. The transaction shall be closed with the
-----------------
concurrent delivery of the documents of title, transfer of interests, delivery
of the title policy described in Section 7.1(e) and the payment of the Purchase
Price.
6.3 Survey, Title Commitment and Searches.
-------------------------------------
(a) Survey. Purchaser intends to obtain a plat of survey ("Survey")
------
of the Property prepared by a surveyor licensed by the State of Nevada, in
conformity with Class A minimum detail requirements and the current standards
for Land Title Surveys of the American Title Association and American Congress
on Surveying and Mapping and such standards as are required by the Title Insurer
as a condition to the removal of any survey exceptions from the Title
Commitment, certified to Purchaser, Parent, its lender, if any, and the Title
Insurer after the date hereof, showing, without limitation of the foregoing
requirements, the following information with respect to the Property:
(i) the legal description and boundaries thereof;
(ii) the location and street and common addresses of
all improvements situated thereon;
(iii) the location, course and recording numbers, if
applicable, of all water, gas, electric, sewer line and other
easements, either visible or recorded, and party walls;
(iv) public and private streets, roads, alleys and
highways and their common or official names;
(v) record and physical access to and from a public
road or way;
(vi) no encroachments thereon or by any Improvements
located thereon on adjacent property;
(vii) the amount of gross square feet and net square
feet (that is, after deducting the area of that portion of the
Property, if any, lying in the existing or proposed right-of-way
of a public street or road) contained in the Real Property;
(viii) building lines or other restrictions affecting
the Property; and
(ix) whether any portion of the Property is located
in an area designated as being subject to flood hazards or flood
risks or wetlands by any agency of the United States of America.
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<PAGE>
(b) Title Commitment. Seller shall deliver to Purchaser, on or before
----------------
June 23, 1996, a title commitment for an ALTA Owner's Insurance Policy issued by
the Title Company ("Title Commitment") showing title to the Real Property in the
Seller, subject only to the Permitted Exceptions, containing full extended
coverage over all general exceptions, a 3.1 zoning endorsement (amended to
include parking), location, survey and contiguity endorsements, an endorsement
that the real estate tax bills for the Property do not include taxes pertaining
to other real estate, and such other endorsements as may be reasonably requested
by Purchaser, and dated after the date hereof. Seller shall also deliver full
and legible copies of all documents ("Title Papers") referred to in the Title
Commitment.
(c) Defects. If the Survey, Title Commitment, or UCC, judgment, and
-------
tax lien searches on the names of Seller (collectively, "Title Documents") shall
reflect any facts that would result in a Title Defect, Seller shall have thirty
(30) days from the expiration of the Inspection Period within which to cure or
remove the Title Defect. Seller shall be obligated to remove mortgages, deeds
of trust and other liens or encumbrances for the payment of money of a definite
and ascertainable amount, which the parties agree may be removed by the use of
the proceeds of sale at Closing as provided in Section 6.3(d) below. In the
alternative, Seller may make arrangements satisfactory to the Title Company for
the cure (including insurance over) or removal of record of any such Title
Defect. If any such Title Defect is not cured or otherwise provided for as
aforesaid on or prior to the thirtieth (30th) day, the Purchaser shall either:
(i) terminate this Agreement, in which event (hereinafter referred to as
"Election No. 1") the Deposit and all interest earned thereon shall be returned
to Purchaser and the parties shall have no further obligation or liability to
each other hereunder; or (ii) accept the Title Commitment, Survey, or Searches
as is, with the right, however, to deduct the amount of Title Defects
represented by liens or encumbrances for the payment of money of a definite or
ascertainable amount from the Purchase Price payable at Closing (hereinafter
referred to as "Election No. 2"). Title Defects which are acceptable as part of
Election No. 2 shall thereupon be deemed to be Permitted Exceptions and Exhibit
C shall be amended, if necessary, to include such additional Permitted
Exceptions. Election No. 2 shall be made by the Purchaser giving Seller written
notice thereof within five (5) days after notice of Seller's inability to cure
or remove the Title Defect and in the absence of notice of Election No. 2 within
such five (5) day period, Purchaser shall be deemed to have elected Election No.
1. In the event Purchaser elects Election No. 1 and a Title Defect was created
or consented to by Seller, Purchaser shall be paid by Seller the actual costs of
Purchaser's investigation not to exceed $25,000.00 in addition to recovery of
the Deposit.
(d) Removal of Liens, etc. If on the Closing Date there shall be any
---------------------
Title Defect created to secure the payment of money, then Seller shall either
(a) use a portion of the Purchase Price to satisfy the same, provided Seller
shall simultaneously either deliver to Purchaser at Closing instruments, in
recordable form, sufficient to satisfy such Title Defect of record, together
with the cost of recording or filing said instrument; or (b) in the alternative,
make arrangements with the Title Company, in advance of Closing, whereby Seller
will deposit with the Title Company sufficient monies, acceptable to the Title
Company to induce the Title Company to issue the Title Policy to
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<PAGE>
Purchaser, either free of any such Title Defect or with insurance which "insures
over" such Title Defect. Purchaser agrees to provide at Closing separate
certified checks as requested, to facilitate the satisfaction of any such Title
Defects, if request is made within a reasonable time prior to the Closing Date.
The existence of any Title Defects capable of satisfaction by the payment of
money shall not be deemed to be Title Defects for the purposes of cure periods,
as discussed supra in Section 6.3(c), if Seller shall comply with the foregoing
-----
requirements.
ARTICLE VII
CLOSING DELIVERIES
7.1 Seller's Deliveries. At Closing, Seller shall deliver, or cause to be
-------------------
delivered to Purchaser, the following, each of which shall be in form and
substance reasonably acceptable to counsel for Purchaser and, in the case of
documents of transfer or conveyance, shall be accepted or consented to by all
parties required to make such transfer or conveyance effective:
(a) a recordable grant, bargain, and sale deed from Seller to
Purchaser subject only to the Permitted Exceptions;
(b) a Bill of Sale, with special covenants of title, transferring to
Purchaser all of Seller's right, title and interest in and to each and every
item of Fixtures and Tangible Personal Property, Documents, Consumables and
Operating Equipment to be transferred hereunder subject only to Permitted
Exceptions, and with respect to any vehicles included therein, such separate
forms of assignment as are required to be filed with any governmental agency to
effect such change in registration of ownership;
(c) all of the Bookings, Hotel Contracts, Space Leases, Permits and
other tangible Miscellaneous Hotel Assets, together with an Assignment conveying
and transferring to Purchaser all of Seller's right, title and interest in, to
and under the Bookings, Hotel Contracts, Space Leases, Permits (other than
Excluded Permits) and all other Miscellaneous Hotel Assets;
(d) the certificates referred to in Section 10.1(b) hereof;
(e) a FIRPTA Certificate;
(f) evidence of termination of the Employees;
(g) the opinion of Seller's counsel as provided by Section 10.1(c);
(h) a Non-Compete Agreement substantially in the form of Exhibit R
executed by Michael J. Mona, Jr. and Dean O'Bannon; and
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<PAGE>
(i) evidence, satisfactory to Purchaser, of the termination of all
management agreements and other management arrangements with respect to the
Hotel.
7.2 Purchaser's Deliveries. At the Closing, Purchaser shall cause to be
----------------------
delivered to Seller:
(a) the Note;
(b) the certificate referred to in Section 9.1(b) hereof;
(c) the opinion of Purchaser's counsel as provided by Section 9.1(c);
and
(d) the written undertaking of Purchaser as provided by Section
9.1(d).
7.3 Concurrent Transactions. All documents or other deliveries required
-----------------------
to be made by Purchaser or Seller at Closing, and all transactions required to
be consummated concurrently with Closing, shall be deemed to have been delivered
and to have been consummated simultaneously with all other transactions and all
other deliveries, and no delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until all deliveries
required by Purchaser, or its designee, and Seller shall have been made, and all
concurrent or other transactions shall have been consummated.
7.4 Further Assurances. Seller and Purchaser will, at the Closing, or at
------------------
any time or from time to time thereafter, upon request of either party, execute
such additional instruments, documents or certificates as either party deems
reasonably necessary in order to convey, assign and transfer the Property to
Purchaser, hereunder.
7.5 Possession. Possession of the Property shall be delivered at Closing.
----------
Subject to the provisions of Section 17.1(e), Excluded Assets (other than any
thereof under leases to be assumed by Purchaser) shall be removed from the Hotel
by Seller, at its expense, on or before the Closing Date. Seller, at its
expense shall make all repairs necessitated by such removal but shall have no
obligation to replace any Excluded Asset so removed.
ARTICLE VIII
ADJUSTMENTS AND PRORATIONS
8.1 Adjustments and Prorations. The following matters and items shall be
--------------------------
apportioned between the parties hereto or, where appropriate, credited in total
to a particular party, as of the Cut-off Time as provided below:
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(a) Down Payments for Reservations. Any pre-closing down payments
------------------------------
made to Seller on confirmed reservations for dates after the Closing Date will
be credited to Purchaser as of the Closing. Any post-closing down payments made
to Seller on confirmed reservations for dates after the Closing Date will be
forwarded to Purchaser upon receipt.
(b) Taxes and Assessments. All ad valorem taxes, special or general
---------------------
assessments, personal property taxes, attorneys' fees directly related to the
reduction of taxes or assessments, water and sewer rents, rates and charges,
vault charges, canopy permit fees, and other municipal permit fees. If the
amount of any such item is not ascertainable on the date the proration schedule
is completed pursuant to Section 8.3, the credit therefor shall be based on one
hundred percent (100%) of the most recent available bill and shall be reprorated
upon receipt of the actual tax bill. Notwithstanding the above, special real
property tax assessments for which the work is substantially completed as of the
Closing Date shall be paid by Seller.
(c) Utility Contracts. Telephone and telex contracts and contracts
-----------------
for the supply of heat, steam, electric power, gas, lighting and any other
utility service, with Seller receiving a credit for each deposit, if any, made
by Seller as security under any such public service contracts if the same is
transferable and provided such deposit remains on deposit for the benefit of
Purchaser. Where possible, cut-off readings will be secured for all utilities on
the Closing Date.
(d) Hotel Contracts and Space Leases. Any amounts prepaid or payable
--------------------------------
under any Hotel Contracts and Space Leases shall be apportioned between the
parties. Any percentage rentals under Space Leases shall be prorated on the
basis of the ratio of the number of days expired before Closing to the number of
days after Closing, for the current percentage rent period of the Space Lease.
All security deposits held by Seller shall be transferred to Purchaser and all
obligations with respect to such security deposits shall be assumed by
Purchaser.
(e) License Fees. Fees paid or payable for Permits (other than
------------
Excluded Permits) shall be apportioned between the parties.
(f) Hotel Matters.
-------------
(i) Advance payments, if any, under Bookings for Hotel
facilities (which shall include prepaid amounts by current
guests);
(ii) Coin machine, telephone, washroom and checkroom
income; and
(iii) Commissions to credit and referral
organizations.
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<PAGE>
(g) Employment Arrangements. Seller shall be responsible for, and
-----------------------
shall pay when due, all Compensation of Employees. Purchaser assumes no
Employment Arrangements or other obligation with respect to any Employee
Benefits, all of which, together with any sums due any Employee as a consequence
of the termination of his employment, shall be the responsibility of Seller.
(h) Consumable Items. The cost of any Consumables or Operating
----------------
Equipment which are at a level below the level required to be maintained under
this Agreement shall be credited to Purchaser.
(i) Other. Such other items as are provided for in this Agreement or
-----
as are normally prorated and adjusted in the sale of a hotel, including without
limitation, all petty cash funds and cash in house banks, and all deposits and
prepaid items which inure to the benefit of the Purchaser.
8.2 Receivables. Purchaser is not purchasing any of the receivables of
-----------
the Hotel and Seller shall be solely responsible for the collection of accounts
receivable arising prior to the Closing Date. If Purchaser shall receive any
payment made on any unpurchased accounts receivable within ninety (90) days
after the Closing Date, it shall promptly remit such payment to Seller. With
regard to any collection made from any person or entity who is indebted to the
Hotel both with respect to accounts receivable accruing prior to the Closing
Date and to the accounts receivable accruing subsequent to the Closing Date,
such collection shall be applied as designated by the payor, but if there is no
designation, then any such collections received within ninety (90) days after
the Closing Date shall be applied first to the indebtedness accrued prior to the
Closing Date, but thereafter, any such collections shall be applied first to the
payment in full of any amounts due to Purchaser on accounts accruing subsequent
to the Closing Date.
8.3 Proration Schedule.
------------------
(a) Preparation and Review. A schedule setting forth the adjustments
----------------------
and prorations to be made pursuant to Section 8.1 above shall be prepared by
Purchaser and forwarded to Seller within thirty (30) days after the Closing
Date. Seller shall be afforded the opportunity to review all work papers and
computations used by Purchaser in the preparation of the adjustments and
prorations. The schedule as delivered shall be deemed accepted by Seller except
to the extent, if any, that Seller, within ten (10) days after the date of
delivery thereof to Seller, has delivered a written notice to Purchaser stating
any exceptions Seller may have to such schedule. If within such period Seller
shall give written notice to Purchaser of any exceptions to the schedule as
delivered by Purchaser, the parties shall attempt to resolve all of the
exceptions. To the extent that any such exceptions are not resolved within
fifteen (15) days after the delivery to Purchaser of Seller's exceptions to the
schedule, such differences shall be submitted as soon as practicable thereafter
to such "Big Six" accounting firm upon which the parties shall agree, for final
determination thereof. If the parties are not able to agree upon an accounting
firm, each shall designate a "Big Six"
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<PAGE>
accounting firm and give written notice to the other of the name and
address of the firm so designated. The two firms shall consult with
each other and, if possible, determine the exceptions in question by
mutual agreement, and their determination so agreed upon, if certified
to the parties prior to their reaching agreement independently of
arbitration, shall be final and conclusive. If the two firms are not
able to agree upon the exceptions in question, they jointly shall
designate a third firm whose determination concerning the exceptions
shall be final and conclusive, if certified to the parties prior to
their reaching agreement independent of arbitration. Any determination
by such accounting firm(s) as to the proper determination of any such
item submitted to it for determination shall be conclusive and binding
upon the parties for purposes of this Agreement. Seller and Purchaser
shall each pay one-half of such fees charged by such accounting
firm(s) in connection with any matter submitted to it hereunder.
(b) Payment of Adjustments. The net amount due pursuant to the
----------------------
adjustments and prorations made as required by this Section 8.3 shall be paid by
cash or bank cashier's check payable in immediately available funds in United
States currency to the order of the party to whom the same shall be due upon
final determination of the adjustments and prorations required hereunder. Seller
agrees that prior to the time that payment is made pursuant to Section 8.3(b),
it shall not make final liquidating distributions.
(c) Period for Recalculation. Notwithstanding the foregoing, if at
------------------------
any time within six (6) months following the Closing Date, either party
discovers any items which should have been included in the prorations but were
omitted therefrom, then such items shall be adjusted in the same manner as if
their existence had been known at the time of the preparation of the prorations.
The foregoing limitations shall not apply to any items which, by their nature,
cannot be finally determined within the periods specified.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
9.1 Conditions. Seller's obligation to close hereunder shall be subject
----------
to the occurrence of each of the following conditions, any one or more of which
may be waived by Seller in writing:
(a) Purchaser's Compliance with Obligations. Purchaser shall have
---------------------------------------
complied with all obligations required by this Agreement to be complied with by
Purchaser.
(b) Truth of Purchaser's Representations and Warranties. The
---------------------------------------------------
representations and warranties of Purchaser contained in Section 5.2 were true
in all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Seller shall have received a
certificate to that effect signed by an authorized agent of Purchaser.
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(c) Opinion of Purchaser's Counsel. Purchaser shall have delivered to
------------------------------
Seller a favorable written opinion of Pedersen & Houpt in connection with this
transaction, dated the Closing Date, as to (i) the power and authority of
Purchaser to execute and deliver this Agreement, (ii) the due authorization,
execution and delivery by Purchaser of this Agreement, and (iii) the legality,
validity and, as to Purchaser, the binding effect of this Agreement (subject to
the effect of bankruptcy and similar laws affecting the enforcement of
creditors' rights generally and to the discretion of a court of equity to
enforce equitable remedies).
(d) Opinion of Purchaser's Securities Counsel. Purchaser shall have
-----------------------------------------
delivered to Seller the written undertaking of Purchaser to provide to Seller
the favorable written opinion of Bell, Boyd & Lloyd, dated at the time of each
Approved Sale, that such Approved Sale complies or will comply with the
requirements of this Agreement, the 1933 Act and any state blue sky or other
securities laws applicable to the Approved Sale.
(e) Delivery of Current Prospectus. Seller shall have received
------------------------------
Parent's current, effective prospectus that does not reflect any material
adverse change from the prospectus of Parent dated June 17, 1996.
9.2 Failure of Conditions. If any of the conditions enumerated in Section
---------------------
9.1 are not fulfilled and, as a consequence thereof, Seller elects to terminate
this Agreement, such failure shall be deemed a default by Purchaser hereunder
and the consequences thereof shall be governed by the provisions of Section 3.2.
ARTICLE X
CONDITIONS TO PURCHASER'S OBLIGATIONS
10.1 Conditions. Purchaser's obligation to close hereunder shall be
----------
subject to the occurrence of each of the following conditions, any one or more
of which may be waived by Purchaser in writing:
(a) Seller's Compliance with Obligations. Seller shall have complied
------------------------------------
with all obligations required by this Agreement to be complied with by Seller.
(b) Truth of Seller's Representations and Warranties. The
------------------------------------------------
representations and warranties of Seller contained in Section 5.1 were true in
all material respects when made, and are true in all material respects on the
Closing Date (or any deferred Closing Date), and Purchaser shall have received a
certificate to that effect signed by an authorized agent of Seller.
(c) Opinion of Seller's Counsel. There shall have been delivered to
---------------------------
Purchaser a favorable opinion of Jones, Jones, Close & Brown, counsel to Seller
in connection with this transaction, dated the Closing Date as to (i) the power
and authority of Seller to execute and deliver
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this Agreement; (ii) the due authorization, execution and delivery by Seller of
this Agreement and all other documents required to be executed and delivered by
Seller pursuant to Section 7.1 hereof; and (iii) the legality, validity and, as
to Seller, the binding effect of this Agreement and all other documents required
to be executed and delivered by Seller pursuant to Section 7.1 hereof (subject
in each case to the effect of bankruptcy and similar laws affecting creditors'
rights generally and to the discretion of a court of equity to enforce equitable
remedies).
(d) Estoppel Certificates--Hotel Contracts. Purchaser shall notify
--------------------------------------
Seller, in writing at least thirty (30) days prior to the Closing Date, of the
Material Contracts for which Purchaser requires estoppel certificates. Each of
said estoppel certificates shall be in writing from the parties to such Material
Contract stating that such Material Contract is in full force and effect, has
not been amended or modified except as therein indicated, that such party
consents to the assignment to Purchaser and that no party is then in default
under such Material Contract (or if any default is known to exist, or would
arise with the giving of notice or the passage of time, stating the nature of
such default). The estoppel certificates herein referred to shall be in form
and substance reasonably satisfactory to Purchaser and dated not more than
thirty (30) days prior to the Closing Date.
(e) No Pending Adverse Litigation. On the Closing Date, there shall
-----------------------------
not then be pending or, to the knowledge of either Purchaser or Seller,
threatened, any litigation, administrative proceeding, investigation or other
form of governmental enforcement, or executive or legislative proceeding which,
if determined adversely, would restrain the consummation of any of the
transactions herein referred to, declare illegal, invalid or non-binding any of
the covenants or obligations of the parties herein, or have a material and
adverse effect on the operations or cash flow of the Hotel, or materially and
adversely affect the value of the Property or the ability of Purchaser, after
the Closing, to operate the Hotel in the manner contemplated hereby, other than
those matters previously disclosed and approved by Purchaser.
(f) Related Transaction. The transactions contemplated by the certain
-------------------
Agreement to Purchase Hotel of even date herewith by and between St. Louis
Manor, Inc. and ESA Properties, Inc. shall have been consummated.
(g) Title Policy. Purchaser shall have received an ALTA Owner's
------------
Insurance Policy issued by the Title Company in exact conformity with the Title
Commitment in favor of Purchaser, in the amount of the Purchase Price, showing
good and marketable fee simple title in the Real Property to be vested in
Purchaser, subject only to Permitted Exceptions (the "Title Policy").
10.2 Failure of Conditions. If any of the conditions enumerated in
---------------------
subsections (d) and (e), of Section 10.1 are not fulfilled, then the sole remedy
of Purchaser shall be to terminate this Agreement (whereupon the Deposit and all
interest earned thereon shall be returned to Purchaser and neither party shall
have any further obligation or liability hereunder), unless the failure to
fulfill such condition constitutes, or results from, either (i) a material
breach of an express representation or
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warranty made by Seller hereunder, or (ii) a material default of an express
covenant made by Seller hereunder, in which event Purchaser shall be entitled to
pursue against Seller any and all remedies available to Purchaser, at law or in
equity. If any of the conditions enumerated in subsections (a), (b) and (c) of
Section 10.1 are not fulfilled and, as a consequence thereof, Purchaser elects
to terminate this Agreement, such failure shall be deemed a default by Seller
hereunder, the Deposit and all interest earned thereon referred to in Section
3.2 shall be promptly returned to Purchaser, and Purchaser shall be entitled to
pursue against Seller any and all remedies available to Purchaser, at law or in
equity.
ARTICLE XI
ACTIONS AND OPERATIONS PENDING CLOSING
11.1 Actions and Operations Pending Closing. Seller agrees that after the
--------------------------------------
expiration of the Inspection Period and until the Closing Date:
(a) The Hotel will continue to be operated and maintained
substantially in accordance with present standards.
(b) Seller will not enter into any new Material Contract or Space
Lease, or cancel, modify or renew any existing Material Contract or Space Lease,
without the prior written consent of Purchaser, which consent shall not be
unreasonably withheld. If Purchaser fails to respond to a request for consent
within 15 business days after receipt of such request, such consent shall be
deemed given.
(c) Seller shall have the right, without notice to or consent of
Purchaser, to make Bookings in the ordinary course of business, at no less than
the Hotel's standard rates including customary discounted rates. Additionally,
Seller agrees to entertain in good faith Purchaser's suggestions relating to the
policy of the Hotel with respect to future Bookings and extension of credit.
(d) Seller shall use commercially reasonable efforts to preserve in
force all existing Permits and to cause all those expiring to be renewed prior
to the Closing Date. If any such Permit shall be suspended or revoked, Seller
shall promptly so notify Purchaser and shall take all measures necessary to
cause the reinstatement of such Permit without any additional limitation or
condition.
(e) Seller shall notify Purchaser promptly if Seller becomes aware of
any transaction or occurrence prior to the Closing Date which would make any of
the representations or warranties of Seller contained in Section 5.1 not true in
any material respect.
(f) Seller will maintain in effect, all policies of casualty and
liability insurance,
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or similar policies of insurance, with the same limits of coverage which it now
carries with respect to the Hotel.
(g) Seller will not dispose of any of the Property, except in the
ordinary course of business and in accordance with this Agreement.
(h) Seller shall allow Purchaser and its agents or representatives to
inspect the Property, and all books and records relating thereto, at such times
as Purchaser may reasonably request, provided such inspection does not
unreasonably interfere with the continued operation of the Hotel in the ordinary
course of business. Purchaser shall also have the right to have, and Seller
shall provide accommodations for, a full-time on-site representative to observe
the operations of the Hotel. Such accommodations shall be rent-free except for
those nights when all other guest rooms at the Hotel are fully occupied, in
which event Purchaser shall reimburse Seller for such nights at the Hotel's
lowest corporate rate for such accommodations. Purchaser agrees that the
results of all such observations will be treated as confidential, and Purchaser
shall not disclose the same to any other person or entity except for Purchaser's
counsel, accountants, and other agents or representatives consulted in
connection with the acquisition of the Hotel. In the event that the sale is not
consummated, any and all Documents, reports, financial and operating information
obtained by Purchaser or its representatives shall be returned to the Seller.
ARTICLE XII
CASUALTIES AND TAKINGS
12.1 Casualties.
----------
(a) If any damage to the Property shall occur prior to the Closing
Date by reason of fire, windstorm, hail, explosion or other casualty, and if, in
Purchaser's reasonable judgment, the cost of repairing such damage will exceed
Fifty Thousand Dollars ($50,000.00), Purchaser may elect to: (i) terminate this
Agreement by giving written notice to Seller in which event the Deposit and all
interest earned thereon shall be returned to Purchaser and neither party shall
have any further obligations or liability whatsoever to the other hereunder or
(ii) receive an assignment of all of Seller's rights to any insurance proceeds
(including business interruption proceeds) relating to such damage and acquire
the Property without any adjustment in the purchase price provided that, in such
latter event, Seller shall pay to Purchaser the amount of any deductible under
applicable insurance policies.
(b) If, in the reasonable business judgment of the insurance adjuster
or other representative of the insurer of the Property, the cost of repairing
such damage will not exceed Fifty Thousand Dollars ($50,000.00), the
transactions contemplated hereby shall close without any adjustment in the
Purchase Price, Purchaser shall receive an assignment of all of Seller's rights
to
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any insurance proceeds (including business interruption proceeds), and Seller
shall pay to Purchaser the amount of any deductible under applicable insurance
policies.
12.2 Takings. In the event of the actual or threatened taking (either
-------
temporary or permanent) in any condemnation proceedings by exercise of right of
eminent domain, of all or any part of the Real Property, between the date hereof
and the Closing Date, and if, in Purchaser's reasonable judgment, such taking
will result in the inability to conduct the operations of the Hotel
substantially in accordance with the present standards, Purchaser may elect to:
(i) terminate this Agreement by giving written notice to Seller, in which event
the Deposit and all interest earned thereon shall be returned to Purchaser and
neither party shall have any further obligations or liability whatsoever to the
other hereunder or (ii) receive an assignment of all of Seller's rights to any
condemnation award relating to such taking and acquire the Property without any
adjustment in the Purchase Price.
ARTICLE XIII
EMPLOYEES
13.1 Employees, Compensation and Indemnification. Purchaser shall have the
-------------------------------------------
continuing right to review all employment records and files of, and to
interview, Employees. Seller shall terminate its employer-employee relationship
with all Employees as of the Cut-off Time. Seller shall be solely responsible
for all Compensation and other liabilities with respect to Employees and
liabilities and obligations to Employees pursuant to any Employment Arrangement.
Purchaser shall not be responsible for any such liability or obligations and
Seller agrees to indemnify and hold Purchaser harmless from and against any such
liability or obligations. All Compensation, obligations, liabilities and claims
(including any under the Fair Labor Standards Act) to or by any Employee of
Seller arising or occurring prior to the Cut-off Time shall be the
responsibility of Seller. Purchaser shall not be responsible for any
Compensation thereof and Seller agrees to indemnify and hold Purchaser harmless
from and against same. Purchaser shall not assume or be liable upon any
Employment Arrangement of Seller.
ARTICLE XIV
INDEMNITIES
14.1 Seller's Indemnity. Mona and O'Bannon agree jointly and severally, to
------------------
indemnify, defend (with Purchaser having the right to retain counsel for the
purpose of participating in such defense, at its sole cost and expense) and hold
Purchaser harmless against and with respect to the following:
(a) any and all obligations, liabilities, claims, accounts, demands,
liens or encumbrances, whether direct or contingent and no matter how arising
("Indemnifiable Damages"), in any way related to the Property and arising or
accruing on or before the Closing Date (including,
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but not limited to, any damage to property or injury to or death of any person);
without limitation on the generality of the foregoing, Mona and O'Bannon
indemnify Purchaser from any claim or judgment under any lawsuit or proceeding
filed or pending prior to the Closing Date against the Property, or any part
thereof, and any costs or expenses (including reasonable attorneys' fees)
heretofore or hereafter incurred in connection with any such lawsuit or
proceeding;
(b) any loss or damage to Purchaser resulting from any inaccuracy in
or breach of any representation or warranty of Seller or resulting from any
breach or default by Seller of any obligation of Seller under this Agreement;
and
(c) all costs and expenses, including reasonable attorneys' fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.2 Purchaser's Indemnity. Purchaser agrees to indemnify, defend (with
---------------------
Seller having the right to retain counsel for the purpose of participating in
such defense, at its sole cost and expense), and hold Seller harmless against
and with respect to the following:
(a) any loss or damage to Seller, subsequent to the Closing Date,
resulting from any inaccuracy in or breach of any representation or warranty of
Purchaser under this Agreement;
(b) any injury to person or property causing any loss or damage to
Seller resulting from or arising out of work performed by Purchaser pursuant to
Section 11.1(h) hereof;
(c) any and all Indemnifiable Damages in any way related to the
Property and arising or accruing after the Closing Date (including, but not
limited to, any damage to property or injury to or death of any person); and
(d) all costs and expenses, including reasonable attorney's fees,
related to any actions, suits or judgments incident to any of the foregoing.
14.3 Notice of Claims. Seller and Purchaser, as applicable, shall promptly
----------------
notify the other in the event any claim is made against Seller or Purchaser as
to which the other party has agreed to indemnify and the indemnitor shall
thereupon undertake to defend and hold the indemnitee saved and harmless
therefrom.
ARTICLE XV
SECURITIES LAW MATTERS
15.1 Disposition of Shares. The Seller represents and warrants that the
---------------------
Shares are being acquired and will be acquired for its own account and will not
be sold or otherwise disposed of except pursuant to (i) the provisions of Rule
145(d) under the 1933 Act, as in effect at the time of sale, (ii) some other
exemption or exclusion from the registration requirements under the 1933 Act,
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which does not require the filing by the Parent with the SEC of any registration
statement, offering circular, or other document, in which case the Seller shall
first supply to the Parent an opinion of counsel (which opinion and counsel
shall be satisfactory to the Parent) that such exemption or exclusion is
available, or (iii) the Registration Statement provided that (a) sales pursuant
to the Registration Statement are made to or through a broker, dealer, or market
maker, (b) in connection with such sales, the Seller delivers a copy of a
current Prospectus forming a part of the Registration Statement which prospectus
identifies the Seller as being able to use such Prospectus to make resales in
the public market of Shares acquired pursuant to this Agreement, and (c) the
Seller notifies the Parent in writing at least five business days prior to the
first day the Seller intends to execute a sale transaction of the Shares
pursuant to the Registration Statement and the Parent consents in writing to
such sale. The Seller hereby acknowledges that the Parent is entitled in its
absolute discretion to withhold such consent if, and for such period of time as,
in the opinion of the management of the Parent, (i) securities laws applicable
to such sale of Shares by the Seller pursuant to the Registration Statement
would require the Parent to disclose material non-public information, or (ii)
such sale would occur during (a) the measurement period for determining the
amount of Common Stock or other consideration, the amount of which will be based
on the price of the Common Stock, to be paid in connection with the acquisition
of a business or assets to which the Parent or any of its subsidiaries is a
party or (b) the marketing period of an offering of securities of the Parent.
15.2 Acknowledgment of Restrictions. The Seller acknowledges that, under
------------------------------
current SEC interpretations of Rule 145, the Seller is subject to restrictions
on transfer of the Shares for a period of two years following the Closing Date
and that an exemption from the requirement to register the Shares for public
resale is provided by Rule 145(d).
15.3 Evidence of Compliance. The Seller further covenants and agrees that
----------------------
the Parent will be supplied with such written evidence of compliance by it and
its broker with Rule 145(d) as in effect at the time of any sale by it pursuant
thereto, as the Parent may reasonably request.
15.4 Legend. The Seller agrees that the certificates for the Shares
------
received shall bear the following legend:
The Shares represented by this certificate are subject to the
provisions of Rule 145(d) promulgated under the Securities Act of
1933, and may not be transferred or disposed of by the holder without
compliance with said Rule unless registered under said Act or pursuant
to another applicable exemption from the requirements of said Act.
and that the Parent may place stop transfer orders with its transfer agents with
respect to such certificates. The appropriate portions of the legend will be
removed at such time or times as the Seller may reasonably request if at the
time of such request the Seller is not an Affiliate (as defined in the 1933 Act)
of the Parent, upon the expiration of the two-year holding period provided in
Rule 145(d).
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ARTICLE XVI
NOTICES
16.1 Notices. Except as otherwise provided in this Agreement, all notices,
-------
demands, requests, consents, approvals and other communications (herein
collectively called "Notices") required or permitted to be given hereunder, or
which are to be given with respect to this Agreement, shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by overnight express courier, postage
prepaid, addressed to the party to be so notified as follows:
If intended for Seller, to: Mr. Michael J. Mona, Jr.
M&M Development
1785 E. Sahara, Suite 315
Las Vegas, Nevada 89104
Copies to: Jones, Jones, Close & Brown
3773 Howard Hughes Parkway
Third Floor South
Las Vegas, Nevada 89109
Attn: Ms. Jodi R. Goodheart
If intended for Extended Stay America, Inc.
Purchaser, to: 500 East Broward Blvd., #950
Ft. Lauderdale, Florida 33394
Attn: Mr. Robert A. Brannon
Copies to: Pedersen & Houpt
161 North Clark, Suite 3100
Chicago, Illinois 60601
Attn: Mr. Michael W. Black
Notice mailed by registered or certified mail shall be deemed received by
the addressee three (3) days after mailing thereof. Notice personally delivered
shall be deemed received when delivered. Notice mailed by overnight express
courier shall be deemed received by the addressee two (2) days after mailing
thereof. Either party may at any time change the address for notice to such
party by mailing a Notice as aforesaid.
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ARTICLE XVII
ADDITIONAL COVENANTS
17.1 Additional Covenants. In addition, the parties agree as follows:
--------------------
(a) Expenses. Seller shall be responsible for the payment of all
--------
sales and use taxes and fifty percent (50%) of all transfer taxes. Purchaser
shall be responsible for the payment of all recording fees, fifty percent (50%)
of all transfer taxes, all escrow fees, all costs of the Survey, and all title
insurance premiums and charges for the issuance of the Title Policy and all
other closing charges. The fees and expenses of Seller's designated
representatives, accountants and attorneys shall be borne by Seller, and the
fees and expenses of Purchaser's designated representatives, accountants and
attorneys shall be borne by Purchaser.
(b) Brokerage. Seller and Purchaser each hereby represent and warrant
---------
to the other that neither has dealt with any broker or finder in connection with
the transaction contemplated hereby, and each hereby agrees to indemnify, defend
and hold the other harmless against and from any and all manner of claims,
liabilities, loss, damage, attorneys' fees and expenses, incurred by either
party and arising out of, or resulting from, any claim by any such broker or
finder in contravention of its representation and warranty herein contained.
(c) Guest Baggage. All baggage of guests who are still in the Hotel
-------------
on the Closing Date, which has been checked with or left in the care of Seller
shall be inventoried, sealed, and tagged jointly by Seller and Purchaser on the
Closing Date. Purchaser hereby indemnifies Seller against any claims, losses or
liabilities in connection with such baggage arising out of the acts or omissions
of Purchaser after the Closing Date. Seller hereby indemnifies Purchaser
against any claim, losses or liabilities with respect to such baggage arising
out of the acts or omissions of Seller prior to the Closing Date.
(d) Safe Deposits. Immediately after the Closing, Seller shall send
-------------
written notice to guests or tenants or other persons who have safe deposit
boxes, advising of the sale of the Hotel to Purchaser and requesting immediate
removal of the contents thereof or the removal thereof and concurrent re-deposit
of such contents pursuant to new safe deposit agreements with Purchaser. Seller,
at its own expense, shall have a representative present when the boxes are
opened, in the presence of a representative of the Purchaser. Purchaser shall
not be liable or responsible for any items claimed to have been in such boxes
unless such items are so removed and re-deposited, and Seller agrees to
indemnify and hold harmless Purchaser from and against any such liability or
responsibility.
(e) Books and Records. The transaction contemplated hereby shall not
-----------------
include the books and records of Seller pertaining strictly to the business of
the Hotel. Seller covenants and agrees that such books and records will remain
in the control of M&M Development for examination
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and audit by Purchaser and its agents after the Closing as provided in this
clause (e). Seller agrees to preserve all books and records, files and
correspondence, for at least five (5) years after the Closing Date, and not to
destroy or dispose of the same, for at least five (5) years after the Closing
Date. Seller agrees to provide access to Purchaser and its representatives, to
such books, records, files and correspondence at all reasonable times.
(f) Hart-Scott-Rodino Act. If it shall be determined that the within
---------------------
transaction is subject to the reporting requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, 15 U.S.C. (S)18(a) (1976) (the "Act"), then
notwithstanding anything to the contrary contained in Section 10.1(e) hereof,
each party shall forthwith proceed to make the necessary filings, and take all
other actions necessary to comply with the Act and the rules and regulations
thereunder. If such requirements have not been fulfilled by the Closing Date,
then the Closing Date shall be adjourned until such requirements have been
fulfilled, but not more than sixty (60) days. If such requirements have not
been fulfilled prior to the expiration of such sixty (60) day period, Seller or
Purchaser, by notice to the other, may terminate this Agreement in which event
the Deposit and all interest earned thereon shall be returned to Purchaser and
neither party shall have any further obligation or liability to the other party
hereunder.
(g) Survival of Covenants, etc. The representations, warranties,
---------------------------
obligations, covenants, agreements, undertakings and indemnifications of Seller
and Purchaser contained herein shall survive the Closing for a period of two (2)
years except that (i) the representation and warranty made by Seller in Section
5.1(i) shall expire at the time the period of limitations (including any
extensions thereof pursuant to the delivery of waivers of the applicable period
of limitations) expires for the assessment by the taxing authority of additional
taxes with respect to which the representation and warranty relate; and (ii) the
representation and warranty made by Purchaser in Section 3.4(d) shall not
expire. All claims for indemnification must be made within the aforementioned
periods.
(h) Purchaser's Investigation and Inspections. Any investigation or
-----------------------------------------
inspection conducted by Purchaser, or any agent or representative of Purchaser,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Purchaser's obligations hereunder or
to determine whether Seller's warranties are true and accurate, shall not or
constitute a waiver by Purchaser of any of Seller's obligations hereunder or
Purchaser's reliance thereon.
(i) Construction. This Agreement shall not be construed more strictly
------------
against one party than against the other, merely by virtue of the fact that it
may have been prepared primarily by counsel for one of the parties, it being
recognized that both Purchaser and Seller have contributed substantially and
materially to the preparation of this Agreement.
(j) Publicity. All notice to third parties and all other publicity
---------
concerning the transactions contemplated hereby shall be jointly planned and
coordinated by and between Purchaser and Seller. None of the parties shall act
unilaterally in this regard without the prior written approval
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of the other; however, this approval shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, Purchaser (or Parent) may make any
public disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning Parent's publicly traded securities;
Purchaser agrees to give Seller notice of any such public disclosure.
(k) General. This Agreement may be executed in any number of
-------
counterparts, each of which shall constitute an original but all of which, taken
together, shall constitute but one and the same instrument. This Agreement
(including all exhibits hereto) contains the entire agreement between the
parties with respect to the subject matter hereof, supersedes all prior
understandings, if any, with respect thereto and may not be amended,
supplemented or terminated, nor shall any obligation hereunder or condition
hereof be deemed waived, except by a written instrument to such effect signed by
the party to be charged. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada. The warranties,
representations, agreements and undertakings contained herein shall not be
deemed to have been made for the benefit of any person or entity, other than the
parties hereto and their permitted successors and assigns. Seller has no right
to assign its rights (except as set forth in (m) below) or to delegate its
duties hereunder. Purchaser may assign its rights and duties under this
Agreement to any of its Affiliates. Captions used herein are for convenience
only and shall not be used to construe the meaning of any part of this
Agreement.
(l) FIRPTA. Seller agrees to furnish Purchaser with an executed
-------
Certification in the form attached hereto as Exhibit Q ("FIRPTA Certificate"),
and such other evidence as Purchaser may reasonably request, to establish that
Seller is not a foreign person for the purpose of Section 1445 of the Internal
Revenue Code of 1986, as amended ("Section 1445"). In the event that Seller
does not furnish such Certification or a qualifying statement for the U.S.
Treasury Department that the transaction is exempt from the withholding
requirements of Section 1445, Seller agrees that Purchaser shall be directed to
pay such amount required by law to the Internal Revenue Service in accordance
with the laws and regulations regarding the withholding requirements of Section
1445.
(m) Like-Kind Exchange. Seller shall have the right, at Seller's
------------------
option, to sell the Property to Purchaser through a transaction that is
structured to qualify as a like-kind exchange of property within the meaning of
Section 1031 of the Internal Revenue Code of 1986 ("Code"). Purchaser agrees to
reasonably cooperate with Seller in effecting a qualifying like-kind exchange
through a trust, escrow or other means as determined by Seller, provided,
however, Purchaser shall not be required to incur any obligation or liability to
a third party as a part of the exchange. In any event Seller shall have the
right to assign its rights under this contract, in whole or in part, to a
qualified intermediary (as defined under current Code regulations governing
like-kind exchanges) or as otherwise necessary or appropriate to effectuate a
like-kind exchange, provided that Seller shall remain liable for its obligations
hereunder (and that Michael J. Mona, Jr. shall remain liable pursuant to his
guaranty as hereinafter set forth) and Seller (and Michael J. Mona) shall
execute such additional documentation as Purchaser may reasonably request to
evidence such continuing liability. Seller shall bear the additional transaction
costs and all costs and expenses incurred by Purchaser and attributable to
-38-
<PAGE>
exchange procedures in this transaction that are requested or implemented by
Seller. Seller shall be solely responsible for assuring the effectiveness of
the exchange for Seller's tax purposes. In no event shall any like-kind
exchange contemplated by this provision cause an extension of the date of
closing set forth herein nor shall Purchaser be required to take title to any
property other than the Property.
(n) Jurisdiction. Any action or proceeding seeking to enforce any
------------
provision of, or based on any right arising out of, this Agreement shall be
brought against any of the parties in the courts of the State of Nevada, County
of Clark, or, if it can acquire jurisdiction, in the United States District
Court for the District of Nevada.
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
/s/ Michael J. Mona, Jr.
-----------------------------------------------
Michael J. Mona, Jr.
/s/ Dean O'Bannon
-----------------------------------------------
Dean O'Bannon
PURCHASER:
ESA PROPERTIES, INC., a Delaware corporation
By:____________________________________________
Robert A. Brannon, Vice President
Attest:________________________________________
Its:___________________________________________
-40-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year first above written.
SELLER:
ST. LOUIS MANOR, INC., a Nevade corporation
By:__________________________________________
Michael J. Mona, Jr., President
Attest:______________________________________
Its:_________________________________________
PURCHASER:
ESA PROPERTIES, INC., a Delaware corporation
By:/s/ Robert A. Brannon
------------------------------------------
Robert A. Brannon, Vice President
Attest:/s/ Robert A. Brannon
---------------------------------------------
Its: Secretary
-----------------------------------------
The under hereby guaranties the collection by Purchaser of all
amounts due from seller pursuant to the terms hereof.
/s/ Michael J. Mona, Jr.
---------------------------------------------
Michael J. Mona, Jr. President
-40-
<PAGE>
SECURED PROMISSORY NOTE
$9,100,000 JULY 1, 1996
FOR VALUE RECEIVED, the undersigned, EXTENDED STAY AMERICA, INC., a
Delaware corporation (the "MAKER"), hereby promises to pay to the order of
Southwest Exchange Corporation, a Nevada corporation, under Exchange Agreement
dated 6/28/96, Account Number 96-333-TRF (the "PAYEE"), the principal sum of
Nine Million One Hundred Thousand Dollars ($9,100,000.00), with interest thereon
from the date hereof accruing at the rate of ten percent (10%) per annum. The
principal amount plus interest shall be due and payable on or before July 23,
1996 (the "MATURITY DATE") to Payee in the lawful money of the United States at
2920 North Green Valley Parkway, Suite 814, Henderson, Nevada 89014, or such
other place as Payee may direct.
This Note is executed and delivered in connection with and is subject
to the terms and conditions of a certain Agreement to Purchase Hotel by and
between Maker's affiliate, ESA 0859, Inc., a Nevada corporation (by assignment
from ESA properties, Inc.) and Boulder Manor, Inc., a Nevada corporation (the
"CORPORATION"), dated as of June 25, 1996 (the "AGREEMENT"), with respect to the
purchase and sale of all of the Corporation's right, title and interest in and
to the Property (as defined in the Agreement).
This Note is secured by a Security Agreement executed by Maker, as
Debtor, in favor of Payee, as Secured Party, of even date herewith (the
"SECURITY AGREEMENT") and given in connection with the indebtedness evidenced
hereby.
An event of default hereunder shall be the failure of Maker to pay
principal when due, or to timely perform any other obligation of Maker hereunder
or under the Security Agreement or any other agreement or document which secures
this Note. In the event of default under this Note, interest shall be payable
on the whole of the sum outstanding at the rate of fifteen percent (15%) per
annum for the duration of such default, whether or not the Payee has exercised
its option to accelerate the maturity of this Note and declare the entire unpaid
principal indebtedness due and payable.
Maker and all others who may become liable for the payment of the
obligations described herein do hereby severally waive presentment for payments,
protest and demand, notice of protest, demand and dishonor, and nonpayment of
this Note and expressly agree that the maturity of this Note or any payment
hereunder may be extended from time to time, at the option of the Payee hereof,
without in any way affecting the liability of each. Maker agrees that the Payee
hereof may release any party liable for this obligation. Any such extension or
release may be made without notice to any of the parties and without discharging
their liability.
Maker promises to pay all costs incurred in collection and/or
enforcement of this Note or any part thereof, including, but not limited to,
reasonable attorneys' fees, and, in the event of court action, all costs and
such additional sums and attorneys' fees as the court may adjudge reasonable.
If any term, provision, covenant or condition of this Note, or any
application thereof, should be held by a court of competent jurisdiction to be
invalid, void, or unenforceable, all provisions, covenants and conditions of
this Note and all applications thereof not held invalid, void or unenforceable,
shall continue in full force and effect and shall not in any way be affected,
impaired or invalidated thereby.
1
<PAGE>
The laws of the State of Nevada shall govern the validity, performance
and enforcement of this Note. In any action brought under or arising out of
this Note, each obligor hereby consents to the application of Nevada law, to the
jurisdiction of any competent court within the State of Nevada, and to service
of process by any means authorized by Nevada law.
Time is of the essence hereof.
IN WITNESS WHEREOF, the undersigned has executed this Secured
Promissory Note as of the day and year first above written.
EXTENDED STAY AMERICA, INC., a Delaware
corporation
By:__________________________________________
Robert A. Brannon, Vice President
2
<PAGE>
SECURED PROMISSORY NOTE
$14,000,000 JULY 1, 1996
FOR VALUE RECEIVED, the undersigned, EXTENDED STAY AMERICA, INC., a
Delaware corporation (the "MAKER"), hereby promises to pay to the order of
Southwest Exchange Corporation, a Nevada corporation, under Exchange Agreement
dated 6/28/96, Account Number 96-336-TRF (the "PAYEE"), the principal sum of
Fourteen Million Dollars ($14,000,000.00), with interest thereon from the date
hereof accruing at the rate of ten percent (10%) per annum. The principal
amount plus interest shall be due and payable on or before July 23, 1996 (the
"MATURITY DATE") to Payee in the lawful money of the United States at 2920 North
Green Valley Parkway, Suite 814, Henderson, Nevada 89014, or such other place as
Payee may direct.
This Note is executed and delivered in connection with and is subject to
the terms and conditions of a certain Agreement to Purchase Hotel by and between
Maker's affiliate, ESA 0860, Inc., a Nevada corporation (by assignment from ESA
Properties, Inc.) and Melrose Suites, Inc., a Nevada corporation (the
"CORPORATION"), dated as of June 25, 1996 (the "AGREEMENT"), with respect to the
purchase and sale of all of the Corporation's right, title and interest in and
to the Property (as defined in the Agreement).
This Note is secured by a Security Agreement executed by Maker, as Debtor,
in favor of Payee, as Secured Party, of even date herewith (the "SECURITY
AGREEMENT") and given in connection with the indebtedness evidenced hereby.
An event of default hereunder shall be the failure of Maker to pay
principal when due, or to timely perform any other obligation of Maker hereunder
or under the Security Agreement or any other agreement or document which secures
this Note. In the event of default under this Note, interest shall be payable
on the whole of the sum outstanding at the rate of fifteen percent (15%) per
annum for the duration of such default, whether or not the Payee has exercised
its option to accelerate the maturity of this Note and declare the entire unpaid
principal indebtedness due and payable.
Maker and all others who may become liable for the payment of the
obligations described herein do hereby severally waive presentment for payment,
protest and demand, notice of protest, demand and dishonor, and nonpayment of
this Note and expressly agree that the maturity of this Note or any payment
hereunder may be extended from time to time, at the option of the Payee hereof,
without in any way affecting the liability of each. Maker agrees that the Payee
hereof may release any party liable for this obligation. Any such extension or
release may be made without notice to any of the parties and without discharging
their liability.
Maker promises to pay all costs incurred in collection and/or enforcement
of this Note or any part thereof, including, but not limited to, reasonable
attorneys' fees, and, in the event of court action, all costs and such
additional sums and attorneys' fees as the court may adjudge reasonable.
If any term, provision, covenant or condition of this Note, or any
application thereof, should be held by a court of competent jurisdiction to be
invalid, void, or unenforceable, all provisions, covenants and conditions of
this Note and all applications thereof not held invalid, void or unenforceable,
shall continue in full force and effect and shall not in any way be affected,
impaired or invalidated thereby.
1
<PAGE>
The laws of the State of Nevada shall govern the validity, performance and
enforcement of this Note. In any action brought under or arising out of this
Note, each obligor hereby consents to the application of Nevada law, to the
jurisdiction of any competent court within the State of Nevada, and to service
of process by any means authorized by Nevada law.
Time is of the essence hereof.
IN WITNESS WHEREOF, the undersigned has executed this Secured Promissory
Note as of the day and year first above written.
EXTENDED STAY AMERICA, INC., a Delaware
corporation
By:___________________________________________
Robert A. Brannon, Vice President
2
<PAGE>
SECURED PROMISSORY NOTE
$5,400,000 JULY 1, 1996
FOR VALUE RECEIVED, the undersigned, EXTENDED STAY AMERICA, INC., a
Delaware corporation (the "MAKER"), hereby promises to pay to the order of
Southwest Exchange Corporation, a Nevada corporation, under Exchange Agreement
dated 6/28/96, Account Number 96-335-TRF (the "PAYEE"), the principal sum of
Five Million Four Hundred Thousand Dollars ($5,400,000.00), with interest
thereon from the date hereof accruing at the rate of ten percent (10%) per
annum. The principal amount plus interest shall be due and payable on or before
July 23, 1996 (the "MATURITY DATE") to Payee in the lawful money of the United
States at 2920 North Green Valley parkway, Suite 814, Henderson, Nevada 89014,
or such other place as Payee may direct.
This Note is executed and delivered in connection with and is subject
to the terms and conditions of a certain Agreement to Purchase Hotel by and
between Maker's affiliate, ESA 0858, Inc., a Nevada corporation (by assignment
from ESA Properties, Inc.) and St. Louis Manor, Inc., a Nevada corporation (the
"CORPORATION"), dated as of June 25, 1996 (the "AGREEMENT"), with respect to the
purchase and sale of all of the Corporation's right, title and interest in and
to the Property (as defined in the Agreement).
This Note is secured by a Security Agreement executed by Maker, as
Debtor, in favor of Payee, as Secured Party, of even date herewith (the
"SECURITY AGREEMENT") and given in connection with the indebtedness evidenced
hereby.
An event of default hereunder shall be the failure of Maker to pay
principal when due, or to timely perform any other obligation of Maker hereunder
or under the Security Agreement or any other agreement or document which secures
this Note. In the event of default under this Note, interest shall be payable on
the whole of the sum outstanding at the rate of fifteen percent (15%) per annum
for the duration of such default, whether or not the Payee has exercised its
option to accelerate the maturity of this Note and declare the entire unpaid
principal indebtedness due and payable.
Maker and all others who may become liable for the payment of the
obligations described herein do hereby severally waive presentment for payments,
protest and demand, notice of protest, demand and dishonor, and nonpayment of
this Note and expressly agree that the maturity of this Note or any payment
hereunder may be extended from time to time, at the option of the Payee hereof,
without in any way affecting the liability of each. Maker agrees that the Payee
hereof may release any party liable for this obligation. Any such extension or
release may be made without notice to any of the parties and without discharging
their liability.
Maker promises to pay all costs incurred in collection and/or
enforcement of this Note or any part thereof, including, but not limited to,
reasonable attorneys' fees, and, in the event of court action, all costs and
such additional sums and attorneys' fees as the court may adjudge reasonable.
If any term, provision, covenant or condition of this Note, or any
application thereof, should be held by a court of competent jurisdiction to be
invalid, void, or unenforceable, all provisions, covenants and conditions of
this Note and all applications thereof not held invalid, void or unenforceable,
shall continue in full force and effect and shall not in any way be affected,
impaired or invalidated thereby.
1
<PAGE>
The laws of the State of Nevada shall govern the validity, performance
and enforcement of this Note. In any action brought under or arising out of
this Note, each obligor hereby consents to the application of Nevada law, to the
jurisdiction of any competent court within the State of Nevada, and to service
of process by any means authorized by Nevada law.
Time is of the essence hereof.
IN WITNESS WHEREOF, the undersigned has executed this Secured
Promissory Note as of the day and year first above written.
EXTENDED STAY AMERICA, INC., a Delaware
corporation
By:___________________________________________
Robert A. Brannon, Vice President
2
<PAGE>
SECURED PROMISSORY NOTE
$2,750,000 JULY 1, 1996
FOR VALUE RECEIVED, the undersigned, EXTENDED STAY AMERICA, INC., a
Delaware corporation (the "MAKER"), hereby promises to pay to the order of
Southwest Exchange Corporation, a Nevada corporation, under Exchange Agreement
dated 6/28/96, Account Number 96-340-KLK (the "PAYEE"), the principal sum of Two
Million Seven Hundred Fifty Thousand Dollars ($2,750,000.00), with interest
thereon from the date hereof accruing at the rate of ten percent (10%) per
annum. The principal amount plus interest shall be due and payable on or before
July 23, 1996 (the "MATURITY DATE") to Payee in the lawful money of the United
States at 2920 North Green Valley Parkway, Suite 814, Henderson, Nevada 89014.
This Note is executed and delivered in connection with and is subject
to the terms and conditions of a certain Agreement to Purchase Hotel by and
between Maker's affiliate, ESA 0861, Inc., a Nevada corporation (by assignment
from ESA properties, Inc.) and Michael J. Mona, Jr. and Dean O'Bannon,
(collectively, "SELLER") dated as of June 25, 1996 (the "AGREEMENT"), with
respect to the purchase and sale of all of Seller's right, title and interest in
and to the Property (as defined in the Agreement).
This Note is secured by a Security Agreement executed by Maker, as
Debtor, in favor of Payee, as Secured Party, of even date herewith (the
"SECURITY AGREEMENT") and given in connection with the indebtedness evidenced
hereby.
An event of default hereunder shall be the failure of Maker to pay
principal when due, or to timely perform any other obligation of Maker hereunder
or under the Security Agreement or any other agreement or document which secures
this Note. In the event of default under this Note, interest shall be payable
on the whole of the sum outstanding at the rate of fifteen percent (15%) per
annum for the duration of such default, whether or not the Payee has exercised
its option to accelerate the maturity of this Note and declare the entire unpaid
principal indebtedness due and payable.
Maker and all others who may become liable for the payment of the
obligations described herein do hereby severally waive presentment for payments,
protest and demand, notice of protest, demand and dishonor, and nonpayment of
this Note and expressly agree that the maturity of this Note or any payment
hereunder may be extended from time to time, at the option of the Payee hereof,
without in any way affecting the liability of each. Maker agrees that the Payee
hereof may release any party liable for this obligation. Any such extension or
release may be made without notice to any of the parties and without discharging
their liability.
Maker promises to pay all costs incurred in collection and/or
enforcement of this Note or any part thereof, including, but not limited to,
reasonable attorneys' fees, and, in the event of court action, all costs and
such additional sums and attorneys' fees as the court may adjudge reasonable.
If any term, provision, covenant or condition of this Note, or any
application thereof, should be held by a court of competent jurisdiction to be
invalid, void, or unenforceable, all provisions, covenants and conditions of
this Note and all applications thereof not held invalid, void or unenforceable,
shall continue in full force and effect and shall not in any way be affected,
impaired or invalidated thereby.
1
<PAGE>
The laws of the State of Nevada shall govern the validity, performance
and enforcement of this Note. In any action brought under or arising out of
this Note, each obligor hereby consents to the application of Nevada law, to the
jurisdiction of any competent court within the State of Nevada, and to service
of process by any means authorized by Nevada law.
Time is of the essence hereof.
IN WITNESS WHEREOF, the undersigned has executed this Secured
Promissory Note as of the day and year first above written.
EXTENDED STAY AMERICA, INC., a Delaware
corporation
By:___________________________________________
Robert A. Brannon, Vice President
2
<PAGE>
SECURED PROMISSORY NOTE
$2,750,000 JULY 1, 1996
FOR VALUE RECEIVED, the undersigned, EXTENDED STAY AMERICA, INC., a
Delaware corporation (the "MAKER"), hereby promises to pay to the order of
Southwest Exchange Corporation, a Nevada corporation, under Exchange Agreement
dated 6/28/96, Account Number 96-334-TRF (the "PAYEE"), the principal sum of Two
Million Seven Hundred Fifty Thousand Dollars ($2,750,000.00), with interest
thereon from the date hereof accruing at the rate of ten percent (10%) per
annum. The principal amount plus interest shall be due and payable on or before
July 23, 1996 (the "MATURITY DATE") to Payee in the lawful money of the United
States at 2920 North Green Valley Parkway, Suite 814, Henderson, Nevada 89014.
This Note is executed and delivered in connection with and is subject
to the terms and conditions of a certain Agreement to Purchase Hotel by and
between Maker's affiliate, ESA 0861, Inc., a Nevada corporation (by assignment
from ESA properties, Inc.) and Michael J. Mona, Jr. and Dean O'Bannon,
(collectively, "SELLER") dated as of June 25, 1996 (the "AGREEMENT"), with
respect to the purchase and sale of all of Seller's right, title and interest in
and to the Property (as defined in the Agreement).
This Note is secured by a Security Agreement executed by Maker, as
Debtor, in favor of Payee, as Secured Party, of even date herewith (the
"SECURITY AGREEMENT") and given in connection with the indebtedness evidenced
hereby.
An event of default hereunder shall be the failure of Maker to pay
principal when due, or to timely perform any other obligation of Maker hereunder
or under the Security Agreement or any other agreement or document which secures
this Note. In the event of default under this Note, interest shall be payable on
the whole of the sum outstanding at the rate of fifteen percent (15%) per annum
for the duration of such default, whether or not the Payee has exercised its
option to accelerate the maturity of this Note and declare the entire unpaid
principal indebtedness due and payable.
Maker and all others who may become liable for the payment of the
obligations described herein do hereby severally waive presentment for payments,
protest and demand, notice of protest, demand and dishonor, and nonpayment of
this Note and expressly agree that the maturity of this Note or any payment
hereunder may be extended from time to time, at the option of the Payee hereof,
without in any way affecting the liability of each. Maker agrees that the Payee
hereof may release any party liable for this obligation. Any such extension or
release may be made without notice to any of the parties and without discharging
their liability.
Maker promises to pay all costs incurred in collection and/or
enforcement of this Note or any part thereof, including, but not limited to,
reasonable attorneys' fees, and, in the event of court action, all costs and
such additional sums and attorneys' fees as the court may adjudge reasonable.
If any term, provision, covenant or condition of this Note, or any
application thereof, should be held by a court of competent jurisdiction to be
invalid, void, or unenforceable, all provisions, covenants and conditions of
this Note and all applications thereof not held invalid, void or unenforceable,
shall continue in full force and effect and shall not in any way be affected,
impaired or invalidated thereby.
1
<PAGE>
The laws of the State of Nevada shall govern the validity, performance
and enforcement of this Note. In any action brought under or arising out of this
Note, each obligor hereby consents to the application of Nevada law, to the
jurisdiction of any competent court within the State of Nevada, and to service
of process by any means authorized by Nevada law.
Time is of the essence hereof.
IN WITNESS WHEREOF, the undersigned has executed this Secured
Promissory Note as of the day and year first above written.
EXTENDED STAY AMERICA, INC., a Delaware
corporation
By:___________________________________________
Robert A. Brannon, Vice President
2
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Security Agreement"), dated as of ______________,
1996, is executed by EXTENDED STAY AMERICA, INC., a Delaware corporation, as
debtor (the "Debtor"), in favor of Southwest Exchange Corporation, a Nevada
corporation, under that certain Exchange Agreement dated as of June 28, 1996,
Account Number 96-333-TRF ("Secured Party"), in connection with that certain
Agreement to Purchase Hotel (the "Purchase Agreement") dated as of June 25, 1996
among Debtor's affiliate, as Purchaser, and BOULDER MANOR, INC., a Nevada
corporation, as Seller ("Seller"), and that certain Escrow Agreement whereby the
Debtor, on the Closing Date, will deposit a sum equal to the principal balance
of the Note (as hereinafter defined) into an escrow account with United Title of
Nevada, Inc., a Nevada corporation, 4100 West Flamingo, Suite 1000, Las Vegas,
Nevada 89103 (the "Escrow Agent"), Escrow No. 96100848 Attn: S. Coleman (the
"Escrow Account"). This Security Agreement is executed to secure the payment of
that certain promissory note in the amount of Nine Million One Hundred Thousand
Dollars ($9,100,000.00) of even date herewith delivered to Secured Party (the
"Note"). Pursuant to the Escrow Agreement, the Escrow Agent will deposit cash
received by it from Debtor in the principal amount of the Note into a California
bank account with Bank of America, San Francisco, Account No. 14993-04396 (the
"Account"). Debtor's affiliate has entered into those certain Agreements to
Purchase Hotel, each dated as of June 25, 1996, with Seller's affiliates, St.
Louis Manor, Inc., Melrose Suites, Inc., and Michael J. Mona, Jr. and Dean
O'Bannon (collectively, "Seller's Affiliates"), each of which has a security
interest in the Account (the "Affiliates Interests"). Capitalized terms used
and not otherwise defined herein shall have the same meanings as set forth in
the Purchase Agreement.
1. Assignment; Security Interest. For valuable consideration, Debtor
hereby assigns to Secured Party and grants to Secured Party, pursuant to Article
9 of the California Uniform Commercial Code (the "UCC"), a security interest in
and to, and a lien upon, all of Debtor's right, title and interest, whether now
existing or hereafter arising, in and to the Escrow Account and the Account and
all interest earned thereon (collectively, the "Collateral"), as security for
the prompt payment and performance of each of the obligations described in
Section 2 below (collectively, the "Secured Obligations").
2. Obligations Secured. This Security Agreement secures the prompt
payment and performance of each of the following Secured Obligations:
2.1 The indebtedness evidenced by the Note.
2.2 Debtor's affiliates' obligations to Secured Party under the
Purchase Agreement (by assignment), Escrow Agreement and all other documents in
connection with the purchase of the Property.
2.3 Debtor's obligations hereunder.
2.4 Any and all amendments, extensions and other modifications of any
of the foregoing, including without limitation amendments, extensions and other
modifications that are evidenced by new or additional documents or that change
the rate of interest on any Secured Obligation.
3. Representations and Warranties. Debtor hereby represents and warrants
that:
1
<PAGE>
3.1 Debtor has good and marketable title to the Collateral, and, to
the best of Debtor's knowledge, no other person, entity or governmental agency
(whether federal, state or local) has or purports to have any right, title,
encumbrance or adverse claim or lien in or to any of the Collateral, save and
except Seller's Affiliates as to the Affiliates' Interests.
3.2 Debtor's principal place of business and chief executive and
accounting offices are located at 500 E. Broward Boulevard, Suite 590, Fort
Lauderdale, Florida 33394-3073.
3.3 Debtor is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware.
3.4 Debtor has the power and authority to enter into this Agreement
and any person or party signing on Debtor's behalf has been duly authorized to
sign on Debtor's behalf.
3.5 Except for the financing statements executed by Debtor to perfect
the security interest in the Collateral in favor of Secured Party, at the time
of granting the security interest described herein, no financing statement
covering the Collateral or any portion thereof will be on file in any public
office and, Debtor agrees not to execute or authorize the filing of any such
additional financing statement in favor of any person, entity or governmental
agency (whether federal, state or local) other than Secured Party and Seller's
Affiliates as long as any portion of the indebtedness evidenced by the Note
remains unpaid.
4. Covenants by Debtor. Debtor hereby agrees that:
4.1 Prior to or simultaneously with the execution of this Security
Agreement by Debtor, Debtor will execute and cause to be filed in accordance
with the California Uniform Commercial Code, financing statements in form and
substance satisfactory to Secured Party. Thereafter at any time and from time
to time, upon demand of Secured Party, Debtor shall give, execute, acknowledge,
file and record any notice, financing statement, continuation statement,
assignment, instrument, document or agreement that Secured Party reasonably
deems necessary or desirable to create, preserve, continue, perfect or validate
any security interest intended to be created hereunder or to enable Secured
Party to enforce its rights with respect to any such security interest.
4.2 Debtor shall notify Secured Party prior to changing its principal
place of business and chief executive and accounting offices from the location
set forth in Section 3.2 of this Security Agreement.
4.3 Debtor shall keep the Collateral free of all liens, claims,
security interests and encumbrances, (save and except the Affiliates'
Interests).
4.4 Debtor shall, at Debtor's own cost, defend any and all actions,
proceedings and claims affecting any material portion of the Collateral,
including without limitation actions, proceedings and claims challenging
Debtor's title to the Collateral or the validity or priority of Secured Party's
security interest hereunder.
2
<PAGE>
4.5 Debtor shall promptly pay all taxes, assessments and other
charges levied or assessed against any Collateral.
4.6 As soon as practicable, and in any event within two (2) days,
Debtor shall notify Secured Party of:
(a) Any attachment or other legal process levied against any material
portion of the Collateral; and
(b) Any information received by Debtor which may in any manner
materially and adversely affect the value of the Collateral or the rights and
remedies of Secured Party with respect thereto.
Any notice delivered pursuant to this Section 4.6 shall set forth the nature of
such event and the action which Debtor proposes to take with respect thereto.
5. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" hereunder:
5.1 Debtor fails to perform any obligation to pay money which
arises under the Note; or
5.2 Debtor fails to perform any obligation arising under this
Security Agreement.
6. Remedies. Upon the occurrence of an Event of Default hereunder,
Secured Party shall have all of the following rights and remedies, each of which
may be exercised with or without further notice to Debtor:
6.1 To notify Escrow Agent that an Event of Default has occurred
that all monies deposited pursuant to the Escrow Account or in the Account are
to be released directly to Secured Party;
6.2 To enforce payment and prosecute any action or proceeding with
respect to any and all the Collateral;
6.3 To foreclose the liens and security interests created under
this Security Agreement or under any other agreement relating to any Collateral
by any available judicial procedure or without judicial process;
6.4 To declare all Secured Obligations immediately due and payable;
and
6.5 To exercise any and all other rights and remedies that Secured
Party may have in any jurisdiction where enforcement of this Security Agreement
is sought, including without limitation all rights and remedies of a secured
party under any applicable Uniform Commercial Code. Secured Party shall have
the right to enforce one or more of its remedies successively or concurrently,
and such action shall neither estop nor prevent Secured Party
3
<PAGE>
from pursuing any and all further remedies that it may have. In the event Debtor
fails to perform any obligation set forth herein, Secured Party may, but shall
not be obligated to, perform the same, and the cost thereof shall be payable by
Debtor to Secured Party on demand and shall bear interest at the default rate of
interest set forth in the Note ("Default Rate"). No failure on the part of
Secured Party to exercise, and no delay in exercising, any right or remedy shall
operate as a waiver thereof or of any default or Event of Default, nor shall any
single or partial exercise of any right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.
7. Application of Proceeds. The net cash proceeds resulting from any
collection of the Collateral by Secured Party shall be applied first to the
expenses (including reasonable attorneys' fees) of retaking, processing,
collecting and the like, and then to the satisfaction of other Secured
Obligations then due, application as to particular obligations or against
principal or interest to be in Secured Party's sole discretion, and then to
Debtor or such other person as may be lawfully entitled thereto.
8. Secured Party's Costs and Expenses. Debtor shall reimburse Secured
Party on demand for all reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Secured Party in connection with the enforcement of
this Security Agreement, regardless of whether any suit is filed, including
without limitation all reasonable costs and expenses incurred in checking,
retaking, holding or otherwise collecting of any and all Collateral. Such
reimbursement obligations shall bear interest from the date of demand at the
Default Rate.
9. Miscellaneous Waivers. Presentment, protest, notice of protest,
notice of dishonor and notice of nonpayment are waived with respect to any
proceeds to which Secured Party is entitled hereunder.
10. Successors and Assigns. This Security Agreement shall bind, and
shall inure to the benefit of, the respective successors and assigns of Debtor
and Secured Party.
11. Attorney-in-Fact. Debtor hereby constitutes and appoints Secured
Party as its attorney-in-fact for the purposes of (a) carrying out the
provisions of this Security Agreement; and (b) taking any and all actions and
executing any and all instruments that Secured Party reasonably deems necessary
or advisable to accomplish the purposes of this Security Agreement and/or to
protect Secured Party's interests with respect to the Collateral.
12. Notices. All notices or communications herein required or permitted
to be given shall be in writing and shall be governed in all respects by the
notice provisions of the Purchase Agreement. For purposes of this Agreement:
The address of Secured Party is: Southwest Exchange Corporation
2920 North Green Valley Parkway, Suite 814
Henderson, Nevada 89014
The address of Debtor is: Extended Stay America, Inc.
500 E. Broward Blvd., Suite 950
Fort Lauderdale, Florida 33394
4
<PAGE>
13. Entire Agreement; Amendment; Waiver. This Security Agreement,
together with any and all other documents referred to herein, constitutes the
entire agreement between Debtor and Secured Party pertaining to the subject
matter contained herein. This Security Agreement may not be amended, changed,
modified, altered or terminated except by a written instrument signed by Secured
Party and Debtor. Neither Secured Party nor Debtor may waive any right
hereunder except by a signed written instrument.
14. Severability. In the event any provision of this Security Agreement
is held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
15. Section Headings. The subject headings and the sections and
subsections of this Security Agreement are included for convenience only and
shall not affect the construction or interpretation of any provision.
16. Governing Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California.
17. Definitions. Unless otherwise defined, words used herein have the
meanings given them in the California Uniform Commercial Code.
IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be duly
executed as of the date first written above.
DEBTOR:
EXTENDED STAY AMERICA, INC., a Delaware
corporation
By:_____________________________________________
Robert A. Brannon, Vice President
5
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Security Agreement"), dated as of ______________,
1996, is executed by EXTENDED STAY AMERICA, INC., a Delaware corporation, as
debtor (the "Debtor"), in favor of Southwest Exchange Corporation, a Nevada
corporation, under that certain Exchange Agreement dated June 28, 1996, Account
Number 96-336-TRF ("Secured Party"), in connection with that certain Agreement
to Purchase Hotel (the "Purchase Agreement") dated as of June 25, 1996 among
Debtor's affiliate, as Purchaser, and MELROSE SUITES, INC., a Nevada
corporation, as Seller, ("Seller") and that certain Escrow Agreement whereby the
Debtor, on the Closing Date, will deposit a sum equal to the principal balance
of the Note (as hereinafter defined) into an escrow account with United Title of
Nevada, Inc., a Nevada corporation, 4100 West Flamingo, Suite 1000, Las Vegas,
Nevada 89103 (the "Escrow Agent"), Escrow No. 96100846 Attn: S. Coleman (the
"Escrow Account"). This Security Agreement is executed to secure the payment of
that certain promissory note in the amount of Fourteen Million Dollars
($14,000,000.00) of even date herewith delivered to Secured Party (the "Note").
Pursuant to the Escrow Agreement, the Escrow Agent will deposit cash received by
it from Debtor in the principal amount of the Note into a California bank
account with Bank of America, San Francisco, Account No. 14993-04396 (the
"Account"). Debtor's affiliate has entered into those certain Agreements to
Purchase Hotel, each dated as of June 25, 1996, with Seller's affiliates, St.
Louis Manor, Inc., Boulder Manor, Inc., and Michael J. Mona, Jr. and Dean
O'Bannon (collectively, "Seller's Affiliates"), each of which has a security
interest in the Account (the "Affiliates Interests"). Capitalized terms used
and not otherwise defined herein shall have the same meanings as set forth in
the Purchase Agreement.
1. Assignment; Security Interest. For valuable consideration, Debtor
hereby assigns to Secured Party and grants to Secured Party, pursuant to Article
9 of the California Uniform Commercial Code (the "UCC"), a security interest in
and to, and a lien upon, all of Debtor's right, title and interest, whether now
existing or hereafter arising, in and to the Escrow Account and the Account and
all interest earned thereon (collectively, the "Collateral"), as security for
the prompt payment and performance of each of the obligations described in
Section 2 below (collectively, the "Secured Obligations").
2. Obligations Secured. This Security Agreement secures the prompt
payment and performance of each of the following Secured Obligations:
2.1 The indebtedness evidenced by the Note.
2.2 Debtor's affiliates' obligations to Secured Party under the
Purchase Agreement (by assignment), Escrow Agreement and all other documents in
connection with the purchase of the Property.
2.3 Debtor's obligations hereunder.
2.4 Any and all amendments, extensions and other modifications of any
of the foregoing, including without limitation amendments, extensions and other
modifications that are evidenced by new or additional documents or that change
the rate of interest on any Secured Obligation.
3. Representations and Warranties. Debtor hereby represents and warrants
that:
1
<PAGE>
3.1 Debtor has good and marketable title to the Collateral, and, to
the best of Debtor's knowledge, no other person, entity or governmental agency
(whether federal, state or local) has or purports to have any right, title,
encumbrance or adverse claim or lien in or to any of the Collateral, save and
except Seller's Affiliates as to the Affiliates' Interests.
3.2 Debtor's principal place of business and chief executive and
accounting offices are located at 500 E. Broward Boulevard, Suite 590, Fort
Lauderdale, Florida 33394-3073.
3.3 Debtor is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware.
3.4 Debtor has the power and authority to enter into this Agreement
and any person or party signing on Debtor's behalf has been duly authorized to
sign on Debtor's behalf.
3.5 Except for the financing statements executed by Debtor to perfect
the security interest in the Collateral in favor of Secured Party, at the time
of granting the security interest described herein, no financing statement
covering the Collateral or any portion thereof will be on file in any public
office and, Debtor agrees not to execute or authorize the filing of any such
additional financing statement in favor of any person, entity or governmental
agency (whether federal, state or local) other than Secured Party and Seller's
Affiliates as long as any portion of the indebtedness evidenced by the Note
remains unpaid.
4. Covenants by Debtor. Debtor hereby agrees that:
4.1 Prior to or simultaneously with the execution of this Security
Agreement by Debtor, Debtor will execute and cause to be filed in accordance
with the California Uniform Commercial Code, financing statements in form and
substance satisfactory to Secured Party. Thereafter at any time and from time
to time, upon demand of Secured Party, Debtor shall give, execute, acknowledge,
file and record any notice, financing statement, continuation statement,
assignment, instrument, document or agreement that Secured Party reasonably
deems necessary or desirable to create, preserve, continue, perfect or validate
any security interest intended to be created hereunder or to enable Secured
Party to enforce its rights with respect to any such security interest.
4.2 Debtor shall notify Secured Party prior to changing its principal
place of business and chief executive and accounting offices from the location
set forth in Section 3.2 of this Security Agreement.
4.3 Debtor shall keep the Collateral free of all liens, claims,
security interests and encumbrances,
4.4 Debtor shall, at Debtor's own cost, defend any and all actions,
proceedings and claims affecting any material portion of the Collateral,
including without limitation actions, proceedings and claims challenging
Debtor's title to the Collateral or the validity or priority of Secured Party's
security interest hereunder.
2
<PAGE>
4.5 Debtor shall promptly pay all taxes, assessments and other
charges levied or assessed against any Collateral.
4.6 As soon as practicable, and in any event within two (2) days,
Debtor shall notify Secured Party of:
(a) Any attachment or other legal process levied against any material
portion of the Collateral; and
(b) Any information received by Debtor which may in any manner
materially and adversely affect the value of the Collateral or the rights and
remedies of Secured Party with respect thereto.
Any notice delivered pursuant to this Section 4.6 shall set forth the nature of
such event and the action which Debtor proposes to take with respect thereto.
5. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" hereunder:
5.1 Debtor fails to perform any obligation to pay money which
arises under the Note; or
5.2 Debtor fails to perform any obligation arising under this
Security Agreement.
6. Remedies. Upon the occurrence of an Event of Default hereunder,
Secured Party shall have all of the following rights and remedies, each of which
may be exercised with or without further notice to Debtor:
6.1 To notify Escrow Agent that an Event of Default has occurred
that all monies deposited pursuant to the Escrow Account or in the Account are
to be released directly to Secured Party;
6.2 To enforce payment and prosecute any action or proceeding with
respect to any and all the Collateral;
6.3 To foreclose the liens and security interests created under
this Security Agreement or under any other agreement relating to any Collateral
by any available judicial procedure or without judicial process;
6.4 To declare all Secured Obligations immediately due and payable;
and
6.5 To exercise any and all other rights and remedies that Secured
Party may have in any jurisdiction where enforcement of this Security Agreement
is sought, including without limitation all rights and remedies of a secured
party under any applicable Uniform Commercial Code. Secured Party shall have
the right to enforce one or more of its remedies successively or concurrently,
and such action shall neither estop nor prevent Secured Party
3
<PAGE>
from pursuing any and all further remedies that it may have. In the event Debtor
fails to perform any obligation set forth herein, Secured Party may, but shall
not be obligated to, perform the same, and the cost thereof shall be payable by
Debtor to Secured Party on demand and shall bear interest at the default rate of
interest set forth in the Note ("Default Rate"). No failure on the part of
Secured Party to exercise, and no delay in exercising, any right or remedy shall
operate as a waiver thereof or of any default or Event of Default, nor shall any
single or partial exercise of any right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.
7. Application of Proceeds. The net cash proceeds resulting from any
collection of the Collateral by Secured Party shall be applied first to the
expenses (including reasonable attorneys' fees) of retaking, processing,
collecting and the like, and then to the satisfaction of other Secured
Obligations then due, application as to particular obligations or against
principal or interest to be in Secured Party's sole discretion, and then to
Debtor or such other person as may be lawfully entitled thereto.
8. Secured Party's Costs and Expenses. Debtor shall reimburse Secured
Party on demand for all reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Secured Party in connection with the enforcement of
this Security Agreement, regardless of whether any suit is filed, including
without limitation all reasonable costs and expenses incurred in checking,
retaking, holding or otherwise collecting of any and all Collateral. Such
reimbursement obligations shall bear interest from the date of demand at the
Default Rate.
9. Miscellaneous Waivers. Presentment, protest, notice of protest,
notice of dishonor and notice of nonpayment are waived with respect to any
proceeds to which Secured Party is entitled hereunder.
10. Successors and Assigns. This Security Agreement shall bind, and
shall inure to the benefit of, the respective successors and assigns of Debtor
and Secured Party.
11. Attorney-in-Fact. Debtor hereby constitutes and appoints Secured
Party as its attorney-in-fact for the purposes of (a) carrying out the
provisions of this Security Agreement; and (b) taking any and all actions and
executing any and all instruments that Secured Party reasonably deems necessary
or advisable to accomplish the purposes of this Security Agreement and/or to
protect Secured Party's interests with respect to the Collateral.
12. Notices. All notices or communications herein required or permitted
to be given shall be in writing and shall be governed in all respects by the
notice provisions of the Purchase Agreement. For purposes of this Agreement:
The address of Secured Party is: Southwest Exchange Corporation
2920 North Green Valley Parkway, Suite 814
Henderson, Nevada 89014
The address of Debtor is: Extended Stay America, Inc.
500 E. Broward Blvd., Suite 950
Fort Lauderdale, Florida 33394
4
<PAGE>
13. Entire Agreement; Amendment; Waiver. This Security Agreement,
together with any and all other documents referred to herein, constitutes the
entire agreement between Debtor and Secured Party pertaining to the subject
matter contained herein. This Security Agreement may not be amended, changed,
modified, altered or terminated except by a written instrument signed by Secured
Party and Debtor. Neither Secured Party nor Debtor may waive any right
hereunder except by a signed written instrument.
14. Severability. In the event any provision of this Security Agreement
is held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
15. Section Headings. The subject headings and the sections and
subsections of this Security Agreement are included for convenience only and
shall not affect the construction or interpretation of any provision.
16. Governing Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California.
17. Definitions. Unless otherwise defined, words used herein have the
meanings given them in the California Uniform Commercial Code.
IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be duly
executed as of the date first written above.
DEBTOR:
EXTENDED STAY AMERICA, INC., a Delaware
corporation
By:_____________________________________
Robert A. Brannon, Vice President
5
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Security Agreement"), dated as of ______________,
1996, is executed by EXTENDED STAY AMERICA, INC., a Delaware corporation, as
debtor (the "Debtor"), in favor of Southwest Exchange Corporation, a Nevada
corporation, under that certain Exchange Agreement dated June 28, 1996, Account
Number 96-335-TRF ("Secured Party"), in connection with that certain Agreement
to Purchase Hotel (the "Purchase Agreement") dated as of June 25, 1996 among
Debtor's affiliate, as Purchaser, and ST. LOUIS MANOR, INC., a Nevada
corporation, as Seller, ("Seller") and that certain Escrow Agreement whereby the
Debtor, on the Closing Date, will deposit a sum equal to the principal balance
of the Note (as hereinafter defined) into an escrow account with United Title of
Nevada, Inc., a Nevada corporation, 4100 West Flamingo, Suite 1000, Las Vegas,
Nevada 89103 (the "Escrow Agent"), Escrow No. 96100849 Attn: S. Coleman (the
"Escrow Account"). This Security Agreement is executed to secure the payment of
that certain promissory note in the amount of Five Million Four Hundred Thousand
Dollars ($5,400,000.00) of even date herewith delivered to Secured Party (the
"Note"). Pursuant to the Escrow Agreement, the Escrow Agent will deposit cash
received by it from Debtor in the principal amount of the Note into a California
bank account with Bank of America, San Francisco, Account No. 14993-04396 (the
"Account"). Debtor's affiliate has entered into those certain Agreements to
Purchase Hotel, each dated as of June 25, 1996, with Seller's affiliates,
Boulder Manor, Inc., Melrose Suites, Inc., and Michael J. Mona, Jr. and Dean
O'Bannon (collectively, "Seller's Affiliates"), each of which has a security
interest in the Account (the "Affiliates Interests"). Capitalized terms used
and not otherwise defined herein shall have the same meanings as set forth in
the Purchase Agreement.
1. Assignment; Security Interest. For valuable consideration, Debtor
hereby assigns to Secured Party and grants to Secured Party, pursuant to Article
9 of the California Uniform Commercial Code (the "UCC"), a security interest in
and to, and a lien upon, all of Debtor's right, title and interest, whether now
existing or hereafter arising, in and to the Escrow Account and the Account and
all interest earned thereon (collectively, the "Collateral"), as security for
the prompt payment and performance of each of the obligations described in
Section 2 below (collectively, the "Secured Obligations").
2. Obligations Secured. This Security Agreement secures the prompt
payment and performance of each of the following Secured Obligations:
2.1 The indebtedness evidenced by the Note.
2.2 Debtor's affiliates' obligations to Secured Party under the
Purchase Agreement (by assignment), Escrow Agreement and all other documents in
connection with the purchase of the Property.
2.3 Debtor's obligations hereunder.
2.4 Any and all amendments, extensions and other modifications of any
of the foregoing, including without limitation amendments, extensions and other
modifications that are evidenced by new or additional documents or that change
the rate of interest on any Secured Obligation.
3. Representations and Warranties. Debtor hereby represents and warrants
that:
1
<PAGE>
3.1 Debtor has good and marketable title to the Collateral, and, to
the best of Debtor's knowledge, no other person, entity or governmental agency
(whether federal, state or local) has or purports to have any right, title,
encumbrance or adverse claim or lien in or to any of the Collateral, save and
except Seller's Affiliates as to the Affiliates' Interests.
3.2 Debtor's principal place of business and chief executive and
accounting offices are located at 500 E. Broward Boulevard, Suite 590, Fort
Lauderdale, Florida 33394-3073.
3.3 Debtor is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware.
3.4 Debtor has the power and authority to enter into this Agreement
and any person or party signing on Debtor's behalf has been duly authorized to
sign on Debtor's behalf.
3.5 Except for the financing statements executed by Debtor to perfect
the security interest in the Collateral in favor of Secured Party, at the time
of granting the security interest described herein, no financing statement
covering the Collateral or any portion thereof will be on file in any public
office and, Debtor agrees not to execute or authorize the filing of any such
additional financing statement in favor of any person, entity or governmental
agency (whether federal, state or local) other than Secured Party and Seller's
Affiliates as long as any portion of the indebtedness evidenced by the Note
remains unpaid.
4. Covenants by Debtor. Debtor hereby agrees that:
4.1 Prior to or simultaneously with the execution of this Security
Agreement by Debtor, Debtor will execute and cause to be filed in accordance
with the California Uniform Commercial Code, financing statements in form and
substance satisfactory to Secured Party. Thereafter at any time and from time
to time, upon demand of Secured Party, Debtor shall give, execute, acknowledge,
file and record any notice, financing statement, continuation statement,
assignment, instrument, document or agreement that Secured Party reasonably
deems necessary or desirable to create, preserve, continue, perfect or validate
any security interest intended to be created hereunder or to enable Secured
Party to enforce its rights with respect to any such security interest.
4.2 Debtor shall notify Secured Party prior to changing its principal
place of business and chief executive and accounting offices from the location
set forth in Section 3.2 of this Security Agreement.
4.3 Debtor shall keep the Collateral free of all liens, claims,
security interests and encumbrances, (save and except the Affiliates'
Interests).
4.4 Debtor shall, at Debtor's own cost, defend any and all actions,
proceedings and claims affecting any material portion of the Collateral,
including without limitation actions, proceedings and claims challenging
Debtor's title to the Collateral or the validity or priority of Secured Party's
security interest hereunder.
2
<PAGE>
4.5 Debtor shall promptly pay all taxes, assessments and other
charges levied or assessed against any Collateral.
4.6 As soon as practicable, and in any event within two (2) days,
Debtor shall notify Secured Party of:
(a) Any attachment or other legal process levied against any material
portion of the Collateral; and
(b) Any information received by Debtor which may in any manner
materially and adversely affect the value of the Collateral or the rights and
remedies of Secured Party with respect thereto.
Any notice delivered pursuant to this Section 4.6 shall set forth the nature of
such event and the action which Debtor proposes to take with respect thereto.
5. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" hereunder:
5.1 Debtor fails to perform any obligation to pay money which
arises under the Note; or
5.2 Debtor fails to perform any obligation arising under this
Security Agreement.
6. Remedies. Upon the occurrence of an Event of Default hereunder,
Secured Party shall have all of the following rights and remedies, each of which
may be exercised with or without further notice to Debtor:
6.1 To notify Escrow Agent that an Event of Default has occurred
that all monies deposited pursuant to the Escrow Account or in the Account are
to be released directly to Secured Party;
6.2 To enforce payment and prosecute any action or proceeding with
respect to any and all the Collateral;
6.3 To foreclose the liens and security interests created under
this Security Agreement or under any other agreement relating to any Collateral
by any available judicial procedure or without judicial process;
6.4 To declare all Secured Obligations immediately due and payable;
and
6.5 To exercise any and all other rights and remedies that Secured
Party may have in any jurisdiction where enforcement of this Security Agreement
is sought, including without limitation all rights and remedies of a secured
party under any applicable Uniform Commercial Code. Secured Party shall have
the right to enforce one or more of its remedies successively or concurrently,
and such action shall neither estop nor prevent Secured Party
3
<PAGE>
from pursuing any and all further remedies that it may have. In the event Debtor
fails to perform any obligation set forth herein, Secured Party may, but shall
not be obligated to, perform the same, and the cost thereof shall be payable by
Debtor to Secured Party on demand and shall bear interest at the default rate of
interest set forth in the Note ("Default Rate"). No failure on the part of
Secured Party to exercise, and no delay in exercising, any right or remedy shall
operate as a waiver thereof or of any default or Event of Default, nor shall any
single or partial exercise of any right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.
7. Application of Proceeds. The net cash proceeds resulting from any
collection of the Collateral by Secured Party shall be applied first to the
expenses (including reasonable attorneys' fees) of retaking, processing,
collecting and the like, and then to the satisfaction of other Secured
Obligations then due, application as to particular obligations or against
principal or interest to be in Secured Party's sole discretion, and then to
Debtor or such other person as may be lawfully entitled thereto.
8. Secured Party's Costs and Expenses. Debtor shall reimburse Secured
Party on demand for all reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Secured Party in connection with the enforcement of
this Security Agreement, regardless of whether any suit is filed, including
without limitation all reasonable costs and expenses incurred in checking,
retaking, holding or otherwise collecting of any and all Collateral. Such
reimbursement obligations shall bear interest from the date of demand at the
Default Rate.
9. Miscellaneous Waivers. Presentment, protest, notice of protest,
notice of dishonor and notice of nonpayment are waived with respect to any
proceeds to which Secured Party is entitled hereunder.
10. Successors and Assigns. This Security Agreement shall bind, and
shall inure to the benefit of, the respective successors and assigns of Debtor
and Secured Party.
11. Attorney-in-Fact. Debtor hereby constitutes and appoints Secured
Party as its attorney-in-fact for the purposes of (a) carrying out the
provisions of this Security Agreement; and (b) taking any and all actions and
executing any and all instruments that Secured Party reasonably deems necessary
or advisable to accomplish the purposes of this Security Agreement and/or to
protect Secured Party's interests with respect to the Collateral.
12. Notices. All notices or communications herein required or permitted
to be given shall be in writing and shall be governed in all respects by the
notice provisions of the Purchase Agreement. For purposes of this Agreement:
The address of Secured Party is: Southwest Exchange Corporation
2920 North Green Valley Parkway, Suite 814
Henderson, Nevada 89014
The address of Debtor is: Extended Stay America, Inc.
500 E. Broward Blvd., Suite 950
Fort Lauderdale, Florida 33394
4
<PAGE>
13. Entire Agreement; Amendment; Waiver. This Security Agreement,
together with any and all other documents referred to herein, constitutes the
entire agreement between Debtor and Secured Party pertaining to the subject
matter contained herein. This Security Agreement may not be amended, changed,
modified, altered or terminated except by a written instrument signed by Secured
Party and Debtor. Neither Secured Party nor Debtor may waive any right
hereunder except by a signed written instrument.
14. Severability. In the event any provision of this Security Agreement
is held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
15. Section Headings. The subject headings and the sections and
subsections of this Security Agreement are included for convenience only and
shall not affect the construction or interpretation of any provision.
16. Governing Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California.
17. Definitions. Unless otherwise defined, words used herein have the
meanings given them in the California Uniform Commercial Code.
IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be duly
executed as of the date first written above.
DEBTOR:
EXTENDED STAY AMERICA, INC., a Delaware
corporation
By:________________________________________
Robert A. Brannon, Vice President
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement ("Security Agreement"), dated as of ______________,
1996, is executed by EXTENDED STAY AMERICA, INC., a Delaware corporation, as
debtor (the "Debtor") in favor of Southwest Exchange Corporation, a Nevada
corporation, under that certain Exchange Agreement dated June 28, 1996, Account
Number 96-340-KLK and Account Number 96-334-TRF ("Secured Party"), in connection
with that certain Agreement to Purchase Hotel (the "Purchase Agreement") dated
as of June 25, 1996 among Debtor's affiliate, as Purchaser, and MICHAEL J. MONA,
JR. and DEAN O'BANNON, each as to a 50% interest, as Sellers, ("Sellers") and
that certain Escrow Agreement whereby the Debtor, on the Closing Date, will
deposit a sum equal to the principal balance of the Notes (as hereinafter
defined) into an escrow account with United Title of Nevada, Inc., a Nevada
corporation, 4100 West Flamingo, Suite 1000, Las Vegas, Nevada 89103 (the
"Escrow Agent"), Escrow No. 96100847 Attn: S. Coleman (the "Escrow Account").
This Security Agreement is executed to secure the payment of those two (2)
certain promissory notes in the amount of Two Million Seven Hundred Fifty
Thousand Dollars each ($2,750,000.00) for a total amount of Five Million Five
Hundred Thousand Dollars ($5,500,000.00) of even date herewith delivered to
Secured Party (collectively, the "Notes"). Pursuant to the Escrow Agreement,
the Escrow Agent will deposit cash received by it from Debtor in the principal
amount of the Notes into a California bank account with Bank of America, San
Francisco, Account No. 14993-04396 (the "Account"). Debtor's affiliate has
entered into those certain Agreements to Purchase Hotel, each dated as of June
25, 1996, with Seller's affiliates, St. Louis Manor, Inc., Melrose Suites, Inc.,
and Boulder Manor, Inc. (collectively, "Seller's Affiliates"), each of which has
a security interest in the Account (the "Affiliates Interests"). Capitalized
terms used and not otherwise defined herein shall have the same meanings as set
forth in the Purchase Agreement.
1. Assignment; Security Interest. For valuable consideration, Debtor
hereby assigns to Secured Party and grants to Secured Party, pursuant to Article
9 of the California Uniform Commercial Code (the "UCC"), a security interest in
and to, and a lien upon, all of Debtor's right, title and interest, whether now
existing or hereafter arising, in and to the Escrow Account and the Account and
all interest earned thereon (collectively, the "Collateral"), as security for
the prompt payment and performance of each of the obligations described in
Section 2 below (collectively, the "Secured Obligations").
2. Obligations Secured. This Security Agreement secures the prompt
payment and performance of each of the following Secured Obligations:
2.1 The indebtedness evidenced by the Notes.
2.2 Debtor's affiliates' obligations to Secured Party under the
Purchase Agreement (by assignment), Escrow Agreement and all other documents in
connection with the purchase of the Property.
2.3 Debtor's obligations hereunder.
2.4 Any and all amendments, extensions and other modifications of any
of the foregoing, including without limitation amendments, extensions and other
modifications that are evidenced by new or additional documents or that change
the rate of interest on any Secured Obligation.
1
<PAGE>
3. Representations and Warranties. Debtor hereby represents and warrants
that:
3.1 Debtor has good and marketable title to the Collateral, and, to
the best of Debtor's knowledge, no other person, entity or governmental agency
(whether federal, state or local) has or purports to have any right, title,
encumbrance or adverse claim or lien in or to any of the Collateral, save and
except Seller's Affiliates as to the Affiliates' Interests.
3.2 Debtor's principal place of business and chief executive and
accounting offices are located at 500 E. Broward Boulevard, Suite 590, Fort
Lauderdale, Florida 33394-3073.
3.3 Debtor is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware.
3.4 Debtor has the power and authority to enter into this Agreement
and any person or party signing on Debtor's behalf has been duly authorized to
sign on Debtor's behalf.
3.5 Except for the financing statements executed by Debtor to
perfect the security interest in the Collateral in favor of Secured Party, at
the time of granting the security interest described herein, no financing
statement covering the Collateral or any portion thereof will be on file in any
public office and, Debtor agrees not to execute or authorize the filing of any
such additional financing statement in favor of any person, entity or
governmental agency (whether federal, state or local) other than Secured Party
and Seller's Affiliates as long as any portion of the indebtedness evidenced by
the Notes remains unpaid.
4. Covenants by Debtor. Debtor hereby agrees that:
4.1 Prior to or simultaneously with the execution of this Security
Agreement by Debtor, Debtor will execute and cause to be filed in accordance
with the California Uniform Commercial Code, financing statements in form and
substance satisfactory to Secured Party. Thereafter at any time and from time
to time, upon demand of Secured Party, Debtor shall give, execute, acknowledge,
file and record any notice, financing statement, continuation statement,
assignment, instrument, document or agreement that Secured Party reasonably
deems necessary or desirable to create, preserve, continue, perfect or validate
any security interest intended to be created hereunder or to enable Secured
Party to enforce its rights with respect to any such security interest.
4.2 Debtor shall notify Secured Party prior to changing its
principal place of business and chief executive and accounting offices from the
location set forth in Section 3.2 of this Security Agreement.
4.3 Debtor shall keep the Collateral free of all liens, claims,
security interests and encumbrances, (save and except the Affiliates'
Interests).
4.4 Debtor shall, at Debtor's own cost, defend any and all actions,
proceedings and claims affecting any material portion of the Collateral,
including without
2
<PAGE>
limitation actions, proceedings and claims challenging Debtor's title to the
Collateral or the validity or priority of Secured Party's security interest
hereunder.
4.5 Debtor shall promptly pay all taxes, assessments and other
charges levied or assessed against any Collateral.
4.6 As soon as practicable, and in any event within two (2) days,
Debtor shall notify Secured Party of:
(a) Any attachment or other legal process levied against any material
portion of the Collateral; and
(b) Any information received by Debtor which may in any manner
materially and adversely affect the value of the Collateral or the rights and
remedies of Secured Party with respect thereto.
Any notice delivered pursuant to this Section 4.6 shall set forth the nature of
such event and the action which Debtor proposes to take with respect thereto.
5. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" hereunder:
5.1 Debtor fails to perform any obligation to pay money which
arises under the Notes; or
5.2 Debtor fails to perform any obligation arising under this
Security Agreement.
6. Remedies. Upon the occurrence of an Event of Default hereunder,
Secured Party shall have all of the following rights and remedies, each of which
may be exercised with or without further notice to Debtor:
6.1 To notify Escrow Agent that an Event of Default has occurred
that all monies deposited pursuant to the Escrow Account or in the Account are
to be released directly to Secured Party;
6.2 To enforce payment and prosecute any action or proceeding with
respect to any and all the Collateral;
6.3 To foreclose the liens and security interests created under
this Security Agreement or under any other agreement relating to any Collateral
by any available judicial procedure or without judicial process;
6.4 To declare all Secured Obligations immediately due and payable;
and
6.5 To exercise any and all other rights and remedies that Secured
Party may have in any jurisdiction where enforcement of this Security Agreement
is sought, including
3
<PAGE>
without limitation all rights and remedies of a secured party under any
applicable Uniform Commercial Code. Secured Party shall have the right to
enforce one or more of its remedies successively or concurrently, and such
action shall neither estop nor prevent Secured Party from pursuing any and all
further remedies that it may have. In the event Debtor fails to perform any
obligation set forth herein, Secured Party may, but shall not be obligated to,
perform the same, and the cost thereof shall be payable by Debtor to Secured
Party on demand and shall bear interest at the default rate of interest set
forth in the Notes ("Default Rate"). No failure on the part of Secured Party to
exercise, and no delay in exercising, any right or remedy shall operate as a
waiver thereof or of any default or Event of Default, nor shall any single or
partial exercise of any right or remedy preclude any other or further exercise
thereof or the exercise of any other right or remedy.
7. Application of Proceeds. The net cash proceeds resulting from any
collection of the Collateral by Secured Party shall be applied first to the
expenses (including reasonable attorneys' fees) of retaking, processing,
collecting and the like, and then to the satisfaction of other Secured
Obligations then due, application as to particular obligations or against
principal or interest to be in Secured Party's sole discretion, and then to
Debtor or such other person as may be lawfully entitled thereto.
8. Secured Party's Costs and Expenses. Debtor shall reimburse Secured
Party on demand for all reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Secured Party in connection with the enforcement of
this Security Agreement, regardless of whether any suit is filed, including
without limitation all reasonable costs and expenses incurred in checking,
retaking, holding or otherwise collecting of any and all Collateral. Such
reimbursement obligations shall bear interest from the date of demand at the
Default Rate.
9. Miscellaneous Waivers. Presentment, protest, notice of protest,
notice of dishonor and notice of nonpayment are waived with respect to any
proceeds to which Secured Party is entitled hereunder.
10. Successors and Assigns. This Security Agreement shall bind, and
shall inure to the benefit of, the respective successors and assigns of Debtor
and Secured Party.
11. Attorney-in-Fact. Debtor hereby constitutes and appoints Secured
Party as its attorney-in-fact for the purposes of (a) carrying out the
provisions of this Security Agreement; and (b) taking any and all actions and
executing any and all instruments that Secured Party reasonably deems necessary
or advisable to accomplish the purposes of this Security Agreement and/or to
protect Secured Party's interests with respect to the Collateral.
12. Notices. All notices or communications herein required or permitted
to be given shall be in writing and shall be governed in all respects by the
notice provisions of the Purchase Agreement. For purposes of this Agreement:
The address of Secured Party is: Southwest Exchange Corporation
2920 North Green Valley Parkway, Suite 814
Henderson, Nevada 89014
<PAGE>
The address of Debtor is: Extended Stay America, Inc.
500 E. Broward Blvd., Suite 950
Fort Lauderdale, Florida 33394
13. Entire Agreement; Amendment; Waiver. This Security Agreement,
together with any and all other documents referred to herein, constitutes the
entire agreement between Debtor and Secured Party pertaining to the subject
matter contained herein. This Security Agreement may not be amended, changed,
modified, altered or terminated except by a written instrument signed by Secured
Party and Debtor. Neither Secured Party nor Debtor may waive any right
hereunder except by a signed written instrument.
14. Severability. In the event any provision of this Security Agreement
is held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
15. Section Headings. The subject headings and the sections and
subsections of this Security Agreement are included for convenience only and
shall not affect the construction or interpretation of any provision.
16. Governing Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of California.
17. Definitions. Unless otherwise defined, words used herein have the
meanings given them in the California Uniform Commercial Code.
IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be duly
executed as of the date first written above.
DEBTOR:
EXTENDED STAY AMERICA, INC.,
a Delaware corporation
By:__________________________________________
Robert A. Brannon, Vice President
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Melrose Suites, Inc., a Nevada corporation
("Seller"), to Extended Stay America, Inc., a Delaware corporation (the
"Company").
R E C I T A L S:
---------------
A. Seller has entered into an agreement (the "Purchase Agreement")
with the Company to sell the certain hotel known as Melrose Suites located in
Las Vegas, Nevada (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller execute and deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller agrees as follows:
1. No Solicitation of Employees. Seller agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Seller nor any person or enterprise controlled by Seller will solicit for
employment any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Seller agrees that during the Term of
-----------------------
this Agreement, neither Seller nor any person or enterprise controlled by Seller
will become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
The Seller acknowledges that any material breach of its covenants
contained in Sections 1 and 2 will cause irreparable harm to the Company, which
will be difficult if not impossible to ascertain, and the Company shall be
entitled to equitable relief, including injunctive relief, against any actual or
threatened breach hereof, without bond and without liability should such relief
be denied, modified or vacated. Neither the right to obtain such relief or the
obtaining of such relief shall be exclusive or preclude the Company from any
other remedy at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Seller has executed this Agreement as of the day
and year first above written.
MELROSE SUITES, INC.
By:____________________________
Its:___________________________
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Michael J. Mona, Jr. ("Mona") to Extended Stay
America, Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. Melrose Suites, Inc., a Nevada corporation ("Seller"), has entered
into an agreement (the "Purchase Agreement") with the Company to sell the
certain hotel known as Melrose Suites located in Las Vegas, Nevada (the
"Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mona agrees as follows:
1. No Solicitation of Employees. Mona agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Mona nor any person or enterprise controlled by Mona will solicit for employment
any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Mona agrees that during the Term of this
-----------------------
Agreement, neither Mona nor any person or enterprise controlled by Mona will
become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Mona acknowledges that any material breach of its covenants contained
in Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive or preclude the Company from any other remedy
at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Mona has executed this Agreement as of the day and
year first above written.
------------------------------------
MICHAEL J. MONA, JR.
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Rhonda H. Mona ("Mona") to Extended Stay America,
Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. Melrose Suites, Inc., a Nevada corporation ("Seller"), has entered
into an agreement (the "Purchase Agreement") with the Company to sell the
certain hotel known as Melrose Suites located in Las Vegas, Nevada (the
"Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mona agrees as follows:
1. No Solicitation of Employees. Mona agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Mona nor any person or enterprise controlled by Mona will solicit for employment
any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Mona agrees that during the Term of this
-----------------------
Agreement, neither Mona nor any person or enterprise controlled by Mona will
become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Mona acknowledges that any material breach of its covenants contained
in Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive or preclude the Company from any other remedy
at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Mona has executed this Agreement as of the day and
year first above written.
-------------------------
RHONDA H. MONA
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Bertha Elizabeth Mona ("Mona") to Extended Stay
America, Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. St. Louis Manor, Inc., a Nevada corporation ("Seller"), has
entered into an agreement (the "Purchase Agreement") with the Company to sell
the certain hotel known as Nicolle Manor located in Las Vegas, Nevada (the
"Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mona agrees as follows:
1. No Solicitation of Employees. Mona agrees that from the date of
this Agreement and continuing for a period of two years (the "Term"), neither
Mona nor any person or enterprise controlled by Mona will solicit for employment
any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Mona agrees that during the Term of this
Agreement, neither Mona nor any person or enterprise controlled by Mona will
become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Mona acknowledges that any material breach of its covenants contained
in Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive or preclude the Company from any other remedy
at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Mona has executed this Agreement as of the day and
year first above written.
-------------------------------
BERTHA ELIZABETH MONA
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of June, 1996, is delivered by Dean O'Bannon ("O'Bannon") to Extended Stay
America, Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. O'Bannon has entered into an agreement (the "Purchase Agreement")
with an affiliate of the Company to sell his undivided 50% interest in the
certain hotel known as Nicolle Manor located in Las Vegas, Nevada (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that O'Bannon deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, O'Bannon agrees as follows:
1. No Solicitation of Employees. O'Bannon agrees that from the date
----------------------------
of this Agreement and continuing for a period of two years (the "Term"), neither
O'Bannon nor any person or enterprise controlled by O'Bannon will solicit for
employment any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. O'Bannon agrees that during the Term of
-----------------------
this Agreement, neither O'Bannon nor any person or enterprise controlled by
O'Bannon will become a stockholder, director, officer, agent, consultant or
employee of a business, whether or not incorporated, or have any financial stake
of any nature in any of the foregoing or otherwise engage directly or indirectly
in any enterprise which is a Competing Business (as defined below) in the
Prohibited Area (as defined below); provided, however, that the foregoing shall
not prohibit (a) the ownership or operation of those properties described on
Exhibit A attached hereto; or (b) the ownership of less than 5% of the
outstanding shares of stock of any corporation engaged in any business, which
shares are regularly traded on a national securities exchange or in any over-
the-counter market. The term "Competing Business" shall mean any business,
person, or entity which is engaged in the ownership, management or operation of
extended-stay lodging facilities generally similar to those owned or operated by
the Company or its affiliates during the Term. The term "Prohibited Area" shall
mean, on the date hereof, any area within 25 miles of (i) any extended-stay
lodging facilities owned or operated by the Company or any of its affiliates;
and (ii) any real property owned, leased, or under contract for purchase by the
Company or any of its affiliates intends to develop an extended-stay lodging
facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
O'Bannon acknowledges that any material breach of its covenants
contained in Sections 1 and 2 will cause irreparable harm to the Company, which
will be difficult if not impossible to ascertain, and the Company shall be
entitled to equitable relief, including injunctive relief, against any actual or
threatened breach hereof, without bond and without liability should such relief
be denied, modified or vacated. Neither the right to obtain such relief or the
obtaining of such relief shall be exclusive or preclude the Company from any
other remedy at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, O'Bannon has executed this Agreement as of the day
and year first above written.
------------------------------------
DEAN O'BANNON
-2-
<PAGE>
EXHIBIT A
---------
4350 Boulder Highway
Las Vegas, Nevada
Sunrise Suites
4575 Boulder Highway
Las Vegas, Nevada
-3-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Michael J. Mona, Jr. ("Mona") to Extended Stay
America, Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. Mona has entered into an agreement (the "Purchase Agreement") with
an affiliate of the Company to sell his undivided 50% interest in the certain
hotel known as Nicolle Manor located in Las Vegas, Nevada (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Mona deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mona agrees as follows:
1. No Solicitation of Employees. Mona agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Mona nor any person or enterprise controlled by Mona will solicit for employment
any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Mona agrees that during the Term of this
-----------------------
Agreement, neither Mona nor any person or enterprise controlled by Mona will
become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Mona acknowledges that any material breach of its covenants contained
in Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive or preclude the Company from any other remedy
at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Mona has executed this Agreement as of the day and
year first above written.
-----------------------------------
MICHAEL J. MONA, JR.
-2-
<PAGE>
EXHIBIT A
---------
Sunrise Suites
4575 Boulder Highway
Las Vegas, Nevada
-3-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Michael J. Mona, Jr. ("Mona") to Extended Stay
America, Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. St. Louis Manor, Inc., a Nevada corporation ("Seller"), has
entered into an agreement (the "Purchase Agreement") with the Company to sell
the certain hotel known as St. Louis Manor located in Las Vegas, Nevada (the
"Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mona agrees as follows:
1. No Solicitation of Employees. Mona agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Mona nor any person or enterprise controlled by Mona will solicit for employment
any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Mona agrees that during the Term of this
-----------------------
Agreement, neither Mona nor any person or enterprise controlled by Mona will
become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Mona acknowledges that any material breach of its covenants contained
in Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive or preclude the Company from any other remedy
at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Mona has executed this Agreement as of the day and
year first above written.
_______________________________
MICHAEL J. MONA, JR.
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Rhonda H. Mona ("Mona") to Extended Stay America,
Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. St. Louis Manor, Inc., a Nevada corporation ("Seller"), has
entered into an agreement (the "Purchase Agreement") with the Company to sell
the certain hotel known as St. Louis Manor located in Las Vegas, Nevada (the
"Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mona agrees as follows:
1. No Solicitation of Employees. Mona agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Mona nor any person or enterprise controlled by Mona will solicit for employment
any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Mona agrees that during the Term of this
-----------------------
Agreement, neither Mona nor any person or enterprise controlled by Mona will
become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Mona acknowledges that any material breach of its covenants contained in
Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining of
such relief shall be exclusive or preclude the Company from any other remedy at
law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Mona has executed this Agreement as of the day and year
first above written.
-----------------------------
RHONDA H. MONA
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by St. Louis Manor, Inc., a Nevada corporation
("Seller"), to Extended Stay America, Inc., a Delaware corporation (the
"Company").
R E C I T A L S:
---------------
A. Seller has entered into an agreement (the "Purchase Agreement")
with the Company to sell the certain hotel known as St. Louis Manor located in
Las Vegas, Nevada (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller execute and deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller agrees as follows:
1. No Solicitation of Employees. Seller agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Seller nor any person or enterprise controlled by Seller will solicit for
employment any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Seller agrees that during the Term of
-----------------------
this Agreement, neither Seller nor any person or enterprise controlled by Seller
will become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
The Seller acknowledges that any material breach of its covenants
contained in Sections 1 and 2 will cause irreparable harm to the Company, which
will be difficult if not impossible to ascertain, and the Company shall be
entitled to equitable relief, including injunctive relief, against any actual or
threatened breach hereof, without bond and without liability should such relief
be denied, modified or vacated. Neither the right to obtain such relief or the
obtaining of such relief shall be exclusive or preclude the Company from any
other remedy at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Seller has executed this Agreement as of the day
and year first above written.
ST. LOUIS MANOR, INC.
By:_______________________
Its:______________________
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Rhonda H. Mona ("Mona") to Extended Stay America,
Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. Boulder Manor, Inc., a Nevada corporation ("Seller"), has entered
into an agreement (the "Purchase Agreement") with the Company to sell the
certain hotel known as Boulder Manor located in Las Vegas, Nevada (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mona agrees as follows:
1. No Solicitation of Employees. Mona agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Mona nor any person or enterprise controlled by Mona will solicit for employment
any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Mona agrees that during the Term of this
-----------------------
Agreement, neither Mona nor any person or enterprise controlled by Mona will
become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Mona acknowledges that any material breach of its covenants contained
in Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive or preclude the Company from any other remedy
at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Mona has executed this Agreement as of the day and
year first above written.
________________________________________
RHONDA H. MONA.
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Michael J. Mona, Jr. ("Mona") to Extended Stay
America, Inc., a Delaware corporation (the "Company").
R E C I T A L S:
---------------
A. Boulder Manor, Inc., a Nevada corporation ("Seller"), has entered
into an agreement (the "Purchase Agreement") with the Company to sell the
certain hotel known as Boulder Manor located in Las Vegas, Nevada (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mona agrees as follows:
1. No Solicitation of Employees. Mona agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Mona nor any person or enterprise controlled by Mona will solicit for employment
any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Mona agrees that during the Term of this
-----------------------
Agreement, neither Mona nor any person or enterprise controlled by Mona will
become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however,
<PAGE>
that in the event that any court shall refuse to enforce any of the covenants
contained in Sections 1 and 2, then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Mona acknowledges that any material breach of its covenants contained
in Sections 1 and 2 will cause irreparable harm to the Company, which will be
difficult if not impossible to ascertain, and the Company shall be entitled to
equitable relief, including injunctive relief, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive or preclude the Company from any other remedy
at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Mona has executed this Agreement as of the day and
year first above written.
________________________________________
MICHAEL J. MONA, JR.
-2-
<PAGE>
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE (the "Agreement") dated as of the ___ day
of July, 1996, is delivered by Boulder Manor, Inc., a Nevada corporation
("Seller"), to Extended Stay America, Inc., a Delaware corporation (the
"Company").
R E C I T A L S:
---------------
A. Seller has entered into an agreement (the "Purchase Agreement")
with the Company to sell the certain hotel known as Boulder Manor (the "Hotel").
B. It is a condition to the execution of the Purchase Agreement by
the Company that Seller execute and deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller agrees as follows:
1. No Solicitation of Employees. Seller agrees that from the date of
----------------------------
this Agreement and continuing for a period of two years (the "Term"), neither
Seller nor any person or enterprise controlled by Seller will solicit for
employment any person employed by the Company or any of its affiliates.
2. Covenant Not to Compete. Seller agrees that during the Term of
-----------------------
this Agreement, neither Seller nor any person or enterprise controlled by Seller
will become a stockholder, director, officer, agent, consultant or employee of a
business, whether or not incorporated, or have any financial stake of any nature
in any of the foregoing or otherwise engage directly or indirectly in any
enterprise which is a Competing Business (as defined below) in the Prohibited
Area (as defined below); provided, however, that the foregoing shall not
prohibit (a) the ownership or operation of those properties described on Exhibit
A attached hereto; or (b) the ownership of less than 5% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-counter
market. The term "Competing Business" shall mean any business, person, or
entity which is engaged in the ownership, management, operation, or development
of extended-stay lodging facilities generally similar to those owned or operated
by the Company or its affiliates during the Term. The term "Prohibited Area"
shall mean, on the date hereof, any area within 25 miles of (i) any extended-
stay lodging facilities owned or operated by the Company or any of its
affiliates; and (ii) any real property owned, leased, or under contract for
purchase by the Company or any of its affiliates intends to develop an extended-
stay lodging facility.
3. Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however, that in the event that any court shall
refuse to enforce any of the covenants contained in Sections
<PAGE>
1 and 2, then the unenforceable covenant shall be deemed eliminated from the
provisions of this Agreement for the purpose of those proceedings to the extent
necessary to permit the remaining covenants to be enforced so that the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby.
The Seller acknowledges that any material breach of its covenants
contained in Sections 1 and 2 will cause irreparable harm to the Company, which
will be difficult if not impossible to ascertain, and the Company shall be
entitled to equitable relief, including injunctive relief, against any actual or
threatened breach hereof, without bond and without liability should such relief
be denied, modified or vacated. Neither the right to obtain such relief or the
obtaining of such relief shall be exclusive or preclude the Company from any
other remedy at law or equity.
4. Governing Law and Jurisdiction. This Agreement shall be governed
------------------------------
and construed in accordance with the laws of the State of Nevada. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought in the courts of the State of Nevada,
County of Clark or, if it can acquire jurisdiction, in the United States
District Court for the District of Nevada.
IN WITNESS WHEREOF, Seller has executed this Agreement as of the day
and year first above written.
BOULDER MANOR, INC.
By: __________________________
Its:__________________________
-2-
<PAGE>
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT ("Agreement") is made this ____ day of ________,
1996, by and among, (a) Southwest Exchange Corporation, a Nevada corporation,
under Exchange Agreements dated June 28, 1996, Account No. 96-335-TRF ("St.
Louis"), Account No. 96-333-TRF ("Boulder"), and Account No. 96-336-TRF
("Melrose")("Southwest"), (b) Extended Stay America, Inc., a Delaware
corporation ("ESA"), (c) ESA 0858, Inc., a Nevada corporation ("ESA 0858"), (d)
ESA 0859, Inc., a Nevada corporation ("ESA 0859"), (e) ESA 0860, Inc., a Nevada
corporation ("ESA 0860"; ESA 0858, ESA 0859, and ESA 0860 are hereinafter
referred to collectively as the "ESA Affiliates"), and (f) United Title of
Nevada ("Escrow Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, St. Louis Manor, Inc., Boulder Manor, Inc. and Melrose Suites,
Inc. (collectively the "Sellers") and the ESA Affiliates have each entered into
a certain Agreement to Purchase Hotel, dated June 25, 1996 (the "Purchase
Agreements"); and
WHEREAS, pursuant to the Purchase Agreements, the ESA Affiliates have
delivered promissory notes (the "Notes"), copies of which are attached hereto as
Exhibit A; and
WHEREAS, to secure ESA Affiliate's obligations under the Notes, Southwest
and the ESA Affiliates desire Escrow Agent to hold certain monies and to take
such actions in accordance with the terms hereof or as otherwise directed
jointly by Southwest and ESA.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Escrow Agent is appointed as the entity responsible for holding,
investing and disbursing the Cash Deposit and Proceeds (as those terms are
hereinafter defined) and Escrow Agent accepts such appointment, all subject to
the terms and conditions of this Agreement.
2. ESA has deposited with Escrow Agent the amount of $28,500,000.00 (the
"Cash Deposit") which shall be invested together with the Proceeds, if any, as
ESA directs or, if Escrow Agent receives no such direction, then in an interest
bearing money market account or other account (the "Investment"). Escrow Agent
is authorized to file appropriate or necessary reports or returns of interest
earned on the Investment with the United States Treasury Department, Internal
Revenue Service, and any applicable State or local taxing authority, in aid of
which ESA's Federal Taxpayer Identification Number is 36-3996573. Escrow Agent
shall have no liability or responsibility for any loss or cost which may be
suffered by ESA, the ESA Affiliates, or Southwest as a result of the failure or
insolvency of any financial instruction, or the loss of any interest in which
the Investment may be made, unless caused by Escrow Agent's conversion of funds
to its own account.
57
<PAGE>
3. Escrow Agent shall receive the proceeds ("Proceeds") from the sale of
such shares of common stock delivered pursuant to the Agreements and shall
disburse such Proceeds as follows:
a. First, pari passu to the Sellers' lenders (the "Lenders") in
---- -----
accordance with the payoff letters attached hereto as Exhibit B;
b. Second, when the indebtedness of the Lenders is paid in full
pursuant to such payoff letters, the balance, if any, as directed
by Southwest, up to the remaining balance of the Notes which shall
be reduced dollar for dollar by the amount paid to the Lenders;
c. Third, undisbursed Proceeds shall be invested as the Cash Deposit
is invested until contrary instructions are received from ESA and
Southwest, pending payment in full to the Lenders and Southwest;
and
d. Fourth, when payment in full has been made to the Lenders and to
Southwest, the balance of the Investment shall be paid to ESA or
as directed by ESA, whereupon this Agreement shall terminate for
all purposes.
4. In the event the aggregate Proceeds received and disbursed by Escrow
Agent on or before _______, 1996 do not equal or exceed the amount due from the
ESA Affiliates under the Notes, Escrow Agent shall disburse the Cash Deposit as
follows:
a. First, pari passu to the Lenders in accordance with the payoff
---- -----
letters attached hereto as Exhibit B;
b. Second, to Southwest, in an amount equal to the remaining balance
due from ESA under the Notes, giving credit for the amount paid to
the Lenders; and
c. Third, the balance of the Investment, if any, to ESA or as
directed by ESA, whereupon this Agreement shall terminate for all
purposes.
5. Escrow Agent shall not be liable for any loss, costs or damage which
either ESA, the ESA Affiliates, or Southwest may suffer or incur as a result of
Escrow Agent's act, omission or performance under this Agreement unless caused
by Escrow Agent's willful misconduct or gross negligence. In performing its
duties hereunder, Escrow Agent shall be held to the standard of an ordinary man.
6. In performing its duties hereunder, Escrow Agent shall have no duty to
inquire (unless Escrow Agent has actual notice of the need for inquiry) upon the
authenticity of signatures and of the authority of any person or persons acting
or purporting to act on behalf of either Southwest or ESA.
-2-
<PAGE>
7. In the event any dispute should arise or exist as between ESA, the ESA
Affiliates, the Sellers or Southwest as to the distribution and disbursement of
the Cash Deposit or Proceeds, or interest earned thereon (in any case, or any
combination of circumstances, a "Dispute"), or in the event Escrow Agent
reasonably believes in good faith that a Dispute exists, Escrow Agent shall have
the right to file an action in interpleader, naming ESA, the ESA Affiliates, the
Sellers, and Southwest in either: (a) the courts of the State of Nevada, County
of Clark, or (b) the United States District Court for the District of Nevada
(ESA, the ESA Affiliates, and Southwest, and each of them, hereby evidencing
their consent to the venue and jurisdiction of either of the foregoing courts,
subject only to satisfaction of the requirements for federal jurisdiction, if
that is the forum selected by Escrow Agent) and to deposit the balance of the
Cash Deposit, the Proceeds and interest thereon into the registry thereof, after
first deducting Escrow Agent's reasonable and actual costs of filing the action,
including, without limitation, attorneys' fees, court costs and costs incurred
in consulting legal counsel of Escrow Agent's selection prior to filing the
interpleader action. Concurrently with such filing, Escrow Agent shall be
dismissed from such action, whereupon this Agreement shall terminate, all
liability, obligation and responsibility of Escrow Agent hereunder shall be
released, discharged and accounted for, absolutely and forever, as shall also be
the case upon any full disbursements of the Investment and/or Proceeds and
interest thereon, under and by virtue of Paragraphs 3 or 4 or Paragraph 9(b)
hereof.
8. As a matter which shall survive any termination of this Agreement, ESA
shall indemnify and hold harmless Escrow Agent from and against any and all
loss, cost, claim, expense, damage or demand including, but not limited to,
court costs and reasonable, actual attorneys' fees, which Escrow Agent may
suffer, incur or be threatened with and which arise from, and in connection
with, or may in any manner whatsoever be derivative of, Escrow Agent's
performance of its duties and responsibilities hereunder. In order for Escrow
Agent to invoke the benefit of this indemnity, it shall only be necessary for
Escrow Agent to give notice to ESA of the issue involved under this Paragraph 8
and, from and after the date of such notice, Escrow Agent shall be fully and
completely reimbursed for all costs and, if necessary, defended by legal counsel
approved by Escrow Agent against all claims.
9. (a) Except by operation of law, or by virtue of a corporate
reorganization or merger of Escrow Agent, or as expressly provided herein,
Escrow Agent shall not have the right to assign this Agreement or Escrow Agent's
duties and responsibilities hereunder, nor transfer the Cash Deposit and/or
Proceeds and interest to another person or entity. In the event of any such
transfer or assignment as is contemplated by the first sentence of this
Paragraph 9(a), Escrow Agent shall cause to be delivered to ESA, the ESA
Affiliates, and to Southwest an assumption agreement in writing whereby Escrow
Agent's successor (who shall become "Escrow Agent" hereunder) assumes all duties
and responsibilities of Escrow Agent existing under and by virtue of this
Agreement and in respect of the Cash Deposit, Certificates, and Proceeds and
which contains then-current information regarding notice. Neither Escrow Agent
nor any successor under this Paragraph 9(a) shall be relieved of liability to
ESA, the ESA Affiliates, and Southwest by reason of any transfer and assignment
of Escrow Agent's duties effected pursuant to this Paragraph 9(a).
-3-
<PAGE>
(b) ESA and Southwest, acting jointly, only, and with or without
cause, may terminate Escrow Agent's duties and obligations under this Agreement
at any time upon prior written notice to Escrow Agent to such effect, which
notice shall specify the person or entity to whom the Investment, and all
interest thereon, shall be disbursed. Upon such disbursement, all duties,
liabilities and obligations of Escrow Agent under this Agreement shall
terminate.
10. All notices or directions required, necessary or desired to be given
in respect of this Agreement shall be in writing, executed by ESA and Southwest,
or Escrow Agent, or their designated representatives, shall be deemed given and
effective when hand delivered against receipt by any means to the party for whom
such notice is intended, or on the third (3rd) business day (where the term
"business day" means a day upon which the Clark County, Nevada Recorder's office
is open for business of receiving and recording real property instruments in the
Official Records) following the day upon which such notice is deposited, postage
prepaid, certified mail, return receipt requested, to the United States Postal
Service (or successor thereto) and, in all cases, hand delivered, by facsimile
transmission, or mailed, addressed as follows:
a) If to the Southwest: Southwest Exchange Corporation
2920 N. Green Valley Pkwy.
Henderson, Nevada 89014
Telephone No. (702) 454-1031
Facsimile No. (702) 454-7262
Designated Representative: Betty Kincaid
Signature of Designated Representative__________
With a copy to: M&M Development
1785 E. Sahara, Suite 345
Las Vegas, Nevada 89104
Attn: Michael J. Mona, Jr.
Telephone No. (702) 369-9977
Facsimile No. (702) 731-2347
Designated Representative(s): Michael J. Mona, Jr.
Signature of Designated Representative___________
b) If to ESA or c/o Extended Stay America, Inc.
the ESA Affiliates: 500 East Broward Boulevard, #950
Ft. Lauderdale, Florida 33394
Attn: Robert A. Brannon
Telephone No. (954) 713-1600
Facsimile No. (954) 713-1655
Designated Representative(s): Robert A. Brannon
Signature of Designated Representative___________
b) If to Escrow Agent: United Title of Nevada
4100 West Flamingo, Suite 1000
-4-
<PAGE>
Las Vegas, Nevada 89103
Attn: Susan Coleman
Telephone No. (702) 362-6500
Facsimile No. (702) ___-____________
Designated Representative(s):___________________________
Signature of Designated Representative:_________________
or to such other address or attention as may be directed by proper notice.
11. Except as may be otherwise expressly provided herein, this
Agreement and the terms, covenants and conditions hereof, shall be binding upon
and shall inure to the benefit of ESA, the ESA Affiliates, Southwest, and Escrow
Agent and their respective or permitted successors or assigns. As used herein,
the terms "ESA", "Southwest" and "Escrow Agent" mean and include the persons or
entities signatory hereto and their respective successors, assigns and legal
representatives.
12. This Agreement is a contract for performance of escrow services
and is to be governed, interpreted, construed and enforced under and by
reference to the substantive (but not the conflicts) laws of the State of
Nevada.
13. It is not intended that any provision of this Agreement, now or
hereafter contained, shall constitute, or be deemed or construed so as to
constitute, a commitment or undertaking by Escrow Agent with respect to title,
examination or certification of title, the status of title, or the insurance of
title to the any property. No practice or conduct of the parties under and in
respect of this Agreement and the rights, duties, obligations and activities
hereof shall produce a continuing result or be deemed or construed to produce, a
contrary result to this express intention of the parties, in any manner
whatsoever.
14. This Agreement may not be altered, modified or amended in any
manner other than in writing, executed by each party hereto.
15. This Agreement may be executed in one or more counterparts,
provided that any aggregate number of counterparts having at least one original
execution of each party affixed, shall constitute one and the same Agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, ESA, the ESA Affiliates, Southwest and Escrow Agent,
have executed this Agreement as of the day and year first above written.
SOUTHWEST EXCHANGE CORPORATION,
a Nevada Corporation
Under Exchange Agreement dated June 28, 1996,
Account No. 96-335-TRF(St. Louis),Account No.
96-333-TRF (Boulder), and Account No. 96-336-
TRF (Melrose)
By________________________________________
Betty Kincaid, President
EXTENDED STAY OF AMERICA, INC.
By:________________________________________
Robert A. Brannon, Senior Vice President
ESA 0858, INC.,
a Nevada corporation
By:_________________________________________
Robert A. Brannon, Vice President
ESA 0859, INC.,
a Nevada corporation
By:________________________________________
Robert A. Brannon, Vice President
ESA 0860, INC.,
a Nevada corporation
By:________________________________________
Robert A. Brannon, Vice President
UNITED TITLE OF NEVADA
By:________________________________________
(Type Name):_______________________________
Its:_______________________________________
(Type Title):______________________________
-6-
<PAGE>
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT ("Agreement") is made this ____ day of ________,
1996, by and among Southwest Exchange Corporation, a Nevada corporation, under
Exchange Agreements dated June 28, 1996, Account No. 96-334-TRF ("Mona") and
Account No. 96-340-KLK ("O'Bannon") ("Southwest"), Extended Stay America, Inc.,
a Delaware corporation ("ESA"), ESA 0861, Inc., a Nevada corporation ("ESA
0861"), and United Title of Nevada ("Escrow Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Michael J. Mona and Dean O'Bannon (collectively the "Seller") and
ESA 0861 (successor in interest to ESA Properties, Inc.) have entered into a
certain Agreement to Purchase Hotel, dated June 25, 1996 (the "Purchase
Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, ESA has delivered promissory
notes (the "Notes"), a copy of each of which is attached hereto as Exhibit A;
and
WHEREAS, to secure ESA's obligations under the Notes, Southwest and ESA
desire Escrow Agent to hold certain monies and to take such actions in
accordance with the terms hereof or as otherwise directed jointly by Southwest
and ESA.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Escrow Agent is appointed as the entity responsible for holding,
investing and disbursing the Cash Deposit and Proceeds (as those terms are
hereinafter defined) and Escrow Agent accepts such appointment, all subject to
the terms and conditions of this Agreement.
2. ESA has deposited with Escrow Agent the amount of $5,500,000.00 (the
"Cash Deposit") which shall be invested together with the Proceeds, if any, as
ESA directs or, if Escrow Agent receives no such direction, then in an interest
bearing money market account or other account (the "Investment"). Escrow Agent
is authorized to file appropriate or necessary reports or returns of interest
earned on the Investment with the United States Treasury Department, Internal
Revenue Service, and any applicable State or local taxing authority, in aid of
which ESA's Federal Taxpayer Identification Number is 36-3996573. Escrow Agent
shall have no liability or responsibility for any loss or cost which may be
suffered by ESA, ESA 0861, or Southwest as a result of the failure or insolvency
of any financial instruction, or the loss of any interest in which the
Investment may be made, unless caused by Escrow Agent's conversion of funds to
its own account.
3. Escrow Agent shall receive the proceeds ("Proceeds") from the sale of
such shares of common stock delivered pursuant to the Agreements and shall
disburse such Proceeds as follows:
<PAGE>
a. First, pari passu to the Seller's lenders (the "Lenders") in
---- -----
accordance with the payoff letters attached hereto as Exhibit B;
b. Second, when the indebtedness of the Lenders is paid in full
pursuant to such payoff letters, the balance, if any, as directed
by Southwest, up to the remaining balance of the Note which shall
be reduced dollar for dollar by the amount paid to the Lenders;
c. Third, undisbursed Proceeds shall be invested as the Cash Deposit
is invested until contrary instructions are received from ESA and
Southwest, pending payment in full to the Lenders and Southwest;
and
d. Fourth, when payment in full has been made to the Lenders and to
Southwest, the balance of the Investment shall be paid to ESA or
as directed by ESA, whereupon this Agreement shall terminate for
all purposes.
4. In the event the aggregate Proceeds received and disbursed by Escrow
Agent on or before _______, 1996 do not equal or exceed the amount due from ESA
under the Note, Escrow Agent shall disburse the Cash Deposit as follows:
a. First, pari passu to the Lenders in accordance with the payoff
---- -----
letters attached hereto as Exhibit B;
b. Second, to Southwest, in an amount equal to the remaining balance
due from ESA under the Note, giving credit for the amount paid to
the Lenders; and
c. Third, the balance of the Investment, if any, to ESA or as
directed by ESA, whereupon this Agreement shall terminate for all
purposes.
5. Escrow Agent shall not be liable for any loss, costs or damage which
either ESA, ESA 0861, or Southwest may suffer or incur as a result of Escrow
Agent's act, omission or performance under this Agreement unless caused by
Escrow Agent's willful misconduct or gross negligence. In performing its duties
hereunder, Escrow Agent shall be held to the standard of an ordinary man.
6. In performing its duties hereunder, Escrow Agent shall have no duty to
inquire (unless Escrow Agent has actual notice of the need for inquiry) upon the
authenticity of signatures and of the authority of any person or persons acting
or purporting to act on behalf of either Southwest or ESA.
7. In the event any dispute should arise or exist as between ESA, ESA
0861, the Seller or Southwest as to the distribution and disbursement of the
Cash Deposit or Proceeds, or interest earned thereon (in any case, or any
combination of circumstances, a "Dispute"), or in the
-2-
<PAGE>
event Escrow Agent reasonably believes in good faith that a Dispute exists,
Escrow Agent shall have the right to file an action in interpleader, naming ESA,
ESA 0861, the Seller and Southwest, in either: (a) the courts of the State of
Nevada, County of Clark, or (b) the United States District Court for the
District of Nevada (ESA, ESA 0861, and Southwest and each of them, hereby
evidencing their consent to the venue and jurisdiction of either of the
foregoing courts, subject only to satisfaction of the requirements for federal
jurisdiction, if that is the forum selected by Escrow Agent) and to deposit the
balance of the Cash Deposit, the Proceeds and interest thereon into the registry
thereof, after first deducting Escrow Agent's reasonable and actual costs of
filing the action, including, without limitation, attorneys' fees, court costs
and costs incurred in consulting legal counsel of Escrow Agent's selection prior
to filing the interpleader action. Concurrently with such filing, Escrow Agent
shall be dismissed from such action, whereupon this Agreement shall terminate,
all liability, obligation and responsibility of Escrow Agent hereunder shall be
released, discharged and accounted for, absolutely and forever, as shall also be
the case upon any full disbursements of the Investment and/or Proceeds and
interest thereon, under and by virtue of Paragraphs 3 or 4 or Paragraph 9(b)
hereof.
8. As a matter which shall survive any termination of this Agreement, ESA
shall indemnify and hold harmless Escrow Agent from and against any and all
loss, cost, claim, expense, damage or demand including, but not limited to,
court costs and reasonable, actual attorneys' fees, which Escrow Agent may
suffer, incur or be threatened with and which arise from, and in connection
with, or may in any manner whatsoever be derivative of, Escrow Agent's
performance of its duties and responsibilities hereunder. In order for Escrow
Agent to invoke the benefit of this indemnity, it shall only be necessary for
Escrow Agent to give notice to ESA of the issue involved under this Paragraph 8
and, from and after the date of such notice, Escrow Agent shall be fully and
completely reimbursed for all costs and, if necessary, defended by legal counsel
approved by Escrow Agent against all claims.
9. (a) Except by operation of law, or by virtue of a corporate
reorganization or merger of Escrow Agent, or as expressly provided herein,
Escrow Agent shall not have the right to assign this Agreement or Escrow Agent's
duties and responsibilities hereunder, nor transfer the Cash Deposit and/or
Proceeds and interest to another person or entity. In the event of any such
transfer or assignment as is contemplated by the first sentence of this
Paragraph 9(a), Escrow Agent shall cause to be delivered to ESA, ESA 0861, and
to Southwest an assumption agreement in writing whereby Escrow Agent's successor
(who shall become "Escrow Agent" hereunder) assumes all duties and
responsibilities of Escrow Agent existing under and by virtue of this Agreement
and in respect of the Cash Deposit, Certificates, and Proceeds and which
contains then-current information regarding notice. Neither Escrow Agent nor any
successor under this Paragraph 9(a) shall be relieved of liability to ESA, ESA
0861, and Southwest by reason of any transfer and assignment of Escrow Agent's
duties effected pursuant to this Paragraph 9(a).
(b) ESA and Southwest, acting jointly, only, and with or without
cause, may terminate Escrow Agent's duties and obligations under this Agreement
at any time upon prior written notice to Escrow Agent to such effect, which
notice shall specify the person or entity to whom the Investment, and all
interest thereon, shall be disbursed. Upon such disbursement, all duties,
liabilities and obligations of Escrow Agent under this Agreement shall
terminate.
-3-
<PAGE>
10. All notices or directions required, necessary or desired to be given
in respect of this Agreement shall be in writing, executed by ESA and Southwest,
or Escrow Agent, or their designated representatives, shall be deemed given and
effective when hand delivered against receipt by any means to the party for whom
such notice is intended, or on the third (3rd) business day (where the term
"business day" means a day upon which the Clark County, Nevada Recorder's office
is open for business of receiving and recording real property instruments in the
Official Records) following the day upon which such notice is deposited, postage
prepaid, certified mail, return receipt requested, to the United States Postal
Service (or successor thereto) and, in all cases, hand delivered, by facsimile
transmission, or mailed, addressed as follows:
a) If to the Southwest: Southwest Exchange Corporation
2920 N. Green Valley Pkwy.
Henderson, Nevada 89014
Telephone No. (702) 454-1031
Facsimile No. (702) 454-7262
Designated Representative: Betty Kincaid
Signature of Designated Representative__________
With a copy to: M&M Development
1785 E. Sahara, Suite 345
Las Vegas, Nevada 89104
Attention: Michael J. Mona
Designated Representative(s): Michael J. Mona, Jr.
Signature of Designated Representative____________
b) If to ESA or c/o Extended Stay America, Inc.
ESA 0861: 500 East Broward Boulevard, #950
Ft. Lauderdale, Florida 33394
Attn: Robert A. Brannon
Telephone No. (954) 713-1600
Facsimile No. (954) 713-1655
Designated Representative(s): Robert A. Brannon
Signature of Designated Representative____________
b) If to Escrow Agent: United Title of Nevada
4100 West Flamingo, Suite 1000
Las Vegas, Nevada 89103
Attn: Susan Coleman
Telephone No. (702) 362-6500
Facsimile No. (702) ___-____________
Designated Representative(s):_____________________
Signature of Designated Representative:___________
-4-
<PAGE>
or to such other address or attention as may be directed by proper notice.
11. Except as may be otherwise expressly provided herein, this
Agreement and the terms, covenants and conditions hereof, shall be binding upon
and shall inure to the benefit of ESA, ESA 0861, Southwest, and Escrow Agent and
their respective or permitted successors or assigns. As used herein, the terms
"ESA", "Southwest" and "Escrow Agent" mean and include the persons or entities
signatory hereto and their respective successors, assigns and legal
representatives.
12. This Agreement is a contract for performance of escrow services
and is to be governed, interpreted, construed and enforced under and by
reference to the substantive (but not the conflicts) laws of the State of
Nevada.
13. It is not intended that any provision of this Agreement, now or
hereafter contained, shall constitute, or be deemed or construed so as to
constitute, a commitment or undertaking by Escrow Agent with respect to title,
examination or certification of title, the status of title, or the insurance of
title to the any property. No practice or conduct of the parties under and in
respect of this Agreement and the rights, duties, obligations and activities
hereof shall produce a continuing result or be deemed or construed to produce, a
contrary result to this express intention of the parties, in any manner
whatsoever.
14. This Agreement may not be altered, modified or amended in any
manner other than in writing, executed by each party hereto.
15. This Agreement may be executed in one or more counterparts,
provided that any aggregate number of counterparts having at least one original
execution of each party affixed, shall constitute one and the same Agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, ESA, ESA 0861, Southwest and Escrow Agent, have
executed this Agreement as of the day and year first above written.
SOUTHWEST EXCHANGE CORPORATION,
a Nevada Corporation
Under Exchange Agreement dated
June 28, 1996, Account No. 96-340-KLK
(O'Bannon) and Account No. 96-334-TRF (Mona)
By___________________________________________
Betty Kincaid, President
EXTENDED STAY OF AMERICA, INC.
By:__________________________________________
Robert A. Brannon, Senior Vice President
ESA 0861, INC.,
a Nevada corporation
By:__________________________________________
Robert A. Brannon, Vice President
UNITED TITLE OF NEVADA
By:__________________________________________
(Type Name):_________________________________
Its:_________________________________________
(Type Title):________________________________
-6-
<PAGE>
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
this___ day of July, 1996, by and between Extended Stay America, Inc. (the
"Company") and M&M Development, a Nevada corporation (the "Consultant").
Recitals
--------
A. Consultant has valuable knowledge and experience in operating certain
lodging facilities in the Las Vegas, Nevada area.
B. The Company desires to utilize the knowledge and experience of
Consultant in the conduct of its business operations, all upon the terms and
conditions provided for in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Recitals. The recitals to this Agreement are hereby incorporated
--------
herein as part of this Agreement.
2. Term. The term of this Agreement (the "Term") shall commence on the
----
date hereof and shall terminate on the second anniversary of the date hereof.
3. Duties. Consultant's duties shall include such consulting and
------
advisory services pertaining to the business of the Company as are requested by
the Chairman or President of the Company. Consultant shall perform its services
to the best of its ability in the performance of such services. Consultant shall
not be required to spend greater than ten (10) hours in any month during the
term on a non-cumulative basis in the performance of its duties hereunder and
shall not be required to travel outside the Las Vegas, Nevada area. Consultant's
duties hereunder may be performed by Michael J. Mona, Jr. or E. Joy McLauchlin
or another employee of Consultant with knowledge of operation of lodging
facilities in Las Vegas, Nevada.
4. Compensation.
------------
(a) The Company shall pay Consultant a consulting fee of $10,000 per
month, payable on the first day of each month during the term.
<PAGE>
(b) Consultant shall be reimbursed for reasonable travel expenses
necessarily and reasonably incurred by Consultant in connection with the
performance of its duties hereunder upon presentation of proper receipts or
other proof of expenditure.
5. Confidential Information and Covenant Not to Compete. All payments and
----------------------------------------------------
benefits to Consultant under the Agreement shall be subject to Consultant's
compliance with the provisions of this Section 5.
(a) Confidential Information. Consultant acknowledges that in its
------------------------
capacity as Consultant it is or will be making use of, acquiring or adding to
the Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature; technical
information regarding the operations of the Company; and records and policy
matters relating to finance, personnel, management, and operations. Therefore,
in order to protect the Company's confidential information and to protect other
employees who depend on the Company for regular employment, Consultant agrees
that it will not in any way utilize any of said confidential information except
in connection with the business of the Company and (i) will not copy, reproduce,
or take with it the original or any copies of said confidential information, and
(ii) will not directly or indirectly divulge any of said confidential
information to anyone without the prior written consent of the Company.
(b) Litigation Support. Consultant shall, upon reasonable notice,
------------------
furnish such information and proper assistance to the Company as may reasonably
be required by the Company in connection with any litigation in which the
Company or any of its subsidiaries or affiliates is, or may become a party.
Consultant's reasonable expenses (including travel and reasonable attorneys
fees) incurred in complying with this covenant shall be promptly reimbursed.
Notwithstanding the foregoing, Consultant shall not be required to travel
outside the Las Vegas, Nevada area.
(c) No Solicitation of Employees. Consultant and the Company each
----------------------------
agree that during the Term of this Agreement and continuing for a period of two
years after the termination of this Agreement, neither they nor any person or
enterprise controlling or controlled by them will solicit for employment any
person employed by the other or any of the others' affiliates.
(d) Covenant Not to Compete. Consultant agrees that during the Term
-----------------------
of this Agreement, neither it nor any person or enterprise controlling or
controlled by it will become a stockholder, director, officer, agent, consultant
or employee of a business, whether or not incorporated, or have any financial
stake of any nature in any of the foregoing or otherwise engage directly or
indirectly in any enterprise which is a Competing Business (defined below) in
the Prohibited Area (defined below); provided, however, that the foregoing shall
not prohibit (a) the ownership of those properties described on Exhibit A
attached hereto; or (b) the ownership of less than 5% of the outstanding shares
of stock of any corporation engaged in any business,
-2-
<PAGE>
which shares are regularly traded on a national securities exchange or in any
over-the-market. The term "Competing Business" shall mean any business, person,
or entity which is engaged in the ownership, management, operation, or
development of extended-stay lodging facilities generally similar to those owned
or operated by the Company or its affiliates during the Term. The term
"Prohibited Area" shall mean, on the date of the termination of this Agreement,
any area within 25 miles of (i) any extended-stay lodging facilities owned or
operated by the Company or any of its affiliates; and (ii) any real property
owned, leased, or under contract for purchase by the Company or any of its
affiliates where the Company or any of its affiliates intends to develop an
extended-stay lodging facility.
(e) Remedies for Breach of Covenants. In the event that a covenant
--------------------------------
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however, that in the event that any court shall
refuse to enforce any of the covenants contained in subsections 5(a) through
(d), then the unenforceable covenant shall be deemed eliminated from the
provisions of this Agreement for the purpose of those proceedings to the extent
necessary to permit the remaining covenants to be enforced so that the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby.
If Consultant violates any of the covenants contained in this Section
5, then the Company's obligation to make any payments to Consultant otherwise
due it under this Agreement shall immediately cease. In addition, Consultant
acknowledges that any material breach of its covenants contained in this Section
5 will cause irreparable harm to the Company, which will be difficult if not
impossible to ascertain, and the Company shall be entitled to equitable relief,
including injunctive relief, against any actual or threatened breach hereof,
without bond and without liability should such relief be denied, modified or
vacated. Neither the right to obtain such relief or the obtaining of such
relief shall be exclusive of or preclude the Company from any other remedy.
In the event Company fails to pay any amount due to Consultant pursuant to
Section 4 hereof within five (5) days of its due date, and such failure has not
been cured within ten (10) days after Company's receipt of written notice from
Consultant of Company's breach, Consultant's obligations under this Section 5
shall terminate.
6. Applicable Law and Jurisdiction. The terms and conditions of this
-------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
State of Nevada. Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this Agreement shall be brought in the
courts of the State of Nevada, County of Clark, or, if it can acquire
jurisdiction, in the United States District Court for the District of Nevada.
7. Independent Contractor. This Agreement does not constitute the
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Consultant as an agent, partner, joint venturer, employee or legal
representative of Company for any purpose
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<PAGE>
whatsoever, it being understood by the parties hereto that Consultant is and
will be at all times an independent contractor. Neither party hereto shall have
the right to bind the other, or transact any business in the other's name or on
its behalf, in any form or manner, or to make any promises or representations on
behalf of the other.
8. Assignment. The rights and benefits of Consultant hereunder are not
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assignable whether by voluntary or involuntary assignment or transfer. This
Agreement shall be binding upon and inure to the benefit of the successors of
the Company and shall be assignable by the Company to any entity acquiring
substantially all of the assets of the Company.
9. Amendments. It is mutually understood and agreed that this Agreement
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sets forth the entire agreement and understanding between the parties hereto
with respect to the subject matter hereof, and that this Agreement shall not be
supplemented, modified or amended except by a written instrument signed by a
duly authorized officer of the Company and Consultant, and that no other person
shall have the authority to supplement, modify or amend this Agreement in any
other manner.
10. Validity. If any provision in this Agreement shall be held to be
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invalid, illegal or unenforceable in any respect, such invalid, illegal or
unenforceable provision shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
11. Non-Waiver. Continuation of the performance of this Agreement is not
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to be construed as a waiver of an alleged breach, and such continuation is done
at all times with a reservation of all rights under this Agreement.
12. Notices. All notices herein provided for or which may be given in
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connection with this Agreement shall be in writing and shall be personally
delivered or sent by certified or registered mail with postage prepaid and
return receipt requested, or sent by overnight express courier, postage prepaid,
addressed to the party to be so notified as follows:
if to Company:
Extended Stay America, Inc.
500 East Broward Boulevard
Suite 950
Ft. Lauderdale, Florida 33394
Attention: Robert A. Brannon
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<PAGE>
with a copy to:
Pedersen & Houpt
161 North Clark Street
Suite 3100
Chicago, Illinois 60601-3224
Attention: Michael W. Black
and if to Consultant:
M&M Development
1785 E. Sahara, Suite 345
Las Vegas, Nevada 89104
Attention: Michael J. Mona, Jr.
with a copy to:
Jones, Jones, Close & Brown
3773 Howard Hughes Parkway, Third Floor South
Las Vegas, Nevada 89109
Attention: Jodi R. Goodheart
Notices mailed by registered or certified mail shall be deemed received by
the addressee three (3) days after mailing thereof. Notice personally delivered
shall be deemed received when delivered. Notice mailed by overnight express
courier shall be deemed received by the addressee two (2) days after mailing
thereof. Either party may at any time change the address for notice to such
party by delivering a notice as aforesaid.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date above written.
EXTENDED STAY AMERICA, INC.
By_________________________
Its________________________
M&M DEVELOPMENT
By_________________________
Its________________________
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