<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File Number 0-27360
_____________
EXTENDED STAY AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3996573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
450 EAST LAS OLAS BOULEVARD, FORT LAUDERDALE, FL 33301
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 713-1600
_____________
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ___X____ No_______
At November 9, 1999, the registrant had issued and outstanding an aggregate
of 96,196,084 shares of Common Stock.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
EXTENDED STAY AMERICA, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998(1)
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................ $ 8,788 $ 623
Accounts receivable.................................................................. 7,350 5,946
Prepaid expenses..................................................................... 3,344 1,743
Deferred income taxes................................................................ 32,279 27,735
Other current assets................................................................. 27 781
---------- ----------
Total current assets............................................................. 51,788 36,828
Property and equipment, net........................................................... 1,803,112 1,637,334
Deferred loan costs................................................................... 16,711 19,260
Other assets.......................................................................... 518 1,160
---------- ----------
$1,872,129 $1,694,582
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable..................................................................... $ 27,452 $ 62,834
Income taxes payable................................................................. 37 7,079
Accrued retainage.................................................................... 10,955 25,442
Accrued property taxes............................................................... 13,522 6,856
Accrued salaries and related expenses................................................ 3,710 1,816
Accrued interest..................................................................... 2,456 7,010
Other accrued expenses............................................................... 16,192 15,304
Current portion of long-term debt.................................................... 2,000 2,000
---------- ----------
Total current liabilities........................................................ 76,324 128,341
---------- ----------
Deferred income taxes................................................................. 67,438 46,490
---------- ----------
Long-term debt........................................................................ 818,000 653,000
---------- ----------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; no shares issued and
outstanding........................................................................
Common stock, $.01 par value, 500,000,000 shares authorized; 96,539,884 and
95,968,379 shares issued and outstanding, respectively............................. 965 960
Additional paid-in capital........................................................... 832,987 827,110
Retained earnings.................................................................... 76,415 38,681
---------- ----------
Total stockholders' equity....................................................... 910,367 866,751
---------- ----------
$1,872,129 $1,694,582
========== ==========
</TABLE>
_____________________
(1) Derived from audited financial statements
See notes to the unaudited condensed consolidated financial statements
1
<PAGE>
EXTENDED STAY AMERICA, INC.
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue.................................................... $116,491 $81,006 $312,397 $205,280
Property operating expenses................................ 48,231 32,593 133,277 87,767
Corporate operating and property
management expenses....................................... 10,589 9,966 31,335 29,078
Increase (decrease) in valuation allowance................. 12,000 (1,079) 12,000
Depreciation and amortization.............................. 15,637 10,865 44,464 30,308
-------- ------- -------- --------
Total costs and expenses................................. 74,457 65,424 207,997 159,153
-------- ------- -------- --------
Income from operations before interest, income taxes and
cumulative effect of accounting change..................... 42,034 15,582 104,400 46,127
Interest expense, net...................................... 14,942 6,429 40,210 12,111
-------- ------- -------- --------
Income before income taxes and cumulative effect of
accounting change.......................................... 27,092 9,153 64,190 34,016
Provision for income taxes................................. 10,837 3,661 25,677 13,607
-------- ------- -------- --------
Net income before cumulative effect of accounting change... 16,255 5,492 38,513 20,409
Cumulative effect of change in accounting for start-up
activities, net of income tax benefit of $520.............. 779
-------- ------- -------- --------
Net income................................................. $ 16,255 $ 5,492 $ 37,734 $ 20,409
======== ======= ======== ========
Net income per common share- Basic:
Net income before cumulative effect of accounting change.. $ 0.17 $ 0.06 $ 0.40 $ 0.21
Cumulative effect of accounting change.................... (0.01)
-------- ------- -------- --------
Net income................................................. $ 0.17 $ 0.06 $ 0.39 $ 0.21
======== ======= ======== ========
Net income per common share- Diluted:
Net income before cumulative effect of accounting change.. $ 0.17 $ 0.06 $ 0.40 $ 0.21
Cumulative effect of accounting change.................... (0.01)
-------- ------- -------- --------
Net income................................................. $ 0.17 $ 0.06 $ 0.39 $ 0.21
======== ======= ======== ========
Weighted average shares:
Basic..................................................... 96,523 96,033 96,260 95,878
Effect of dilutive options................................ 712 690 778 998
-------- ------- -------- --------
Diluted................................................... 97,235 96,723 97,038 96,876
======== ======= ======== ========
</TABLE>
See notes to the unaudited condensed consolidated financial statements
2
<PAGE>
EXTENDED STAY AMERICA, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, September 30,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 37,734 $ 20,409
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 44,464 30,308
Amortization of deferred loan costs included in interest expense.. 2,894 2,404
Deferred income taxes............................................. 16,404 5,300
Cumulative effect of accounting change, net....................... 779
Changes in operating assets and liabilities....................... (12,753) 14,135
--------- ---------
Net cash provided by operating activities....................... 89,522 72,556
--------- ---------
Cash flows from investing activities:
Additions to property and equipment................................. (251,622) (455,409)
Other assets........................................................ 121 (37)
--------- ---------
Net cash used in investing activities........................... (251,501) (455,446)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt........................................ 315,000 443,500
Repayments of revolving credit facility............................. (150,000) (28,500)
Proceeds from issuance of common stock.............................. 5,489 3,126
Additions to deferred loan costs.................................... (345) (11,328)
--------- ---------
Net cash provided by financing activities....................... 170,144 406,798
--------- ---------
Increase in cash and cash equivalents................................ 8,165 23,908
Cash and cash equivalents at beginning of period..................... 623 3,213
--------- ---------
Cash and cash equivalents at end of period........................... $ 8,788 $ 27,121
========= =========
Noncash investing and financing transactions:
Capitalized or deferred items included in accounts payable
and accrued liabilities............................................ $ 26,882 $ 70,185
========= =========
Conversion of amounts due under revolving credit facility
to term loan....................................................... $ $ 100,000
========= =========
Capitalization of amortized deferred loan costs..................... $ $ 511
========= =========
Supplemental cash flow disclosures:
Cash paid for:
Income taxes, net of refunds of $12 in 1999 and $411 in 1998....... $ 15,402 $ 2,672
========= =========
Interest expense, net of amounts capitalized....................... $ 42,588 $ 14,703
========= =========
</TABLE>
See notes to the unaudited condensed consolidated financial statements
3
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited
and include the accounts of Extended Stay America, Inc. and subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
The condensed consolidated balance sheet data at December 31, 1998 was
derived from audited financial statements of the Company but does not include
all disclosures required by generally accepted accounting principles.
Operating results for the three-month and nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Pursuant to the Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" issued by the Accounting Standards Executive Committee,
effective January 1, 1999, the Company changed its method of accounting for
start-up activities, including pre-opening and organizational costs, to expense
them as they are incurred. Accordingly, the Company recorded an expense of
$779,000, net of income tax benefit of $520,000, as the cumulative effect of
this change in accounting.
In the quarter ended September 30, 1998, unfavorable capital market
conditions resulted in a reduction in the Company's development plans for 1999
and 2000. As a result, a valuation allowance of $12.0 million was established
for the write-off of costs related to sites that would not be developed. This
valuation allowance was reduced by $1.1 million in the quarter ended June 30,
1999 due to the renegotiation of the terms of a number of the optioned sites.
For the nine months ended September 30, 1999 and 1998, the computation of
diluted earnings per share does not include approximately 7,850,000 and
6,287,000 weighted average shares, respectively, of common stock represented by
outstanding options because the exercise price of the options was greater than
the average market price of common stock during the period.
Certain previously reported amounts have been reclassified to conform with
the current period's presentation.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
We own and operate three brands in the extended stay lodging market--
StudioPLUS/TM/ Deluxe Studios ("StudioPLUS"), EXTENDED STAYAMERICA Efficiency
Studios ("EXTENDED STAY"), and Crossland Economy Studios/SM/ ("Crossland"). Each
brand is designed to appeal to different price points below $500 per week. All
three brands offer the same core components: a living/sleeping area; a fully-
equipped kitchen or kitchenette; and a bathroom. StudioPLUS facilities serve the
mid-price category and generally feature guest rooms that are larger than those
in our other brands, an exercise room, and a swimming pool. EXTENDED STAY rooms
are designed to compete in the economy category. Crossland rooms are typically
smaller than EXTENDED STAY rooms and are targeted for the budget category. In
this Quarterly Report on Form 10-Q, the words "Extended Stay America",
"Company", "we", "our", "ours", and "us" refer to Extended Stay America, Inc.
and its subsidiaries unless the context suggests otherwise.
During the quarter ended June 30, 1999, 14 StudioPLUS properties were
repositioned as EXTENDED STAY properties. All operating statistics reflect the
repositioning of these properties as EXTENDED STAY properties for the entire
periods presented. The table below provides a summary of our selected
development and operational results for the three months and nine months ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Total Facilities Open (at Period End).. 356 269 356 269
Total Facilities Developed............. 9 30 51 84
Average Occupancy Rate................. 79% 78% 75% 74%
Average Weekly Room Rate............... $ 296 $ 290 $ 292 $ 286
</TABLE>
Average occupancy rates are determined by dividing the rooms occupied on a
daily basis by the total number of rooms. Due to our rapid expansion, our
overall average occupancy rate has been negatively impacted by the lower
occupancy typically experienced during the pre-stabilization period for newly-
opened facilities. We expect the negative impact on overall average occupancy to
decline as the ratio of newly-opened properties to total properties in operation
declines. 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 generally will be greater
than standard room rates because of (1) stays of less than one week, which are
charged at a higher nightly rate, (2) higher weekly rates for rooms that are
larger than the standard rooms, and (3) additional charges for more than one
person per room. We expect that our future occupancy and room rates will be
impacted by a number of factors, including the number and geographic location of
new facilities as well as the season in which we open those facilities. We also
cannot assure you that we can maintain our occupancy and room rates.
The following is a summary of our development status as of September 30,
1999 by brand. We expect to complete the construction of the facilities
currently under construction generally within the next twelve months, however,
we cannot assure you that we will complete construction within the time periods
we have historically experienced. Our ability to complete construction may be
materially impacted by various factors including final permitting, inspections
and obtaining certificates of occupancy, as well as weather-induced construction
delays.
<TABLE>
<CAPTION>
EXTENDED
Crossland STAY StudioPLUS Total
--------- -------- ---------- -----
<S> <C> <C> <C> <C>
Operating Facilities........... 39 228 89 356
Facilities Under Construction.. 0 21 2 23
</TABLE>
5
<PAGE>
Results of Operations
For the Three Months Ended September 30, 1999 and 1998
Property Operations
The following is a summary of the properties in operation at the end of
each period along with the related average occupancy rates and average weekly
room rates during each period:
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------------------------------------------
September 30, 1999 September 30, 1998
----------------------------------- -----------------------------------
Average Average Average Average
Facilities Occupancy Weekly Room Facilities Occupancy Weekly Room
Open Rate Rate Open Rate Rate
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Crossland...... 39 75% $214 21 66% $198
EXTENDED STAY.. 228 80 301 177 81 285
StudioPLUS..... 89 77 338 71 74 341
--- -- ---- --- -- ----
Total........ 356 79% $296 269 78% $290
=== == ==== === == ====
</TABLE>
Because newly opened properties typically experience lower occupancies
during their pre-stabilization period, average occupancy rates are impacted by
the ratio of newly opened properties to total properties. The average occupancy
rate in the third quarter of 1999 for the 239 properties we owned and operated
as of June 30, 1998 was 81%. Similarly, the average occupancy rate in the third
quarter of 1998 for the 116 properties we owned and operated as of June 30, 1997
was 85%. The decline in the average occupancy rate for properties open for at
least one year at the beginning of the quarter of each year is primarily
attributable to an increase during the last twelve months in the supply of
available rooms in the lodging industry generally and specifically in certain of
the markets in which we operate. We expect that this increase in supply,
particularly in certain markets in Texas and North Carolina, will continue to
impact our occupancies until incremental demand is sufficient to compensate for
the additional supply of available rooms. The impact of the additional supply
of available rooms was offset by the impact of a decline in the ratio of newly
opened properties to total properties, particularly for the Studio Plus and
Crossland brands, resulting in overall average occupancy rates of 79% for the
third quarter of 1999 compared to 78% for the third quarter of 1998.
The increase in overall average weekly room rates for the third quarter of
1999 as compared to the third quarter of 1998 reflects the geographic dispersion
of properties opened since September 30, 1998 and the higher standard weekly
room rates in certain of those markets. The increase also is due in part to
increases in rates charged at previously opened properties. The average weekly
room rate for the 239 properties that we owned and operated throughout both
periods increased by 2% in the third quarter of 1999. The increase in our
overall average weekly room rates for the third quarter of 1999 as compared to
the same period of 1998 are diluted by an increase in the percentage of total
occupied rooms attributable to the lower priced Crossland brand. Occupied rooms
attributable to the Crossland brand were 13% of total occupied room nights for
the third quarter of 1999 compared to 7% for the third quarter of 1998. The
decrease in the average weekly room rate for the StudioPLUS brand is primarily
the result of lower rates experienced in certain markets in Texas and North
Carolina in response to an increase in the supply of available rooms in those
markets.
We recognized total revenue of $116.5 million for the third quarter of 1999
and $81.0 million for the third quarter of 1998. This is an increase of $35.5
million, or 44%. Approximately $33.3 million of the increased revenue was
attributable to properties opened subsequent to June 30, 1998 and approximately
$2.2 million was attributable to an increase in revenue for the 239 properties
that we owned and operated throughout both periods.
Property operating expenses, consisting of all expenses directly allocable
to the operation of the facilities but excluding any allocation of corporate
operating and property management expenses, depreciation or interest, were $48.2
million (41% of total revenue) for the third quarter of 1999, as compared to
$32.6 million (40% of total revenue) for the third quarter of 1998. The
increase in the property operating expense ratio for 1999 is primarily
attributable to increasing maintenance costs inherent in the maturing of certain
of our properties and increases in labor rates in certain markets in response to
increased demand for hospitality employees in those markets.
6
<PAGE>
The provisions for depreciation and amortization for the lodging facilities
were $15.2 million for the third quarter of 1999 and $10.5 million for the third
quarter of 1998. These provisions were computed using the straight-line method
over the estimated useful lives of the assets. These provisions reflect a pro
rata allocation of the annual depreciation and amortization charge for the
periods for which the facilities were in operation. Depreciation and
amortization for the third quarter of 1999 increased compared to the third
quarter of 1998 because we operated 87 additional facilities in 1999 and because
we operated for a full quarter the 30 properties that were opened in the third
quarter of 1998.
Corporate Operations
Corporate operating and property management expenses include all expenses
not directly related to the development or operation of lodging facilities.
These expenses consist primarily of personnel and certain marketing costs, as
well as development costs that are not directly related to a site that we will
develop. We incurred corporate operating and property management expenses of
$10.6 million (9% of total revenue) in the third quarter of 1999 and $10.0
million (12% of total revenue) in the third quarter of 1998. The increase in
the amount of these expenses for the third quarter of 1999 as compared to the
same period in 1998 reflects the impact of additional personnel and related
expenses in connection with the increased number of facilities we operated. We
expect these expenses will continue to increase in total amount but decline as a
percentage of revenue as we develop and operate additional facilities in the
future.
Depreciation and amortization was $419,000 for the quarter ended September
30, 1999 and $333,000 for the comparable period in 1998. These provisions were
computed using the straight-line method over the estimated useful lives of the
assets for assets not directly related to the operation of our facilities.
These assets were primarily office furniture and equipment.
We realized $143,000 of interest income in the third quarter of 1999 and
$1.2 million in the third quarter of 1998. This interest income was primarily
attributable to the temporary investment of funds drawn under our credit
facilities. We incurred interest charges of $17.2 million during the third
quarter of 1999 and $12.5 million in the third quarter of 1998. Of these
amounts, $2.1 million in the third quarter of 1999 and $4.9 million in the third
quarter of 1998 were capitalized and included in the cost of buildings and
improvements.
We recognized income tax expense of $10.8 million for the third quarter of
1999 and $3.7 million for the third quarter of 1998 (40% of income before income
taxes and the cumulative effect of an accounting change, in both periods).
Income tax expense differs from the federal income tax rate of 35% primarily due
to state and local income taxes. We expect the annualized effective income tax
rate for 1999 will be approximately 40%.
Valuation Allowance
In the quarter ended September 30, 1998, unfavorable capital market
conditions resulted in a reduction in our development plans for 1999 and 2000.
As a result, a valuation allowance of $12.0 million was established for the
write-off of costs related to sites that would not be developed. This valuation
allowance was reduced by $1.1 million in the quarter ended June 30, 1999 due to
the renegotiation of the terms of a number of the optioned sites.
For the Nine Months Ended September 30, 1999 and 1998
Property Operations
The following is a summary of the number of properties in operation at the
end of each period along with the related average occupancy rates and average
weekly room rates during each period:
<TABLE>
<CAPTION>
For the Nine Months Ended
------------------------------------------------------------------------
September 30, 1999 September 30, 1998
----------------------------------- -----------------------------------
Average Average Average Average
Facilities Occupancy Weekly Room Facilities Occupancy Weekly Room
Open Rate Rate Open Rate Rate
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Crossland...... 39 68% $210 21 63% $196
EXTENDED STAY.. 228 77 296 177 77 280
StudioPLUS..... 89 74 334 71 70 335
--- -- ---- --- -- ----
Total........ 356 75% $292 269 75% $286
=== == ==== === == ====
</TABLE>
Average occupancy rates for the Crossland and StudioPLUS brands increased
for the nine-month period ended September 30, 1999 as compared to the same
period in 1998 primarily due to a decrease in the ratio of newly
7
<PAGE>
opened properties to total properties for those brands. The average occupancy
rate in the nine months ended September 30, 1999 for the 185 properties that we
owned and operated as of December 31, 1997 was 79%. Average occupancy rates
during the period were diluted by the impact of an increase during the last
twelve months in the supply of available rooms in the lodging industry generally
and specifically in certain of the markets in which we operate.
The increase in average weekly room rates for the nine months ended
September 30, 1999 as compared to the same period of 1998 reflects the
geographic dispersion of properties opened since September 30, 1998 and the
higher standard weekly room rates in certain of those markets. The increase
also is due to increases in rates charged at previously opened properties. The
average weekly room rate for the 185 properties that we owned and operated
throughout both periods increased 2% in the first nine months of 1999. For the
StudioPLUS brand, the average weekly rate also reflects a change in pricing
policies instituted in 1998. The new policies established a standard rate
structure based on competitive rates in the markets served by the properties
instead of variable rates based on actual and anticipated short-term demand
factors. We believe that the current pricing strategy creates greater value for
more customers and that, as a result, the properties will enjoy long-term
benefits of increased customer retention and loyalty. This change in pricing
strategy and the impact of lower rates experienced in certain markets in Texas
and North Carolina resulted in a decline in average weekly rates for the
StudioPLUS brand for the nine months ended September 30, 1999, which was
partially offset by the higher weekly rates charged in certain markets in which
properties have been opened since September 30, 1998.
We recognized total revenue of $312.4 million for the nine months ended
September 30, 1999 and $205.3 million for the nine months ended September 30,
1998. This is an increase of $107.1 million, or 52%. Approximately $102.5
million of the increased revenue was attributable to properties opened
subsequent to December 31, 1997 and approximately $4.6 million was attributable
to an increase in revenue for the 185 properties that were owned and operated
throughout both periods.
Property operating expenses for the nine months ended September 30, 1999
were $133.3 million (43% of total revenue) compared to $87.8 million (43% of
total revenue) for the nine months ended September 30 1998.
The provisions for depreciation and amortization for the lodging facilities
was $43.4 million for the nine months ended September 30, 1999 and $29.3 million
for the nine months ended September 30, 1998. Depreciation and amortization for
the nine months ended September 30, 1999 increased compared to the same period
in 1998 because we operated 87 additional facilities in 1999 and because we
operated for a full nine months the 84 properties that were opened in the first
nine months of 1998.
Corporate Operations
We incurred corporate operating and property management expenses of $31.3
million (10% of total revenue) in the nine months ended September 30, 1999 and
$29.1 million (14% of total revenue) in the nine months ended September 30,
1998. The increase in the amount of these expenses for the nine-month period
ended September 30, 1999 as compared to the same period of 1998 reflects the
impact of additional personnel and related expenses in connection with the
increased number of facilities we operated. We expect these expenses will
continue to increase in total amount but to decline as a percentage of revenue
as we develop and operate additional facilities in the future.
Depreciation and amortization for assets not directly related to operation
of our facilities was $1.1 million for the nine months ended September 30, 1999
and $1.1 million for the comparable period in 1998.
We realized $0.5 million of interest income in the nine months ended
September 30, 1999 and $2.6 million in the nine months ended September 30, 1998.
This interest income was attributable to the temporary investment of funds drawn
under our credit facilities. We incurred interest charges of $48.8 million in
the nine months ended September 30, 1999 and $27.5 million in the nine months
ended September 30, 1998. Of these amounts, $8.0 million in the nine months
ended September 30, 1999 and $12.8 million in the nine months ended September
30, 1998 were capitalized and included in the cost of buildings and
improvements.
8
<PAGE>
We recognized income tax expense of $25.7 million for the nine-month period
ended September 30, 1999 and $13.6 million for the nine-month period ended
September 30, 1998 (40% of income before income taxes and the cumulative effect
of an accounting change, in both periods). Income tax expense differs from the
federal income tax rate of 35% primarily due to state and local income taxes.
Valuation Allowance
In the quarter ended September 30, 1998, unfavorable capital market
conditions resulted in a reduction in our development plans for 1999 and 2000.
As a result, a valuation allowance of $12.0 million was established for the
write-off of costs related to sites that would not be developed. This valuation
allowance was reduced by $1.1 million in the quarter ended June 30, 1999 due to
the renegotiation of the terms of a number of the optioned sites.
Cumulative Effect of a Change in Accounting
Pursuant to the Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" issued by the Accounting Standards Executive Committee,
effective January 1, 1999, we changed our method of accounting for compensation
and other training related costs incurred prior to the opening of a property to
expense them as they are incurred. Accordingly, we recorded an expense of
$779,000, net of income tax benefit of $520,000, as the cumulative effect of
this change in accounting.
Liquidity and Capital Resources
We had net cash and cash equivalents of $8.8 million as of September 30,
1999 and $0.6 million as of December 31, 1998. At September 30, 1999 and
December 31, 1998, we had invested substantially all of the cash balances in
short-term demand notes having credit ratings of A1/P1 or equivalent utilizing
domestic commercial banks and other financial institutions. We also deposited
excess funds during these periods in an overnight sweep account with a
commercial bank which in turn invested these funds in short-term, interest-
bearing reverse repurchase agreements. Due to the short-term nature of these
investments, we did not take possession of the securities, which were instead
held by the financial institution. The market value of the securities held
pursuant to these arrangements approximates the carrying amount. Deposits in
excess of $100,000 are not insured by the Federal Deposit Insurance Corporation.
Our operating activities generated cash of $89.5 million during the nine
months ended September 30, 1999 and $72.6 million during the nine months ended
September 30, 1998.
We used $251.6 million to acquire land, develop, or furnish a total of 74
sites opened or under construction in the nine months ended September 30, 1999
and $455.4 million for the 166 sites in the nine months ended September 30,
1998.
Our cost to develop a property varies significantly by brand and by
geographic location due to differences in land and labor costs. Similarly, the
average weekly rate charged and the resultant cash flow from these properties
will vary significantly but generally are expected to be in proportion to the
development costs. For the 272 properties we opened from January 1, 1996
through December 31, 1998, the average development cost was approximately $5.0
million with an average of 107 rooms. In 1999, we expect to open a number of
properties in the Northeast and West where average development costs are higher.
Accordingly, we expect our average development cost for 1999 to increase to
approximately $6.3 million per property. We expect our average development cost
per property for 2000 to continue to increase as we continue to expand in the
Northeast and West.
We received net proceeds from the exercise of options to purchase common
stock totaling $5.5 million in the nine months ended September 30, 1999 and $3.1
million in the nine months ended September 30, 1998.
In addition to our $200 million 9.15% Senior Subordinated Notes due 2008
(the "Notes"), we have an $800 million credit facility (the "Credit Facility")
which provides for a $350 million revolving loan facility (the "Revolving
Facility"), a $150 million term loan facility (the "Tranche A Facility"), a $200
million term loan facility (the "Tranche B Facility"), and a $100 million term
loan facility (the "Tranche C Facility"). Loans under the Credit
9
<PAGE>
Facility bear interest, at our option, at either a variable prime-based rate or
a variable LIBOR-based rate, plus an applicable margin. As of September 30,
1999, we had outstanding loans of $170 million under the Revolving Facility,
$150 million under the Tranche A Facility, $200 million under the Tranche B
Facility and $100 million under the Tranche C Facility, leaving $180 million
available and committed under the Credit Facility. Availability of the Revolving
Facility is dependent, however, upon us satisfying certain financial ratios of
debt and interest compared to earnings before interest, taxes, depreciation, and
amortization, with these amounts being calculated pursuant to definitions
contained in the Credit Facility. In April 1999, $100 million in term loans
under the Tranche C Facility were funded and were applied to reduce outstanding
loans under the Revolving Facility.
Our primary market risk exposures result from the variable nature of the
interest rates on borrowings under the Credit Facility. The Credit Facility was
entered into for purposes other than trading. We do not own derivative
financial instruments or derivative commodity instruments. Based on the levels
of borrowings under the Credit Facility at September 30, 1999, if interest rates
changed by 1.0%, our annual cash flow and net income would change by $3.7
million. We manage our market risk exposures by periodic evaluation of such
exposures relative to the costs of reducing the exposures by entering into
interest rate swaps or by refinancing the underlying obligations with longer
term fixed rate debt obligations.
In connection with the Credit Facility and the Notes, we incurred additions
to deferred loan costs of $345,000 during the nine months ended September 30,
1999 and $11.3 million during the nine months ended September 30, 1998.
We had commitments not reflected in our financial statements at September
30, 1999 totaling approximately $85 million to complete construction of extended
stay properties. We expect we will continue to rapidly expand our operations.
In 1999 and 2000, we plan to open new properties with total costs of
approximately $350 million per year. We expect to continue an active
development program thereafter. We believe that the remaining availability
under the Credit Facility, together with cash on hand and cash flows from
operations, will provide sufficient funds to continue our expansion as presently
planned and to fund our operating expenses through 2000. We may need additional
capital depending on a number of factors, including the number of properties we
construct or acquire, the timing of that development, and the cash flow
generated by our properties. Also, if capital markets provide favorable
opportunities, our plans or assumptions change or prove to be inaccurate, our
existing sources of funds prove to be insufficient to fund our growth and
operations, or if we consummate acquisitions, we may seek additional capital
sooner than we currently anticipate. Sources of capital may include public or
private debt or equity financing. We cannot assure you that we will be able to
obtain additional capital on acceptable terms, if at all. Our failure to raise
additional capital could result in the delay or abandonment of some or all of
our development and expansion plans, and could have a material adverse effect on
us.
Impact of the Year 2000 Issue and Accounting Releases
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Based on our
assessment, we do not anticipate that any significant modification or
replacement of our hardware or software will be necessary for our computer
systems to properly use dates beyond December 31, 1999 or that we will incur
significant operating expenses to make any such computer system improvements.
Based on inquiries of our significant suppliers, lenders, and service providers,
we do not anticipate being adversely impacted by their failure, if any, to
address the Year 2000 Issue. While we do not expect the failure of any third
parties to address the Year 2000 Issue to uniquely impact our business, we could
be adversely affected should the availability of electricity, gas, water,
telephone, or banking services be interrupted. In addition, we could be
adversely affected if other businesses are impacted by the Year 2000 Issue to
the extent that business related travel is reduced significantly or in the event
that our employees are unable to fulfill their responsibilities. While we do
not expect these pervasive failures to result from the Year 2000 Issue, we
cannot assure you that these problems will not arise.
10
<PAGE>
Seasonality and Inflation
Based upon the operating history of our facilities, we believe that
extended stay lodging facilities are not as seasonal in nature as the overall
lodging industry. We do expect, however, that our occupancy rates and revenues
will be lower than average during the first and fourth quarters of each calendar
year. Because many of our expenses do not fluctuate with changes in occupancy
rates, declines in occupancy rates may cause fluctuations or decreases in our
quarterly earnings.
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on our revenue or operating results during
any of the periods presented. We cannot assure you, however, that inflation
will not affect our future operating or construction costs.
Special Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements.
Words such as "expects", "intends", "plans", "projects", "believes",
"estimates", and similar expressions are used to identify these forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. However, these forward-
looking statements are subject to risks, uncertainties, assumptions, and other
factors which may cause our actual results, performance, or achievements to be
materially different. These factors include, among other things:
. our limited operating history and uncertainty as to our future
profitability;
. our ability to meet construction and development schedules and budgets;
. our ability to develop and implement the operational and financial
systems needed to manage rapidly growing operations;
. uncertainty as to the consumer demand for extended stay lodging;
. increasing competition in the extended stay lodging market;
. our ability to integrate and successfully operate acquired properties and
the risks associated with such properties;
. our ability to obtain financing on acceptable terms to finance our
growth; and
. our ability to operate within the limitations imposed by financing
arrangements.
Other matters set forth in this Quarterly Report may also cause our actual
future results to differ materially from these forward-looking statements. We
can not assure you that our expectations will prove to be correct. In addition,
all subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements mentioned above. You are cautioned not to place undue
reliance on these forward-looking statements. All of these forward-looking
statements are based on our expectations as of the date of this Quarterly
Report. We do not intend to update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
11
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 Aircraft Dry Lease, dated as of July 12, 1999, by and between
Wyoming Associates, Inc. and ESA Management, Inc. (Learjet, Serial
No. 132).
10.2 Aircraft Dry Lease, dated as of July 12, 1999, by and between
Wyoming Associates, Inc. and ESA Management, Inc. (Challenger,
Serial No. 3042)
10.3 Time Sharing Agreement, dated as of July 20, 1999, by and between
ESA Management, Inc. and George Dean Johnson, Jr.
10.4 Time Sharing Agreement, dated as of August 10, 1999, by and
between Advance America Cash Advance Centers, Inc. and Extended
Stay America, Inc.
10.5 Time Sharing Agreement, dated as of August 30, 1999, by and
between ESA Management, Inc. and Advance America, Cash Advance
Centers, Inc.
27.1 Financial Data Schedule (for EDGAR filings only)
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 12, 1999.
EXTENDED STAY AMERICA, INC.
/s/ Robert A. Brannon
-----------------------------------
Robert A. Brannon
Senior Vice President, Chief Financial Officer,
Secretary, and Treasurer
(Principal Financial Officer)
/s/ Gregory R. Moxley
-----------------------------------
Gregory R. Moxley
Vice President Finance
(Principal Accounting Officer)
13
<PAGE>
Exhibit 10.1
AIRCRAFT DRY LEASE
This Lease of aircraft is made, effective as of July 12, 1999, by and
between Wyoming Associates, Inc., a corporation incorporated under the laws of
the State of South Carolina, with principal offices at 961 East Main Street,
Spartanburg, SC 29302 (hereinafter referred to as "Lessor") and ESA Management,
Inc., a corporation incorporated under the laws of the State of Delaware, with
principal offices at 450 East Las Olas Blvd., Ft. Lauderdale, Florida 33301
(hereinafter referred to as "Lessee").
RECITALS
The parties recite that:
A. Lessor owns a 1987 Gates Learjet Model 55B aircraft, Serial No. 132 and
currently registered as N122S (hereinafter referred to as the "Aircraft"). The
Aircraft is available for use by a qualified Lessee; and
B. Lessee desires to lease the Aircraft under such terms and conditions as
are mutually satisfactory to the parties.
The parties agree as follows:
SECTION ONE
LEASE OF AIRCRAFT
For Fifty-Seven Thousand Dollars and No/100 ($57,000.00) monthly, Lessor
agrees to lease the Aircraft to Lessee on a nonexclusive basis. The Aircraft
shall be delivered to Lessee at Ft. Lauderdale Hollywood International Airport
in Ft. Lauderdale, Florida on July 12, 1999, at which time Lessee shall inspect
the
<PAGE>
Aircraft to the extent deemed necessary. Lessee shall have ten (10) flight
hours following delivery of the Aircraft in which to notify Lessor in writing of
any defects in the Aircraft or its equipment or accessories. If, at the end of
such period, Lessor has not received such notification, it shall be conclusively
presumed between the parties that Lessee has fully inspected the Aircraft having
knowledge that it is in good condition and repair and that Lessee is satisfied
with and has accepted the Aircraft in such condition and repair.
SECTION TWO
TERM
This Lease shall commence on July 12, 1999 and continue for one year after
said date. Thereafter, this Lease shall be automatically renewed on a month to
month basis, unless sooner terminated by either party as hereinafter provided.
Either party may at any time terminate this Lease upon thirty (30) days written
notice to the other party, delivered personally or by certified mail, return
receipt requested, at the address for said other party as set forth above.
SECTION THREE
COMMERCIAL OPERATION RESTRICTION
Neither Lessee nor Lessor will make the Aircraft available for hire within
the meaning of the Federal Aviation Regulations. The Aircraft is to be operated
strictly in accordance with 14 C.F.R. Part 91.
2
<PAGE>
SECTION FOUR
INSURANCE
At all times during the term of this Lease, Lessee shall cause to be
carried and maintained, at Lessee's cost and expense, physical damage insurance
with respect to the Aircraft in the amount set forth below:
<TABLE>
<CAPTION>
<S> <C>
Aircraft Physical Damage $5,650,000.00
(No Deductible While
In Motion or Not In Motion)
</TABLE>
At all times during the term of this Lease, Lessee shall also cause to be
carried and maintained, at Lessee's cost and expense, third party aircraft
liability insurance, passenger legal liability insurance, property damage
liability insurance, and medical expense insurance in the amounts set forth
below:
<TABLE>
<CAPTION>
<S> <C>
Combined Liability Coverage for
Bodily Injury and Property Damage
Including Passengers -
Each Occurrence $100,000,000.00
Medical Expense Coverage -
Each Person $5,000.00
</TABLE>
Lessee shall also bear the cost of paying any deductible amount on any
policy of insurance in the event of a claim or loss.
Any policies of insurance carried in accordance with this Lease: (i) shall
name Lessor as an additional insured; and (ii) shall contain a waiver by the
underwriter thereof of any right of subrogation against Lessor; and (iii) shall
provide that in respect of the interests of Lessor, such policies of insurance
shall not be invalidated by any action or inaction of Lessee or
3
<PAGE>
any other person and shall insure Lessor (subject to the limits of liability and
war risk exclusion set forth in such policies) regardless of any breach or any
violation of any warranty, declarations or conditions contained in such policies
by Lessee or any other person; and (iv) shall provide that if the insurers
cancel insurance for any reason whatsoever, or the same is allowed to lapse for
non-payment of premium, or if there is any material change in policy terms and
conditions, such a cancellation, lapse or change shall not be effective as to
Lessor, except upon thirty (30) days prior written notice. Each liability policy
shall be primary without right of contribution from any other insurance which is
carried by Lessee or Lessor and shall expressly provide that all of the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured.
Lessee shall submit this Lease for approval to the insurance carrier for
each policy of insurance on the Aircraft. Lessee shall arrange for a
Certificate of Insurance evidencing appropriate coverage as to the Aircraft and
the satisfaction of the requirements set forth above to be given by its
insurance carriers to Lessor.
SECTION FIVE
RESTRICTIONS ON USE
Lessee may operate the Aircraft only for the purposes and within the
geographical limits set forth in the insurance policy or policies obtained in
compliance with Section Four of this
4
<PAGE>
Lease. The Aircraft shall be operated at all times in accordance with the flight
manual and all manufacturer's suggested operating procedures. Furthermore,
Lessee shall not use the Aircraft in violation of any foreign, federal, state,
territorial, or municipal law or regulation and shall be solely responsible for
any fines, penalties, or forfeitures occasioned by any violation by Lessee. If
such fines or penalties are imposed on Lessor and paid by Lessor, Lessee shall
reimburse Lessor for the amount thereof within thirty (30) days of receipt by
Lessee of written demand from Lessor. Lessee will not base the Aircraft, or
permit it to be based, outside the limits of the United States of America,
without the written consent of Lessor.
The Aircraft shall be flown only by certificated and qualified pilots and
shall be maintained only by certificated and qualified mechanics. In the event
the insurance on the Aircraft would be invalidated because Lessee is unable to
obtain certificated and qualified pilots and mechanics, Lessee shall not operate
the Aircraft until such time as certificated and qualified pilots and mechanics
are obtained and insurance on the Aircraft is made valid.
Lessee will not directly or indirectly create, incur, assume or suffer to
exist any lien on or with respect to the Aircraft. Lessee will promptly, at its
own expense, take such action as may be necessary to discharge any lien not
excepted above if the same shall arise at any time.
5
<PAGE>
SECTION SIX
INSPECTION BY LESSOR
Lessee agrees to permit Lessor or any authorized agent to inspect the
Aircraft at any reasonable time and to furnish any information in respect to the
Aircraft and its use that Lessor may reasonably request.
SECTION SEVEN
ALTERATIONS
Except in accordance with other written agreements entered into subsequent
to the date of this Lease between Lessee and Lessor regarding maintenance of the
Aircraft, Lessee shall not have the right to alter, modify, or make additions or
improvements to the Aircraft without the written permission of Lessor. All such
alterations, modifications, additions, and improvements as are so made shall
become the property of Lessor and shall be subject to all of the terms of this
Lease.
SECTION EIGHT
MAINTENANCE AND REPAIR
Lessee, at Lessee's own cost and expense, shall repair and maintain the
Aircraft during the term of this Lease so as to keep it in as good and safe
operating condition as when delivered by Lessor to Lessee, ordinary wear and
tear from use and ordinary deterioration excepted. Lessee shall pay all costs
and expenses of new parts and accessories for replacement, including
transportation charges thereon. Lessee shall be entitled to any and all salvage
from broken or worn out parts. The workmen who inspect, maintain, and repair
the Aircraft on Lessee's behalf
6
<PAGE>
shall not be employees of Lessor, but shall at all times be employees of Lessee
or independent contractors, and Lessor shall have no control or authority to
direct, employ, discharge or pay compensation to such employees. Subject to the
foregoing limitations, Lessee agrees to indemnify Lessor against any liability
arising from the negligent repair and maintenance of the Aircraft, as well as
from failure to repair and maintain the Aircraft, and also against any claim or
liability arising out of the repair work, and the delivery of material to and
from the place where such repair and maintenance work is performed.
All inspections, repairs, modifications, maintenance, and overhaul work to
be accomplished by Lessee shall be performed by personnel certificated to
perform such work and shall be performed in accordance with the standards set by
the Federal Aviation Regulations. Lessee shall maintain all log books and
records pertaining to the Aircraft during the term of this Lease in accordance
with the Federal Aviation Regulations. Such records shall be made available for
examination by Lessor, and Lessee, at the termination of this Lease, shall
deliver such records to Lessor.
SECTION NINE
TITLE
The registration of and title to the Aircraft shall be in the name of the
Lessor, and the Aircraft, at all times during the term of this Lease or any
extension, shall bear United States registration markings. All responsibility
and obligations in
7
<PAGE>
regard to the operation of the Aircraft as above owned, registered, and marked
shall be borne by Lessee during the term of this Lease.
SECTION TEN
PAYMENT OF TAXES
Lessee shall pay or cause to be paid all taxes incurred by reason of
ownership of the Aircraft during the term of this Lease, including personal
property taxes. Lessee shall pay all taxes associated with Lessee's use of the
Aircraft on Lessee's own business, including landing fees, fuel taxes, and any
other taxes or fees which may be assessed against a specific flight by Lessee.
SECTION ELEVEN
ASSIGNMENT
Lessee shall not assign this Lease or any interest in the Aircraft, or
sublet the Aircraft, without prior written consent of Lessor. Subject to the
foregoing, this Lease inures to the benefit of, and is binding on, the heirs,
legal representatives, successors, and assigns of the parties.
SECTION TWELVE
ACCIDENT AND CLAIM
Lessee shall immediately notify Lessor of each accident involving the
Aircraft, which notification shall specify the time, place, and nature of the
accident or damage, the names and addresses of parties involved, persons
injured, witnesses, and owners of properties damaged, and such other information
as may be known. Lessee shall advise Lessor of all correspondence,
8
<PAGE>
papers, notices, and documents whatsoever received by Lessee in connection with
any claim or demand involving or relating to the Aircraft or its operation, and
shall aid in any investigation instituted by Lessor and in the recovery of
damages from third persons liable therefor.
SECTION THIRTEEN
RETURN OF AIRCRAFT TO LESSOR
On the termination of this Lease by expiration or otherwise, Lessee shall
return the Aircraft to Lessor at Spartanburg Downtown Airport in Spartanburg,
South Carolina, in as good operating condition and appearance as when received,
ordinary wear, tear and deterioration excepted, and shall indemnify Lessor
against any claim for loss or damage occurring prior to the actual physical
delivery of the Aircraft to Lessor.
SECTION FOURTEEN
MODIFICATION OF AGREEMENT
This Lease constitutes the entire understanding between the parties, and
any change or modification must be in writing and signed by both parties.
SECTION FIFTEEN
GOVERNING LAW
This Lease is entered into under, and is to be construed in accordance
with, the laws of the State of South Carolina.
SECTION SIXTEEN
TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1987 GATES LEARJET, MODEL 55B, MANUFACTURER'S SERIAL NO.
132, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N122SU,
HAS BEEN MAINTAINED
9
<PAGE>
AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF
THIS LEASE.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE,
ESA MANAGEMENT, INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FLORIDA 33301, IS
CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
I, THE UNDERSIGNED ROBERT A. BRANNON AS VICE PRESIDENT OF ESA MANAGEMENT,
INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FLORIDA 33301, CERTIFY THAT I AM
RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND MY
RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
IN WITNESS WHEREOF, the parties have executed this Lease.
WYOMING ASSOCIATES, INC.
/s/ George Dean Johnson, Jr. July 9, 1999 2:30 p.m.
- ---------------------------- -------------------------------
GEORGE DEAN JOHNSON, Jr. Date and Time of Execution
President
ESA MANAGEMENT, INC.
/s/ Robert A. Brannon July 9, 1999 3:00 p.m.
- ---------------------------- -------------------------------
ROBERT A. BRANNON Date and Time of Execution
Vice President
10
<PAGE>
Exhibit 10.2
AIRCRAFT DRY LEASE
This Lease of aircraft is made, effective as of July 12, 1999, by and
between Wyoming Associates, Inc., a corporation incorporated under the laws of
the State of South Carolina, with principal offices at 961 East Main Street,
Spartanburg, SC 29302 (hereinafter referred to as "Lessor") and ESA Management,
Inc., a corporation incorporated under the laws of the State of Delaware, with
principal offices at 450 East Las Olas Blvd., Ft. Lauderdale, Florida 33301
(hereinafter referred to as "Lessee").
RECITALS
The parties recite that:
A. Lessor owns a 1985 Canadair Challenger Model CL-600-2A12 aircraft,
Serial No. 3042, and currently registered as N333GJ (hereinafter referred to as
the "Aircraft"). The Aircraft is available for use by a qualified Lessee; and
B. Lessee desires to lease the Aircraft under such terms and conditions
as are mutually satisfactory to the parties.
The parties agree as follows:
SECTION ONE
LEASE OF AIRCRAFT
For One Hundred Forty-Seven Thousand Dollars and No/100 ($147,000.00)
monthly, Lessor agrees to lease the Aircraft to Lessee on a nonexclusive basis.
The Aircraft shall be delivered to Lessee at Ft. Lauderdale Hollywood
International Airport in Ft. Lauderdale, Florida on July 12, 1999, at which time
Lessee
<PAGE>
shall inspect the Aircraft to the extent deemed necessary. Lessee shall have ten
(10) flight hours following delivery of the Aircraft in which to notify Lessor
in writing of any defects in the Aircraft or its equipment or accessories. If,
at the end of such period, Lessor has not received such notification, it shall
be conclusively presumed between the parties that Lessee has fully inspected the
Aircraft having knowledge that it is in good condition and repair and that
Lessee is satisfied with and has accepted the Aircraft in such condition and
repair.
SECTION TWO
TERM
This Lease shall commence on July 12, 1999 and continue for one year after
said date. Thereafter, this Lease shall be automatically renewed on a month to
month basis, unless sooner terminated by either party as hereinafter provided.
Either party may at any time terminate this Lease upon thirty (30) days written
notice to the other party, delivered personally or by certified mail, return
receipt requested, at the address for said other party as set forth above.
SECTION THREE
COMMERCIAL OPERATION RESTRICTION
Neither Lessee nor Lessor will make the Aircraft available for hire within
the meaning of the Federal Aviation Regulations. The Aircraft is to be operated
strictly in accordance with 14 C.F.R. Part 91.
2
<PAGE>
SECTION FOUR
INSURANCE
At all times during the term of this Lease, Lessee shall cause to be
carried and maintained, at Lessee's cost and expense, physical damage insurance
with respect to the Aircraft in the amount set forth below:
Aircraft Physical Damage $12,900,000.00
(No Deductible While
In Motion or Not In Motion)
At all times during the term of this Lease, Lessee shall also cause to be
carried and maintained, at Lessee's cost and expense, third party aircraft
liability insurance, passenger legal liability insurance, property damage
liability insurance, and medical expense insurance in the amounts set forth
below:
Combined Liability Coverage for
Bodily Injury and Property Damage
Including Passengers -
Each Occurrence $100,000,000.00
Medical Expense Coverage -
Each Person $5,000.00
Lessee shall also bear the cost of paying any deductible amount on any
policy of insurance in the event of a claim or loss.
Any policies of insurance carried in accordance with this Lease: (i) shall
name Lessor as an additional insured; and (ii) shall contain a waiver by the
underwriter thereof of any right of subrogation against Lessor; and (iii) shall
provide that in respect of the interests of Lessor, such policies of insurance
shall not be invalidated by any action or inaction of Lessee or
3
<PAGE>
any other person and shall insure Lessor (subject to the limits of liability and
war risk exclusion set forth in such policies) regardless of any breach or any
violation of any warranty, declarations or conditions contained in such policies
by Lessee or any other person; and (iv) shall provide that if the insurers
cancel insurance for any reason whatsoever, or the same is allowed to lapse for
non-payment of premium, or if there is any material change in policy terms and
conditions, such a cancellation, lapse or change shall not be effective as to
Lessor, except upon thirty (30) days prior written notice. Each liability policy
shall be primary without right of contribution from any other insurance which is
carried by Lessee or Lessor and shall expressly provide that all of the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured.
Lessee shall submit this Lease for approval to the insurance carrier for
each policy of insurance on the Aircraft. Lessee shall arrange for a
Certificate of Insurance evidencing appropriate coverage as to the Aircraft and
the satisfaction of the requirements set forth above to be given by its
insurance carriers to Lessor.
SECTION FIVE
RESTRICTIONS ON USE
Lessee may operate the Aircraft only for the purposes and within the
geographical limits set forth in the insurance policy or policies obtained in
compliance with Section Four of this
4
<PAGE>
Lease. The Aircraft shall be operated at all times in accordance with the flight
manual and all manufacturer's suggested operating procedures. Furthermore,
Lessee shall not use the Aircraft in violation of any foreign, federal, state,
territorial, or municipal law or regulation and shall be solely responsible for
any fines, penalties, or forfeitures occasioned by any violation by Lessee. If
such fines or penalties are imposed on Lessor and paid by Lessor, Lessee shall
reimburse Lessor for the amount thereof within thirty (30) days of receipt by
Lessee of written demand from Lessor. Lessee will not base the Aircraft, or
permit it to be based, outside the limits of the United States of America,
without the written consent of Lessor.
The Aircraft shall be flown only by certificated and qualified pilots and
shall be maintained only by certificated and qualified mechanics. In the event
the insurance on the Aircraft would be invalidated because Lessee is unable to
obtain certificated and qualified pilots and mechanics, Lessee shall not operate
the Aircraft until such time as certificated and qualified pilots and mechanics
are obtained and insurance on the Aircraft is made valid.
Lessee will not directly or indirectly create, incur, assume or suffer to
exist any lien on or with respect to the Aircraft. Lessee will promptly, at its
own expense, take such action as may be necessary to discharge any lien not
excepted above if the same shall arise at any time.
5
<PAGE>
SECTION SIX
INSPECTION BY LESSOR
Lessee agrees to permit Lessor or any authorized agent to inspect the
Aircraft at any reasonable time and to furnish any information in respect to the
Aircraft and its use that Lessor may reasonably request.
SECTION SEVEN
ALTERATIONS
Except in accordance with other written agreements entered into subsequent
to the date of this Lease between Lessee and Lessor regarding maintenance of the
Aircraft, Lessee shall not have the right to alter, modify, or make additions or
improvements to the Aircraft without the written permission of Lessor. All such
alterations, modifications, additions, and improvements as are so made shall
become the property of Lessor and shall be subject to all of the terms of this
Lease.
SECTION EIGHT
MAINTENANCE AND REPAIR
Lessee, at Lessee's own cost and expense, shall repair and maintain the
Aircraft during the term of this Lease so as to keep it in as good and safe
operating condition as when delivered by Lessor to Lessee, ordinary wear and
tear from use and ordinary deterioration excepted. Lessee shall pay all costs
and expenses of new parts and accessories for replacement, including
transportation charges thereon. Lessee shall be entitled to any and all salvage
from broken or worn out parts. The workmen who inspect, maintain, and repair
the Aircraft on Lessee's behalf
6
<PAGE>
shall not be employees of Lessor, but shall at all times be employees of Lessee
or independent contractors, and Lessor shall have no control or authority to
direct, employ, discharge or pay compensation to such employees. Subject to the
foregoing limitations, Lessee agrees to indemnify Lessor against any liability
arising from the negligent repair and maintenance of the Aircraft, as well as
from failure to repair and maintain the Aircraft, and also against any claim or
liability arising out of the repair work, and the delivery of material to and
from the place where such repair and maintenance work is performed.
All inspections, repairs, modifications, maintenance, and overhaul work to
be accomplished by Lessee shall be performed by personnel certificated to
perform such work and shall be performed in accordance with the standards set by
the Federal Aviation Regulations. Lessee shall maintain all log books and
records pertaining to the Aircraft during the term of this Lease in accordance
with the Federal Aviation Regulations. Such records shall be made available for
examination by Lessor, and Lessee, at the termination of this Lease, shall
deliver such records to Lessor.
SECTION NINE
TITLE
The registration of and title to the Aircraft shall be in the name of the
Lessor, and the Aircraft, at all times during the term of this Lease or any
extension, shall bear United States registration markings. All responsibility
and obligations in
7
<PAGE>
regard to the operation of the Aircraft as above owned, registered, and marked
shall be borne by Lessee during the term of this Lease.
SECTION TEN
PAYMENT OF TAXES
Lessee shall pay or cause to be paid all taxes incurred by reason of
ownership of the Aircraft during the term of this Lease, including personal
property taxes. Lessee shall pay all taxes associated with Lessee's use of the
Aircraft on Lessee's own business, including landing fees, fuel taxes, and any
other taxes or fees which may be assessed against a specific flight by Lessee.
SECTION ELEVEN
ASSIGNMENT
Lessee shall not assign this Lease or any interest in the Aircraft, or
sublet the Aircraft, without prior written consent of Lessor. Subject to the
foregoing, this Lease inures to the benefit of, and is binding on, the heirs,
legal representatives, successors, and assigns of the parties.
SECTION TWELVE
ACCIDENT AND CLAIM
Lessee shall immediately notify Lessor of each accident involving the
Aircraft, which notification shall specify the time, place, and nature of the
accident or damage, the names and addresses of parties involved, persons
injured, witnesses, and owners of properties damaged, and such other information
as may be known. Lessee shall advise Lessor of all correspondence,
8
<PAGE>
papers, notices, and documents whatsoever received by Lessee in connection with
any claim or demand involving or relating to the Aircraft or its operation, and
shall aid in any investigation instituted by Lessor and in the recovery of
damages from third persons liable therefor.
SECTION THIRTEEN
RETURN OF AIRCRAFT TO LESSOR
On the termination of this Lease by expiration or otherwise, Lessee shall
return the Aircraft to Lessor at Spartanburg Downtown Airport in Spartanburg,
South Carolina, in as good operating condition and appearance as when received,
ordinary wear, tear and deterioration excepted, and shall indemnify Lessor
against any claim for loss or damage occurring prior to the actual physical
delivery of the Aircraft to Lessor.
SECTION FOURTEEN
MODIFICATION OF AGREEMENT
This Lease constitutes the entire understanding between the parties, and
any change or modification must be in writing and signed by both parties.
SECTION FIFTEEN
GOVERNING LAW
This Lease is entered into under, and is to be construed in accordance
with, the laws of the State of South Carolina.
SECTION SIXTEEN
TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1985 CANADAIR CHALLENGER, MODEL CL-600-2A12, MANUFACTURER'S
SERIAL NO. 3042, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION
AS N333GJ, HAS BEEN MAINTAINED
9
<PAGE>
AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF
THIS LEASE.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE,
ESA MANAGEMENT, INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FLORIDA 33301, IS
CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
I, THE UNDERSIGNED ROBERT A. BRANNON AS VICE PRESIDENT OF ESA MANAGEMENT,
INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FLORIDA 33301, CERTIFY THAT I AM
RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND MY
RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
IN WITNESS WHEREOF, the parties have executed this Lease.
WYOMING ASSOCIATES, INC.
/s/ George Dean Johnson, Jr. July 9, 1999 2:30 p.m.
- ---------------------------- ----------------------------
GEORGE DEAN JOHNSON, Jr. Date and Time of Execution
President
ESA MANAGEMENT, INC.
/s/ Robert A. Brannon July 9, 1999 3:00 p.m.
- --------------------- ---------------------------
ROBERT A. BRANNON Date and Time of Execution
Vice President
10
<PAGE>
Exhibit 10.3
TIME SHARING AGREEMENT
This Agreement is made, effective as of July 20, 1999, by and between ESA
Management, Inc., a corporation organized under the laws of the State of
Delaware, with principal offices at 450 East Las Olas Blvd., Ft. Lauderdale, FL
33301 (hereinafter referred to as "Lessor"), and GEORGE DEAN JOHNSON, JR., with
principal offices at 961 East Main Street, Spartanburg, SC 29302 (hereinafter
referred to as "Lessee");
RECITALS
WHEREAS, Lessor is the owner of that certain civil Aircraft bearing the
United States Registration Number N333GJ ("the Aircraft" or "Aircraft"), a 1985
Canadair Challenger Model CL-600-2A12, Manufacturer's Serial Number 3042;
WHEREAS, Lessor employs a fully qualified flight crew to operate the
Aircraft; and
WHEREAS, Lessor and Lessee desire to lease said Aircraft with flight crew
on a non-exclusive time sharing basis as defined in Section 91.501(c)(1) of the
Federal Aviation Regulations ("FAR");
The parties agree as follows:
1. Lessor agrees to lease the Aircraft to Lessee pursuant to the
provisions of FAR 91.501(c)(1) and to provide a fully qualified flight crew for
all operations. This Agreement shall commence on the date that it is signed and
continue for one year after said date. Thereafter, this Agreement shall be
automatically renewed on a month to month basis, unless sooner terminated by
either party as hereinafter provided. Either party may at any time terminate
this Agreement upon thirty (30) days written notice to the other party,
delivered personally or by certified mail, return receipt requested, at the
address for said other party as set forth above.
<PAGE>
2. Lessee shall pay Lessor for each flight conducted under this Agreement
the actual expenses of each specific flight as authorized by FAR Part 91.501(d).
These expenses include:
(a) Fuel, oil, lubricants, and other additives;
(b) Travel expenses of the crew, including food, lodging and ground
transportation;
(c) Hangar and tie down costs away from the Aircraft's base of operation;
(d) Insurance obtained for the specific flight;
(e) Landing fees, airport taxes and similar assessments including, but not
limited to IRC Section 4261 and related excise taxes;
(f) Customs, foreign permit, and similar fees directly related to the
flight;
(g) In-flight food and beverages;
(h) Passenger ground transportation;
(i) Flight planning and weather contract services; and
(j) An additional charge equal to 100% of the expenses listed in
subparagraph (a) of this paragraph.
3. Lessor will pay all expenses related to the operation of the Aircraft
when incurred, and will provide an invoice and bill Lessee for the expenses
enumerated in paragraph 2 above on the last day of the month in which any flight
or flights for the account of Lessee occur. Lessee shall pay Lessor for said
expenses within fifteen (15) days of receipt of the invoice and bill therefor.
4. Lessee will provide Lessor with requests for flight time and proposed
flight schedules as far in advance of any given flight as possible, and in any
case, at least twenty-four (24) hours in advance of Lessee's planned departure.
Requests for flight time shall be in a form, whether written or oral, mutually
convenient to, and agreed upon by the parties. In addition to
2
<PAGE>
the proposed schedules and flight times Lessee shall provide at least the
following information for each proposed flight at some time prior to scheduled
departure as required by the Lessor or Lessor's flight crew:
(a) proposed departure point;
(b) destination;
(c) date and time of flight;
(d) the number of anticipated passengers;
(e) the nature and extent of luggage and/or cargo to be carried;
(f) the date and time of return flight, if any; and
(g) any other information concerning the proposed flight that may be
pertinent or required by Lessor or Lessor's flight crew.
5. Lessor shall have final authority over the scheduling of the Aircraft,
provided, however, that Lessor will use its best efforts to accommodate Lessee's
needs and to avoid conflicts in scheduling.
6. Lessor shall be solely responsible for securing maintenance,
preventive maintenance and required or otherwise necessary inspections on the
Aircraft, and shall take such requirements into account in scheduling the
Aircraft. No period of maintenance, preventative maintenance or inspection shall
be delayed or postponed for the purpose of scheduling the Aircraft, unless said
maintenance or inspection can be safely conducted at a later time in compliance
with all applicable laws and regulations, and within the sound discretion of the
pilot in command. The pilot in command shall have final and complete authority
to cancel any flight for any reason or condition which in his judgement would
compromise the safety of the flight.
3
<PAGE>
7. Lessor shall employ, pay for and provide to Lessee a qualified flight
crew for each flight undertaken under this Agreement.
8. In accordance with applicable Federal Aviation Regulations, the
qualified flight crew provided by Lessor will exercise all of its duties and
responsibilities in regard to the safety of each flight conducted hereunder.
Lessee specifically agrees that the flight crew, in its sole discretion, may
terminate any flight, refuse to commence any flight, or take other action which
in the considered judgement of the pilot in command is necessitated by
considerations of safety. No such action of the pilot in command shall create
or support any liability for loss, injury, damage or delay to Lessee or any
other person. The parties further agree that Lessor shall not be liable for
delay or failure to furnish the Aircraft and crew pursuant to this Agreement
when such failure is caused by government regulation or authority, mechanical
difficulty, war, civil commotion, strikes or labor disputes, weather conditions,
or acts of God.
9. At all times during the term of this Lease, Lessor shall cause to be
carried and maintained, at Lessor's cost and expense, physical damage insurance
with respect to the Aircraft in the amount set forth below:
Aircraft Physical Damage $12,900,000.00
(No Deductible While
In Motion or Not In Motion)
At all times during the term of this Lease, Lessor shall also cause to be
carried and maintained, at Lessor's cost and expense, third party aircraft
liability insurance, passenger legal liability insurance, property damage
liability insurance, and medical expense insurance in the amounts set forth
below:
4
<PAGE>
Combined Liability Coverage for
Bodily Injury and Property Damage
Including Passengers -
Each Occurrence $100,000,000.00
Medical Expense Coverage -
Each Person $ 5,000.00
Lessor shall also bear the cost of paying any deductible amount on any
policy of insurance in the event of a claim or loss.
Any policies of insurance carried in accordance with this Lease: (i) shall
name Lessee as an additional insured; and (ii) shall contain a waiver by the
underwriter thereof of any right of subrogation against Lessee; and (iii) shall
provide that in respect of the interests of Lessee, such policies of insurance
shall not be invalidated by any action or inaction of Lessor or any other person
and shall insure Lessee (subject to the limits of liability and war risk
exclusion set forth in such policies) regardless of any breach or any violation
of any warranty, declarations or conditions contained in such policies by Lessor
or any other person; and (iv) shall provide that if the insurers cancel
insurance for any reason whatsoever, or the same is allowed to lapse for non-
payment of premium, or if there is any material change in policy terms and
conditions, such a cancellation, lapse or change shall not be effective as to
Lessee. Each liability policy shall be primary without right of contribution
from any other insurance which is carried by Lessee or Lessor and shall
expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured.
Lessor shall submit this Lease for approval to the insurance carrier for
each policy of insurance on the Aircraft. Lessor shall arrange for a
Certificate of Insurance evidencing appropriate coverage as to the Aircraft and
the satisfaction of the requirements set forth above to be given by its
insurance carriers to Lessor.
5
<PAGE>
10. Lessee warrants that:
(a) It will use the Aircraft for and on account of its own business
only, and will not use the Aircraft for the purpose of providing transportation
of passengers or cargo in air commerce for compensation or hire;
(b) it shall refrain from incurring any mechanics or other lien in
connection with inspection, preventative maintenance, maintenance or storage of
the Aircraft, whether permissible or impermissible under this Agreement, nor
shall there by any attempt by any party hereto to convey, mortgage, assign,
lease or any way alienate the Aircraft or create any kind of lien or security
interest involving the Aircraft or do anything or take any action that might
mature into such a lien; and
(c) during the term of this Agreement, it will abide by and conform to
all such laws, governmental and airport orders, rules and regulations, as shall
from time to time be in effect relating in any way to the operation and use of
the Aircraft by a timesharing Lessee.
11. For purposes of this Agreement, the permanent base of operation of the
Aircraft shall be Spartanburg, SC.
12. Neither this Agreement nor any party's interest herein shall be
assignable to any other party whatsoever. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their heirs, representatives
and successors.
13. TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1985 Canadair Challenger Model CL-600-2A12, MANUFACTURER'S
SERIAL NO. 3042, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION
AS N333GJ, HAS BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12
MONTH PERIOD PRECEDING THE DATE OF THIS LEASE.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE,
GEORGE DEAN JOHNSON, JR., 961 East Main St.,
6
<PAGE>
Spartanburg, SC 29302, IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE
AIRCRAFT UNDER THIS LEASE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
I, THE UNDERSIGNED, GEORGE DEAN JOHNSON, JR., 961 East Main Street,
Spartanburg, SC 29302 CERTIFY THAT IT IS RESPONSIBLE FOR OPERATIONAL CONTROL OF
THE AIRCRAFT AND THAT IT UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH
APPLICABLE FEDERAL AVIATION REGULATIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement.
ESA Management, Inc.
By: /s/ Robert A. Brannon
-------------------------------------
Robert A. Brannon, Vice President
By: /s/ George Dean Johnson, Jr.
-------------------------------------
George Dean Johnson, Jr.
7
<PAGE>
Exhibit 10.4
TIME SHARING AGREEMENT
This Agreement is made, effective as of August 10, 1999, by and between
Advance America Cash Advance Centers, Inc., a corporation organized under the
laws of the State of Delaware, with principal offices at 961 East Main Street,
Spartanburg, SC 29302 (hereinafter referred to as "Lessor"), and Extended Stay
America, Inc., with principal offices at 405 East Las Olas Blvd., Suite 11, Ft.
Lauderdale, FL 33301 (hereinafter referred to as "Lessee");
RECITALS
WHEREAS, Lessor is the owner of that certain civil Aircraft bearing the
United States Registration Number N543WW ("the Aircraft" or "Aircraft"), a 1980
Gates Learjet Model 35A, Manufacturer's Serial Number 332;
WHEREAS, Lessor employs a fully qualified flight crew to operate the
Aircraft; and
WHEREAS, Lessor and Lessee desire to lease said Aircraft with flight crew
on a non-exclusive time sharing basis as defined in Section 91.501(c)(1) of the
Federal Aviation Regulations ("FAR");
The parties agree as follows:
1. Lessor agrees to lease the Aircraft to Lessee pursuant to the
provisions of FAR 91.501(c)(1) and to provide a fully qualified flight crew for
all operations. This Agreement shall commence on the date that it is signed and
continue for one year after said date. Thereafter, this Agreement shall be
automatically renewed on a month to month basis, unless sooner terminated by
either party as hereinafter provided. Either party may at any time terminate
this Agreement upon thirty (30) days written notice to the other party,
delivered personally or by certified mail, return receipt requested, at the
address for said other party as set forth above.
<PAGE>
2. Lessee shall pay Lessor for each flight conducted under this Agreement
the actual expenses of each specific flight as authorized by FAR Part
91.501(d). These expenses include:
(a) Fuel, oil, lubricants, and other additives;
(b) Travel expenses of the crew, including food, lodging and ground
transportation;
(c) Hangar and tie down costs away from the Aircraft's base of operation;
(d) Insurance obtained for the specific flight;
(e) Landing fees, airport taxes and similar assessments including, but not
limited to IRC Section 4261 and related excise taxes;
(f) Customs, foreign permit, and similar fees directly related to the
flight;
(g) In-flight food and beverages;
(h) Passenger ground transportation;
(i) Flight planning and weather contract services; and
(j) An additional charge equal to 100% of the expenses listed in
subparagraph (a) of this paragraph.
3. Lessor will pay all expenses related to the operation of the Aircraft
when incurred, and will provide an invoice and bill Lessee for the expenses
enumerated in paragraph 2 above on the last day of the month in which any flight
or flights for the account of Lessee occur. Lessee shall pay Lessor for said
expenses within fifteen (15) days of receipt of the invoice and bill therefor.
4. Lessee will provide Lessor with requests for flight time and proposed
flight schedules as far in advance of any given flight as possible, and in any
case, at least twenty-four (24) hours in advance of Lessee's planned departure.
Requests for flight time shall be in a form, whether written or oral, mutually
convenient to, and agreed upon by the parties. In addition to
2
<PAGE>
the proposed schedules and flight times Lessee shall provide at least the
following information for each proposed flight at some time prior to scheduled
departure as required by the Lessor or Lessor's flight crew:
(a) proposed departure point;
(b) destination;
(c) date and time of flight;
(d) the number of anticipated passengers;
(e) the nature and extent of luggage and/or cargo to be carried;
(f) the date and time of return flight, if any; and
(g) any other information concerning the proposed flight that may be
pertinent or required by Lessor or Lessor's flight crew.
5. Lessor shall have final authority over the scheduling of the Aircraft,
provided, however, that Lessor will use its best efforts to accommodate Lessee's
needs and to avoid conflicts in scheduling.
6. Lessor shall be solely responsible for securing maintenance,
preventive maintenance and required or otherwise necessary inspections on the
Aircraft, and shall take such requirements into account in scheduling the
Aircraft. No period of maintenance, preventative maintenance or inspection shall
be delayed or postponed for the purpose of scheduling the Aircraft, unless said
maintenance or inspection can be safely conducted at a later time in compliance
with all applicable laws and regulations, and within the sound discretion of the
pilot in command. The pilot in command shall have final and complete authority
to cancel any flight for any reason or condition which in his judgement would
compromise the safety of the flight.
3
<PAGE>
7. Lessor shall employ, pay for and provide to Lessee a qualified flight
crew for each flight undertaken under this Agreement.
8. In accordance with applicable Federal Aviation Regulations, the
qualified flight crew provided by Lessor will exercise all of its duties and
responsibilities in regard to the safety of each flight conducted hereunder.
Lessee specifically agrees that the flight crew, in its sole discretion, may
terminate any flight, refuse to commence any flight, or take other action which
in the considered judgement of the pilot in command is necessitated by
considerations of safety. No such action of the pilot in command shall create or
support any liability for loss, injury, damage or delay to Lessee or any other
person. The parties further agree that Lessor shall not be liable for delay or
failure to furnish the Aircraft and crew pursuant to this Agreement when such
failure is caused by government regulation or authority, mechanical difficulty,
war, civil commotion, strikes or labor disputes, weather conditions, or acts of
God.
9. At all times during the term of this Lease, Lessor shall cause to be
carried and maintained, at Lessor's cost and expense, physical damage insurance
with respect to the Aircraft in the amount set forth below:
Aircraft Physical Damage $2,900,000.00
(No Deductible While
In Motion or Not In Motion)
At all times during the term of this Lease, Lessor shall also cause to be
carried and maintained, at Lessor's cost and expense, third party aircraft
liability insurance, passenger legal liability insurance, property damage
liability insurance, and medical expense insurance in the amounts set forth
below:
4
<PAGE>
Combined Liability Coverage for
Bodily Injury and Property Damage
Including Passengers -
Each Occurrence $100,000,000.00
Medical Expense Coverage -
Each Person $5,000.00
Lessor shall also bear the cost of paying any deductible amount on any
policy of insurance in the event of a claim or loss.
Any policies of insurance carried in accordance with this Lease: (i) shall
name Lessee as an additional insured; and (ii) shall contain a waiver by the
underwriter thereof of any right of subrogation against Lessee; and (iii) shall
provide that in respect of the interests of Lessee, such policies of insurance
shall not be invalidated by any action or inaction of Lessor or any other person
and shall insure Lessee (subject to the limits of liability and war risk
exclusion set forth in such policies) regardless of any breach or any violation
of any warranty, declarations or conditions contained in such policies by Lessor
or any other person; and (iv) shall provide that if the insurers cancel
insurance for any reason whatsoever, or the same is allowed to lapse for non-
payment of premium, or if there is any material change in policy terms and
conditions, such a cancellation, lapse or change shall not be effective as to
Lessee. Each liability policy shall be primary without right of contribution
from any other insurance which is carried by Lessee or Lessor and shall
expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured.
Lessor shall submit this Lease for approval to the insurance carrier for
each policy of insurance on the Aircraft. Lessor shall arrange for a Certificate
of Insurance evidencing appropriate coverage as to the Aircraft and the
satisfaction of the requirements set forth above to be given by its insurance
carriers to Lessor.
5
<PAGE>
10. Lessee warrants that:
(a) It will use the Aircraft for and on account of its own business
only, and will not use the Aircraft for the purpose of providing transportation
of passengers or cargo in air commerce for compensation or hire;
(b) it shall refrain from incurring any mechanics or other lien in
connection with inspection, preventative maintenance, maintenance or storage of
the Aircraft, whether permissible or impermissible under this Agreement, nor
shall there by any attempt by any party hereto to convey, mortgage, assign,
lease or any way alienate the Aircraft or create any kind of lien or security
interest involving the Aircraft or do anything or take any action that might
mature into such a lien; and
(c) during the term of this Agreement, it will abide by and conform
to all such laws, governmental and airport orders, rules and regulations, as
shall from time to time be in effect relating in any way to the operation and
use of the Aircraft by a timesharing Lessee.
11. For purposes of this Agreement, the permanent base of operation of the
Aircraft shall be Spartanburg, SC.
12. Neither this Agreement nor any party's interest herein shall be
assignable to any other party whatsoever. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their heirs, representatives
and successors.
13. TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1980 GATES LEARJET MODEL 35A, MANUFACTURER'S SERIAL NO.
332, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N543WW,
HAS BEEN MAINTAINED AND INSPECT UNDER FAR PART 91 DURING THE 12 MONTH PERIOD
PRECEDING THE DATE OF THIS LEASE.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE,
EXTENDED STAY AMERICA, INC., 450 EAST LAS OLAS
6
<PAGE>
BLVD., SUITE 1100, FT. LAUDERDALE, FL 33301, IS CONSIDERED RESPONSIBLE FOR
OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
I, THE UNDERSIGNED, GEORGE D. JOHNSON, JR. OF EXTENDED STAY AMERICA, INC.
450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FL 33301 CERTIFY THAT IT IS RESPONSIBLE
FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND ITS
RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement.
ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.
By: /s/ William M. Webster, IV August 10, 1999 11:30 a.m.
------------------------------------- ----------------------------
William M. Webster, IV, President Date and Time of Execution
EXTENDED STAY AMERICA, INC.
By: /s/ George D. Johnson, Jr. August 10, 1999 11:20 a.m.
------------------------------------- ----------------------------
George D. Johnson, Jr., President Date and Time of Execution
7
<PAGE>
Exhibit 10.5
TIME SHARING AGREEMENT
This Agreement is made, effective as of August 30, 1999, by and between ESA
Management, Inc., a corporation organized under the laws of the State of
Delaware, with principal offices at 450 East Las Olas Blvd., Ft. Lauderdale, FL
33301 (hereinafter referred to as "Lessor"), and Advance America, Cash Advance
Centers, Inc., with principal offices at 961 East Main Street, Spartanburg, SC
29302 (hereinafter referred to as "Lessee");
RECITALS
WHEREAS, Lessor is the owner of that certain civil Aircraft bearing the
United States Registration Number N333GJ ("the Aircraft" or "Aircraft"), a 1985
Canadair Challenger Model CL-600-2A12, Manufacturer's Serial Number 3042;
WHEREAS, Lessor employs a fully qualified flight crew to operate the
Aircraft; and
WHEREAS, Lessor and Lessee desire to lease said Aircraft with flight crew
on a non-exclusive time sharing basis as defined in Section 91.501(c)(1) of the
Federal Aviation Regulations ("FAR");
The parties agree as follows:
1. Lessor agrees to lease the Aircraft to Lessee pursuant to the
provisions of FAR 91.501(c)(1) and to provide a fully qualified flight crew for
all operations. This Agreement shall commence on the date that it is signed and
continue for one year after said date. Thereafter, this Agreement shall be
automatically renewed on a month to month basis, unless sooner terminated by
either party as hereinafter provided. Either party may at any time terminate
this Agreement upon thirty (30) days written notice to the other party,
delivered personally or by certified mail, return receipt requested, at the
address for said other party as set forth above.
<PAGE>
2. Lessee shall pay Lessor for each flight conducted under this Agreement
the actual expenses of each specific flight as authorized by FAR Part 91.501(d).
These expenses include:
(a) Fuel, oil, lubricants, and other additives;
(b) Travel expenses of the crew, including food, lodging and ground
transportation;
(c) Hangar and tie down costs away from the Aircraft's base of operation;
(d) Insurance obtained for the specific flight;
(e) Landing fees, airport taxes and similar assessments including, but not
limited to IRC Section 4261 and related excise taxes;
(f) Customs, foreign permit, and similar fees directly related to the
flight;
(g) In-flight food and beverages;
(h) Passenger ground transportation;
(i) Flight planning and weather contract services; and
(j) An additional charge equal to 100% of the expenses listed in
subparagraph (a) of this paragraph.
3. Lessor will pay all expenses related to the operation of the Aircraft
when incurred, and will provide an invoice and bill Lessee for the expenses
enumerated in paragraph 2 above on the last day of the month in which any flight
or flights for the account of Lessee occur. Lessee shall pay Lessor for said
expenses within fifteen (15) days of receipt of the invoice and bill therefor.
4. Lessee will provide Lessor with requests for flight time and proposed
flight schedules as far in advance of any given flight as possible, and in any
case, at least twenty-four (24) hours in advance of Lessee's planned departure.
Requests for flight time shall be in a form, whether written or oral, mutually
convenient to, and agreed upon by the parties. In addition to
2
<PAGE>
the proposed schedules and flight times Lessee shall provide at least the
following information for each proposed flight at some time prior to scheduled
departure as required by the Lessor or Lessor's flight crew:
(a) proposed departure point;
(b) destination;
(c) date and time of flight;
(d) the number of anticipated passengers;
(e) the nature and extent of luggage and/or cargo to be carried;
(f) the date and time of return flight, if any; and
(g) any other information concerning the proposed flight that may be
pertinent or required by Lessor or Lessor's flight crew.
5. Lessor shall have final authority over the scheduling of the Aircraft,
provided, however, that Lessor will use its best efforts to accommodate Lessee's
needs and to avoid conflicts in scheduling.
6. Lessor shall be solely responsible for securing maintenance,
preventive maintenance and required or otherwise necessary inspections on the
Aircraft, and shall take such requirements into account in scheduling the
Aircraft. No period of maintenance, preventative maintenance or inspection shall
be delayed or postponed for the purpose of scheduling the Aircraft, unless said
maintenance or inspection can be safely conducted at a later time in compliance
with all applicable laws and regulations, and within the sound discretion of the
pilot in command. The pilot in command shall have final and complete authority
to cancel any flight for any reason or condition which in his judgement would
compromise the safety of the flight.
3
<PAGE>
7. Lessor shall employ, pay for and provide to Lessee a qualified flight
crew for each flight undertaken under this Agreement.
8. In accordance with applicable Federal Aviation Regulations, the
qualified flight crew provided by Lessor will exercise all of its duties and
responsibilities in regard to the safety of each flight conducted hereunder.
Lessee specifically agrees that the flight crew, in its sole discretion, may
terminate any flight, refuse to commence any flight, or take other action which
in the considered judgement of the pilot in command is necessitated by
considerations of safety. No such action of the pilot in command shall create or
support any liability for loss, injury, damage or delay to Lessee or any other
person. The parties further agree that Lessor shall not be liable for delay or
failure to furnish the Aircraft and crew pursuant to this Agreement when such
failure is caused by government regulation or authority, mechanical difficulty,
war, civil commotion, strikes or labor disputes, weather conditions, or acts of
God.
9. At all times during the term of this Lease, Lessor shall cause to be
carried and maintained, at Lessor's cost and expense, physical damage insurance
with respect to the Aircraft in the amount set forth below:
Aircraft Physical Damage $12,900,000.00
(No Deductible While
In Motion or Not In Motion)
At all times during the term of this Lease, Lessor shall also cause to be
carried and maintained, at Lessor's cost and expense, third party aircraft
liability insurance, passenger legal liability insurance, property damage
liability insurance, and medical expense insurance in the amounts set forth
below:
4
<PAGE>
Combined Liability Coverage for
Bodily Injury and Property Damage
Including Passengers -
Each Occurrence $100,000,000.00
Medical Expense Coverage -
Each Person $5,000.00
Lessor shall also bear the cost of paying any deductible amount on any
policy of insurance in the event of a claim or loss.
Any policies of insurance carried in accordance with this Lease: (i) shall
name Lessee as an additional insured; and (ii) shall contain a waiver by the
underwriter thereof of any right of subrogation against Lessee; and (iii) shall
provide that in respect of the interests of Lessee, such policies of insurance
shall not be invalidated by any action or inaction of Lessor or any other person
and shall insure Lessee (subject to the limits of liability and war risk
exclusion set forth in such policies) regardless of any breach or any violation
of any warranty, declarations or conditions contained in such policies by Lessor
or any other person; and (iv) shall provide that if the insurers cancel
insurance for any reason whatsoever, or the same is allowed to lapse for non-
payment of premium, or if there is any material change in policy terms and
conditions, such a cancellation, lapse or change shall not be effective as to
Lessee. Each liability policy shall be primary without right of contribution
from any other insurance which is carried by Lessee or Lessor and shall
expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured.
Lessor shall submit this Lease for approval to the insurance carrier for
each policy of insurance on the Aircraft. Lessor shall arrange for a Certificate
of Insurance evidencing appropriate coverage as to the Aircraft and the
satisfaction of the requirements set forth above to be given by its insurance
carriers to Lessor.
5
<PAGE>
10. Lessee warrants that:
(a) It will use the Aircraft for and on account of its own business
only, and will not use the Aircraft for the purpose of providing transportation
of passengers or cargo in air commerce for compensation or hire;
(b) it shall refrain from incurring any mechanics or other lien in
connection with inspection, preventative maintenance, maintenance or storage of
the Aircraft, whether permissible or impermissible under this Agreement, nor
shall there by any attempt by any party hereto to convey, mortgage, assign,
lease or any way alienate the Aircraft or create any kind of lien or security
interest involving the Aircraft or do anything or take any action that might
mature into such a lien; and
(c) during the term of this Agreement, it will abide by and conform
to all such laws, governmental and airport orders, rules and regulations, as
shall from time to time be in effect relating in any way to the operation and
use of the Aircraft by a timesharing Lessee.
11. For purposes of this Agreement, the permanent base of operation of the
Aircraft shall be Spartanburg, SC.
12. Neither this Agreement nor any party's interest herein shall be
assignable to any other party whatsoever. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their heirs, representatives
and successors.
13. TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1985 Canadair Challenger Model CL-600-2A12, MANUFACTURER'S
SERIAL NO. 3042, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION
AS N333GJ, HAS BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12
MONTH PERIOD PRECEDING THE DATE OF THIS LEASE.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE,
ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.,
6
<PAGE>
961 EAST MAIN ST., SPARTANBURG, SC 29302, IS CONSIDERED RESPONSIBLE FOR
OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
I, THE UNDERSIGNED, WILLIAM M. WEBSTER, IV, OF ADVANCE AMERICA, CASH
ADVANCE CENTERS, INC., 961 EAST MAIN STREET, SPARTANBURG, SC 29302 CERTIFY THAT
IT IS RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT IT
UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION
REGULATIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement.
ESA Management, Inc.
By: /s/ Robert A. Brannon
----------------------------------
Robert A. Brannon, Vice President
Advance America, Cash Advance Centers, Inc.
By: /s/ William M. Webster IV
---------------------------------
William M. Webster IV
7
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