<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 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 E. Las Olas Boulevard, 33301
Ft. Lauderdale, Florida (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (954) 713-1600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange On Which Registered
------------------- ------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
_______________
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock of the registrant held by
stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately
$522,129,139 at March 1, 2000 (based on the closing sale price on the New York
Stock Exchange, Inc. ("NYSE") on March 1, 2000). At March 1, 2000 the registrant
had issued and outstanding an aggregate of 95,429,084 shares of common stock.
Documents Incorporated by Reference
Those sections or portions of the registrant's proxy statement for the
Annual Meeting of Stockholders to be held on May 2, 2000, described in Part III
hereof, are incorporated by reference in this report.
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PART I
ITEM 1. BUSINESS
Our Company
We develop, own, and operate extended stay lodging facilities which provide
an affordable and attractive lodging alternative at a variety of price points
for value-conscious guests. Our facilities are designed to offer a superior
product at lower rates than most other lodging providers within their respective
price segments. Our facilities feature fully furnished rooms which are generally
rented on a weekly basis to guests such as business travelers, professionals on
temporary work assignment, persons between domestic situations, and persons
relocating or purchasing a home, with most guests staying for multiple weeks. On
April 11, 1997, we completed a merger (the "Merger") with Studio Plus Hotels,
Inc. ("SPH"). The Merger was accounted for as a pooling of interests and our
business development and historical financial statements have been restated to
include the operations and accounts of SPH, which is now one of our wholly-owned
subsidiaries. In this Annual Report on Form 10-K, the words "Extended Stay
America", "Company", "we", "our", "ours", and "us" refer to Extended Stay
America, Inc. and its subsidiaries (including SPH), unless the context suggests
otherwise.
Our goal is to be a national provider of extended stay lodging. We believe
that the first companies to do so will benefit from establishing a brand name
and customer awareness. We intend to achieve this goal by rapidly developing
properties in selected markets, providing high value accommodations for our
guests, actively managing our properties to increase revenues and reduce
operating costs, and increasing customer awareness of our products. Through
December 31, 1999, we had developed 351 extended stay lodging facilities,
acquired 11 others, and had 23 facilities under construction.
We expect we will have sufficient funds to open properties with total costs
exceeding $350 million in 2000. Due to uncertainties regarding the availability
of additional capital for projects opening in 2001, however, we plan to limit
the development of properties opening in 2000 to approximately 30 properties
with total costs of approximately $250 million. We believe that this strategy
will permit us to develop properties in markets with higher barriers to entry
that generally have longer development cycles, while prudently managing our
capital structure. In the event we obtain additional capital, we will seek to
increase property openings in future years.
Extended Stay America was formed in 1995 as a Delaware corporation and our
executive offices are located at 450 E. Las Olas Boulevard, Fort Lauderdale,
Florida 33301. Our telephone number is (954) 713-1600.
Our Brands
We own and operate three brands in the extended stay lodging market--
StudioPLUS Deluxe Studios/R/ ("StudioPLUS"), EXTENDED STAYAMERICA Efficiency
Studios/R/ ("EXTENDED STAY"), and Crossland Economy Studios ("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. 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, and
StudioPLUS facilities serve the mid-price category and generally feature larger
guest rooms, an exercise room, and a swimming pool.
Our Strategy
Our strategy is to maximize value to customers by providing a superior,
newly-constructed, and well-maintained product at each price point while
maintaining high operating margins. We attempt to achieve this goal through the
following:
Create Brand Awareness. We believe that guests value a recognizable
brand when selecting lodging accommodations. By positioning our brands as
the first nationwide extended stay providers in their targeted price
segments, we believe our brands will have a distinct advantage over their
local and regional competitors. We also believe that our evolving national
presence and high customer satisfaction ratings, coupled with
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selective advertising and promotion, will establish StudioPLUS, EXTENDED
STAY, and Crossland as desirable and well recognized brands.
Provide a Superior Product at a Lower Price. Our facilities are
designed to offer a superior product at lower rates than most other lodging
providers within their respective price segments. Each of our brands is
targeted to a different price point: StudioPLUS--$299 to $399 per week
(daily equivalent--$43 to $57); EXTENDED STAY--$199 to $299 per week (daily
equivalent--$29 to $43); and Crossland--$159 to $199 per week (daily
equivalent--$23 to $29). Room rates at our facilities vary significantly
depending upon market factors affecting their locations. These rates
contrast with average daily rates in 1999 of $65, $50, and $39 for the mid-
price, economy, and budget segments, respectively, of the entire lodging
industry.
Achieve Operating Efficiencies. We believe that the design and price
level of our facilities attract guest stays of several weeks. This creates
a more stable revenue stream which, together with low labor-cost amenities,
should lead to reduced administrative and operational costs and higher
operating margins. We also use sophisticated control and information
systems to manage individual facility-specific factors, such as pricing,
payroll, and occupancy levels, on a Company-wide basis.
Optimize Low Cost Amenities. We seek to provide the level of amenities
needed to offer quality accommodations while maintaining high operating
margins. Our facilities contain a variety of non-labor intensive features
that are attractive to extended stay guests. These features include a
fully-equipped kitchen or kitchenette, weekly housekeeping, color
television with cable or satellite hook-up, coin-operated laundromat, and
telephone service with voice mail messaging, and, at many StudioPLUS
facilities, an exercise room and swimming pool. To help maintain
affordability of room rates, labor-intensive services such as daily
cleaning, room service, and restaurants are not provided.
Employ a Standardized Concept. We have developed standardized plans
and specifications for our facilities. This provides for lower construction
and purchasing costs and establishes uniform quality and operational
standards. We also benefit from the experience of various members of our
management team in rapidly developing and operating numerous commercial
properties to a uniform set of design standards on a cost-effective basis.
Industry Overview
Traditional Lodging Industry
The U.S. lodging industry is estimated to have generated approximately $72
billion in annual room revenues in 1999 and had approximately 3.9 million rooms
at the end of 1999. Industry statistics, which we believe to be reliable,
indicate that the U.S. lodging industry's performance is strongly correlated to
economic activity. Room supply and demand historically have been sensitive to
shifts in economic growth, which has resulted in cyclical changes in average
daily room and occupancy rates.
Overbuilding in the lodging industry in the mid and late 1980s, when
approximately 500,000 rooms were added, resulted in an oversupply of rooms. We
believe this oversupply and the general downturn in the economy led to depressed
industry performance and a lack of capital available to the industry in the late
1980s and early 1990s. We believe that the lodging industry has since benefited
from an improved supply and demand balance, as evidenced by the compound annual
growth of 5% in revenue per available room from 1993 through 1999. The number of
available rooms in the industry has grown at an average annual rate of 3.6% for
the years 1996 through 1999, however, and the annual growth in revenue per
available room has declined from 6.3% in 1996 to 3.1% in 1999. We believe that
this decline in the growth rate of revenue per available room, along with
concerns of a decline in the U.S. economy in general, resulted in a significant
contraction in capital available for the development of new lodging products in
1998 and 1999. As a result, we expect the rate of growth of new hotel rooms to
moderate for the next few years.
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The lodging industry generally can be segmented by the level of service
provided and the pricing of the rooms. Segmentation by level of service is
divided into the following categories:
. full service hotels, which offer food and beverage services, meeting
rooms, room service, and similar guest services;
. limited service hotels, which generally offer only rooms with amenities
such as swimming pools, continental breakfast, or similar limited
services; and
. all-suite hotels, which generally have limited public spaces but provide
guests with two rooms or distinct partitioned areas and which may or may
not offer food and beverage service to guests.
The lodging industry may also be segmented by price level and is generally
divided into categories based on average daily room rates, which in 1999 were
$39 for budget, $50 for economy, $65 for mid-price, $87 for upscale, and $139
for luxury.
The all-suite segment of the lodging industry is a relatively new segment.
It is principally oriented toward business travelers in the mid-price to upscale
price levels. All-suite hotels were developed partially in response to the
increasing number of corporate relocations, transfers, and temporary assignments
and the need of business travelers for more than just a room. To address those
needs, all-suite hotels began to offer suites with additional space and, in some
cases, an efficiency kitchen. In addition, guests staying for extended periods
of time were offered discounts to daily rates when they paid on a weekly or
monthly basis. We believe the extended stay market in which we participate is an
additional and emerging segment of the traditional lodging industry similar to
the all-suite segment.
Extended Stay Market
We believe that extended stay hotels generally have higher operating
margins, lower occupancy break-even thresholds, and higher returns on capital
than traditional hotels. This is primarily a result of the typically longer
length of stay, lower guest turnover, and lower operating expenses. We also
believe the extended stay market is one of the most rapidly growing and
underserved segments of the U.S. lodging industry, with demand for extended stay
lodging significantly exceeding the current and anticipated near-term supply of
dedicated extended stay rooms.
In September 1998, we announced the results of a recently completed
analysis of extended stay lodging demand which was performed for us by
PricewaterhouseCoopers. Their analysis indicated an estimate of total U.S.
demand for extended stay properties of approximately 300,000 rooms. As of
December 31, 1999, the inventory of dedicated extended stay rooms based on data
provided by Smith Travel Research for the following extended stay hotel chains
totaled approximately 165,000 rooms.
<TABLE>
<CAPTION>
Upscale Extended Stay Chains Other Extended Stay Chains
---------------------------- ----------------------------------------------------
<S> <C> <C>
Hawthorn Inn & Suites(sm) Bradford Homesuites(R) Lexington(R) Hotel Suites
Hawthorn Suites(R) Candlewood Hotel(R) MainStay Suites(sm)
Homewood Suites(R) Crossland Sierra Suites(sm)
Residence Inn(R) EXTENDED STAY Studio 6(sm)
StayBridge Suites(R) Homegate Studios & Suites(R) StudioPLUS
Summerfield Suites(R) Homestead Village(R) Suburban Lodge(R)
Woodfin Suites(R) InnSuites Hotels TownPlace Suites(R)
Inn Town Suites(R) Villager Lodges(R)
</TABLE>
We believe that these chains represent the majority of dedicated extended
stay rooms available in the U.S. lodging industry.
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An upscale extended stay room generally has a weekly rate of $500 or more.
Our weekly room rates are generally less than $500. Approximately 39% of the
supply of extended stay rooms were operated above our targeted price points and
we owned approximately 38% of the rooms operated in our targeted price segments.
The following table indicates the total rooms for the extended stay chains
listed above, the total rooms for the upscale chains, and the total rooms owned
by us at the end of each of the last three years.
<TABLE>
<CAPTION>
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Total extended stay rooms available..... 92,000 136,000 165,000
Upscale extended stay rooms............. 43,000 53,000 64,000
Extended stay rooms owned by us......... 19,000 32,000 38,000
</TABLE>
We believe the continuing significant demand/supply imbalance and the
longer average length of stay have caused occupancy rates for extended stay
hotels to significantly exceed occupancy rates in the overall U.S. lodging
industry. The table below shows that average occupancy rates for extended stay
hotel chains have exceeded the rates in the overall U.S. lodging industry for
each of the previous five years based on data provided by Smith Travel Research.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Average Occupancy Rates:
Extended Stay Hotel Chains...... 79.8% 78.3% 74.7% 71.9% 71.5%
All U.S. Lodging Industry....... 65.1 65.0 64.5 63.8 63.3
</TABLE>
We believe the decline in occupancy rates for extended stay hotel chains
since 1995 is in part the result of an increase in the proportion of newly-
opened hotels, which generally experience lower occupancies during their pre-
stabilization period. The table below shows that, while there has been rapid
growth in available room nights for both the extended stay market in general and
for us in particular, there has also been rapid growth in occupied room nights.
This indicates that much of the new construction in the extended stay market has
been absorbed.
<TABLE>
<CAPTION>
Increase Percentage Increase Percentage
in Increase from in Increase from
1998 Prior Year 1999 Prior Year
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Extended Stay Hotel Chains:
Available Room Nights............ 14,200,000 55.9% 13,800,000 32.7%
Occupied Room Nights............. 9,400,000 49.4 9,700,000 31.9
Our Facilities:
Available Room Nights............ 4,700,000 101.7 3,900,000 42.3
Occupied Room Nights.............. 3,400,000 100.0 2,999,000 44.7
</TABLE>
As a segment of the total U.S. lodging industry, extended stay hotel chains
experienced a significant contraction in the availability of capital during 1998
that continued through 1999. As a result, we expect the growth in available
dedicated extended stay rooms to moderate for the next few years.
Property Development
Our goal is to become a national provider of extended stay facilities
through a rapid development program. We believe that the first companies to do
so will benefit from establishing a brand name and customer awareness. We expect
that our primary means of expansion will be the construction and development of
new extended stay lodging facilities. We have also acquired, and we may make
additional acquisitions of, existing extended stay lodging facilities or other
properties that we can convert to the extended stay concept.
Our strategy is to expand nationally into regions of the country that
contain the demographic factors we think are necessary to support one or more of
our facilities. We target sites that generally have a large and/or growing
population in the surrounding area with a large employment base. These sites
also generally have good visibility from a major traffic artery and are in close
proximity to convenience stores, restaurants, and shopping centers.
We have approximately 15 real estate professionals and approximately 20
construction professionals who perform site selection, entitlement, and
construction activities according to our established criteria and procedures
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from offices throughout the United States. It generally takes us at least
twenty-four months to identify a site and complete construction of a facility,
but this process may be substantially longer in certain markets. We try to
minimize our capital outlays incurred in this process until after the
commencement of construction.
The site selection process includes assessing the characteristics of a
market area based on our development standards, identifying sites for
development within a qualified market area, and negotiating an option to
purchase qualified sites. Although the time required to complete the selection
process in a market varies significantly based on local market conditions, we
typically need approximately six to eight months to assess a market and obtain
an option to purchase a site in a qualified market.
After we obtain an option to purchase a site, our legal, environmental, and
business due diligence begins. During this period, our real estate and
construction professionals evaluate whether the site is financially suitable for
development, obtain necessary approvals and permits, and negotiate construction
contracts with third party general contractors. It generally takes us eight to
ten months to complete this process, however, the time needed can vary
significantly by market area due to local regulations and restrictions.
The site selection and due diligence processes are reviewed periodically by
our senior management and our approval to begin construction is based on a
detailed review of the demographic, physical, and financial qualifications of
each site. Once our senior management approves the development of a site, it is
purchased, the construction contract is executed, and construction generally
begins immediately. We use a number of general contractors. The selection of a
contractor for a specific site depends upon the geographic area, the negotiated
construction costs, and the financial and physical capacities of the
contractors. The construction process is regularly inspected by our construction
professionals to monitor both the quality and timeliness of completion of
construction. Although the construction period varies significantly based on
local construction requirements and weather conditions, it generally takes us
eight to ten months to complete construction once it has begun.
During 1999, we repositioned 14 StudioPLUS properties as EXTENDED STAY
properties. All operating statistics reflect the repositioning of these
properties as EXTENDED STAY properties for the entire periods presented. Our
development status as of December 31, 1999 was as follows:
<TABLE>
<CAPTION>
StudioPLUS EXTENDED STAY Crossland Total
----------------- ------------------ ----------------- ------------------
Properties Rooms Properties Rooms Properties Rooms Properties Rooms
---------- ----- ---------- ------ ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating........... 90 7,183 233 26,050 39 5,068 362 38,301
Under Construction.. 1 81 22 2,434 0 0 23 2,515
</TABLE>
The design plans for our lodging facilities call for a newly-constructed
apartment style complex. They generally consist of two- to four-story buildings
with laundromat and office areas and use interior and exterior corridor building
designs, depending primarily on local zoning and weather factors. All three of
our brands offer the same core components: a living/sleeping area; a fully-
equipped kitchen or kitchenette with a refrigerator, stovetop, microwave, and
sink; and a bathroom. The typical building design criteria for each of our
brands is shown in the table below:
<TABLE>
<CAPTION>
Average Average
Number Living Space
Of Rooms Per Room (Ft./2/)
-------- -----------------
<S> <C> <C>
StudioPLUS................ 80 425
EXTENDED STAY............. 100 300
Crossland................. 120 225
</TABLE>
The actual number of rooms and living space per room may vary significantly
depending on location and date of construction. In addition, each facility may
include certain non-standard room types.
Property Operations
Each of our facilities employs a property manager who is responsible for
the operations of that particular property. The property manager shares duties
with and oversees a staff typically consisting of an assistant manager, desk
clerks, maintenance personnel, and a housekeeping/laundry staff of approximately
2-10 persons (many of whom are part-time employees). The office at each of our
facilities is generally open daily as follows: Crossland--
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from 8:00 a.m. to 7:00 p.m.; EXTENDED STAY--from 7:00 a.m. to 11:00 p.m.; and
StudioPLUS--from 7:00 a.m. to 11:00 p.m., although an employee normally is on
duty at all facilities twenty-four hours a day to respond to guests' needs.
The majority of daily operational decisions are made by the property
managers. Each property manager is under the supervision of one of our district
managers, who typically are responsible for five to seven facilities, depending
on geographic location. Our district managers oversee the performance of our
property managers in such areas as guest service, property maintenance, and
payroll and cost control. The district managers report to a regional director
who is responsible for the supervision of 8-10 district managers. The regional
directors report to our Vice President of Operations, who is responsible for
implementing all operational and strategic policies for our brands. Each
facility is evaluated against a detailed revenue and expense budget, as well as
against the performance of our other facilities. Our corporate offices use
sophisticated information systems to support the district managers and regional
directors.
Marketing Strategy
We believe that guests value a recognizable brand when selecting lodging
accommodations. To date, we have created brand awareness primarily by
increasing the number of hotels through a rapid national development program,
with sites that typically are in highly-visible locations. We have established
a toll free reservation number (1-800-EXT-STAY) and a web site (www.extstay.com)
to provide information about our locations and to reserve rooms. With our
growth to a recognizable national chain in 1999, we launched our first national
consumer advertising campaign in USA Today, which was supplemented by a national
direct mail campaign. We plan to expand both advertising initiatives in 2000.
We think that we can increase demand for our facilities by building awareness
for both the extended stay concept as well as our various brands.
Lodging Facilities
At December 31, 1999, we had 362 extended stay lodging facilities in
operation (90 StudioPLUS, 233 EXTENDED STAY, and 39 Crossland) and 23 facilities
under construction (1 StudioPLUS, and 22 EXTENDED STAY) in a total of 38 states.
The following table shows certain information regarding those facilities.
<TABLE>
<CAPTION>
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- -------------- --------
<S> <C> <C> <C>
ALABAMA
Birmingham........................ StudioPLUS March 1996 71
Birmingham........................ StudioPLUS May 1996 71
Huntsville........................ EXTENDED STAY July 1997 108
Mobile............................ EXTENDED STAY May 1997 114
Montgomery........................ EXTENDED STAY August 1997 120
Montgomery........................ StudioPLUS February 1996 71
ARIZONA
Chandler.......................... EXTENDED STAY September 1998 101
Mesa.............................. EXTENDED STAY December 1997 104
Peoria............................ EXTENDED STAY December 1998 101
Phoenix........................... Crossland September 1998 133
Phoenix........................... EXTENDED STAY January 1998 101
Phoenix........................... EXTENDED STAY July 1998 104
Scottsdale........................ EXTENDED STAY June 1997 120
Tucson............................ Crossland April 1998 118
Tucson............................ EXTENDED STAY April 1997 120
ARKANSAS
Little Rock....................... EXTENDED STAY September 1996 120
Little Rock....................... StudioPLUS November 1997 84
</TABLE>
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Date Opened or Number
City Brand Acquired of Rooms
- ------------------ ------------- ------------------ --------
CALIFORNIA
Alameda........... StudioPLUS July 1999 88
Alameda........... EXTENDED STAY Under Construction 121
Arcadia........... EXTENDED STAY April 1998 122
Bakersfield....... EXTENDED STAY November 1996 120
Dublin............ EXTENDED STAY Under Construction 122
Fremont........... StudioPLUS August 1999 82
Fremont........... EXTENDED STAY December 1998 119
Fresno............ Crossland November 1998 128
Fresno............ EXTENDED STAY July 1997 120
Gardena........... Crossland December 1998 137
Huntington Beach.. EXTENDED STAY December 1998 104
La Mirada......... EXTENDED STAY June 1998 104
Lake Forest....... EXTENDED STAY September 1997 119
Livermore......... EXTENDED STAY January 1998 122
Long Beach........ EXTENDED STAY November 1997 134
Los Angeles....... EXTENDED STAY May 1999 133
Los Angeles....... EXTENDED STAY August 1999 122
Milpitas.......... EXTENDED STAY January 1998 146
Morgan Hill....... EXTENDED STAY December 1998 92
Oceanside......... EXTENDED STAY January 1999 101
Ontario........... EXTENDED STAY May 1997 127
Pleasant Hill..... EXTENDED STAY August 1997 122
Rancho Cordova.... Crossland November 1998 129
Rancho Cordova.... EXTENDED STAY June 1997 132
Richmond.......... EXTENDED STAY Under Construction 101
Roseville......... EXTENDED STAY August 1998 122
Sacramento........ EXTENDED STAY March 1997 120
Sacramento........ EXTENDED STAY August 1997 120
San Diego......... EXTENDED STAY November 1999 166
San Dimas......... EXTENDED STAY February 1999 104
San Ramon......... EXTENDED STAY Under Construction 128
Santa Rosa........ EXTENDED STAY June 1997 114
Santa Rosa........ EXTENDED STAY Under Construction 94
Santa Barbara..... EXTENDED STAY January 1998 104
Torrance.......... EXTENDED STAY December 1997 122
Union City........ EXTENDED STAY December 1999 121
Valencia.......... EXTENDED STAY Under Construction 104
Woodland Hills.... EXTENDED STAY Under Construction 146
COLORADO
Aurora............ Crossland December 1998 133
Colorado Springs.. Crossland November 1998 133
Colorado Springs.. EXTENDED STAY September 1998 104
Englewood......... StudioPLUS August 1998 72
Glendale.......... Crossland July 1998 129
Lakewood.......... EXTENDED STAY November 1996 120
Lakewood.......... EXTENDED STAY January 1997 147
Thornton.......... Crossland March 1999 133
Westminster....... EXTENDED STAY Under Construction 103
CONNECTICUT
Farmington........ StudioPLUS December 1998 91
7
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Date Opened or Number
City Brand Acquired of Rooms
- ----------------- ------------- ------------------ --------
FLORIDA
Clearwater....... EXTENDED STAY March 1998 104
Daytona Beach.... StudioPLUS August 1998 73
Deerfield Beach.. EXTENDED STAY December 1997 104
Fort Lauderdale.. Crossland March 1999 129
Fort Lauderdale.. EXTENDED STAY March 1998 108
Fort Lauderdale.. EXTENDED STAY July 1999 117
Fort Lauderdale.. StudioPLUS April 1999 72
Gainesville...... EXTENDED STAY July 1997 120
Jacksonville..... EXTENDED STAY May 1997 122
Jacksonville..... EXTENDED STAY Under Construction 101
Jacksonville..... StudioPLUS July 1998 73
Maitland......... EXTENDED STAY June 1999 104
Maitland......... StudioPLUS Under Construction 81
Melbourne........ StudioPLUS October 1998 84
Miami............ EXTENDED STAY Under Construction 109
Orlando.......... Crossland January 1999 139
Orlando.......... EXTENDED STAY November 1997 119
Orlando.......... EXTENDED STAY February 1999 122
Orlando.......... StudioPLUS June 1998 83
Orlando.......... StudioPLUS October 1999 113
Pensacola........ EXTENDED STAY September 1997 101
Plantation....... EXTENDED STAY Under Construction 104
Tallahassee...... StudioPLUS January 1998 59
Tampa............ StudioPLUS March 1999 85
Temple Terrace... EXTENDED STAY August 1997 101
West Palm Beach.. StudioPLUS November 1998 73
GEORGIA
Alpharetta....... EXTENDED STAY June 1999 101
Alpharetta....... StudioPLUS July 1997 91
Atlanta.......... EXTENDED STAY April 1998 104
Atlanta.......... EXTENDED STAY Under Construction 98
Atlanta.......... StudioPLUS December 1997 97
Columbus......... EXTENDED STAY January 1997 108
Columbus......... EXTENDED STAY Under Construction 92
Duluth........... EXTENDED STAY September 1997 119
Kennesaw......... EXTENDED STAY December 1998 104
Kennesaw......... StudioPLUS December 1997 84
Lawrenceville.... EXTENDED STAY June 1996 121
Macon............ StudioPLUS March 1998 72
Marietta......... EXTENDED STAY August 1995 121
Marietta......... EXTENDED STAY January 1998 113
Morrow........... EXTENDED STAY June 1998 104
Norcross......... EXTENDED STAY January 1996 199
Norcross......... EXTENDED STAY February 1996 133
Norcross......... StudioPLUS March 1997 72
Riverdale........ EXTENDED STAY February 1996 147
IDAHO
Boise............ EXTENDED STAY January 1997 107
ILLINOIS
Buffalo Grove.... EXTENDED STAY February 1998 122
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Date Opened or Number
City Brand Acquired of Rooms
- ----------------- ------------- ------------------ --------
Burr Ridge....... EXTENDED STAY November 1996 119
Champaign........ EXTENDED STAY September 1998 89
Darien........... EXTENDED STAY March 1999 104
Des Plaines...... EXTENDED STAY March 1998 122
Des Plaines...... StudioPLUS April 1999 88
Downers Grove.... EXTENDED STAY May 1996 154
Elmhurst......... EXTENDED STAY August 1997 117
Gurnee........... EXTENDED STAY January 1997 101
Hanover Park..... EXTENDED STAY June 1999 104
Hillside......... EXTENDED STAY November 1999 122
Itasca........... EXTENDED STAY November 1996 125
Lansing.......... EXTENDED STAY November 1998 122
Lisle............ EXTENDED STAY Under Construction 98
Lombard.......... StudioPLUS March 1998 98
Naperville....... EXTENDED STAY November 1996 125
O'Fallon......... EXTENDED STAY September 1998 89
Rockford......... EXTENDED STAY September 1997 104
Rockford......... StudioPLUS November 1997 72
Rolling Meadows.. EXTENDED STAY October 1996 125
Romeoville....... EXTENDED STAY October 1998 101
Schaumburg....... EXTENDED STAY March 1999 104
Skokie........... EXTENDED STAY Under Construction 140
Waukegan......... Crossland November 1997 121
INDIANA
Evansville....... StudioPLUS February 1997 71
Fort Wayne....... EXTENDED STAY September 1997 101
Fort Wayne....... StudioPLUS December 1996 71
Indianapolis..... EXTENDED STAY October 1998 107
Indianapolis..... EXTENDED STAY August 1990 72
Indianapolis..... EXTENDED STAY March 1991 72
Indianapolis..... EXTENDED STAY September 1999 101
Merrillville..... EXTENDED STAY November 1996 105
Mishawaka........ StudioPLUS September 1997 73
IOWA
Des Moines....... StudioPLUS December 1997 86
Urbandale........ EXTENDED STAY January 1999 104
KANSAS
Lenexa........... EXTENDED STAY May 1996 59
Overland Park.... EXTENDED STAY September 1997 119
Wichita.......... StudioPLUS December 1997 72
KENTUCKY
Covington........ EXTENDED STAY December 1997 105
Florence......... EXTENDED STAY October 1997 101
Florence......... StudioPLUS September 1996 71
Lexington........ EXTENDED STAY September 1996 126
Lexington........ EXTENDED STAY July 1986 60
Lexington........ EXTENDED STAY August 1987 71
Louisville....... EXTENDED STAY October 1996 120
Louisville....... EXTENDED STAY December 1988 76
Louisville....... EXTENDED STAY April 1989 65
9
<PAGE>
<TABLE>
<CAPTION>
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- ------------------ --------
<S> <C> <C> <C>
LOUISIANA
Baton Rouge....... Crossland June 1998 129
Bossier City...... Crossland September 1997 117
Lafayette......... EXTENDED STAY November 1998 104
Lake Charles...... Crossland August 1997 117
Metairie.......... EXTENDED STAY August 1998 102
MARYLAND
Columbia.......... EXTENDED STAY October 1997 104
Columbia.......... StudioPLUS December 1997 95
Frederick......... EXTENDED STAY March 1999 101
Gaithersburg...... EXTENDED STAY March 1999 101
Gaithersburg...... StudioPLUS February 1999 88
Landover.......... EXTENDED STAY July 1998 104
Lexington Park.... EXTENDED STAY Under Construction 98
Linthicum......... EXTENDED STAY June 1997 122
Milestone......... EXTENDED STAY January 1999 104
Timonium.......... EXTENDED STAY June 1998 104
MASSACHUSETTS
Danvers........... EXTENDED STAY February 1998 104
Westborough....... EXTENDED STAY Under Construction 92
MICHIGAN
Ann Arbor......... EXTENDED STAY May 1997 112
Ann Arbor......... StudioPLUS December 1997 71
Auburn Hills...... EXTENDED STAY February 1997 133
Farmington Hills.. EXTENDED STAY June 1997 113
Kentwood.......... EXTENDED STAY September 1998 104
Livonia........... Crossland August 1998 127
Madison Heights... EXTENDED STAY May 1997 122
Novi.............. EXTENDED STAY January 1997 125
Sterling Heights.. EXTENDED STAY November 1997 116
Warren............ StudioPLUS November 1997 59
MINNESOTA
Bloomington....... EXTENDED STAY April 1998 104
Brooklyn Center... EXTENDED STAY November 1998 104
Eagan............. EXTENDED STAY September 1997 104
Eden Prairie...... EXTENDED STAY January 1998 104
Maple Grove....... EXTENDED STAY January 1998 104
Woodbury.......... EXTENDED STAY May 1999 104
MISSISSIPPI
Jackson........... EXTENDED STAY October 1997 108
Ridgeland......... StudioPLUS November 1996 71
MISSOURI
Earth City........ StudioPLUS June 1997 72
Hazelwood......... EXTENDED STAY November 1996 122
Hazelwood......... StudioPLUS June 1992 71
Independence...... Crossland January 1997 120
Kansas City....... Crossland January 1999 133
Kansas City....... EXTENDED STAY January 1997 109
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- ------------------ --------
<S> <C> <C> <C>
Kansas City....... EXTENDED STAY June 1997 119
Maryland Heights.. EXTENDED STAY August 1996 150
Springfield....... EXTENDED STAY October 1997 110
St. Louis......... StudioPLUS November 1994 72
St. Peters........ EXTENDED STAY July 1997 122
NEBRASKA
Omaha............. StudioPLUS December 1997 86
NEVADA
Las Vegas......... EXTENDED STAY July 1996 123
Las Vegas......... EXTENDED STAY July 1996 211
Las Vegas......... EXTENDED STAY July 1996 177
Las Vegas......... EXTENDED STAY July 1996 123
NEW JERSEY
Cherry Hill....... EXTENDED STAY July 1998 77
East Rutherford... EXTENDED STAY December 1999 127
Edison............ EXTENDED STAY August 1997 134
Maple Shade....... Crossland December 1998 129
Mount Laurel...... EXTENDED STAY January 1998 77
Mount Laurel...... StudioPLUS March 1999 85
South Brunswick... EXTENDED STAY June 1999 129
NEW MEXICO
Albuquerque....... Crossland January 1998 129
Albuquerque....... Crossland January 1999 121
Rio Rancho........ EXTENDED STAY May 1998 101
NEW YORK
Albany............ EXTENDED STAY November 1996 134
Amherst........... EXTENDED STAY September 1997 119
Bethpage.......... EXTENDED STAY June 1999 104
East Syracuse..... EXTENDED STAY December 1996 121
Elmsford.......... EXTENDED STAY Under Construction 136
Melville.......... EXTENDED STAY Under Construction 134
Rochester......... EXTENDED STAY November 1996 125
Rochester......... EXTENDED STAY December 1996 127
NORTH CAROLINA
Asheville......... EXTENDED STAY February 1998 101
Cary.............. EXTENDED STAY January 1998 122
Cary.............. StudioPLUS September 1996 71
Cary.............. StudioPLUS January 1998 83
Charlotte......... EXTENDED STAY April 1998 113
Charlotte......... EXTENDED STAY October 1998 101
Charlotte......... StudioPLUS May 1995 71
Charlotte......... StudioPLUS March 1996 71
Durham............ Crossland September 1998 129
Durham............ EXTENDED STAY October 1997 120
Durham............ StudioPLUS December 1996 71
Durham............ StudioPLUS September 1998 85
Fayetteville...... EXTENDED STAY July 1997 120
Fayetteville...... StudioPLUS January 1999 76
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- ------------------ --------
<S> <C> <C> <C>
Greensboro.......... EXTENDED STAY September 1996 129
Greensboro.......... StudioPLUS December 1995 71
Greensboro.......... StudioPLUS March 1999 83
Jacksonville........ EXTENDED STAY October 1998 98
Morrisville......... EXTENDED STAY September 1997 120
Pineville........... EXTENDED STAY February 1999 107
Pineville........... StudioPLUS September 1999 77
Raleigh............. EXTENDED STAY December 1997 104
Raleigh............. StudioPLUS December 1996 72
Wilmington.......... EXTENDED STAY February 1998 104
Winston-Salem....... Crossland July 1998 134
Winston-Salem....... EXTENDED STAY September 1996 111
OHIO
Blue Ash............ Crossland December 1998 132
Blue Ash............ EXTENDED STAY December 1991 72
Brooklyn............ EXTENDED STAY December 1999 104
Columbus............ EXTENDED STAY June 1997 119
Columbus............ EXTENDED STAY December 1998 97
Columbus............ EXTENDED STAY March 1999 104
Columbus............ EXTENDED STAY August 1989 71
Copley.............. EXTENDED STAY February 1997 95
Copley.............. StudioPLUS November 1996 71
Dayton.............. EXTENDED STAY November 1989 72
Dayton.............. EXTENDED STAY Under Construction 104
Dublin.............. EXTENDED STAY January 1998 104
Dublin.............. EXTENDED STAY May 1990 71
Fairborn............ StudioPLUS January 1997 71
Fairfield........... EXTENDED STAY June 1989 72
Holland............. EXTENDED STAY January 1997 125
Maumee.............. StudioPLUS June 1997 72
Middlebury Heights.. StudioPLUS November 1997 70
North Olmsted....... StudioPLUS September 1997 92
Sharonville......... EXTENDED STAY July 1996 130
Springdale.......... EXTENDED STAY November 1996 126
Springdale.......... EXTENDED STAY November 1988 71
Westlake............ StudioPLUS November 1997 73
OKLAHOMA
Oklahoma City....... EXTENDED STAY September 1997 101
Oklahoma City....... EXTENDED STAY February 1999 110
Oklahoma City....... StudioPLUS January 1998 71
Tulsa............... EXTENDED STAY April 1997 120
Tulsa............... StudioPLUS June 1997 73
OREGON
Beaverton........... EXTENDED STAY October 1998 122
Portland............ EXTENDED STAY January 1998 104
Salem............... Crossland October 1998 129
Springfield......... Crossland November 1997 127
PENNSYLVANIA
Bensalem............ EXTENDED STAY June 1998 101
Carnegie............ EXTENDED STAY June 1997 116
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- -------------- --------
<S> <C> <C> <C>
Exton............. EXTENDED STAY January 1999 101
Great Valley...... EXTENDED STAY February 1999 104
Philadelphia...... EXTENDED STAY February 1998 145
Philadelphia...... StudioPLUS May 1998 83
Pittsburgh........ StudioPLUS April 1998 84
Pittsburgh........ EXTENDED STAY September 1999 104
SOUTH CAROLINA
Charleston........ StudioPLUS September 1996 72
Columbia.......... EXTENDED STAY April 1996 120
Columbia.......... EXTENDED STAY May 1997 120
Columbia.......... StudioPLUS December 1995 71
Greenville........ EXTENDED STAY December 1996 109
Greenville........ StudioPLUS February 1995 71
Mt. Pleasant...... EXTENDED STAY January 1998 101
North Charleston.. EXTENDED STAY August 1996 126
Spartanburg....... EXTENDED STAY August 1995 126
TENNESSEE
Brentwood......... EXTENDED STAY September 1996 120
Brentwood......... StudioPLUS December 1990 71
Chattanooga....... EXTENDED STAY July 1996 120
Cordova........... StudioPLUS December 1996 72
Knoxville......... EXTENDED STAY May 1997 96
Knoxville......... EXTENDED STAY September 1990 71
Memphis........... EXTENDED STAY January 1997 126
Memphis........... EXTENDED STAY January 1999 104
Memphis........... EXTENDED STAY September 1999 104
Memphis........... EXTENDED STAY October 1990 72
Nashville......... Crossland October 1997 117
Nashville......... EXTENDED STAY February 1997 114
Nashville......... StudioPLUS September 1993 71
TEXAS
Arlington......... StudioPLUS September 1997 137
Austin............ Crossland August 1998 139
Austin............ EXTENDED STAY March 1999 102
Austin............ StudioPLUS January 1998 84
Bedford........... StudioPLUS December 1998 84
Corpus Christi.... StudioPLUS July 1998 73
Dallas............ EXTENDED STAY November 1998 116
Dallas............ EXTENDED STAY December 1998 104
Dallas............ StudioPLUS September 1997 98
El Paso........... EXTENDED STAY January 1997 120
El Paso........... StudioPLUS December 1997 72
Farmers Branch.... StudioPLUS October 1998 83
Fort Worth........ Crossland December 1998 121
Fort Worth........ EXTENDED STAY May 1999 104
Fort Worth........ StudioPLUS July 1998 73
Fort Worth........ StudioPLUS October 1998 85
Houston........... Crossland May 1998 145
Houston........... Crossland June 1998 145
Houston........... EXTENDED STAY September 1998 122
Houston........... EXTENDED STAY September 1998 122
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- ------------------ --------
<S> <C> <C> <C>
Houston........... EXTENDED STAY December 1998 101
Houston........... EXTENDED STAY December 1998 104
Houston........... EXTENDED STAY March 1999 110
Houston........... EXTENDED STAY April 1999 110
Houston........... StudioPLUS September 1997 85
Houston........... StudioPLUS December 1997 98
Houston........... StudioPLUS December 1997 84
Houston........... StudioPLUS July 1998 84
Irving............ Crossland June 1998 139
Irving............ StudioPLUS January 1998 117
Mesquite.......... Crossland December 1998 138
Plano............. StudioPLUS December 1997 72
Round Rock........ Crossland December 1998 138
San Antonio....... StudioPLUS February 1998 85
Spring............ Crossland June 1998 141
UTAH
Midvale........... EXTENDED STAY September 1997 134
Sandy............. EXTENDED STAY January 1998 122
West Valley City.. EXTENDED STAY August 1997 122
VIRGINIA
Alexandria........ EXTENDED STAY January 1999 104
Chantilly......... EXTENDED STAY Under Construction 104
Chesapeake........ EXTENDED STAY August 1996 132
Fair Oaks......... EXTENDED STAY Under Construction 105
Glen Allen........ StudioPLUS July 1997 92
Newport News...... EXTENDED STAY December 1996 120
Newport News...... StudioPLUS July 1997 73
Richmond.......... EXTENDED STAY December 1997 108
Richmond.......... StudioPLUS April 1999 82
Roanoke........... EXTENDED STAY February 1998 90
Sterling.......... EXTENDED STAY July 1998 101
Virginia Beach.... EXTENDED STAY September 1996 120
WASHINGTON
Bellevue.......... EXTENDED STAY January 1998 148
Everett........... EXTENDED STAY April 1997 104
Everett........... StudioPLUS May 1999 88
Federal Way....... EXTENDED STAY August 1999 101
Fife.............. EXTENDED STAY October 1997 104
Kent.............. Crossland September 1998 133
Kent.............. EXTENDED STAY September 1998 120
Lynnwood.......... EXTENDED STAY February 1998 109
Puyallup.......... Crossland November 1998 133
Renton............ StudioPLUS June 1998 110
Spokane........... Crossland May 1998 115
Tacoma............ Crossland January 1999 129
Tacoma............ EXTENDED STAY May 1998 109
Tukwilla.......... EXTENDED STAY January 1997 96
Vancouver......... EXTENDED STAY September 1997 116
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- -------------- --------
<S> <C> <C> <C>
WISCONSIN
Appleton..... EXTENDED STAY June 1997 107
Madison...... EXTENDED STAY September 1998 104
Madison...... StudioPLUS September 1998 72
Waukesha..... EXTENDED STAY August 1997 122
Wauwatosa.... EXTENDED STAY June 1997 122
</TABLE>
Competition
The lodging industry is highly competitive. This competition is based on a
number of factors including room rates, quality of accommodations, service
levels, convenience of location, reputation, reservation systems, name
recognition, and supply and availability of alternative lodging in local
markets, including short-term lease apartments and limited service hotels. All
of our facilities are located in developed areas and compete with budget,
economy, and mid-price segment hotels and other companies focusing on the
extended stay market. The greater the number of competitive lodging facilities
in a particular area, the more likely it is that those competitors may have a
material adverse effect on the occupancy levels and average weekly room rates of
our facilities.
We expect that competition within the budget, economy, and mid-price
segments of the extended stay lodging market will continue to increase. Although
we expect the contraction of capital available to the lodging industry that
began during 1998 and continued through 1999 to slow the rate of growth of new
lodging products in general, we expect our existing competitors to continue to
develop extended stay facilities to the extent that their capital permits and we
expect them to increase their development in the event that additional capital
should become available in the future. Competitors may include new participants
in the lodging industry generally and participants in other segments of the
lodging industry that may enter the extended stay market. They may also include
existing participants in the extended stay market that may increase their
product offerings to include facilities in the budget, economy, or mid-price
segments. Competition is for both quality locations to build new facilities and
for guests to fill and pay for those facilities. A number of our competitors
have greater financial resources than we do and better relationships with
lenders and sellers, and may therefore be able to find and develop the best
sites before we can. Also, we cannot assure you that our competitors will
not reduce their rates, offer greater convenience, services, or amenities, or
build new hotels in direct competition with our existing facilities, all of
which could have a material adverse effect on our operations.
Environmental Matters
Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
hazardous or toxic substances on such property. These laws often impose
liability without regard to whether the owner knew of, or was responsible for,
the presence of those hazardous or toxic substances. Furthermore, a person that
arranges for the disposal or transports for disposal or treatment a hazardous
substance at a property owned by another may be liable for the costs of removal
or remediation of hazardous substances released into the environment at that
property. These costs may be substantial, and the presence of hazardous
substances, or the failure to properly remediate hazardous substances, may
adversely affect the owner's ability to sell the real estate or to borrow using
that real estate as collateral. We may be liable for any of these costs that
occur in connection with our properties.
We have obtained Phase I environmental site assessments ("Phase I Surveys")
on our existing properties and we intend to obtain Phase I Surveys before the
purchase of any future properties. Phase I Surveys are intended to identify
potential environmental contamination and regulatory compliance problems. A
Phase I Survey generally includes an historical review of the relevant property,
a review of certain public records, a preliminary investigation of the site and
surrounding properties, and the preparation of a written report. A Phase I
Survey generally does not include invasive procedures, such as soil sampling or
ground water analysis.
15
<PAGE>
None of our Phase I Surveys have revealed any environmental liability or
compliance concern that we believe would have a material adverse effect on our
business, assets, results of operations, or liquidity, and we are not aware of
any such liability or concern. Nevertheless, it is possible that our Phase I
Surveys did not reveal all environmental liabilities or compliance problems or
that there are material environmental liabilities or compliance problems of
which we will not be aware. Moreover, new or changed laws, ordinances, or
regulations may impose material environmental liabilities. In addition, the
environmental condition of our properties may also be affected by the condition
of neighboring properties (such as the presence of leaking underground storage
tanks) or by third parties unrelated to us.
Governmental Regulation
A number of states regulate the licensing of hotels by requiring
registration, disclosure statements, and compliance with specific standards of
conduct. We believe that each of our facilities has the necessary permits and
approvals to operate its respective business and we intend to continue to obtain
such permits and approvals for our new facilities. We are also subject to laws
governing our relationship with our employees, including minimum wage
requirements, overtime, working conditions, and work permit requirements. An
increase in the minimum wage rate, employee benefit costs, or other costs
associated with employees could adversely affect our business. There are
frequently proposals under consideration, at the federal and state level, to
increase the minimum wage.
Under the Americans With Disabilities Act ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. We attempt to satisfy ADA requirements in
the designs for our facilities, but we cannot assure you that we will not be
subjected to a material ADA claim. If that were to happen, we could be ordered
to spend substantial sums to achieve compliance, fines could be imposed against
us, and we could be required to pay damage awards to private litigants. The ADA
and other regulatory initiatives could adversely affect our business as well as
the lodging industry in general.
Insurance
We currently have the types and amounts of insurance coverage that we
consider appropriate for a company in our business. While we believe that our
insurance coverage is adequate, our business, results of operations, and
financial condition could be materially and adversely affected if we were held
liable for amounts exceeding the limits of our insurance coverage or for claims
outside of the scope of our insurance coverage.
Employees
At December 31, 1999, we employed approximately 5,600 persons, of which
approximately 3,200 were part-time employees. We expect that we will
significantly increase the number of our employees as our business expands. Our
employees are not subject to any collective bargaining agreements and we believe
that our relationship with our employees is good.
ITEM 2. PROPERTIES
In addition to our lodging facilities described in "Item 1. Business--
Lodging Facilities" above, our principal executive offices are located in Fort
Lauderdale, Florida and we maintain regional offices throughout the United
States. We generally rent our office space on a short-term basis, although we
have five to seven year leases for our corporate headquarters. Our offices are
sufficient to meet our present needs and we do not anticipate any difficulty in
securing additional office space, as needed, on terms acceptable to us.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any significant litigation or claims, other than
routine matters incidental to the operation of our business. To date, we have
had no material claims and we do not expect that the outcome of any pending
claims will have a material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock ("Common Stock") is traded on the New York Stock Exchange,
Inc. (the "NYSE") under the symbol "ESA." On December 31, 1999, the last
reported sale price of the Common Stock on the NYSE was $7.56 per share. At
December 31, 1999, there were approximately 385 record holders of the Common
Stock. The table below sets forth the high and low sales prices of shares of
Common Stock on the NYSE for the periods indicated.
We have not paid any dividends on our Common Stock. We intend to continue
to retain our earnings to finance our growth and for general corporate purposes.
We do not anticipate paying any dividends in the foreseeable future. In
addition, our credit facility and senior subordinated notes contain, and future
financing agreements may contain, maximum debt to capitalization ratio covenants
and limitations on payment of any cash dividends or other distributions of
assets. These covenants and limitations could restrict our ability to pay
dividends.
Market Information
Common Stock
--------------
High Low
------ ------
Year Ended December 31, 1998:
1st Quarter.................. $15.00 $10.94
2nd Quarter.................. 14.75 10.75
3rd Quarter.................. 11.62 6.12
4th Quarter.................. 11.06 6.37
Year Ended December 31, 1999:
1st Quarter.................. 10.31 8.25
2nd Quarter.................. 12.63 9.50
3rd Quarter.................. 12.00 8.00
4th Quarter.................. 8.75 7.25
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from our audited
consolidated financial statements for the years ended December 31, 1995, 1996,
1997, 1998, and 1999. You should read this information together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited consolidated financial statements and related notes
included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
--------- ---------- ----------- ----------- -----------
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue........................................ $ 16,768 $ 38,809 $ 130,800 $ 283,087 $ 417,662
Property operating expenses.................... 6,706 16,560 60,391 122,469 180,429
Corporate operating and property
management expenses........................... 4,669 16,867 29,951 39,073 42,032
Other charges (income)......................... -- -- 19,895 12,000 (1,079)
Depreciation and amortization.................. 2,059 6,139 21,331 42,293 60,198
Income (loss) from operations.................. 3,334 (757) (768) 67,252 136,082
Interest expense (income), net (1)............. 507 (13,744) (9,242) 20,521 56,074
Provision for income taxes (2)................. 1,217 5,231 5,838 18,693 32,004
Net income from continuing operations.......... $ 1,468 $ 7,756 $ 2,636 $ 28,038 $ 47,225
======== ======== ========== ========== ==========
Net income from continuing operations per
share (3):
Basic....................................... $ 0.05 $ 0.11 $ 0.03 $ 0.29 $ 0.49
======== ======== ========== ========== ==========
Diluted..................................... $ 0.05 $ 0.10 $ 0.03 $ 0.29 $ 0.49
======== ======== ========== ========== ==========
Weighted average shares outstanding (3):
Basic....................................... 30,381 71,933 94,233 95,896 96,254
======== ======== ========== ========== ==========
Diluted..................................... 31,434 73,935 95,744 96,800 96,939
======== ======== ========== ========== ==========
Operating Data:
Average occupancy rates (4).................... 83% 73% 73% 73% 74%
Average weekly rate............................ $ 250 $ 261 $ 263 $ 286 $ 292
Operating facilities (at period end)........... 24 75 185 305 362
Weighted average rooms available (5)........... 1,479 3,783 12,558 25,334 36,054
Rooms (at period end).......................... 1,794 7,611 19,299 32,189 38,301
Facilities under construction (at period end).. 16 61 84 51 23
Rooms under construction (at period end)....... 1,780 6,864 8,953 5,320 2,515
Other Financial Data:
Cash flows provided by (used in):
Operating activities.......................... $ 4,186 $ 20,828 $ 50,263 $ 118,145 $ 124,059
Investing activities.......................... (35,330) (279,259) (609,064) (630,027) (320,095)
Financing activities.......................... 156,601 356,841 337,689 509,292 201,862
EBITDA (6)..................................... 5,393 5,382 20,563 109,545 196,280
Adjusted EBITDA (7)............................ 5,393 5,382 40,458 121,545 195,201
Capital expenditures........................... 33,722 277,531 607,649 630,276 320,181
Balance Sheet Data (at period end):
Cash and cash equivalents...................... $125,915 $224,325 $ 3,213 $ 623 $ 6,449
Total assets................................... 213,445 668,435 1,070,891 1,694,582 1,927,249
Long-term debt................................. 4,000 -- 135,000 653,000 853,000
Stockholders' equity........................... 199,322 628,714 834,659 866,751 915,590
</TABLE>
- ------------
(1) Excludes interest of $256,000, $329,000, $1,731,000, $17,617,000, and
$10,216,000 for 1995, 1996, 1997, 1998, and 1999, respectively, capitalized
during the construction of our facilities under Statement of Financial
Accounting Standards ("SFAS") Statement No. 34 "Capitalization of Interest
Cost."
(2) On April 11, 1997, we completed the Merger with SPH. Historical financial
information prior to SPH's initial public offering of common stock does not
include a provision for income taxes because SPH's predecessor entities were
S corporations or partnerships not subject to income taxes.
(3) Net income per share for the year ended December 31, 1995 is presented on a
pro forma basis as if all of our income for the period was subject to income
taxes.
18
<PAGE>
(4) 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.
(5) Weighted average rooms available is calculated by dividing total room nights
available during the year by 365.
(6) EBITDA represents earnings before the cumulative effect of an accounting
change, interest, income taxes, depreciation, and amortization. EBITDA is
provided because it is a measure commonly used in the lodging industry.
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of performance or to cash flow as a measure of
liquidity. EBITDA is not necessarily comparable with similarly titled
measures for other companies.
(7) Adjusted EBITDA for 1999 and 1998 means EBITDA before pre-tax charges
associated with establishing a $12.0 million valuation allowance in 1998 and
a $1.1 million reduction of that valuation allowance in 1999. We
established the valuation allowance for charges relating to a reduction in
our development plans for 1999 and 2000 as a result of unfavorable capital
market conditions. Adjusted EBITDA for 1997 means EBITDA before $19.9
million of pre-tax charges consisting of (i) $9.7 million of merger expenses
and costs associated with the integration of SPH's operations following the
Merger, (ii) the write-off of $9.7 million of debt issuance costs associated
with terminating two mortgage loan facilities upon execution by us of a
revolving credit facility, and (iii) a $500,000 charge in connection with
the listing of our Common Stock on the NYSE. We believe these charges are
non-recurring in nature and will not affect our future results of
operations.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Extended Stay America, Inc. was organized on January 9, 1995 as a Delaware
corporation to develop, own, and operate extended stay lodging facilities.
Studio Plus Hotels, Inc. was formed in December 1994 and acquired all of the
assets of the SPH predecessor entities, which owned and operated StudioPLUS(TM)
extended stay facilities since 1986. The acquisition of the interests of the
SPH predecessor entities was accounted for as if it were a pooling of interests.
On April 11, 1997, we completed a merger with SPH. The 12,557,786 shares of
SPH common stock that were outstanding on the closing date were converted into
15,410,915 shares of our Common Stock and options to purchase 1,072,565 shares
of SPH common stock were converted into options to purchase 1,316,252 shares of
our Common Stock. As a result of the Merger, SPH became one of our wholly-owned
subsidiaries. Our accompanying consolidated financial statements give effect to
the Merger, which has been accounted for as a pooling of interests.
We own and operate three brands in the extended stay lodging market--
StudioPLUS(TM) Deluxe Studios, EXTENDED STAYAMERICA Efficiency Studios, and
Crossland Economy Studios/SM/. 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. 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, and StudioPLUS facilities serve the mid-
price category and generally feature larger guest rooms, an exercise room, and a
swimming pool.
During 1999, we repositioned 14 StudioPLUS properties 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 1997, 1998, and 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Total Facilities Open (at period end).. 185 305 362
Total Facilities Developed............. 110 120 57
Average Occupancy Rate................. 73% 73% 74%
Average Weekly Room Rate............... $263 $286 $292
</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 are generally
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 December 31,
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 and obtaining
certificates of occupancy, as well as weather-induced construction delays.
20
<PAGE>
<TABLE>
<CAPTION>
EXTENDED
Crossland STAY StudioPLUS Total
--------- -------- ---------- -----
<S> <C> <C> <C> <C>
Operating Facilities........... 39 233 90 362
Facilities Under Construction.. 0 22 1 23
</TABLE>
Results of Operations
1999 Compared to 1998
Property Operations
The following is a summary of the number of properties in operation at the
end of each year along with the related average occupancy rates and average
weekly room rates during each year:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
-------------------------------- --------------------------------
Average Average
Average Weekly Average Weekly
Facilities Occupancy Room Facilities Occupancy Room
Open Rate Rate Open Rate Rate
---------- ----------- ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Crossland...... 39 69% $210 33 61% $198
EXTENDED STAY.. 233 75 296 195 75 281
StudioPLUS..... 90 73 334 77 68 335
--- -- ---- --- -- ----
Total........ 362 74% $292 305 73% $286
=== == ==== === == ====
</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 1999 for the 185 properties we owned and operated as of January 1, 1998
was 77%. Similarly, the average occupancy rate in 1998 for the 75 properties we
owned and operated as of January 1, 1997 was 80%. The decline in the average
occupancy rate for properties open for at least one year at the beginning of
each year is primarily attributable to an increase during those periods 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 for each of our brands,
resulting in overall average occupancy rates of 74% for 1999 compared to 73% for
1998.
The increase in overall average weekly room rates for 1999 as compared to
1998 reflects the geographic dispersion of properties opened during 1999 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 185 properties that we owned and operated
throughout both periods increased by 2% in 1999. The increase in our overall
average weekly room rates for 1999 as compared to 1998 is 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 1999 compared to 6% for 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 $417.7 million in 1999 and $283.1 million in
1998. This is an increase of $134.6 million, or 48%. Approximately $130.4
million of the increased revenue was attributable to properties that we opened
during 1999 and 1998, and approximately $4.2 million was attributable to an
increase in revenue for the 185 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
$180.4 million (43% of total revenue) for 1999 compared to $122.5 million (43%
of total revenue) for 1998. We expect the ratio of property operating expenses
to total revenue to generally fluctuate inversely relative to occupancy
21
<PAGE>
rate increases or decreases because the majority of these expenses do not vary
based on occupancy. Our overall occupancy rates were 74% for 1999 and 73% for
1998 and our property operating margins were 57% for both years.
The provisions for depreciation and amortization for the lodging facilities
were $58.8 million for 1999 and $40.8 million for 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 1999 increased compared to
1998 because we operated 57 additional facilities in 1999 and because we
operated for a full year the 120 properties that were opened in 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
$42.0 million (10% of total revenue) in 1999 and $39.1 million (14% of total
revenue) in 1998. The increase in the amount of these expenses for 1999 as
compared to 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 the future.
Depreciation and amortization was $1.4 million for 1999 and $1.5 million
for 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 $700,000 of interest income during 1999 and $2.9 million of
interest income during 1998. This interest income was primarily attributable to
the temporary investment of funds drawn under our credit facilities. We
incurred interest charges of $67.0 million during 1999 and $41.0 million during
1998. Of these amounts, $10.2 million during 1999 and $17.6 million during 1998
was capitalized and included in the cost of buildings and improvements.
We recognized income tax expense of $32.0 million (40% of income before
taxes) for 1999 and $18.7 million (40% of income before taxes) for 1998. Our
income tax expense differs from the federal income tax rate of 35% primarily due
to state and local income taxes. We expect that our annualized effective income
tax rate for 2000 will be approximately 40%.
Other Charges (Income)
In 1998, unfavorable capital market conditions resulted in a reduction in
our development plans for 1999 and 2000. As a result, we established a valuation
allowance of $12.0 million for the write-off of costs related to sites that
would not be developed. The operating results for 1999 reflect the reversal of
$1.1 million of this valuation allowance resulting from 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.
22
<PAGE>
1998 Compared to 1997
Property Operations
The following is a summary of the number of properties in operation at the
end of each year along with the related average occupancy rates and average
weekly room rates during each year:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Average Average
Average Weekly Average Weekly
Facilities Occupancy Room Facilities Occupancy Room
Open Rate Rate Open Rate Rate
---------- ----------- ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Crossland...... 33 61% $198 6 65% $183
EXTENDED STAY.. 195 75 281 128 73 252
StudioPLUS..... 77 68 335 51 75 323
--- -- ---- --- -- ----
Total........ 305 73% $286 185 73% $263
=== == ==== === == ====
</TABLE>
The average occupancy rate in 1998 for the 75 properties that we owned and
operated as of January 1, 1997 was 80%. Similarly, the average occupancy rate
in 1997 for the 24 properties that we owned and operated as of January 1, 1996
was 83%. The decline in the average occupancy rate for properties open for at
least one year at the beginning of each year is primarily attributable to an
increase during those periods in the supply of available rooms in the lodging
industry and specifically in certain of the markets in which we operate. The
impact of the additional supply of rooms was offset by the impact of a decline
in the ratio of newly opened properties to total properties. For the EXTENDED
STAY brand, occupancy rates increased for 1998 as compared to 1997 primarily due
to a decrease in the ratio of newly-opened properties to total properties for
that brand. Occupancy rates decreased for the Crossland brand primarily due to
an increase in the number of newly-opened properties for that brand. Occupancy
rates for the StudioPLUS brand were also diluted by an increase in the number of
newly-opened properties for that brand. In addition, the 21 StudioPLUS
properties opened before 1997 experienced average declines in occupancy rates of
approximately five percentage points. We believe that this decline was due to a
number of factors, including primarily a change in the pricing policies for the
StudioPLUS brand during 1998 to eliminate certain rate discounts, changes in
personnel as a result of management restructuring following the Merger with SPH,
and additional competition from new properties that we and our competitors have
opened in the markets served by these properties.
The increase in overall average weekly room rates for 1998 compared to 1997
reflects the geographic dispersion of properties opened during 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 in previously opened properties.
The average weekly room rate for the 75 properties that we owned and operated
throughout both periods increased by 2% in 1998. The increase in our overall
average weekly room rates for 1998 as compared to 1997 is 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 6% of
total occupied room nights for 1998 compared to 2% for 1997.
We recognized total revenue of $283.1 million in 1998 and $130.8 million in
1997. This is an increase of $152.3 million, or 116%. Approximately $150.2
million of the increased revenue was attributable to properties that we opened
during 1998 and 1997, and approximately $2.1 million was attributable to an
increase in revenue for the 75 properties that we owned and operated throughout
both periods.
Property operating expenses were $122.5 million (43% of total revenue) for
1998 compared to $60.4 million (46% of total revenue) for 1997. The decrease in
property operating expenses as a percentage of total revenue for 1998 as
compared to 1997 was primarily a result of a decrease in the ratio of newly
opened properties to total properties. As a result, our property operating
margins were 57% for 1998 and 54% for 1997.
The provisions for depreciation and amortization for the lodging facilities
were $40.8 million for 1998 and $19.9 million for 1997. Depreciation and
amortization for 1998 increased compared to 1997 because we operated 120
additional facilities in 1998 and because we operated for a full year the 110
properties that were opened in 1997.
23
<PAGE>
Corporate Operations
We incurred corporate operating and property management expenses of $39.1
million (14% of total revenue) in 1998 and $30.0 million (23% of total revenue)
in 1997. The increase in the amount of these expenses for 1998 as compared to
1997 reflects the impact of additional personnel and related expenses in
connection with the increased number of facilities we operated and sites we
developed.
Depreciation and amortization for assets not directly related to operation
of our facilities was $1.5 million for 1998 and $1.4 million for 1997.
We realized $2.9 million of interest income during 1998 and $9.2 million
during 1997. This interest income was primarily attributable to the temporary
investment of funds drawn under our credit facilities and funds received from an
offering of Common Stock in 1997. The decrease in interest income for 1998 as
compared to 1997 was due to the decrease in our average cash and cash equivalent
balances as a result of our continued investments in property and equipment
during 1998. We incurred interest charges of $41.0 million during 1998 and $1.7
million during 1997. Of these amounts, $17.6 million during 1998 and $1.7
million during 1997 was capitalized and included in the cost of buildings and
improvements.
We recognized income tax expense of $18.7 million (40% of income before
taxes) for 1998 and $5.8 million (69% of income before taxes) for 1997. Our
income tax expense differs from the federal income tax rate of 35% primarily due
to state and local income taxes and, for 1997, due to permanent tax differences
relating to merger expenses and tax exempt interest income.
Other Charges (Income)
Our normal operating procedures call for us to invest varying amounts in
our sites under option in terms of (1) earnest money which would be applied to
the purchase of a site, but that in certain circumstances may not be refundable,
(2) legal, environmental, engineering, and architectural outlays needed to
determine the feasibility of acquiring a site and constructing a hotel on that
site, and (3) salaries, wages, and travel costs of our personnel related to the
sites. We capitalize these expenses in accordance with generally accepted
accounting principles. In the quarter ended September 30, 1998, we announced a
reduction in our development plans for 1999 and 2000 as a result of unfavorable
capital market conditions. This meant that certain sites we had under option
would not be developed. As a result, we established a valuation allowance of
$12.0 million for the write-off of expenses related to these sites. This
resulted in a corresponding expense during the quarter ended September 30, 1998.
At December 31, 1998, a total of $10.5 million of those costs, including
$265,000 in termination payments to employees, had been charged against the
allowance and $1.5 million was included in other current liabilities. We believe
that these charges are non-recurring in nature and will not affect the future
results of operations.
During 1997, we recorded merger, financing, and other charges totaling
$19.9 million. These pre-tax charges consisted of (i) $9.7 million of merger
expenses and costs associated with the integration of SPH's operations following
the Merger, (ii) the write-off of $9.7 million of deferred costs associated with
two mortgage loan facilities, which were terminated upon execution of a
revolving credit facility, and (iii) a charge of $500,000 in connection with
moving the listing of our Common Stock to the NYSE from the National Market tier
of the Nasdaq Stock Market. We believe that these charges are non-recurring in
nature and will not affect the future results of operations.
Liquidity and Capital Resources
We had net cash and cash equivalents of $6.4 million at December 31, 1999
and $0.6 million as of December 31, 1998. At December 31, 1999 we had
approximately $45,000 invested and at December 31, 1998 we had approximately
$5.9 million invested in short-term demand notes having credit ratings of A1/Pl
or equivalent using 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 those 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 institutions. 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.
24
<PAGE>
Our operating activities generated cash of $124.1 million in 1999, $118.1
million in 1998, and $50.3 million in 1997.
We used $320.2 million to acquire land and develop and furnish 80 sites
opened or under construction in 1999, $630.3 million for 171 sites in 1998, and
$607.6 million for 194 sites in 1997.
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 329 properties we opened from January 1, 1996 through
December 31, 1999, the average development cost was approximately $5.3 million
with an average of 107 rooms. In 1999, we opened a number of properties in the
Northeast and West where average development costs are higher, resulting in
average development costs for 1999 of $6.5 million per property. We expect our
average development cost per property for 2000 to continue to increase to
approximately $8.3 million per property 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 1999, $4.5 million in 1998, and $4.0 million in
1997. Additionally, in 1997, we sold 11.5 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $198.1
million.
We made open market repurchases of 549,300 shares of Common Stock for
approximately $4.3 million in 1999 and 169,900 shares of Common Stock for
approximately $1.3 million in 1998.
In September 1997, we executed an agreement with various banks establishing
a credit facility that provided for up to $500 million of revolving loans on a
senior collateralized basis that had a maturity of December 31, 2002 to be used
for general corporate purposes, including the construction and acquisition of
extended stay properties. Upon entering into the revolving credit facility, we
terminated two mortgage loan facilities, which had provided for an aggregate of
$400 million in mortgage loans. We recorded a pre-tax charge of $9.7 million at
that time, which represented the write-off of debt issuance costs associated
with the mortgage loan facilities. In March 1998, we amended the revolving
credit facility and, as amended, it became the Credit Facility. The Credit
Facility was again amended in September 1998 and December 1998.
The Credit Facility 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"). As of December 31,
1999, we had outstanding loans of $208 million under the Revolving Facility and
$448 million, net of scheduled principal repayments of $2 million in 1999, under
the term loans, leaving $142 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.
Loans under the Credit Facility bear interest, at our option, at either a
prime-based rate ("Base Rate") or a LIBOR-based rate ("Eurodollar Rate"), plus
an applicable margin. The applicable margin is an annual rate that fluctuates
based on our ratio of Consolidated Debt to Consolidated EBITDA (as defined in
the Credit Facility). The applicable margin for the various loan facilities in
the Credit Facility are shown in the table below:
<TABLE>
<CAPTION>
Base Rate Eurodollar Rate
--------- ---------------
<S> <C> <C>
Revolving Facility.............. 0-0.875% 1.00-1.875%
Tranche A Facility.............. 0-0.875% 1.00-1.875%
Tranche B Facility.............. 1.75% 2.75%
Tranche C Facility.............. 2.50% 3.50%
</TABLE>
The loans under the Revolving Facility and the Tranche A Facility mature on
December 31, 2002. The loans under the Tranche B Facility and the Tranche C
Facility mature on December 31, 2003 and 2004, respectively, but are subject to
principal payments of 1% of the initial loan amounts in each of the years 1999
through 2002 for the Tranche B Facility and 2000 through 2003 for the Tranche C
Facility. The remaining balances must be repaid in four equal quarterly
installments in the years of maturity.
25
<PAGE>
Our obligations under the Credit Facility are guaranteed by each of our
subsidiaries. They are also collateralized by a first priority lien on all
stock of our subsidiaries and all other current and future assets owned by us
and our subsidiaries (other than mortgages on our real property).
The Credit Facility contains a number of negative covenants, including,
among others, covenants that limit our ability to incur debt, make investments,
pay dividends, prepay other indebtedness, engage in transactions with
affiliates, enter into sale-leaseback transactions, create liens, make capital
expenditures, acquire or dispose of assets, or engage in mergers or
acquisitions. In addition, the Credit Facility contains affirmative covenants,
including, among others, covenants that require us to maintain our corporate
existence, comply with laws, maintain our properties and insurance, and deliver
financial and other information to the lenders. The Credit Facility also
requires us to comply with certain financial tests and to maintain certain
financial ratios on a consolidated basis.
Our primary market risk exposures result from the variable nature of the
interest rates on borrowings under the Credit Facility. We entered into the
Credit Facility 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 December 31, 1999, if interest rates
changed by 1.0%, our annual cash flow and net income would change by $3.9
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.
On March 10, 1998, we issued $200 million aggregate principal amount of
Senior Subordinated Notes (the "Notes"). The Notes bear interest at an annual
rate of 9.15%, payable semiannually on March 15 and September 15 of each year
and mature on March 15, 2008. We may redeem the Notes beginning on March 15,
2003. The initial redemption price is 104.575% of their principal amount, plus
accrued interest. The redemption price declines each year after 2003 and is 100%
of their principal amount, plus accrued interest, after 2006. In addition,
before March 15, 2001, we may redeem up to $70 million of the Notes, using the
proceeds from certain sales of our stock, at 109.15% of their principal amount,
plus accrued interest.
The Notes are uncollateralized and are subordinated to all of our senior
indebtedness including the Credit Facility, and contain certain covenants for
the benefit of the holders of the Notes. These covenants, among other things,
limit our ability to incur additional indebtedness, pay dividends and make
investments and other restricted payments, enter into transactions with 5%
stockholders or affiliates, create liens, and sell assets.
In connection with the Credit Facility and the Notes, we incurred additions
to deferred loan costs of $345,000 during 1999, $14.0 million during 1998, and
$8.3 million during 1997.
We had commitments not reflected in our financial statements at December
31, 1999 totaling approximately $100 million to complete construction of
extended stay properties. We expect we will have sufficient funds to open
properties with total costs exceeding $350 million in 2000. Due to uncertainties
regarding the availability of additional capital for projects opening in 2001,
however, we plan to limit the development of properties opening in 2000 to
approximately 30 properties with total costs of approximately $250 million. We
believe that this strategy will permit us to develop properties in markets with
higher barriers to entry that generally have longer development cycles, while
prudently managing our capital structure. In the event we obtain additional
capital, we will seek to increase property openings in future years. 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 currently anticipated. Sources of capital may
include public or private debt or equity financing. We cannot assure you that we
will be able to obtain additional financing 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.
26
<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 Annual Report on Form 10-K 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 Annual Report may also cause our actual
future results to differ materially from these forward-looking statements. We
cannot 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 the
cautionary statements mentioned above. You should not 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 Annual 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
*****
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
<S> <C>
Report of Independent Accountants...................................................................... 29
Consolidated Balance Sheets as of December 31, 1999 and 1998........................................... 30
Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997................ 31
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998, and 1997.. 32
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997............ 33
Notes to Consolidated Financial Statements............................................................. 34
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Extended Stay America, Inc. and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for start-up activities.
PricewaterhouseCoopers LLP
Spartanburg, South Carolina
January 27, 2000
29
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS December 31,
------ ------------------------
1999 1998
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 6,449 $ 623
Accounts receivable..................................................... 6,094 5,946
Prepaid expenses........................................................ 2,810 1,743
Deferred income taxes................................................... 39,053 27,735
Other current assets.................................................... 27 781
---------- ----------
Total current assets................................................ 54,433 36,828
Property and equipment, net................................................ 1,856,517 1,637,334
Deferred loan costs........................................................ 15,746 19,260
Other assets............................................................... 553 1,160
---------- ----------
$1,927,249 $1,694,582
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable........................................................ $ 34,020 $ 62,834
Income taxes payable.................................................... 2,888 7,079
Accrued retainage....................................................... 8,834 25,442
Accrued property taxes.................................................. 8,871 6,856
Accrued salaries and related expenses................................... 2,633 1,816
Accrued interest........................................................ 7,059 7,010
Other accrued expenses.................................................. 14,187 15,304
Current portion of long-term debt....................................... 3,000 2,000
---------- ----------
Total current liabilities........................................... 81,492 128,341
---------- ----------
Deferred income taxes...................................................... 77,167 46,490
---------- ----------
Long-term debt............................................................. 853,000 653,000
---------- ----------
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,
95,996,884 and 95,968,379 shares issued and outstanding,
respectively............................................................. 960 960
Additional paid-in capital................................................ 828,724 827,110
Retained earnings......................................................... 85,906 38,681
---------- ----------
Total stockholders' equity.......................................... 915,590 866,751
---------- ----------
$1,927,249 $1,694,582
========== ==========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Revenue:
Room revenue.............................................................. $405,334 $273,864 $126,095
Other revenue............................................................. 12,328 9,223 4,705
-------- -------- --------
Total revenue........................................................... 417,662 283,087 130,800
-------- -------- --------
Costs and expenses:
Property operating expenses............................................... 180,429 122,469 60,391
Corporate operating and property management expenses...................... 42,032 39,073 29,951
Other charges (income).................................................... (1,079) 12,000 19,895
Depreciation and amortization............................................. 60,198 42,293 21,331
-------- -------- --------
Total costs and expenses................................................ 281,580 215,835 131,568
-------- -------- --------
Income (loss) from operations before interest, income taxes and cumulative
effect of accounting change............................................... 136,082 67,252 (768)
Interest expense (income), net.............................................. 56,074 20,521 (9,242)
-------- -------- --------
Income before income taxes and cumulative effect of accounting change....... 80,008 46,731 8,474
Provision for income taxes.................................................. 32,004 18,693 5,838
-------- -------- --------
Income before cumulative effect of accounting change........................ 48,004 28,038 2,636
Cumulative effect of change in accounting for start-up activities, net
of income tax benefit of $520............................................. 779
-------- -------- --------
Net income.................................................................. $ 47,225 $ 28,038 $ 2,636
======== ======== ========
Net income per common share - Basic and Diluted:
Net income before cumulative effect of accounting change.................. $ 0.50 $ 0.29 $ 0.03
Cumulative effect of accounting change.................................... (0.01)
-------- -------- --------
Net income................................................................ $ 0.49 $ 0.29 $ 0.03
======== ======== ========
Weighted average shares:
Basic..................................................................... 96,254 95,896 94,233
Effect of dilutive options................................................ 685 904 1,511
-------- -------- --------
Diluted................................................................... 96,939 96,800 95,744
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance as of January 1, 1997....... 837 $619,870 $ 8,007 $628,714
Issuance of common stock,
net of issuance costs............. 115 197,978 198,093
Stock options exercised, including
tax benefit of $1,174............. 4 5,212 5,216
Net income.......................... 2,636 2,636
--- -------- ------- --------
Balance as of December 31, 1997..... 956 823,060 10,643 834,659
Repurchases of common stock......... (1) (1,251) (1,252)
Stock options exercised, including
tax benefit of $794............... 5 5,301 5,306
Net income.......................... 28,038 28,038
--- -------- ------- --------
Balance as of December 31, 1998..... 960 827,110 38,681 866,751
Repurchases of common stock......... (5) (4,292) (4,297)
Stock options exercised, including
tax benefit of $407............... 5 5,906 5,911
Net income.......................... 47,225 47,225
--- -------- ------- --------
Balance as of December 31, 1999..... 960 $828,724 $85,906 $915,590
=== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 47,225 $ 28,038 $ 2,636
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 60,198 42,293 21,331
Amortization and write off of deferred loan costs................................ 3,859 2,566 9,667
Deferred income taxes............................................................ 19,359 8,051 5,832
Cumulative effect of accounting change, net...................................... 779
Other, net....................................................................... 485
Changes in operating assets and liabilities:
Accounts receivable........................................................... (147) (2,795) (1,986)
Prepaid expenses.............................................................. (1,066) 2,775 (3,073)
Other current assets.......................................................... 1,164 (1,403) (954)
Accounts payable.............................................................. (6,273) (982) 7,542
Income taxes payable.......................................................... (3,264) 7,079
Accrued property taxes........................................................ 2,014 3,439 2,634
Accrued salaries and related expenses......................................... 817 (891) 324
Accrued interest.............................................................. 49 6,653 356
Other accrued expenses........................................................ (655) 23,322 5,469
--------- --------- ---------
Net cash provided by operating activities.................................. 124,059 118,145 50,263
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment................................................. (320,181) (630,276) (607,649)
Other assets........................................................................ 86 249 (1,415)
--------- --------- ---------
Net cash used in investing activities...................................... (320,095) (630,027) (609,064)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from exercise of Company stock options and issuances of common stock....... 5,504 4,512 202,135
Repurchases of Company common stock................................................. (4,297) (1,252)
Proceeds from long-term debt........................................................ 353,000 548,500 143,869
Principal payments on long-term debt................................................ (152,000) (28,500)
Additions to deferred loan and other costs.......................................... (345) (13,968) (8,315)
--------- --------- ---------
Net cash provided by financing activities.................................. 201,862 509,292 337,689
--------- --------- ---------
Increase (decrease) in cash and cash equivalents..................................... 5,826 (2,590) (221,112)
Cash and cash equivalents at beginning of period..................................... 623 3,213 224,325
--------- --------- ---------
Cash and cash equivalents at end of period........................................... $ 6,449 $ 623 $ 3,213
========= ========= =========
Noncash investing and financing transactions:
Capitalized or deferred items included in accounts payable and accrued liabilities.. $ 28,157 $ 67,566 $ 49,308
========= ========= =========
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..................................................... $ 15,909 $ 2,681 $ 1,340
========= ========= =========
Interest expense, net of amounts capitalized..................................... $ 53,008 $ 23,396 $
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's omitted in all tables except per share data)
Note 1--Organization, Operations and Basis of Presentation
Extended Stay America, Inc. ("ESA") was organized on January 9, 1995, as a
Delaware corporation to develop, own, and operate extended stay lodging
facilities.
On April 11, 1997, ESA, ESA Merger Sub, Inc. ("Merger Sub"), a wholly-owned
subsidiary of ESA, and Studio Plus Hotels, Inc. ("SPH") consummated a merger
(the "Merger") pursuant to which SPH was merged with and into Merger Sub and the
12,557,786 shares of SPH common stock issued and outstanding on such date were
converted into the right to receive 15,410,915 shares of common stock, par value
$.01 per share, of ESA ("Common Stock") and options to purchase 1,072,565 shares
of SPH common stock were converted into options to purchase 1,316,252 shares of
Common Stock. The Merger was accounted for using the pooling of interests method
of accounting. The accompanying consolidated financial statements of ESA and SPH
(together the "Company") give effect to the Merger as if it had been consummated
as of the beginning of the periods presented.
Note 2--Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and on deposit and highly
liquid instruments with maturities of three months or less when purchased. The
carrying amount of cash and cash equivalents is the estimated fair value at the
respective balance sheet date.
At December 31, 1999 and 1998, we had invested approximately $45,000 and
$5.9 million, respectively, in short-term demand notes. In addition, during
these periods we invested excess funds in an overnight sweep account with a
commercial bank which invested 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 the agreements
approximates the carrying amount. Deposits in excess of $100,000 are not insured
by the Federal Deposit Insurance Corporation.
Property and Equipment
Property and equipment is stated at cost. We capitalize salaries and
related costs for site selection, design and construction supervision. We also
capitalize construction period interest.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations as
incurred; major renewals and improvements are capitalized. The gain or loss on
the disposition of property and equipment is recorded in the year of
disposition.
34
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The estimated useful lives of the assets are as follows:
Building and improvements........... 40 years
Furniture, fixtures and equipment... 3-10 years
Preacquisition Costs
We incur costs related to the acquisition of property sites. These costs
are capitalized when it is probable that a site will be acquired. These costs
are included in property and equipment. In the event the acquisition of the site
is not consummated, the costs are charged to corporate operating expenses.
Deferred Loan Costs
We have incurred costs in obtaining financing. These costs have been
deferred and are amortized over the life of the respective loans.
Other Charges (Income)
In 1998, unfavorable capital market conditions resulted in a reduction in
our development plans for 1999 and 2000. As a result, we established a valuation
allowance of $12.0 million for the write-off of costs related to sites that
would not be developed. This valuation allowance was reduced by $1.1 million in
1999 due to the renegotiation of the terms of a number of the optioned sites.
During 1997, we recorded merger, financing, and other charges totaling
$19.9 million. These pre-tax charges consisted of (i) $9.7 million of merger
expenses and costs associated with the integration of SPH's operations following
the Merger, (ii) the write-off of $9.7 million of deferred costs associated with
two mortgage loan facilities, which were terminated upon execution of a
revolving credit facility, and (iii) a charge of $500,000 in connection with
moving the listing of our Common Stock to the NYSE from Nasdaq.
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 start-up
activities, including pre-opening and organizational costs, 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.
35
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and for operating loss and tax carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the related temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Revenue Recognition
Room revenue and other revenue are recognized when earned.
Net Income Per Share
We determine earnings per share ("EPS") in accordance with Statement of
Financial Accounting Standards ("SFAS") Statement No. 128, "Earnings Per Share".
For the years ended December 31, 1999, 1998 and 1997, the computation of diluted
EPS does not include approximately 10,820,000, 8,828,000 and 3,180,000 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.
Business Segment
We operate principally in one business segment which is to develop, own,
and operate extended stay lodging facilities.
Reclassification
Certain previously reported amounts have been reclassified to conform with
the current presentation.
Note 3--Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Land and improvements, including land under current
development.......................................... $ 469,723 $ 408,767
Buildings and improvements........................... 1,210,867 961,063
Furniture, fixtures, equipment and supplies.......... 247,119 211,320
Construction in progress............................. 60,277 128,337
---------- ----------
1,987,986 1,709,487
Less: Accumulated depreciation...................... 131,469 72,153
---------- ----------
Total property and equipment......................... $1,856,517 $1,637,334
========== ==========
</TABLE>
36
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
We had commitments totaling approximately $100 million to complete
construction of additional extended stay properties at December 31, 1999.
For the years ended December 31, 1999, 1998 and 1997 we incurred interest
of $66,957,000, $41,014,000, and $1,731,000, respectively, of which $10,216,000,
$17,617,000, and $1,731,000, respectively, was capitalized and included in the
cost of buildings and improvements.
Note 4--Options to Purchase Property Sites
As of December 31, 1999, we had paid approximately $4.4 million in
connection with options to purchase parcels of real estate in 33 locations in 11
states. If we do not acquire these parcels, the amounts paid in connection with
the options may be forfeited under certain circumstances. These amounts are
included in property and equipment.
Note 5--Long-Term Debt
In September 1997, we executed an agreement with various banks establishing
a credit facility that provided for up to $500 million of revolving loans on a
senior collateralized basis that had a maturity of December 31, 2002 to be used
for general corporate purposes, including the construction and acquisition of
extended stay properties. Upon entering into the revolving credit facility, we
terminated two mortgage loan facilities, which had provided for an aggregate of
$400 million in mortgage loans. In March 1998, we amended the revolving credit
facility and, as amended, it became the Credit Facility. The Credit Facility was
again amended in September 1998 and December 1998.
The Credit Facility 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"). As of December 31,
1999, we had outstanding loans of $208 million under the Revolving Facility and
$448 million, net of scheduled principal repayments of $2 million in 1999, under
the term loans, leaving $142 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.
Loans under the Credit Facility bear interest, at our option, at either a
prime-based rate ("Base Rate") or a LIBOR-based rate ("Eurodollar Rate"), plus
an applicable margin. The applicable margin is an annual rate that fluctuates
based on our ratio of Consolidated Debt to Consolidated EBITDA (as defined in
the Credit Facility). The applicable margin for the various loan facilities in
the Credit Facility are shown in the table below:
<TABLE>
<CAPTION>
Base Rate Eurodollar Rate
---------- ----------------
<S> <C> <C>
Revolving Facility........ 0-0.875% 1.00-1.875%
Tranche A Facility........ 0-0.875% 1.00-1.875%
Tranche B Facility........ 1.75% 2.75%
Tranche C Facility........ 2.50% 3.50%
</TABLE>
The loans under the Revolving Facility and the Tranche A Facility mature on
December 31, 2002. The loans under the Tranche B Facility and the Tranche C
Facility mature on December 31, 2003 and 2004, respectively, but are subject to
principal payments of 1% of the initial loan amounts in each of the years 1999
through 2002 for the Tranche B Facility and 2000 through 2003 for the Tranche C
Facility. The remaining balances must be repaid in four equal quarterly
installments in the years of maturity.
37
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Our obligations under the Credit Facility are guaranteed by each of our
subsidiaries. The Credit Facility is also collateralized by a first priority
lien on all stock of our subsidiaries and all other current and future assets
owned by us and our subsidiaries (other than mortgages on our real property).
The Credit Facility contains a number of negative covenants, including,
among others, covenants that limit our ability to incur debt, make investments,
pay dividends, prepay other indebtedness, engage in transactions with
affiliates, enter into sale-leaseback transactions, create liens, make capital
expenditures, acquire or dispose of assets, or engage in mergers or
acquisitions. In addition, the Credit Facility contains affirmative covenants,
including, among others, covenants that require us to maintain our corporate
existence, comply with laws, maintain our properties and insurance, and deliver
financial and other information to the lenders. The Credit Facility also
requires us to comply with certain financial tests and to maintain certain
financial ratios on a consolidated basis.
On March 10, 1998, we issued $200 million aggregate principal amount of
Senior Subordinated Notes (the "Notes"). The Notes bear interest at an annual
rate of 9.15%, payable semiannually on March 15 and September 15 of each year
and mature on March 15, 2008. We may redeem the Notes beginning on March 15,
2003. The initial redemption price is 104.575% of their principal amount, plus
accrued interest. The redemption price declines each year after 2003 and is 100%
of their principal amount, plus accrued interest, after 2006. In addition,
before March 15, 2001, we may redeem up to $70 million of the Notes, using the
proceeds from certain sales of our stock, at 109.15% of their principal amount,
plus accrued interest.
The Notes are uncollateralized and are subordinated to all of our senior
indebtedness including the Credit Facility, and contain certain covenants for
the benefit of the holders of the Notes. These covenants, among other things,
limit our ability to incur additional indebtedness, pay dividends and make
investments and other restricted payments, enter into transactions with 5%
stockholders or affiliates, create liens, and sell assets.
At December 31, 1999, aggregate maturities of long-term debt were as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000.................. $ 3,000
2001.................. 3,000
2002.................. 361,000
2003.................. 193,000
2004.................. 96,000
Thereafter............ 200,000
--------
$856,000
========
</TABLE>
An aggregate of $856 million and $655 million was outstanding at December
31, 1999 and 1998, respectively, with a weighted average interest rate of 8.14%
and 7.88%, respectively. The fair value of long-term debt is based on quoted
market prices. The Credit Facility had an estimated fair value of approximately
$645 million at December 31, 1999 and $455 million at December 31, 1998. The
Notes had an estimated fair value of approximately $178 million at December 31,
1999 and $187 million at December 31, 1998.
38
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Income Taxes
Income tax expense before the cumulative effect of a change in accounting
consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Current income taxes:
U.S. federal............ $11,096 $10,642 $ 6
State and local......... 1,549
------- ------- ------
12,645 10,642 6
------- ------- ------
Deferred income taxes:
U.S. federal............ 15,276 6,552 5,137
State and local......... 4,083 1,499 695
------- ------- ------
19,359 8,051 5,832
------- ------- ------
Total income tax expense.. $32,004 $18,693 $5,838
======= ======= ======
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35.0% to pretax income as a result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax rate............................ 35.0% 35.0% 35.0%
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefit.. 4.9 4.9 4.8
Tax exempt interest income............................ (5.0)
Merger expenses....................................... 32.1
Other................................................. 0.1 0.1 2.0
---- ---- ----
Annual effective income tax rate........................ 40.0% 40.0% 68.9%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward............ $ 10,918 $ 12,834
Alternative minimum tax credit and
other carryforwards..................... 21,141 9,396
Other...................................... 6,944 5,505
-------- --------
Total deferred tax assets............... 39,053 27,735
Deferred tax liability:
Property and equipment..................... (77,167) (46,490)
-------- --------
$(38,114) $(18,755)
======== ========
</TABLE>
At December 31, 1999, we had net operating loss carryforwards for federal
income tax purposes of approximately $27.3 million, expiring in years 2012
through 2018, and alternative minimum tax credits of approximately $19.7
million, which may be carried forward indefinitely.
39
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the deferred tax assets
will not be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable income during the period in
which those temporary differences become deductible. Management considered the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
taxable income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more likely
than not we will realize the benefits of these deductible differences. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
Note 7--Stockholders' Equity
On February 6, 1997, we sold 11.5 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $198.1
million.
On April 11, 1997, our stockholders approved an Amendment of the Restated
Certificate of Incorporation increasing the number of authorized shares of
Common Stock, par value $.01, from 200 million to 500 million shares.
On June 9, 1997, we announced that our Board of Directors had approved a
plan to have the Common Stock listed on the New York Stock Exchange, Inc.
("NYSE") and to move trading in the Common Stock from the Nasdaq National Market
("Nasdaq") to the NYSE. The Common Stock began trading on the NYSE on June 30,
1997.
Shares of preferred stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors. Prior to issuance of shares of
each series, the Board will designate for each such series, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as are permitted by law. No shares of preferred stock are
outstanding and we have no present plans to issue any shares of preferred stock.
Note 8--Stock Option Plans
We have five stock option plans including the 1995, 1996, 1997 and 1998
Employee Stock Option Plans (the "Employee Plans") and the 1995 Stock Option
Plan for Non-Employee Directors (the "Directors' Plan"). The Employee Plans and
the Directors' Plan provide for grants to certain officers, directors and key
employees of stock options to purchase shares of Common Stock. Options granted
under the Employee Plans and the Directors' Plan expire ten years from the date
of grant. Options granted under the Employee Plans vest ratably over a four year
period, and options granted under the Directors' Plan vest six months from the
date of grant.
SPH had two stock option plans, the 1995 Stock Incentive Plan and the 1995
Non-Employee Directors' Stock Incentive Plan (collectively, the "SPH Plans").
Two types of options, incentive stock options and nonqualified stock options,
were granted under the SPH Plans. All options granted under the SPH Plans were
granted at an exercise price equal to the market price of the SPH common stock
on the date of grant and may not be exercised more than 10 years after the date
granted. Options granted under the SPH Plans to purchase 1,072,565 shares of SPH
common stock were converted into options to purchase 1,316,252 shares of Common
Stock (with a corresponding adjustment to the exercise price) upon completion of
the Merger. Because the Merger effected a "change of control" of SPH, each of
these options became immediately exercisable.
40
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Employee Plans, the Directors' Plan, and
options granted under the SPH Plans (collectively the "Plans") as of December
31, 1999, 1998 and 1997 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ------------------------
Number of Price Per Number of Price Per Number of Price Per
Shares Share Shares Share Shares Share
---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 14,542 $2.38-22.38 10,532 $2.38-22.38 7,128 $ 2.38-22.38
Granted............................. 3,396 7.28-12.03 6,971 6.41-15.00 5,125 11.28-20.50
Exercised........................... (578) 2.38-10.50 (534) 7.43-15.00 (402) 2.38-14.94
Forfeited........................... (2,089) 2.38-22.38 (2,427) 2.38-20.88 (1,319) 2.38-20.63
------ ----------- ------ ----------- ------ ------------
Outstanding at end of year.......... 15,271 2.38-21.75 14,542 $2.38-22.38 10,532 $ 2.38-22.38
Options exercisable at year-end..... 6,606 2.38-21.75 4,882 $2.38-22.38 3,489 $ 2.38-22.38
Available for future grants......... 5,030 6,338 5,183
Total shares reserved for issuance
as of December 31................. 20,301 20,880 15,715
Weighted average fair value of
options granted during the
year.............................. $ 3.90 $ 4.42 $ 6.93
</TABLE>
On January 1, 1996, we adopted SFAS No. 123, "Accounting for Stock Based
Compensation." As permitted by SFAS No. 123, the Company has chosen to apply APB
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for the Plans. Accordingly, no compensation cost
has been recognized for options granted under the Plans. Had compensation cost
for the Plans been determined based on the fair value at the date of grant for
awards under the Plans consistent with the method of SFAS No. 123, the Company's
net income and net income per share would have been reduced to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)............. $47,225 $40,572 $28,038 $20,582 $2,636 $(8,788)
Net income (loss) per share:
Basic and Diluted.......... $ 0.49 $ 0.42 $ 0.29 $ 0.21 $ 0.03 $ (0.09)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes multiple option-pricing model with the following assumptions
used for grants in 1999, 1998 and 1997: dividend yield of 0%, risk-free interest
rate of 6% and expected life of 5.5 years. In addition, the expected volatility
was 42% in 1999 and 33% in 1998 and 1997.
41
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about the Company's stock
options at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Number Weighted Number
Outstanding Average Weighted Outstanding Weighted
as of Remaining Average as of Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1999 Life Price 1999 Price
- --------------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 2.38-2.38.. 934 5.63 $ 2.38 934 $ 2.38
$ 6.47-6.50.. 913 5.90 6.50 911 6.50
$ 6.78-8.16.. 3,411 9.36 8.14 376 8.13
$ 8.22-9.50.. 3,210 8.87 9.46 927 9.47
$ 9.53-11.38.. 2,544 8.05 11.31 869 11.34
$11.41-15.97.. 1,764 6.58 13.57 1,230 13.61
$16.97-21.75.. 2,495 6.97 18.53 1,359 18.53
------ ---- ------ ----- ------
$ 2.38-21.75.. 15,271 7.89 $10.82 6,606 $10.86
====== ==== ====== ===== ======
</TABLE>
Note 9--Related Party Transactions
In 1996, we entered into a ten year lease for a suite at Pro Player Stadium
for a base rental of $115,000 per year, and a 3-year lease for a suite at
Homestead Motorsports Complex for a base rental of approximately $53,000 per
year. In 1998, we entered into a three year lease for an additional suite at Pro
Player Stadium for a base rental of $83,000 per year, which was terminated in
1999, and a seven year lease for a suite at the National Car Rental Center for a
base rental of $120,000 per year. The leases are subject to certain additional
charges and periodic escalation. The Chairman of our Board of Directors owns Pro
Player Stadium and had an approximate 50% ownership interest (which was reduced
to approximately 10% in 1997) in Homestead Motorsports Complex. In addition, the
Chairman of our Board of Directors is the Chairman of the Board of Directors of
a company which operates the National Car Rental Center.
We incurred charges of approximately $2.2 million in 1999, $1.7 million in
1998, and $1.7 million in 1997 from a company controlled by our Chief Executive
Officer for the use of airplanes. We charged approximately $136,000 in 1999 to
our Chief Executive Officer and other companies controlled by him for their use
of those airplanes.
Our Chief Executive Officer serves as chairman of the board of a company
from which we lease office space under various lease agreements. During 1999,
1998, and 1997, we incurred charges of approximately $73,000, $76,000, and
$74,000, respectively, related to these agreements.
Two members of our Board of Directors also serve on the board of directors
of a company which performs employment related services for us. During 1999,
1998 and 1997, we incurred charges of approximately $336,000, $251,000, and
$126,000, respectively, for such services.
42
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Quarterly Results (Unaudited)
The following is a summary of quarterly operations for the years ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenue.............................. $89,419 $106,487 $116,491 $105,265
Operating income........................... 24,203 38,162 42,034 31,681
Net income before cumulative effect of
accounting change......................... 7,652 14,606 16,255 9,491
Cumulative effect of accounting change..... (779)
Net income................................. 6,873 14,606 16,255 9,491
Net income per share - Basic and Diluted:
Net income before cumulative effect of
accounting change....................... $ 0.08 $ 0.15 $ 0.17 $ 0.10
Cumulative effect of accounting change... $ (0.01)
Net income............................... $ 0.07 $ 0.15 $ 0.17 $ 0.10
1998
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- -------- --------
Total revenue.............................. $54,231 $ 70,044 $ 81,006 $ 77,807
Operating income........................... 9,126 21,421 15,582 21,126
Net income................................. 4,802 10,116 5,492 7,630
Net income per share:
Basic.................................... $ 0.05 $ 0.11 $ 0.06 $ 0.08
Diluted.................................. $ 0.05 $ 0.10 $ 0.06 $ 0.08
Note 11--Commitments and Contingencies
</TABLE>
We are not a party to any significant litigation or claims, other than
routine matters incidental to the operation of our business. To date, no claims
have had a material adverse effect on us nor do we expect that the outcome of
any pending claims will have such an effect.
We lease real property under various operating leases with terms of one to
sixteen years. Rental expense under real property leases for the years ended
December 31, 1999, 1998, and 1997 were $1,511,000, $1,576,000, and $1,012,000,
respectively.
Future minimum lease obligations under noncancelable real property leases
with initial terms in excess of one year at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31:
<S> <C>
2000.......................... $1,255
2001.......................... 1,261
2002.......................... 712
2003.......................... 725
2004.......................... 718
Thereafter.................... 1,752
------
$6,423
======
</TABLE>
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information appearing under the caption "Election of our Board of
Directors" in our Proxy Statement for the Annual Meeting of Stockholders to be
held May 2, 2000 (the "Proxy Statement") is incorporated herein by reference.
Executive Officers
Our executive officers, their ages at December 31, 1999, and their
positions with us are set forth below. Our executive officers are elected by and
serve at the discretion of our Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
H. Wayne Huizenga*....... 62 Chairman of the Board of Directors
George D. Johnson, Jr.*.. 57 President, Chief Executive Officer, and Director
Robert A. Brannon........ 49 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
</TABLE>
- --------------
* Member of Executive Committee of the Board of Directors
H. Wayne Huizenga became one of our directors in August 1995 and serves as
the Chairman of our Board of Directors. Mr. Huizenga has also served as Chairman
of the Board of AutoNation, Inc., which owns the nation's largest chain of
franchised automotive dealerships, since August 1995. Since June 1998, Mr.
Huizenga has served as a director of NationsRent, Inc., a national chain
providing equipment rental primarily to a broad range of construction and
industrial customers. Since May 1998, Mr. Huizenga has served as Chairman of the
Board and Chief Executive Officer of Republic Services, Inc., a leading provider
of non-hazardous solid waste collection and disposal services. Since September
1996, Mr. Huizenga has been Chairman of the Board of Boca Resorts, Inc., which
owns and operates luxury resort properties as well as the Florida Panthers
professional hockey franchise. From September 1994 until October 1995, Mr.
Huizenga served as the Vice-Chairman of Viacom Inc., a diversified entertainment
and communications company. During the same period, Mr. Huizenga also served as
the Chairman of the Board of Blockbuster Entertainment Group, a division of
Viacom. From April 1987 through September 1995, Mr. Huizenga served as the
Chairman of the Board and Chief Executive Officer of Blockbuster Entertainment
Corporation ("Blockbuster"), during which time he helped build Blockbuster from
a 19-store chain into the world's largest video rental company. In September
1994, Blockbuster merged into Viacom. In 1971, Mr. Huizenga co-founded Waste
Management, Inc., which he helped build into the world's largest integrated
solid waste services company, and he served in various capacities, including
President, Chief Operating Officer and a director from its inception until 1984.
Mr. Huizenga also currently owns or controls the Miami Dolphins, a professional
sports franchise, as well as Pro Player Stadium, the home of the Miami Dolphins
and is a director of theglobe.com, an internet on-line community.
George D. Johnson, Jr. has been our President, Chief Executive Officer, and
a director since January 1995. He is responsible for all aspects of our
development, operation, marketing, and personnel. Mr. Johnson is the former
President of the Consumer Products Division of Blockbuster Entertainment Group,
a division of Viacom. In this position he was responsible for all U.S. video and
music stores. Mr. Johnson has over 30 years of experience developing and
managing various businesses. He was formerly the managing general partner of WJB
Video, the largest Blockbuster franchisee which developed over 200 video stores
prior to a merger with Blockbuster in 1993. Mr. Johnson also is the managing
member of American Storage, LLC, a chain of 26 self-storage facilities located
in the Carolinas and Georgia. He formerly served as a director of Viacom and
Chairman of the Board of Home Choice
44
<PAGE>
Holdings, Inc. and currently serves on the board of directors of AutoNation,
Boca Resorts, and Duke Energy Corporation. He has been the Chairman of the Board
of Directors of Johnson Development Associates, Inc. since its founding in 1986.
Johnson Development Associates is a real estate management, leasing, and
development company controlling approximately four million square feet of
commercial, retail, and industrial property located in the Carolinas and Georgia
which are owned by various partnerships controlled by Mr. Johnson and his
brother, Stewart H. Johnson. Mr. Johnson practiced law in Spartanburg, South
Carolina from 1967 until 1986 and served three terms in the South Carolina House
of Representatives.
Robert A. Brannon has been our Chief Financial Officer since February 1995
and our Senior Vice President, Secretary, and Treasurer since August 1995. He is
responsible for overseeing accounting procedures and controls, along with
financial reporting and cash management. Prior to joining our Company, he served
as Vice President-Finance for the Domestic Home Video division of the
Blockbuster Entertainment Group, where he was responsible for financial
management and control of over 2,000 video stores. Prior to joining Blockbuster
in 1993, Mr. Brannon was Chief Financial Officer for WJB Video and for American
Storage, LLC. In those capacities, Mr. Brannon was responsible for the financial
aspects of the development of over 200 video stores and 23 self-storage
facilities. Prior to his participation in these businesses, Mr. Brannon served
as a Certified Public Accountant in various management and staff positions with
local and national accounting firms.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information appearing under the caption "Principal Stockholders" in the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing under the caption "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the information set forth in Part II, Item 8 of this
Report, which information is incorporated herein by reference.
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required under the related instructions, are not applicable, or the
information has been provided in the consolidated financial statements or the
notes thereto.
(a)(3) Exhibits
The exhibits to this report are listed in the Exhibit Index included
elsewhere herein. Included in the exhibits listed therein are the following
exhibits which constitute management contracts or compensatory plans or
arrangements:
10.1 Amended and Restated 1995 Employee Stock Option Plan of the
Company
10.2 1995 Stock Option Plan for Non-Employee Directors of the Company
10.3 Amended and Restated 1996 Employee Stock Option Plan of the
Company
10.8 1997 Employee Stock Option Plan of the Company
10.9 1998 Employee Stock Option Plan of the Company
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of 1999.
(c) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1(a) Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1(a) to the Company's Registration Statement on
Form S-1, Registration No. 33-98452)
3.1(b) Certificate of Amendment of Restated Certificate of Incorporation of
the Company dated June 4, 1997 (incorporated by reference to Exhibit
3.1(b) to the Company's Report on Form 10-K for the year ended December
31, 1997)
3.1(c) Conformed copy of Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3.1(c) to the Company's
Report on Form 10-K for the year ended December 31, 1997)
3.2 Amended and Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-1,
Registration No. 33-98452)
4.1 Specimen certificate representing shares of Common Stock (incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-98452)
10.1 Amended and Restated 1995 Employee Stock Option Plan of the Company
(incorporated by reference to Exhibit 10.3 to the Company's Report on
Form 10-Q for the quarter ended March 31, 1996)
10.2 1995 Stock Option Plan for Non-Employee Directors of the Company
(incorporated by reference to Exhibit 10.6 to the Company's Report on
Form 10-Q for the quarter ended March 31, 1996)
46
<PAGE>
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.3 Amended and Restated 1996 Employee Stock Option Plan of the Company
(incorporated by reference to Exhibit 10.10 to the Company's Report on
Form 10-Q for the quarter ended March 31, 1996)
10.4 Aircraft Dry Lease dated April 5, 1996 between Morgan Corp. and the
Company (incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1, Registration No. 333-03373)
10.5 Homestead Motorsports Complex Executive Suite License Agreement dated
February 14, 1996 among The Homestead Motorsports Joint Venture, Miami
Motorsports Joint Venture, and the Company (incorporated by reference
to Exhibit 10.13 to the Company's Report on Form 10-Q for the quarter
ended March 31, 1996)
10.6 Joe Robbie Stadium Executive Suite License Agreement dated March 18,
1996 between Robbie Stadium Corporation and the Company (incorporated
by reference to Exhibit 10.14 to the Company's Report on Form 10-Q for
the quarter ended March 31, 1996)
10.7 Aircraft Dry Lease dated December 28, 1996 between Wyoming Associates,
Inc. and the Company (incorporated by reference to Exhibit 10.16 to the
Company's Report on Form 10-K for the year ended December 31, 1996)
10.8 1997 Employee Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.2 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1997)
10.9 1998 Employee Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.9 to the Company's Report on Form 10-K for the
year ended December 31, 1998)
10.10(a) Credit Agreement, dated as of September 26, 1997 and Amended and
Restated as of March 10, 1998 (the "Credit Agreement"), by and among
the Company and Morgan Stanley Senior Funding, Inc., as Syndication
Agent and Arranger, The Industrial Bank of Japan, Limited, as
Administrative Agent, and various banks (incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended
March 31, 1998)
10.10(b) Amendment, dated as of September 18, 1998, to the Credit Agreement
(incorporated by reference to Exhibit 10.1 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1998)
10.10(c) Amendment, dated as of December 15, 1998, to the Credit Agreement
(incorporated by reference to Exhibit 10.10(c) to the Company's Report
on Form 10-K for the year ended December 31, 1998)
10.11(a) Lease Agreement dated as of November 30, 1998 by and between Bell Hill,
LLC and ESA Management, Inc. (incorporated by reference to Exhibit
10.11(b) to the Company's Report on Form 10-K for the year ended
December 31, 1998)
10.11(b) Sublease Agreement dated as of July 1, 1999 by and between Johnson
Development Associates, Inc. and ESA Management, Inc.
10.12 Aircraft Dry Sub-Lease Agreement, dated as of July 2, 1998, between the
Company and Advance America Cash Advance Centers, Inc. (incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1998)
10.13 Pro Player Stadium Executive Suite License Agreement, dated as of July
16, 1998, by and between South Florida Stadium Corporation d/b/a Pro
Player Stadium and the Company (incorporated by reference to Exhibit
10.2 to the Company's Report on Form 10-Q for the quarter ended
September 30, 1998)
10.14 Broward County Arena Executive Suite License Agreement, by and between
Arena Operating Company, Ltd. and the Company (incorporated by
reference to Exhibit 10.3 to the Company's Report on Form 10-Q for the
quarter ended September 30, 1998)
10.15 Aircraft Dry Lease, dated as of July 12, 1999, by and between Wyoming
Associates, Inc. and ESA Management, Inc. (Learjet, Serial No. 132)
(incorporated by reference to Exhibit 10.1 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1999)
47
<PAGE>
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.16 Aircraft Dry Lease, dated as of July 12, 1999, by and between Wyoming
Associates, Inc. and ESA Management, Inc. (Challenger, Serial No. 3042)
(incorporated by reference to Exhibit 10.2 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1999)
10.17 Time Sharing Agreement, dated as of July 20, 1999, by and between ESA
Management, Inc. and George Dean Johnson, Jr. (Challenger, Serial No.
3042) (incorporated by reference to Exhibit 10.3 to the Company's
Report on Form 10-Q for the quarter ended September 30, 1999)
10.18 Time Sharing Agreement, dated as of August 10, 1999, by and between
Advance America Cash Advance Centers, Inc. and Extended Stay America,
Inc. (incorporated by reference to Exhibit 10.4 to the Company's Report
on Form 10-Q for the quarter ended September 30, 1999)
10.19 Time Sharing Agreement, dated as of August 30, 1999, by and between ESA
Management, Inc. and Advance America, Cash Advance Centers, Inc.
(incorporated by reference to Exhibit 10.5 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1999)
10.20 Time Sharing Agreement, dated as of November 29, 1999, by and between
ESA Management, Inc. and George Dean Johnson, Jr. (Learjet, Serial No.
132)
21.1 List of Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 10, 2000.
Extended Stay America, Inc.
By: /s/ George D. Johnson, Jr.
----------------------------
George D. Johnson, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 10, 2000
Signature Title
--------- -----
Principal Executive Officer:
/s/ George D. Johnson, Jr. President and Chief Executive Officer
---------------------------
George D. Johnson, Jr.
Principal Financial Officer:
/s/ Robert A. Brannon Senior Vice President, Chief
---------------------- Financial Officer, Secretary,
Robert A. Brannon and Treasurer
Principal Accounting Officer:
/s/ Gregory R. Moxley Vice President--Finance
----------------------
Gregory R. Moxley
A Majority of the Directors:
/s/ H. Wayne Huizenga Director
----------------------
H. Wayne Huizenga
/s/ Donald F. Flynn Director
--------------------
Donald F. Flynn
/s/ George D. Johnson Director
----------------------
George D. Johnson
/s/ Stewart H. Johnson Director
-----------------------
Stewart H. Johnson
/s/ John J. Melk Director
-----------------
John J. Melk
/s/ Peer Pedersen Director
------------------
Peer Pedersen
49
<PAGE>
STATE OF SOUTH CAROLINA )
) SUBLEASE AGREEMENT
COUNTY OF SPARTANBURG )
This Sublease Agreement is made as of the 1st day of July, 1999 by and
between JOHNSON DEVELOPMENT ASSOCIATES, INC., a South Carolina corporation
("JDA"), herein referred to as "Sublessor", and ESA MANAGEMENT, INC. ("ESA"),
hereinafter referred to as "Sublessee".
Bell Hill, LLC is the successor in interest to Bell Hill Associates,
hereinafter referred to as "Landlord". On January 30, 1990, Landlord did lease
a portion of the third floor of the Bell Office Building III at 961 East Main
Street, Spartanburg, SC to WJB Video Limited Partnership, as evidenced by copy
of said lease which is attached as Exhibit "A" with four amendments and made a
part hereof and referenced hereafter as "Lease Agreement".
Subsequently, WJB Video Limited Partnership, through its affiliated
company, Blockbuster Video, Inc., did reduce its presence in Bell Hill and
sublet all of the space that it occupied on the third floor to JDA in accordance
with the above referenced Lease Agreement. That space is hereafter defined as
"Premises".
A Sublease Agreement was entered into between WJB Video Limited Partnership
and JDA on August 30, 1996 (hereinafter the "WJB Sublease Agreement") wherein
JDA sublet all of the third floor not presently occupied by it. Such a sub-
Sublease was anticipated under the provision of Section 5A of the WJB Sublease
Agreement.
NOW THEREFORE, JDA as Sublessor and ESA do hereby agree as follows:
1. The Sublessor hereby subleases to Sublessee the Premises described in
attached Exhibit "B" upon the conditions and terms set forth hereafter.
2. The term of the sublease shall commence July 1, 1999 and shall continue
in full force and effect until December 31, 2000. On that date, the Sublease
Agreement between the parties hereto shall continue in full force and effect for
an additional twelve month term, ending December 31, 2001 unless and until
notice is given by Sublessee to Sublessor of its intention to vacate. Said
notice must be given on or before September 1, 2000, and on or before September
1 of each succeeding year thereafter. Should such written notice not be given
on or before that date, the lease shall automatically renew for an additional
twelve month term.
3. (a) Sublessee shall pay to Sublessor a base monthly rent calculated
and attached Schedule A. In addition to the base monthly rent, Sublessee shall
pay, as additional rent, its prorata share of any and all common area charges as
defined under the Lease Agreement. Such amount shall be paid monthly.
(b) It is understood that this sublease is a triple net sublease and
that Sublessee's prorata share of any and all cost that would be payable by JDA
as Sublessor and/or WJB Video Limited Partnership for the premises shall be
borne by Sublessee as of the commencement date.
<PAGE>
(c) All rent, both base and the prorata contribution to CAM, shall be
due and payable on or before the first day of each month in advance to Sublessor
at the address stated below. Rent for any period less one month shall be
apportioned based on the number of days in that month.
(d) In the event of late payment, Sublessor shall be entitled to a
late charge of 2% of the amount of the monthly rent if not received by Sublessor
on or before the fifth day of each month.
4. Sublessee shall use the Premises solely for general office use and for
no other purpose.
5. Sublessee shall not, by operation of law or otherwise, transfer, sign,
sublet, enter into license agreement, mortgage or hypothecate this sublease or
Sublessee's interest in the Premises without first procuring the prior written
consent of Bell Hill, LLC, WJB Video Limited Partnership and JDA, which consent
shall not be unreasonably withheld or delayed. The attempted transfer,
assignment, etc. without such permission shall be void and shall confer no
rights upon any third person. In the event of a permitted sublease or
assignment, the Sublessee shall not be relieved from any covenant or obligation
for the balance of the sublease term. Acceptance of rent by Sublessor from any
third party or entity shall not be deemed a waiver by Sublessor of any provision
hereof. Sublessee agrees to reimburse Sublessor for any reasonable fees
incurred in conjunction with the processing and documentation of any such
transfer, assignment, subletting, licensing, changing ownership, mortgage or
hypothecation of this sublease. Sublessee shall have the absolute right to
sublet, assign or otherwise transfer its interest in this Sublease to any parent
or operating subsidiary of Sublessee, or subsidiary of the parent of Sublessee,
or to a corporation with which Sublessee may merge or consolidate, or to any
entity controlled by George Dean Johnson, Jr., without the approval of
Sublessor, WJB Video Limited Partnership, or Bell Hill, LLC. This Sublease
shall contain no provision restricting or referring in any manner to a change in
control or change in shareholders, directors, management or organization of
Sublessee, or to the issuance, sale, purchase or disposition of the shares of
Sublessee.
6. Sublessee agrees to take the Premises in "as is" condition. Sublessee
has inspected and is fully familiar with the condition of the Premises and
Sublessee's taking of possession shall constitute acknowledgment that the
Premises are in good condition and without need of repair. Sublessor makes no
representations or warranties with regard to any equipment or fixtures.
7. Except as otherwise specifically provided for herein, Sublessee agrees
to be bound by the terms of Paragraph 9, 10, 11, 12, 13, 14, 15, 16 of the Lease
Agreement. Further, it makes the covenants and representations stated in
Paragraph 17, 20, 24 of the Lease Agreement.
8. The default provisions of Paragraph 18 and 19 shall be in full force
and effect.
9. All notices provided for under this Sublease Agreement, under the JDA
Sublease Agreement, and the original Lease Agreement shall be in writing and
sent by Express Courier Service or by Registered or Certified Mail, Return
Receipt Requested to:
<PAGE>
As to Sublessor: Johnson Development Associates, Inc.
P. O. Box 3524 (29304)
961 East Main Street
Spartanburg, SC 29302
Attn: A. Foster Chapman
WJB Video, LP
c/o Viacom Realty Corporation
1515 Broadway
New York, NY 10036-5794
Attn: Mr. David H. Williamson
cc: Viacom, Inc.
1515 Broadway
New York, NY 10036-5794
Attn: General Counsel
As to Sublessee: ESA Management, Inc.
450 East Las Olas Boulevard
Suite 1100
Ft. Lauderdale, FL 33301
Attn: Development Counsel
10. All of the terms and conditions of the referenced and attached
documents are fully incorporated herein except as may be expounded upon herein
and the parties shall be bound to such previous documents.
11. In the case any one or more of the provisions contained in this
Sublease shall for any reason be held invalid, illegal, or unenforceable, such
unenforceability shall not effect any other provision of this Sublease, the
Sublease shall be construed as if such provision had not been contained herein.
12. Sublessee represents and warrants that this Sublease has been duly
authorized and the party signing on behalf of Sublessee is so authorized to
execute this Sublease.
13. Sublease may not be modified or amended except by written agreement
signed by the parties hereto.
14. This agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together shall constitute one in the same
instrument.
In witness whereof, the parties have hereunto set their hands and seals on
the date and year first stated above.
<PAGE>
SUBLESSOR:
JOHNSON DEVELOPMENT ASSOCIATES, INC.
By: /s/ A. Foster Chapman
----------------------------------
A. Foster Chapman, President
SUBLESSEE:
ESA MANAGEMENT, INC.
By: /s/ Shawn R. Ruben
----------------------------------
Its: Vice President - Development
This Sublease Agreement is hereby consented to by:
BELL HILL, LLC
By: /s/ George Dean Johnson, Jr.
----------------------------------
George Dean Johnson, Jr. President
<PAGE>
EXHIBIT "A"
LEASE AGREEMENT
<PAGE>
WJB VIDEO, L.P.
c/o Viacom Realty Corp.
1515 Broadway
New York, New York 10036-5794
January 5, 1996
Mr. Foster Chapman, President
Johnson Development Associates, Inc.
961 East Main Street
P.O. Box 3524
Spartanburg, SC 29304-3524
Re: Lease between Bell Hill Associates and WJB Video, L.P. for premises
located at 961 East Main Street, Spartanburg, South Carolina
-------------------------------------------------------------------
Dear Mr. Chapman:
A review of our file for the above referenced lease revealed two (2)
similar leases. The first, dated January 26, 1990, is for a term of 8 years.
The second, dated January 30, 1990, is for a term of 15 years. Although the
lease dated January 30, 1990 is, in fact, the lease in effect, the four (4)
subsequent amendments to the lease each refer to the lease dated January 26,
1990.
This letter shall serve to confirm our agreement that:
1. The lease dated January 30, 1990 is the lease currently in effect.
2. The lease dated January 26, 1990 is of no effect.
3. The references in each of the four (4) amendments to the lease dated
January 26, 1990 is hereby modified to refer to the lease dated
January 30, 1990.
4. As a result of these clarifications, the term of the lease shall
expire on February 28, 2005.
5. Copies of all notice to be delivered to Tenant under the Lease shall
be simultaneously sent to Viacom Inc., 1515 Broadway, New York, New
York 10036-5794; Attention: General Counsel.
Please execute the enclosed copies of this letter and return two (2)
originals to the undersigned at the address first set forth above.
<PAGE>
If you have any questions, please do not hesitate to call.
Very truly yours,
WJB Video, L.P.
BY: BLOCKBUSTER VIDEO, L.P.,
general partner
By: /s/ David H. Williamson
----------------------------------
David H. Williamson
Vice President-Real Estate
Accepted and agreed to:
BELL HILL ASSOCIATES
By: /s/ A. Foster Chapman
---------------------------
Name: A. Foster Chapman
Title: Managing Agent/Johnson Development
<PAGE>
STATE OF SOUTH CAROLINA ) FOURTH AMENDMENT
) TO
COUNTY OF SPARTANBURG ) LEASE AGREEMENT
A Lease Agreement was executed the 26th day of January, 1990, by and
between Bell Hill Associates, a South Carolina General Partnership ("Landlord")
and WJB Video, a L.P. ("Tenant"), which Lease Agreement was amended March 28,
1990, May 5, 1990, and June 8, 1990, which Amendments increased the square foot
under occupancy; and
WHEREAS, this Fourth Amendment to Lease Agreement is made to evidence the
letting of additional space on the second floor, in which space was previously
occupied by American Storage; and
NOW, THEREFORE, for good and valuable consideration, the parties mutually
agree as follows:
That the Lease is hereby modified and amended as set forth in the attached
"Summary of Rental Income, Bell Hill III, revised September 1, 1991" which
is attached hereto. Additionally, Exhibit A to the Lease Agreement setting
forth the area occupied by Tenant is also modified as per the attached
drawing.
All other terms and conditions of the Lease Agreement referenced above and
as subsequently modified by amendments, continue in full force and effect
except as specifically modified by this Fourth Amendment to Lease
Agreement.
The parties hereunto set their hand and seal this 16th day of September, 1991.
WITNESSES: LANDLORD:
BELL HILL ASSOCIATES, a South
Carolina General Partnership
By:
/s/ A. Foster Chapman /s/ George D. Johnson Jr.
- ------------------------------ ------------------------------
Its: General Partner
/s/ Dori J. Polk
- ------------------------------
Tenant:
WJB VIDEO, L.P.
/s/ A. Foster Chapman By:
- ------------------------------
/s/ Dori J. Polk /s/ George D. Johnson Jr.
- ------------------------------ -------------------------------
Its:
<PAGE>
STATE OF SOUTH CAROLINA ) THIRD AMENDMENT
) TO
COUNTY OF SPARTANBURG ) LEASE AGREEMENT
A Lease Agreement was executed the 26th day of January, 1990 by and between
Bell Hill Associates, a South Carolina General Partnership ("Landlord") and WJB
Video, a Limited Partnership ("Tenant"), which Lease Agreement was amended by
Amendment to Lease Agreement dated March 28, 1990; and
WHEREAS, subsequent to the date of execution of the Lease and the
Amendment, Tenant realized the need for additional space on the first floor and
sought to lease the same, which the Landlord was willing to do; and
NOW, THEREFORE, for good and valuable consideration, the parties mutually
agree as follows:
1. The Tenant shall lease an additional 12,397.5 feet, being all of the
Lobby Level other than that designated as common area, as shown on
attached Exhibit A, beginning July 1, 1990. The term of the lease for
this additional space shall be concurrent with that stated in the
January 26, 1990 Lease Agreement.
2. The total monthly rental amount for the additional space shall be
$333.33 total payable monthly until such time as the space is improved
at Landlord's expense to standards approved by the Landlord and
Tenant, or June 1, 1991, whichever first occurs. On the earlier of
the two stated occurrences, monthly rent, payable in advance, shall
commence at an annual rental amount for the described space
$139,162.60 annually, payable in equal monthly installments of
$11,596.88. In addition to said base rental amount, there shall be
due an additional $3.50 per square foot per annum for common area
charges, $51,002 per annum, $4,250.17 monthly, initially, in keeping
with Paragraph 7 of the Lease Agreement. No common area charges shall
be due until the earlier of such time as the space is improved or June
1, 1991. Said figures are based on an adjusted rentable area of
14,572 feet. As a result of the increase in the square footage under
lease to Tenant, Schedule A of the original January 26, 1990 Lease
Agreement shall be amended. A copy of the Amended Schedule A is
attached hereto as Exhibit B.
3. The additional space called for in Paragraph 4 shall be taken in its
present "as is" condition and excludes floor covering, layin ceiling,
wall finishes and wall partitions.
4. All other terms and conditions of the January 26, 1990 Lease Agreement
as amended by Amendment to Lease Agreement dated March 28, 1990, shall
remain in full force and effect except as is amended hereby.
The parties hereunto set their hand and seal this 8th day of June, 1990.
<PAGE>
WITNESSES: Landlord:
BELL HILL ASSOCIATES, a South
Carolina General Partnership
By:
/s/ Dori J. Marcengill /s/ William Barnet III
- ------------------------------- -------------------------------
Its: General Partner
/s/ A. Foster Chapman
- -------------------------------
Tenant:
WJB VIDEO, LIMITED PARTNERSHIP
/s/ Dori J. Marcengill By:
- -------------------------------
/s/ A. Foster Chapman /s/ George D. Johnson Jr.
- ------------------------------- ------------------------------------
Its: Managing General Partner
STATE OF SOUTH CAROLINA ) PROBATE
COUNTY OF SPARTANBURG )
PERSONALLY appeared before me the first witness, whose name is subscribed
above, who on oath states that (s)he saw the within named Bell Hill Associates,
a South Carolina general partnership, by William Barnett III its General Partner
sign, seal and deliver the within Lease Agreement, and that (s)he with the
second witness, whose name is subscribed above, witnessed the execution thereof.
/s/ A. Foster Chapman
------------------------------
SWORN to before me this 12th
day of July, 1990
/s/ Dori J. Marcengill (SEAL)
- ---------------------------
Notary Public for South Carolina
My Commission Expires: May 17, 1999
<PAGE>
STATE OF SOUTH CAROLINA ) PROBATE
COUNTY OF SPARTANBURG )
PERSONALLY appeared before me the first witness, whose name is subscribed
above, who on oath states that (s)he saw the within named WJB Video Limited
Partnership by George Dean Johnson Jr., its Managing General Partner sign, seal
and deliver the within Lease Agreement, and that (s)he with the second witness,
whose name is subscribed above, witnessed the execution thereof.
/s/ A. Foster Chapman
---------------------------
SWORN to before me this 8th
day of June, 1990
/s/ Dori J. Marcengill (SEAL)
- ----------------------------
Notary Public for South Carolina
My Commission Expires: May 17, 1999
<PAGE>
STATE OF SOUTH CAROLINA ) SECOND AMENDMENT
) TO
COUNTY OF SPARTANBURG ) LEASE AGREEMENT
A Lease Agreement was executed the 26th day of January, 1990 by and between
Bell Hill Associates, a South Carolina General Partnership ("Landlord") and WJB
Video, a Limited Partnership ("Tenant"), which Lease Agreement was amended by
Amendment to Lease Agreement dated March 28, 1990; and
WHEREAS, subsequent to the date of execution of the Lease and the
Amendment, Tenant realized the need for additional space on the first floor and
sought to lease the same, which the Landlord was willing to do; and
NOW, THEREFORE, for good and valuable consideration, the parties mutually
agree as follows:
1. The Tenant shall lease an additional 3,021.5 square feet located on
the south side of the building between bays 2 and 5 as shown on
attached Exhibit A. The term of the lease for the additional space
shall be concurrent with that stated in the January 26, 1990 Lease
Agreement.
2. The total annual rental amount for the additional space shall be
$17,553.40 annually payable in equal monthly installments of
$1,462.78. In addition to said base rental amount there shall be due
an additional $3.50 per square foot per annum for common area charges,
$10,575.20 per annum, $881.27 monthly, initially (in keeping with
paragraph 7 of the Lease Agreement.) As a result of an increase in
the square footage by the addition of the above called for space,
Schedule A of the original January 26, 1990 Lease Agreement is
amended. A copy of the Amended Schedule A is attached hereto as
Exhibit B.
3. The additional space shall be taken "as is" and excludes floor
covering, layin ceiling, wall finishes and wall partitions.
4. All other terms and conditions of the January 26, 1990 Lease Agreement
as amended by Amendment to Lease Agreement dated March 28, 1990, shall
remain in full force and effect except as is amended hereby.
The parties hereunto set their hand and seal this 5th day of May, 1990.
WITNESSES: Landlord:
BELL HILL ASSOCIATES, a South
Carolina General Partnership
By:
/s/ Dori J. Marcengill /s/ William Barnet
- -------------------------------- --------------------------
Its: General Partner
/s/ A. Foster Chapman
- --------------------------------
<PAGE>
WITNESSES: Tenant:
WJB VIDEO, LIMITED PARTNERSHIP
/s/ Dori J. Marcengill By:
- --------------------------------
/s/ A. Foster Chapman /s/ George D. Johnson Jr.
- -------------------------------- -----------------------------
Its: Managing General Partner
STATE OF SOUTH CAROLINA ) PROBATE
COUNTY OF SPARTANBURG )
PERSONALLY appeared before me the first witness, whose name is subscribed
above, who on oath states that (s)he saw the within named Bell Hill Associates,
a South Carolina General Partnership by William Barnet, its General Partner
sign, seal and deliver the within Lease Agreement, and that (s)he with the
second witness, whose name is subscribed above, witnessed the execution thereof.
/s/ A. Foster Chapman
--------------------------
SWORN to before me this 5th
day of May, 1990
/s/ Dori J. Marcengill (SEAL)
- ---------------------------
Notary Public for South Carolina
My Commission Expires: May 17, 1999
STATE OF SOUTH CAROLINA ) PROBATE
COUNTY OF SPARTANBURG )
PERSONALLY appeared before me the first witness, whose name is subscribed
above, who on oath states that (s)he saw the within named WJB Video Limited
Partnership by George Dean Johnson Jr., its Managing General Partner sign, seal
and deliver the within Lease Agreement, and that (s)he with the second witness,
whose name is subscribed above, witnessed the execution thereof.
/s/ A. Foster Chapman
--------------------------
SWORN to before me this 5th
day of May, 1990
/s/ Dori J. Marcengill (SEAL)
- ----------------------------
Notary Public for South Carolina
My Commission Expires: May 17, 1999
<PAGE>
STATE OF SOUTH CAROLINA ) AMENDMENT TO LEASE
) AGREEMENT
COUNTY OF SPARTANBURG )
A Lease Agreement was executed the 26th day of January, 1990 by and between
Bell Hill Associates, a South Carolina General Partnership ("Landlord") and WJB
Video, a Limited Partnership ("Tenant"), which provided for the leasing of space
in Landlord's office building complex named "Bell Hill" located on East Main
Street, Spartanburg, South Carolina; and
WHEREAS, subsequent to the date of execution of the Lease Agreement, Tenant
realized the need for additional space adjacent to his training facility on the
first floor and Landlord was willing to let the additional space;
NOW, THEREFORE, for good and valuable considerations, the parties mutually
agree as follows:
1. Tenant shall lease an additional 1,152 square feet located in the
extreme southwest corner of the first floor. The term for the additional space
shall be concurrent with that stated in the January 26th Lease Agreement.
2. The total annual rental amount for the additional space shall be
$12,787.45, not including the common area charges, initially estimated at $3.50
per square foot per annum ($1,065.62 Monthly) in keeping with Paragraph 7 of the
Lease Agreement. As a result of the increase in square footage, Schedule A of
the January 26, 1990 Lease Agreement is hereby amended. A copy of the amended
Schedule A is attached hereto as schedule A.
3. Landlord shall improve the premises at its expense according to the
Plan and Specifications attached hereto, as Exhibit A.
4. All other terms and conditions of the January 26, 1990 Lease Agreement
shall remain in full force and effect except as amended hereby.
The parties hereunto set their hand and seal this 28th day of March, 1990.
WITNESSES: Landlord:
BELL HILL ASSOCIATES, a South
Carolina General Partnership
By:
/s/ Dori J. Marcengill /s/ Vernett Lamp
- ------------------------------ ------------------------
/s/ A. Foster Chapman Its: Vice President
- ------------------------------
<PAGE>
Tenant:
WJB VIDEO, LIMITED PARTNERSHIP
By:
/s/ Dori J. Marcengill /s/ George Dean Johnson, Jr.
- ------------------------------ ------------------------------
/s/ A. Foster Chapman Its: General Partner
- ------------------------------
STATE OF SOUTH CAROLINA ) PROBATE
COUNTY OF SPARTANBURG )
PERSONALLY appeared before me the first witness, whose name is subscribed
above, who on oath states that (s)he saw the within named BELL HILL ASSOCIATES,
A SOUTH CAROLINA GENERAL PARTNERSHIP, by Vernett Lamp, its Vice President sign,
seal and deliver the within Amendment to Lease Agreement, and that (s)he with
the second witness, whose name is subscribed above, witnessed the execution
thereof.
/s/ A. Foster Chapman
--------------------------
SWORN to before me this 28th
day of March, 1990
/s/ Dori J. Marcengill (SEAL)
- ----------------------------
Notary Public for South Carolina
My Commission Expires: May 17, 1999
STATE OF SOUTH CAROLINA ) PROBATE
COUNTY OF SPARTANBURG )
PERSONALLY appeared before me the first witness, whose name is subscribed
above, who on oath states that (s)he saw the within named WJB VIDEO, A LIMITED
PARTNERSHIP, by George Dean Johnson, Jr., its Managing Partner sign, seal and
deliver the within Amendment to Lease Agreement, and that (s)he with the second
witness, whose name is subscribed above, witnessed the execution thereof.
/s/ A. Foster Chapman
--------------------------
SWORN to before me this 28th
day of March, 1990
/s/ Dori J. Marcengill (SEAL)
- ----------------------------
Notary Public for South Carolina
My Commission Expires: May 17, 1999
<PAGE>
STATE OF SOUTH CAROLINA )
) LEASE AGREEMENT
COUNTY OF SPARTANBURG )
This Lease Agreement, made and entered into as of the 30th day of January,
1990, by and between Bell Hill Associates, a South Carolina General Partnership,
of Spartanburg County, South Carolina (hereinafter called the "Landlord") and
WJB Video, Limited Partnership, (hereinafter called the "Tenant").
W I T N E S S E T H :
1. LEASED SPACE. The Landlord hereby leases unto the Tenant, and the
Tenant hereby leases from the Landlord, upon terms and conditions hereinafter
set forth, that Class A office space (the "Leased Space") of Building C of
Landlord's Office building complex named "Bell Hill" (hereinafter called the
"Building"), located on East Main Street in Spartanburg, South Carolina and
access to designated common areas. A floor plan of the approximate location of
the Leased Space is shown on Exhibit A attached hereto.
2. ACCEPTANCE OF LEASED SPACE. Landlord has made no representation or
promises with respect to the Building, the leased space or this Agreement
(hereinafter the "lease") except as set forth herein.
3. TERM. This lease shall commence upon the execution hereof and shall
continue in force for a term of fifteen (15) years after the Rent Commencement
Date, as hereinafter defined.
4. COMMENCEMENT. Rent Commencement Date shall be March 1, 1990 unless
earlier occupied by Tenant.
5. SURRENDER OF THE DEMISED PREMISES. The Tenant shall keep the Leased
Space in good order and repair, except the portions thereof to be repaired by
the Landlord as provided herein, and upon the expiration or other termination of
this Lease, quit and surrender the Demised Premises to the Landlord in the same
condition as at the commencement of the term, except as modified by any
improvement or modified with the Landlord's consent, natural wear and tear only
excepted.
6. RENT. The Tenant shall pay the Landlord, at the Landlord's office or
at such other place as the Landlord may from time to time designate in writing,
the rental amount, as described in attached Schedule A "Rental Amount", during
the Lease term.
The Rental Amount shall be paid in twelve (12) monthly installments,
which installments shall be due and payable on the 1st day of each month in
advance and without demand. Said monthly installments shall commence upon the
Rent Commencement Date. If the first day upon which rent becomes payable is
other than the first day of any calendar month, the rent for the balance of said
month shall be payable by Tenant at a daily rate based upon the monthly rent.
Regardless of this date on which the obligation to pay rent commences, if for
any reason the Landlord is unable to give Tenant possession of the premises,
then the rent shall abate until occupancy is available to Tenant.
<PAGE>
7. OPERATING EXPENSE ADJUSTMENT. The parties each acknowledging that the
Rent specified in Section 6. of the Lease does not provide for Operating
Expenses, Real Estate Taxes, and Utility Costs (hereinafter called "Expenses")
or any increase in the Expenses which may hereafter affect the Office Space or
the Building; accordingly, during the term of this Lease, and any renewals
thereof, Tenant shall pay to Landlord, in the form of Additional Rent (plus any
applicable sales tax), the base amount for the Expenses of $3.50 per square foot
of the adjusted rentable area of the Office Space per annum ("Expense Base") and
its proportionate share of increased Expenses over the Expense Base amount (as
hereinafter defined), such proportionate share to be a fraction, the numerator
of which is the total number of the Adjusted Rentable Square Feet contained in
the Office Space and the denominator of which is the total number of Adjusted
Total Rentable square footage in the Building. During the ensuing Lease Year,
Tenant shall pay to Landlord, as and when Rent is due and payable hereunder, an
amount equal to one-twelfth (1/12th) of Tenant's Expense Base and its
proportionate share of the excess Expenses. If Landlord's fiscal year ends less
than thirty (30) days prior to the end of the Lease Year, Landlord shall have
thirty (30) days after the end of its fiscal year to prepare and submit the
required statement, and, upon submission of such statement, Tenant shall pay
1/12th of its Expense Base and its proportionate share of the excess Expenses
and a like amount of the first day of each calendar month thereafter commencing
on the second month of each Lease Year. The term "Real Estate Taxes" shall mean
the annual taxes and any special assessments or other charges levied against the
real property of which the Office Space is a part by any authority having the
direct power so to tax, including any city, county, state, or federal
government, or any school, agricultural, transportation or environmental control
agency, lighting, drainage, or other improvement district thereof, and shall
include the expense of contesting the amount or validity of any such taxes,
charges or assessments, the term "Operating Expenses" shall include the annual
expenses of Landlord for the operation and maintenance of the Office Space and
Building which are reasonable or customary for the operation of this type of
Office Space and Building, and shall include, but not be limited to, management
salaries; maintenance and janitorial expenses; administrative salaries, costs
and fees; insurance; security; landscaping; and site lighting.
The term "Utility Costs" shall include Landlord's annual expenses for the
operation and maintenance of the Building and the Office Space with respect to
utility charges for furnishing heat, air conditioning, electricity, water,
sewage, gas, garbage removal, etc. If the final Lease Year (to include
renewals) during which escalation may occur shall contain less that twelve
months, the increases hereunder shall be prorated, the Tenant's obligation to
pay such increases to survive the expiration of the Lease (and renewal) term.
8. LANDLORD'S SERVICES. Landlord shall, at its expense, furnish the
Office Space with (i) electricity for routine lighting and the operation of
general office machines such as typewriters, dictating equipment, desk model
adding machines and the like, which use 110 volt electric power, (ii) heat and
air conditioning during reasonable and usual business hours (exclusive of
Saturday afternoon, Sundays and holidays) reasonably required for the occupation
of the Office Space, such heat and air conditioning to be provided by utilizing
the existing systems in the Building, it being expressly understood and agreed
by the parties that Landlord specifically shall not be liable for any losses or
damages of any nature whatsoever incurred by Tenant due to any failure of the
equipment to function properly, or while it is being repaired or due to any
governmental laws, regulations or restrictions pertaining to the furnishing or
use of
<PAGE>
such heat and air conditioning, (iii) elevator service (iv) lighting replacement
for Building standard lights, (v) toilet room supplies, (vi) daily janitor
service is customarily furnished in first class office buildings in Spartanburg,
South Carolina, (vii) water, and (viii) sewage. Landlord shall not be liable for
any damages directly or indirectly resulting from, nor shall any Rental herein
set forth be abated by reason of (1) installation, use, or interruption of use,
or any equipment in connection with the furnishing of any of the foregoing
services, or (2) failure to furnish, or delay in furnishing, any such services
when such failure or delay is caused by accident or any condition beyond the
reasonable control of Landlord by the making of necessary repairs or
improvements to the Office Space or to the Building. The temporary failure to
furnish any such services shall not be construed as an eviction of Tenant or
relieve Tenant from the duty of observing and performing any of the provisions
of this Lease.
9. CONSTRUCTION OF PREMISES. Landlord agrees to construct and upfit
premises referenced in preceding Section 1. The upfit shall be constructed
according to the plans and specifications attached hereto as Exhibit B, which
plans and specifications the parties have had an opportunity to review and
approve.
10. TENANT IMPROVEMENTS OR ALTERATIONS. The Tenant shall have the right,
initially and from time to time, to make improvements or alterations to the
Leased Space, subject to the following conditions:
A. No improvement or alteration shall at any time be made which shall
impair the structural soundness or diminish the value of the Building.
B. No improvement or alteration requiring an inspection or approval
by any municipal or other governmental authority having jurisdiction over such
improvements or alterations shall be made at any time without first obtaining
the Landlord's written approval therefore, but such approval shall not be
unreasonably withheld by the Landlord. No structural improvement or alteration
involving an expenditure in excess of $1,000.00 shall be made without first
obtaining the Landlord's written approval of the plans therefor, but such
approval shall not be unreasonably withheld by the Landlord. The Tenant shall
furthermore first obtain the Landlord's written approval before any modification
or changes are made in such plans after Landlord's approval thereof.
C. No improvement or alteration shall be undertaken until the Tenant
shall have procured and paid for all required municipal and other governmental
permits and authorizations of the various municipal departments and governmental
subdivisions having jurisdiction.
D. All work done in connection with any improvements or alterations
shall be done in good and workmanlike manner and in compliance with all building
and zoning laws, and with all other laws, ordinances, rules, requirements of any
federal, state or municipal government or agency having jurisdiction and shall
be completed free of all mechanic's liens or materialman's liens.
E. Any improvement or alteration to the Leased Space, except moveable
furniture and trade fixtures placed by Tenant in the Leased Space, shall at once
become the
<PAGE>
absolute property of the Landlord and shall remain upon and be surrendered with
the Leased Space as part thereof at the termination of this Lease without
disturbance or injury.
11. REPAIRS AND MAINTENANCE. Landlord will, at its own cost and expenses,
except as may be provided elsewhere herein, make necessary repairs of damage to
the Building corridors, Lobby, structural members of the Building, the parking
lot, the landscape areas and equipment used to provide the services referred to
in Section 8, unless any such damage is caused by acts or omissions of Tenant,
is agents, customers, employees, or invitees, in which event Tenant will bear
the cost of such repairs. Tenant will not injure the Office Space or the
Building, but will maintain the Office Space in a clean, attractive condition
and in good repair, except as to damage to be repaired by Landlord as provided
above. Upon termination of this Lease, Tenant will surrender and deliver up the
Office Space to Landlord in the same condition in which it existed at the
commencement of the Lease, excepting only ordinary wear and tear and damage
arising from any cause not required to be repaired by Tenant. This Section 11
shall not apply in the case of damage or destruction by fire or other casualty
which is covered by insurance maintained by Landlord on the Building (as to
which Sections 20 maintained by Landlord hereof shall apply) or damage resulting
from an eminent domain taking (as to which Section 19 hereof shall apply).
12. LOSS OR DAMAGE AND INSURANCE. The Landlord shall not be liable for
any damage to property in the Leased Space or on the Premises caused by gas,
smoke, steam, electricity, ice, rain or snow which may leak from any part of the
Building, or from pipes, appliances or plumbing works. Landlord shall not be
liable for any damage or injury to person or property sustained by Tenant or
others due to the happening of any accident on the Premises, or due to any
negligence of any tenant or occupant of the Building, or any other person, other
than Landlord or its agents.
The Tenant agrees to indemnify and hold Landlord harmless from all
claims for personal injuries, death and property damage which occur as a result
of the operation of Tenant's office on the premises, or which result from any
work done on the premises by Tenant or any contractor selected by or for Tenant.
Tenant shall carry a minimum of $1,000,000.00 liability insurance
policy covering Tenant's business operations on the premises and Landlord shall
be named as an additional insured thereunder. Tenant shall also carry insurance
for the full insurable value of Tenant's trade fixtures, furnishings and all
other items of personal property of Tenant located on or within the Leased
Space.
All such insurance shall be obtained from a company with at least a
Best "A" rating, and a certificate evidencing the issuance of such policy or
policies, together with evidence of the payment of premiums, shall be delivered
to Landlord before the commencement of the term of this lease, or before any
use, occupancy or possession of the Leased Space prior to the commencement of
the term of this Lease, whichever is sooner.
Not less than thirty days prior to the expiration of any such policy
or policies, evidenced of the renewal of such policy or policies, or a new
certificate, together with evidence of the payment of premiums for the renewal
period or new policy, as the case may be, shall be
<PAGE>
delivered to Landlord. All such insurance shall contain an agreement by the
insurance company that the policy or policies will not be cancelled, or the
coverage changed, without thirty day's prior written notice to Landlord.
The Landlord shall keep the Building insured against loss or damage by
fire with extended coverage endorsement in an amount sufficient to prevent the
Landlord from becoming a co-insurer under the terms of the applicable policies
but, in any event, in an amount not less than 80% of the full insurable value as
determined from time to time. The term "full insurable value" shall mean actual
replacement cost (exclusive of the cost of excavation, foundation, and footings
below the basement floor) without issued by financially responsible insurers
duly authorized to do business in this state.
13. USE OF LEASED SPACE. The Leased Space shall be used and occupied by
the Tenant as office facilities. Tenant shall not use the facilities as a
retail establishment in contravention of applicable zoning requirements of the
City of Spartanburg. The Tenant shall not use the Leased Space in any manner
which will increase the premium rate for any kind of insurance affecting the
Building, and if, because of anything done or caused to be done, permitted or
omitted by the Tenant, the premium rate for any kind of insurance affecting the
Building shall be raised, then in such event, the amount of the increase in
premium which the Landlord shall be thereby obligated to pay for insurance shall
be paid by the Tenant to the Landlord on demand.
14. ENJOYMENT OF LEASED SPACE. The Tenant, on paying the Rent and keeping
and performing the agreements and covenants herein contained, shall have the
peaceful and quiet enjoyment of the Leased Space for the term hereof subject,
however, to the terms of this Lease.
15. ASSIGNMENT AND SUBLETTING. Lessee shall not, without the prior
written consent of Lessor endorsed hereon, assign this lease, or sublet the
premises, or permit the use of the premises or any part thereof by any party
other than the Lessee. Such consent shall not be unreasonably denied. Consent
to any assignment or sublet shall not destroy this provision, and all later
assignments or subleases shall not destroy this provision, and all later
assignments or subleases shall be made likewise only on the prior written
consent of the Lessor, which consent shall not be unreasonably withheld. No
assignment or sublease by the Lessee shall relieve the Lessee of liability
hereunder.
16. REMOVAL OF PERSONAL PROPERTY. The Tenant may remove all personal
property and those items specified in Paragraph 10 (e) which he/she/they/it
has/have placed in the Leased Space, provided he/she/they/it repair(s) all
damage to the premises caused by such removal. If the Tenant shall fail to
remove all such property from the premises upon the termination of this Lease
for any cause whatsoever, the Landlord may, at its option, remove the same in
any manner the Landlord shall choose and store it without liability to the
Tenant for loss. In such event, the Tenant shall pay to Landlord on demand any
and all expenses incurred in such removal, including court costs, attorney's
fees, and storage charges for the length of time the same shall be in the
Landlord's possession. Alternatively, the Landlord may, at its option, without
notice, and without legal process, sell the property or any part thereof at a
private sale
<PAGE>
for such price as the Landlord may obtain, and apply the proceeds of the sale to
any amounts due under this Lease and the expenses incident to removal and sale
of said property.
17. PERSONAL PROPERTY RISK. All personal property brought onto the
premises by the Tenant shall be at the risk of the Tenant only, and the Landlord
shall not be liable for theft thereof or damage thereto occasioned by an act of
any tenant, or other occupant of the Building, or any other person.
18. GOVERNMENTAL REGULATIONS. The Tenant shall, at his/her/their/its own
expense, promptly comply with all requirements of any legally constituted public
authority necessitated by reason of the Tenant's occupancy of the Leased Space.
19. CONDEMNATION. If the whole of any part of the Leased Space shall be
taken by any public authority under the power of eminent domain, such that the
contained occupation and use of the premises is unreasonably infringed, then the
terms of this Lease shall cease as to the part taken on the date possession of
that part is surrendered and any unearned rent paid or credited in advance shall
be refunded. The Tenant shall not be entitled to receive any part of any award
or awards that may be made or received by the Landlord. The Tenant may at
his/her/their/its own expense commence independent proceedings against the
public authority exercising the power of eminent domain to prove and establish
any other damage he/she/they/it may have incurred.
20. CASUALTY. If any of the Leased Space or the building is damaged or
destroyed by fire or other casualty insured under the standard fire insurance
policy with approved standard extended coverage endorsement applicable to the
Leased Space and Building, the Landlord shall except as otherwise provided
herein (but only to the extent the holder of the mortgage lien on the building
permits release of insurance proceeds), repair and rebuild such damage which
requires the Tenant temporarily to close his/her/their/its office therein, the
rental fee shall be abated for so long as the Tenant's office is reasonably
closed. If such repairs interfere with the use of the Lease Space, but do not
necessitate the actual closing thereof, the rental fee shall equitably
apportioned, for so long as such repairs so interfere, in proportion to the
extent to which there is an actual interference with the Tenant's use of the
Leased Space.
Notwithstanding the foregoing provisions, in the event the premises
shall be damaged by fire or other insured casualty due to the fault or neglect
of the Tenant, or the Tenant's servants, employees, contractors, agents,
visitors or licensees, then without prejudice to any other rights and remedies
of the Landlord, and provided the damage is repaired by the Landlord, there
shall be no apportionment or abatement of any rent.
If the Building is damaged or destroyed due to an event which is not
covered by insurance and Landlord determines not to repair or rebuild, or if so
covered, the Landlord determines not to repair or to rebuild, and such damage or
destruction renders the Leased Space unfit for use as office space, this Lease
will terminate and neither Landlord nor Tenant will have any further obligations
hereunder. Except to the extent provided for in this paragraph, neither the
rent payable by the Tenant nor any of the Tenant's other obligations under any
provision of this Lease shall be affected by any damage to or destruction of any
part of the Premises by any
<PAGE>
cause whatsoever, and the Tenant hereby expressly waives any and all additional
rights he/she/they/it might otherwise have under any law or statute.
Tenant acknowledges that if, as a result of any casualty, whether
insured against or not, whether Landlord rebuilds or not, Tenant is forced to
rent temporary and/or permanent office space in another location, all expenses
of the relocation including but not limited to moving expenses, rental fees, and
security deposits shall be solely the Tenant's responsibility.
21. INSPECTION. The Landlord shall have the right to enter and grant
licenses to others to enter the Lease Space at any time during all reasonable
hours to examine the same or to make such repairs, additions, or alterations as
may be deemed necessary for the safety, comfort, or preservation thereof, or of
the Building and for the purpose of removing placards, signs, fixtures,
alterations, or additions which do not conform to the terms of this Lease or to
the rules and regulations of the Building and to exhibit the Leased Space to
prospective tenants or purchasers; provided, however Landlord warrants that such
activities will not be carried on at such times and in such manner as to
interfere unnecessarily with Tenant's enjoyment and use of the Leased Space.
22. MORTGAGES. This Lease is and shall remain subject and subordinate to
all present or future mortgages affecting the premises and the Tenant shall
promptly execute and deliver to the Landlord such documents as the Landlord may
request, showing the subordination of this Lease to such mortgages, and in
default of the Tenant's doing so, the Landlord shall be and hereby is authorized
and empowered to execute such documents in the name and as the act and deed of
the Tenant. This authority is coupled with an interest and is irrevocable.
The Landlord represents that any mortgagee has or will covenant that
in the event any mortgagee takes possession of the premises, it will accept the
Tenant as its Tenant for a period equal to the full unlapsed portion of the term
of this Lease; provided, however, the mortgagee may refuse to accept the Tenant
if default has occurred under the terms of this Lease.
23. SIGNS. Tenant shall not paint or place signs upon the windows or
doors of the Leased Space except with the consent of the Landlord and Tenant
shall place no assigns upon the outside walls or the roof of the Building.
Landlord shall make provisions for and provide conforming signage on the
interior of the Building.
24. WINDOWS. All window treatments visible from the exterior of the
Building will conform to the specifications established by the Landlord or its
architect. Said specifications will be supplied to the Tenant by the Landlord
upon request.
25. NOTICES. Any written notice required or allowed by this lease to be
given to either the Landlord or the Tenant shall be deemed given upon receipt by
certified or registered mail, postage prepaid, properly addressed to the parties
as follows:
Tenant: WJB Video, Limited Partnership
c/o Bob Brannon
P.O. Box 5785
Spartanburg, SC 29304
<PAGE>
Landlord: Bell Hill Associates
c/o Johnson Development Associates, Inc.
P.O. Box 3524
Spartanburg, SC 29304
26. RULES AND REGULATIONS. The Landlord has made, or form time to time
may make, reasonable rules and regulations for the government of the Building.
These rules and regulations are, or shall be a part of this lease and binding
upon the Tenant to the same extent as if set out herein and copies thereof shall
be delivered to the Tenant.
27. ESTOPPEL CERTIFICATES. Tenant agrees to provide Landlord within five
days of a written request therefor a certificate in form and substance
satisfactory to Landlord stating (i) that this lease is in full force and
effect; (ii) the commencement date and term of this lease; (iii) the date
through which rent has been paid; (iv) that there are not defaults existing
under this Lease, or, if any default exists, specifying such default and the
actions required to remedy such default; and (v) such other matters as Landlord
may reasonably require.
28. OTHER DEFAULTS. In the event (i) the Tenants defaults in the payment
of rent for a period of ten days after the first day of each month, (ii) the
Leased Space shall be vacated; (iii) the Tenant shall fail to comply with any
term of the Lease (other than payment of rent) or any of the rules and
regulations now or hereafter established for the government of the Building;
(iv) the filing of any proceeding, whether voluntary or involuntary, in
bankruptcy seeking reorganization or relief under the Bankruptcy Code or other
insolvency law or regulations; (v) the Tenant becomes insolvent or makes a
transfer in fraud of creditors; or (vi) the Tenant makes an assignment for the
benefit of creditors; the Landlord may (i) terminate this Lease by giving
written notice to Tenant; (ii) take possession of and enter the Leased Space as
agent of the Tenant and relet them for such rent as is obtainable by reasonable
effort and collect from the Tenant the deficiency plus all costs of reletting,
including, but not limited to lease commissions, attorney's fees and upfitting
costs which Landlord remedies which may be provided by law. Provided, however,
that should any event or condition described in items (ii) - (vi) of this
Paragraph 28 occur, such event or condition shall not constitute a default
should such event or condition be cured to the satisfaction of Landlord within
thirty (30) days from the occurrence of such event or condition, or a reasonable
period of time in addition thereto if circumstances are such that the default
cannot be reasonably cured within thirty (30) days and the defaulting Tenant
promptly takes action to cure such default and pursues such action with due
diligence.
29. RIGHTS AND REMEDIES. All rights and remedies of the Landlord herein
shall be cumulative, and none shall be exclusive of any other, or of any rights
and remedies allowed by law, and pursuit of any one of said rights or remedies
does not preclude pursuit of any one or more of the other of said rights or
remedies.
30. SEVERABILITY. If any term of this Lease is declared to be illegal or
unenforceable, the unaffected terms shall remain in full force and effect.
31. PARTIES. The words "Tenant" and "Landlord" as used herein shall
include the parties to the lease, whether singular or plural, masculine or
feminine, or corporate, partnership or other entity, and their heirs, personal
representatives, successors and assigns.
<PAGE>
32. MEMORANDUM OF LEASE. This lease shall not be recorded. At the
request of either party, the Landlord and Tenant shall execute a short form or
Memorandum of Lease for recording in the Office of the Register of Mesne
Conveyance for Sparatanburg County, South Carolina. The party requesting
recordation shall pay the recording charges.
33. CONTROLLING LAW. This Lease is entered into in South Carolina and
shall be enforced and construed in accordance with the laws thereof.
34. COVENANTS AGAINST LIENS. Tenant expressly covenants and agrees that
he/she/they/it will, during the term hereof, promptly remove or release, by the
posting of a bond or otherwise, as required or permitted by law, any lien
attached to or upon said premises or any Tenant, and hereby expressly agrees to
save and hold harmless the Landlord from or against any such lien or claim of
lien. In the event any such lien does attach, or any claim of lien is made
against said leased premises, which may be occasioned by any act or omission
upon the party of Tenant, and shall not be thus released within 30 days after
notice thereof, Landlord, in its sole discretion (but nothing herein contained
shall be construed as requiring it so to do), may pay an discharge the lien and
release the leased premises from any lien, and Tenant agrees to pay and
reimburse Landlord upon demand for or on account of any expense which may be
incurred by Landlord in discharging such lien or claim, which sum shall include
interest at the legal rate, from the date such lien is paid by Landlord until
the date Landlord is reimbursed by Tenant; provided, however, that if Tenant has
reasonable cause to contest the validity or correctness of any such lien,
he/she/they/it may do so and in such event no breach of this Lease shall result.
35. ENTRY FOR CARDING, ETC. Landlord may card premises "For Sale" at any
time and "For Rent" ninety (90) days before the termination of this Lease.
36. FORCE MAJEURE. In the event either Landlord or Tenant shall be
delayed, hindered, or prevented from the performance of any requirement
hereunder, by reason of governmental restrictions, scarcity of labor or
materials, strikes, or any other reasons beyond his/her/their/its control, the
performance of such act shall be excused for the period of delay and the period
for the performance of such act shall be extended for the period necessary to
complete performance after the end of the period of such delay.
37. ATTORNEY'S FEES. If Landlord shall be made a party to any litigation
commenced by or against Tenant, Tenant shall pay all costs, expense and
attorney's fees incurred by Landlord in connection with such litigation,
excepting the event that such litigation shall determine that Landlord has
committed a breach of this Lease and shall adjudicate that Landlord is liable
therefore. In the event of any action at law or in equity between Landlord and
Tenant to enforce any of the provisions and/or rights hereunder, the
unsuccessful party to such litigation covenants and agrees to pay to the
successful party all costs and expenses, including reasonable attorney's fees
incurred therein by such successful party, and if such successful party shall
recover judgment in any such action or proceeding, such costs, expenses and
attorney's fees shall be included in and as part of such judgement. Tenant
waives all homestead rights and exemptions and assigns the same to Landlord.
38. SALE BY LANDLORD. In the event of a sale or conveyance by Landlord of
the leased premises, the same shall operate to release Landlord from any future
liability upon any of
<PAGE>
the covenants or conditions, expressed or implied, herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the responsibility of
the successor in interest of Landlord in and to this Lease. This lease shall not
be affected by any such sales, and Tenant agrees to attorn to the purchaser or
assignee.
39. COMPLIANCE WITH ENVIRONMENTAL REGULATIONS.
a) The Tenant shall not cause or permit any hazardous wastes,
hazardous wastes, hazardous substances, toxic substances, or related materials
(collective "Hazardous Materials") to be used, generated, stored or disposed of
on, under or about, or transported to or from the premises (collectively
"Hazardous Materials Activities") except in compliance with all applicable
federal, state and local laws, regulations and orders governing such Hazardous
Materials or Hazardous Materials Activities, which compliance shall be at
Tenant's sole expense. Additionally, Tenant shall not cause or permit any
Hazardous Materials to be disposed of on, under or about the premises without
the express prior written consent of the Landlord, which may be withheld for any
reason and may be revoked at any time.
b) Tenant shall be responsible for all reporting or notification
obligations of an owner, operator or person in control of petroleum products or
Hazardous Materials under any applicable federal, state or local law,
regulation, ordinance or order.
c) At the expiration of the lease, including any extensions, Tenant
shall remove from the premises, at Tenant's sole expense, all Hazardous
Materials located, stored or disposed of on, under or about the premises which
were first brought to or used, stored or disposed of on the premises by Tenant
or by Tenant's employees, agents, contractors, licenses or invitees. Tenant
shall close, remove or otherwise render safe any buildings, tanks, containers,
or other facilities related to the Hazardous Activities conducted or permitted
on the premises in the manner required by all applicable laws, regulations,
ordinances or orders. Tenant shall be solely responsible for the
transportation, handling, use or reuse and disposal of such Hazardous Material
after their removal from the premises.
d) Landlord shall not be liable to Tenant or to any other party for
any Hazardous Material Activities conducted or permitted on, under or about the
premises by Tenant or by Tenant's employees, agents, contractors, licenses, or
invitees. Tenant shall indemnify, defend with counsel acceptable to Landlord
and hold Landlord harmless from any claims, damages, fines, penalties, losses,
judgments costs and liabilities arising out of or related to any Hazardous
Materials Activities conducted or permitted on, under or about the premises by
Tenant or by Tenant's employees, agents, contractors, licensees or invitees,
regardless of whether Landlord have consented to, approved of, participated in
or had notice of this paragraph shall survive the expiration or termination of
this lease.
40. SUBORDINATION AND NONDISTURBANCE. Tenant shall upon request by
Landlord subordinate this lease to any mortgage now or hereafter placed on the
premises, provided that such subordination shall be upon the condition that the
lease be recognized by the mortgagee and the Tenant's interest remain in effect
notwithstanding any default of the mortgagor, so long as Tenant shall perform
all covenants and conditions imposed upon it.
<PAGE>
Likewise, Landlord shall require from any mortgage holder an agreement that the
rights of Tenant under the Lease shall continue notwithstanding a default of
Landlord.
41. LANDLORD'S LIEN. In addition to any statutory Landlord's lien,
Landlord shall have at all times a valid security interest to secure monetary
obligations due from Lessee and to secure payment of any damages or loss that
may be caused by Lessee's breach of this Agreement upon all Lessee's goods,
equipment, fixtures, furniture, and other personal property presently, or which
may hereafter be situated on or in the premises and all proceeds therefrom. All
such property shall not be removed from the premises without the consent of the
Lessor until all arrearages due Lessor are paid or discharged and all
obligations under the Lease fully performed by Lessee. Upon the occurrence of
an event of default by Lessee, Lessor, in addition to any other remedies
provided herein or under the South Carolina Uniform Commercial Code may enter
upon the premises and take possession of any and all goods, equipment, fixtures,
furniture and other personal property on the premises, without liability for
trespass or conversion and sell the same at a public or private sale, with or
without having such property at the sale, after giving Lessee reasonable notice
of the time and place of the public sale or of the time afterwhich any private
sale is to be made, at which sale the Lessor or its assigns may purchase the
property, unless otherwise prohibited by law. Unless otherwise provided by law,
and without intending to exclude any other manner of giving reasonable notice,
the requirement of reasonable notice shall be met if such notice is given in the
manner prescribed in this lease at least 10 days before the time of sale. Any
sales made pursuant to this paragraph shall be deemed to have been a public sale
conducted in a commercially reasonable manner if held in the premises or
wherever the property is located after time, place and method of sale and a
description of the types of property to be sold have been advertised in a daily
newspaper published in the County of the premises for five consecutive days
before the date of the sale. Proceeds from any such sale, less any and all
expenses connected with taking of possession, holding and selling of the
property including reasonable attorney's fees and expenses shall be applied as a
credit to the indebtedness secured by the security interest granted in this
paragraph. Any surplus shall be paid to Lessee, unless otherwise required by
law and the Lessee shall pay any deficiencies forthwith. Upon request by
Lessor, Lessee agrees to execute and deliver Lessor a UCC financing statement in
form sufficient to perfect the security interest of Lessor in the aforementioned
property and proceeds thereof under provisions of the South Carolina Uniform
Commercial Code. The statutory lien for rent is not hereby waived, the security
interest herein granted being in addition and supplementary thereto.
42. OPTION TO EXTEND. Tenant upon giving written notice at lease one
hundred twenty (120) days prior to the expiration of this Lease Agreement may
elect to exceed the terms of this Lease for an additional three (3) year term.
Base rent amount for said term shall be negotiated at that time.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed, all as of the day and year first above written.
<PAGE>
WITNESSES: Landlord:
BELL HILL ASSOCIATES, a South Carolina
General Partnership
/s/ Darlene Hemphill By: /s/ V. R. Lamp, V.P.
- ------------------------------ ------------------------------
Its: General Partner
/s/ June White
- ------------------------------
Tenant:
/s/ WJB VIDEO LIMITED PARTNERSHIP
- ------------------------------ By:
/s/ Dori J. Marcengill /s/ George D. Johnson, Jr.
- ------------------------------ --------------------------------
Its: President
<PAGE>
STATE OF SOUTH CAROLINA ) PROBATE
COUNTY OF SPARTANBURG )
PERSONALLY appeared before me the first witness, whose name is subscribed
above, who on oath states that (s)he saw the within named Bell Hill Associates,
a South Carolina General Partnership, by V.R. Lamp, its General Partner sign,
seal and deliver the within Lease Agreement, and that (s)he with the second
witness, whose name is subscribed above, witnessed the execution thereof.
/s/ Darlene Hemphill
------------------------------------
SWORN to before me this 30th
day of January, 2000;
/s/ Nan J. White (SEAL)
- ----------------------
Notary Public for South Carolina
My Commission Expires: March 6, 1991
STATE OF SOUTH CAROLINA ) PROBATE
COUNTY OF SPARTANBURG )
PERSONALLY appeared before me the first witness, whose name is subscribed
above, who on oath states that (s)he saw the within named WJB Video Limited
Partnership General Partnership, by George Dean Johnson, Jr., its Managing
Partner sign, seal and deliver the within Lease Agreement, and that (s)he with
the second witness, whose name is subscribed above, witnessed the execution
thereof.
/s/
------------------------------------
SWORN to before me this 30th
day of January, 1990;
/s/ Dori J. Marcengill (SEAL)
- ----------------------------
Notary Public for South Carolina
My Commission Expires: May 17, 1999
<PAGE>
EXHIBIT A
Lessor: Bell Hill Associates
Lessee: WJB Video, L.P.
As of the Rent Commencement Date stated under Paragraph 4 of this Lease
Agreement, Lessee shall occupy those areas that are scored on the following
layout of Building C, Floors 3, 2 and 1. None of the square footage of the
Lobby Level shall be occupied by Lessee as the Rent Commencement Date stated in
Paragraph 4.
On October 15, 1990, Lessee shall further occupy and rent shall commence on
Room #1 on the Lobby Level. The term shall run concurrently with the Lease
Agreement.
On June 1, 1991, Lessee shall occupy and rent shall commence on the balance
of the Lobby Level floor, excluding common areas. Should Lessee, at its option
elect to occupy all or any portion of the balance of the Lobby Level prior to
the June 1, 1991 commencement date, it may do so and it shall pay rent on the
additional space taken as of the date of occupancy. In all events, it shall
lease all of the Lobby Level, excluding common areas, as of June 1, 1991.
Lessor shall, at its expense, improve the Lobby Level, excluding common
areas, to standards and specifications approved by Lessor and Lessee. Its is
anticipated that the majority of the space shall be open space with minimal
floor to ceiling partitions. Additionally, said space shall be finished
similarly and in quality and style in keeping with existing improvements. Room
#1 shall be upfitted prior to the October 15, 1990 occupancy by Lessee. The
balance of the Lobby Level shall be upfitted at the time of election to occupy
by Lessee, but not later than June 1, 1991.
<PAGE>
EXHIBIT "B"
DESCRIPTION OF PROPERTY
[floor plan of premises]
<PAGE>
SCHEDULE "A"
RENT SCHEDULE
<PAGE>
ALLOCATION OF RENT - 3RD FLOOR - BELL HILL III
Jul-99
<TABLE>
<CAPTION>
COMMON JDA JDA'S % ADV. AA'S % ESA ESA'S %
FACILITIES* AMERICA
<S> <C> <C> <C> <C> <C> <C> <C>
Base Sq. Ft. 4,415.50 36.70% 6,437.00 53.50% 1,179.00 9.80%
Plus Allocation of Common Facilities 1246 464 676 124
--- --- ---
Effective Sq. Ft. 4,879.50 7,113.00 1,303.00
Times Common Area Factor 1.1619 1.1619 1.1619
------ ------ ------
Adjusted Rental Sq. Ft. 5.669.49 8,264.59 1,513.96
Times Base Rent/Adjusted Rental Sq. Ft. $9.55 $9.55 $9.55
----- ----- -----
Base Rent $54,143.64 $78,926.88 $14,458.28
Less Prorata Share of $34K (Blockbuster $12,478.00 $18,190.00 $ 3,332.00
subsidy) ---------- ---------- ----------
Adjusted Base Rent (Annual) $41,666 $ 60,737 $ 11,126
Common Area Maintenance Charges for $ 34,017 $ 49,588 $ 9,084
1999** ---------- ---------- ----------
TOTAL ANNUAL PAYMENT OF RENT AND CAM $ 75,683 $ 110,324 $ 20,210
MONTHLY PAYMENT: $ 6,307 $ 9,194 $ 1,684
========== ========== ----------
</TABLE>
*Common Facilities: Back lobby and conference room (1048 sq. ft); front lobby
(216 sq. ft): GDJ, Jr. suite previously considered Common Facility now
reclassified to account of ESA.
**CAM estimated at $6.00 per adjusted rentable sq. ft.
<PAGE>
TIME SHARING AGREEMENT
This Agreement is made, effective as of November 29, 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 NI22SU ("the Aircraft" or "Aircraft"), a
LearJet, Model 55B, Manufacturer's Serial Number 132;
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.
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;
<PAGE>
(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 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 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
2
<PAGE>
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 judgment would compromise the safety of the flight.
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 judgment 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 $5,650,000.00
(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:
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.
3
<PAGE>
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.
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 be 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.
4
<PAGE>
13. TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A LEARJET 55B MODEL, MANUFACTURER'S SERIAL NO. 132,
CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N122SU 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 Street, 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.
5
<PAGE>
Exhibit 21.1 EXTENDED STAY AMERICA, INC.
CORPORATE SUBSIDIARIES
at December 31, 1999
CORPORATE ENTITY STATE OF INCORPORATION
- ---------------- ----------------------
ESA 0102, Inc. Georgia
ESA 0106, Inc. North Carolina
ESA 0121, Inc. Tennessee
ESA 0123, Inc. Alabama
ESA 0124, Inc. Alabama
ESA 0125, Inc. Tennessee
ESA 0127, Inc. North Carolina
ESA 0153, Inc. Illinois
ESA 0155, Inc. Alabama
ESA 0161, Inc. North Carolina
ESA 0163, Inc. Tennessee
ESA 0174, Inc. Florida
ESA 0186, Inc. North Carolina
ESA 0201, Inc. North Carolina
ESA 0206, Inc. North Carolina
ESA 0231, Inc. North Carolina
ESA 0232, Inc. North Carolina
ESA 0280, Inc. North Carolina
ESA 0302, Inc. Florida
ESA 0303, Inc. Florida
ESA 0305, Inc. Tennessee
ESA 0311, Inc. Colorado
ESA 0315, Inc. Tennessee
ESA 0328, Inc. Florida
ESA 0370, Inc. North Carolina
ESA 0371, Inc. North Carolina
ESA 0373, Inc. Georgia
ESA 0381, Inc. Florida
ESA 0382, Inc. Georgia
ESA 0417, Inc. North Carolina
ESA 0450, Inc. Tennessee
ESA 0454, Inc. New Jersey
ESA 0455, Inc. New Jersey
ESA 0479, Inc. New Jersey
ESA 0510, Inc. Illinois
ESA 0525, Inc. Illinois
ESA 0527, Inc. Michigan
ESA 0530, Inc. Illinois
ESA 0532, Inc. Illinois
ESA 0541, Inc. Illinois
ESA 0552, Inc. Michigan
ESA 0600, Inc. Michigan
ESA 0640, Inc. Illinois
ESA 0646, Inc. New Jersey
ESA 0660, Inc. Illinois
Page 1
<PAGE>
Exhibit 21.1 EXTENDED STAY AMERICA, INC.
CORPORATE SUBSIDIARIES
at December 31, 1999
CORPORATE ENTITY STATE OF INCORPORATION
- ---------------- ----------------------
ESA 0670, Inc. Michigan
ESA 0675, Inc. Michigan
ESA 0677, Inc. Illinois
ESA 0680, Inc. Michigan
ESA 0706, Inc. Missouri
ESA 0733, Inc. Minnesota
ESA 0734, Inc. Minnesota
ESA 0737, Inc. Minnesota
ESA 0745, Inc. Minnesota
ESA 0752, Inc. Illinois
ESA 0753, Inc. Illinois
ESA 0780, Inc. Michigan
ESA 0788, Inc. Georgia
ESA 0789, Inc. Florida
ESA 0858, Inc. Nevada
ESA 0859, Inc. Nevada
ESA 0860, Inc. Nevada
ESA 0861, Inc. Nevada
ESA 0869, Inc. Florida
ESA 0884, Inc. Florida
ESA 0885, Inc. Colorado
ESA 0901, Inc. Colorado
ESA 0990, Inc. Georgia
ESA 0991, Inc. Georgia
ESA 0992, Inc. Georgia
ESA 0993, Inc. Georgia
ESA 0994, Inc. Colorado
ESA 0996, Inc. Georgia
ESA 1500, Inc. North Carolina
ESA 1501, Inc. Georgia
ESA 1502, Inc. Georgia
ESA 1510, Inc. Florida
ESA 1514, Inc. North Carolina
ESA 1546, Inc. Florida
ESA 1550, Inc. Georgia
ESA 1591, Inc. North Carolina
ESA 1594, Inc. North Carolina
ESA 1596, Inc. North Carolina
ESA 1634, Inc. North Carolina
ESA 2509, Inc. New Jersey
ESA 2522, Inc. New Jersey
ESA 3504, Inc. Minnesota
ESA 4012, Inc. Illinois
ESA 4013, Inc. Michigan
ESA 4016, Inc. Illinois
Page 2
<PAGE>
Exhibit 21.1 EXTENDED STAY AMERICA, INC.
CORPORATE SUBSIDIARIES
at December 31, 1999
CORPORATE ENTITY STATE OF INCORPORATION
- ---------------- ----------------------
ESA 4019, Inc. Illinois
ESA 4023, Inc. Illinois
ESA 7502, Inc. Colorado
ESA 7508, Inc. Colorado
ESA 7513, Inc. Colorado
ESA Arkansas, Inc. Arkansas
ESA Arizona, Inc. Arizona
ESA COL, Inc. Colorado
ESA Connecticut, Inc. Connecticut
ESA Florida, Inc. Florida
ESA Georgia, Inc. Georgia
ESA Idaho, Inc. Idaho
ESA Illinois, Inc. Illinois
ESA Indiana, Inc. Indiana
ESA Iowa, Inc. Iowa
ESA Kansas, Inc. Kansas
ESA Kentucky, Inc. Kentucky
ESA Louisiana, Inc. Louisiana
ESA Maryland, Inc. Maryland
ESA Michigan Michigan
ESA Minnesota, Inc. Minnesota
ESA Mississippi, Inc. Mississippi
ESA Missouri, Inc. Missouri
ESA New Mexico, Inc. New Mexico
ESA New York, Inc. New York
ESA Ohio, Inc. Ohio
ESA Oklahoma, Inc. Oklahoma
ESA Oregon, Inc. Oregon
ESA South Carolina, Inc. South Carolina
ESA Tejas, Inc. Texas
ESA Tennessee, Inc. Tennessee
ESA Utah, Inc. Utah
ESA Virginia, Inc. Virginia
ESA Washington, Inc. Washington
ESA Wisconsin, Inc. Wisconsin
Extended Stay 0453, Inc. Pennsylvania
Extended Stay 0463, Inc. Pennsylvania
Extended Stay 0507, Inc. Pennsylvania
Extended Stay 0547, Inc. Pennsylvania
Extended Stay 2506, Inc. Pennsylvania
Extended Stay 2511, Inc. Pennsylvania
Extended Stay CA, Inc. Delaware
Extended Stay MA, Inc. Massachusetts
Extended Stay America Redevelopment Corporation Missouri
Page 3
<PAGE>
Exhibit 21.1 EXTENDED STAY AMERICA, INC.
CORPORATE SUBSIDIARIES
at December 31, 1999
CORPORATE ENTITY STATE OF INCORPORATION
- ---------------- -----------------------------------
ESA Management, Inc. Delaware
ESA Services, Inc. Delaware
ESA West, Inc. Nevada
ESA International, Inc. Delaware
Studio Plus Hotels, Inc. Delaware
Studio Plus Properties, Inc. Virginia
TOTAL = 140
Page 4
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Extended Stay America, Inc. on Form S-3 (No. 333-100), on Form S-3 (No.
333-21625), on Form S-3 (No. 333-32345), on Form S-8 (No. 333-10255), on Form
S-8 (No. 333-25639), and on Form S-8 (No. 333-43427) of our report dated January
27, 2000, on our audits of the consolidated financial statements of Extended
Stay America, Inc. as of December 31, 1999 and 1998, and for the years ended
December 31, 1999, 1998, and 1997, which report is included in this Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
Spartanburg, South Carolina
March 15, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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