-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TQOdDAgBzwOSc9AZGWaEHyw9MRLljqSbVgARcD9r7qivYC/CKPpJ6DJkCYrusc9a evfx/0+Zc8F7Mvi1Cb/UJg== 0000950131-00-001779.txt : 20000316 0000950131-00-001779.hdr.sgml : 20000316 ACCESSION NUMBER: 0000950131-00-001779 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXTENDED STAY AMERICA INC CENTRAL INDEX KEY: 0001002579 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 363996573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13125 FILM NUMBER: 570595 BUSINESS ADDRESS: STREET 1: 450 E LAS OLAS BLVD STREET 2: STE 1100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: 9547131600 MAIL ADDRESS: STREET 1: 450 E LAS OLAS BLVD STREET 2: STE 1100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33301 10-K 1 FORM 10-K ================================================================================ 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. ================================================================================ 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 1 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. 2 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.
Upscale Extended Stay Chains Other Extended Stay Chains ---------------------------- ---------------------------------------------------- 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)
We believe that these chains represent the majority of dedicated extended stay rooms available in the U.S. lodging industry. 3 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.
1997 1998 1999 ------ ------- ------- 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
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.
Year Ended December 31, --------------------------------- 1995 1996 1997 1998 1999 ----- ----- ----- ----- ----- 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
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.
Increase Percentage Increase Percentage in Increase from in Increase from 1998 Prior Year 1999 Prior Year ---------- -------------- ---------- -------------- 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
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 4 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:
StudioPLUS EXTENDED STAY Crossland Total ----------------- ------------------ ----------------- ------------------ Properties Rooms Properties Rooms Properties Rooms Properties Rooms ---------- ----- ---------- ------ ---------- ----- ---------- ------ 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
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:
Average Average Number Living Space Of Rooms Per Room (Ft./2/) -------- ----------------- StudioPLUS................ 80 425 EXTENDED STAY............. 100 300 Crossland................. 120 225
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-- 5 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.
Date Opened or Number City Brand Acquired of Rooms ---- ------------- -------------- -------- 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
6 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 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 8 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
Date Opened or Number City Brand Acquired of Rooms ---- ------------- ------------------ -------- 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
10
Date Opened or Number City Brand Acquired of Rooms ---- ------------- ------------------ -------- 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
11
Date Opened or Number City Brand Acquired of Rooms ---- ------------- ------------------ -------- 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
12
Date Opened or Number City Brand Acquired of Rooms ---- ------------- -------------- -------- 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
13
Date Opened or Number City Brand Acquired of Rooms ---- ------------- ------------------ -------- 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
14
Date Opened or Number City Brand Acquired of Rooms ---- ------------- -------------- -------- 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
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 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 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 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.
Year Ended December 31, ------------------------------------------------------------ 1995 1996 1997 1998 1999 --------- ---------- ----------- ----------- ----------- (in thousands, except per share and operating data) 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
- ------------ (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 (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 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.
Year Ended December 31, -------------------------- 1997 1998 1999 -------- ------- ------- 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
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
EXTENDED Crossland STAY StudioPLUS Total --------- -------- ---------- ----- Operating Facilities........... 39 233 90 362 Facilities Under Construction.. 0 22 1 23
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:
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 ---------- ----------- ------- ---------- ----------- ------- 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 === == ==== === == ====
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 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 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:
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 ---------- ----------- ------- ---------- ----------- ------- 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 === == ==== === == ====
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 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 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:
Base Rate Eurodollar Rate --------- --------------- 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%
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 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 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 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ***** INDEX TO FINANCIAL STATEMENTS
Page ---- EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES 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
28 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 EXTENDED STAY AMERICA, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
ASSETS December 31, ------ ------------------------ 1999 1998 ---------- ------------ 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 ========== ==========
See notes to consolidated financial statements. 30 EXTENDED STAY AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
Year Ended December 31, ------------------------------ 1999 1998 1997 --------- -------- --------- 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 ======== ======== ========
See notes to consolidated financial statements. 31 EXTENDED STAY AMERICA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
Additional Total Common Paid-in Retained Stockholders' Stock Capital Earnings Equity ------ ---------- -------- ------------- 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 === ======== ======= ========
See notes to consolidated financial statements. 32 EXTENDED STAY AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ---------------------------------- 1999 1998 1997 ---------- ---------- ---------- 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 $ ========= ========= =========
See notes to consolidated financial statements. 33 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 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 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:
December 31, ---------------------- 1999 1998 ---------- ---------- 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 ========== ==========
36 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:
Base Rate Eurodollar Rate ---------- ---------------- 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%
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 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:
2000.................. $ 3,000 2001.................. 3,000 2002.................. 361,000 2003.................. 193,000 2004.................. 96,000 Thereafter............ 200,000 -------- $856,000 ========
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 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:
Year Ended December 31, ------------------------ 1999 1998 1997 ------- ------- ------ 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 ======= ======= ======
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:
Year Ended December 31, -------------------------- 1999 1998 1997 -------- ------- ------- 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% ==== ==== ====
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:
1999 1998 -------- -------- 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) ======== ========
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 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 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:
1999 1998 1997 ----------------------- ----------------------- ------------------------ Number of Price Per Number of Price Per Number of Price Per Shares Share Shares Share Shares Share ---------- ----------- ---------- ----------- ---------- ------------ 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
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.
1999 1998 1997 ----------------- ----------------- ------------------ As Pro As Pro As Pro Reported Forma Reported Forma Reported Forma -------- ------- -------- ------- -------- -------- 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)
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 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:
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 - --------------------- ------------ ----------- -------- ------------ -------- $ 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 ====== ==== ====== ===== ======
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 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:
1999 -------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- 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
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:
Year Ending December 31: 2000.......................... $1,255 2001.......................... 1,261 2002.......................... 712 2003.......................... 725 2004.......................... 718 Thereafter.................... 1,752 ------ $6,423 ======
43 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.
Name Age Position ---- --- -------- 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
- -------------- * 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 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 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 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 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 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 EX-10.11B 2 SUBLEASE AGREEMENT DATED JULY 1, 1999 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. (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: 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. 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 EXHIBIT "A" LEASE AGREEMENT 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. 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 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: 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. 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 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 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 - -------------------------------- 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 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 - ------------------------------ 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 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. 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 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 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 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 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 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 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. 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 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. 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. 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 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 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. EXHIBIT "B" DESCRIPTION OF PROPERTY [floor plan of premises] SCHEDULE "A" RENT SCHEDULE ALLOCATION OF RENT - 3RD FLOOR - BELL HILL III Jul-99
COMMON JDA JDA'S % ADV. AA'S % ESA ESA'S % FACILITIES* AMERICA 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 ========== ========== ----------
*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. EX-10.20 3 TIME SHARING AGREEMENT DATED NOV. 29, 1999 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; (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 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 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 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 EX-21.1 4 LIST OF SUBSIDIARIES OF THE COMPANY 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 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 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 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 EX-23.1 5 CONSENT OF PRICEWATERHOUSECOOPERS LLP 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 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 6,449 0 6,094 0 0 54,433 1,987,986 131,469 1,927,249 81,492 853,000 0 0 960 914,630 1,927,249 0 417,662 0 180,429 101,151 0 56,074 80,008 32,004 48,004 0 0 779 47,225 0.49 0.49
-----END PRIVACY-ENHANCED MESSAGE-----