-----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, DgU+P/cuKopKGS8G3Thg8EqoH/xmewx7drHmoZ8yTcCuCLuOKXpZ/6XEfDzNwg+h r9SFKwakN6ezLqBoX8Ulsg== 0000950131-99-006374.txt : 19991117 0000950131-99-006374.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950131-99-006374 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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-Q SEC ACT: SEC FILE NUMBER: 001-13125 FILM NUMBER: 99755864 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-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from __________ to __________ Commission File Number 0-27360 _____________ EXTENDED STAY AMERICA, INC. (Exact name of Registrant as specified in its charter) Delaware 36-3996573 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 450 EAST LAS OLAS BOULEVARD, FORT LAUDERDALE, FL 33301 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (954) 713-1600 _____________ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___X____ No_______ At November 9, 1999, the registrant had issued and outstanding an aggregate of 96,196,084 shares of Common Stock. PART I FINANCIAL INFORMATION Item 1. Financial Statements EXTENDED STAY AMERICA, INC. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share data) ASSETS ------
September 30, December 31, 1999 1998(1) ------------- ------------ Current assets: Cash and cash equivalents............................................................ $ 8,788 $ 623 Accounts receivable.................................................................. 7,350 5,946 Prepaid expenses..................................................................... 3,344 1,743 Deferred income taxes................................................................ 32,279 27,735 Other current assets................................................................. 27 781 ---------- ---------- Total current assets............................................................. 51,788 36,828 Property and equipment, net........................................................... 1,803,112 1,637,334 Deferred loan costs................................................................... 16,711 19,260 Other assets.......................................................................... 518 1,160 ---------- ---------- $1,872,129 $1,694,582 ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
Current liabilities: Accounts payable..................................................................... $ 27,452 $ 62,834 Income taxes payable................................................................. 37 7,079 Accrued retainage.................................................................... 10,955 25,442 Accrued property taxes............................................................... 13,522 6,856 Accrued salaries and related expenses................................................ 3,710 1,816 Accrued interest..................................................................... 2,456 7,010 Other accrued expenses............................................................... 16,192 15,304 Current portion of long-term debt.................................................... 2,000 2,000 ---------- ---------- Total current liabilities........................................................ 76,324 128,341 ---------- ---------- Deferred income taxes................................................................. 67,438 46,490 ---------- ---------- Long-term debt........................................................................ 818,000 653,000 ---------- ---------- Commitments Stockholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized; no shares issued and outstanding........................................................................ Common stock, $.01 par value, 500,000,000 shares authorized; 96,539,884 and 95,968,379 shares issued and outstanding, respectively............................. 965 960 Additional paid-in capital........................................................... 832,987 827,110 Retained earnings.................................................................... 76,415 38,681 ---------- ---------- Total stockholders' equity....................................................... 910,367 866,751 ---------- ---------- $1,872,129 $1,694,582 ========== ==========
_____________________ (1) Derived from audited financial statements See notes to the unaudited condensed consolidated financial statements 1 EXTENDED STAY AMERICA, INC. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share data)
Three Months Ended Nine Months Ended ---------------------------- ----------------------------- September 30, September 30, September 30, September 30, 1999 1998 1999 1998 ------------- ------------- -------------- ------------- Revenue.................................................... $116,491 $81,006 $312,397 $205,280 Property operating expenses................................ 48,231 32,593 133,277 87,767 Corporate operating and property management expenses....................................... 10,589 9,966 31,335 29,078 Increase (decrease) in valuation allowance................. 12,000 (1,079) 12,000 Depreciation and amortization.............................. 15,637 10,865 44,464 30,308 -------- ------- -------- -------- Total costs and expenses................................. 74,457 65,424 207,997 159,153 -------- ------- -------- -------- Income from operations before interest, income taxes and cumulative effect of accounting change..................... 42,034 15,582 104,400 46,127 Interest expense, net...................................... 14,942 6,429 40,210 12,111 -------- ------- -------- -------- Income before income taxes and cumulative effect of accounting change.......................................... 27,092 9,153 64,190 34,016 Provision for income taxes................................. 10,837 3,661 25,677 13,607 -------- ------- -------- -------- Net income before cumulative effect of accounting change... 16,255 5,492 38,513 20,409 Cumulative effect of change in accounting for start-up activities, net of income tax benefit of $520.............. 779 -------- ------- -------- -------- Net income................................................. $ 16,255 $ 5,492 $ 37,734 $ 20,409 ======== ======= ======== ======== Net income per common share- Basic: Net income before cumulative effect of accounting change.. $ 0.17 $ 0.06 $ 0.40 $ 0.21 Cumulative effect of accounting change.................... (0.01) -------- ------- -------- -------- Net income................................................. $ 0.17 $ 0.06 $ 0.39 $ 0.21 ======== ======= ======== ======== Net income per common share- Diluted: Net income before cumulative effect of accounting change.. $ 0.17 $ 0.06 $ 0.40 $ 0.21 Cumulative effect of accounting change.................... (0.01) -------- ------- -------- -------- Net income................................................. $ 0.17 $ 0.06 $ 0.39 $ 0.21 ======== ======= ======== ======== Weighted average shares: Basic..................................................... 96,523 96,033 96,260 95,878 Effect of dilutive options................................ 712 690 778 998 -------- ------- -------- -------- Diluted................................................... 97,235 96,723 97,038 96,876 ======== ======= ======== ========
See notes to the unaudited condensed consolidated financial statements 2 EXTENDED STAY AMERICA, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Nine Months Ended ------------------------------ September 30, September 30, 1999 1998 -------------- -------------- Cash flows from operating activities: Net income.......................................................... $ 37,734 $ 20,409 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................................... 44,464 30,308 Amortization of deferred loan costs included in interest expense.. 2,894 2,404 Deferred income taxes............................................. 16,404 5,300 Cumulative effect of accounting change, net....................... 779 Changes in operating assets and liabilities....................... (12,753) 14,135 --------- --------- Net cash provided by operating activities....................... 89,522 72,556 --------- --------- Cash flows from investing activities: Additions to property and equipment................................. (251,622) (455,409) Other assets........................................................ 121 (37) --------- --------- Net cash used in investing activities........................... (251,501) (455,446) --------- --------- Cash flows from financing activities: Proceeds from long-term debt........................................ 315,000 443,500 Repayments of revolving credit facility............................. (150,000) (28,500) Proceeds from issuance of common stock.............................. 5,489 3,126 Additions to deferred loan costs.................................... (345) (11,328) --------- --------- Net cash provided by financing activities....................... 170,144 406,798 --------- --------- Increase in cash and cash equivalents................................ 8,165 23,908 Cash and cash equivalents at beginning of period..................... 623 3,213 --------- --------- Cash and cash equivalents at end of period........................... $ 8,788 $ 27,121 ========= ========= Noncash investing and financing transactions: Capitalized or deferred items included in accounts payable and accrued liabilities............................................ $ 26,882 $ 70,185 ========= ========= Conversion of amounts due under revolving credit facility to term loan....................................................... $ $ 100,000 ========= ========= Capitalization of amortized deferred loan costs..................... $ $ 511 ========= ========= Supplemental cash flow disclosures: Cash paid for: Income taxes, net of refunds of $12 in 1999 and $411 in 1998....... $ 15,402 $ 2,672 ========= ========= Interest expense, net of amounts capitalized....................... $ 42,588 $ 14,703 ========= =========
See notes to the unaudited condensed consolidated financial statements 3 EXTENDED STAY AMERICA, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999 NOTE 1 -- BASIS OF PRESENTATION The accompanying condensed consolidated financial statements are unaudited and include the accounts of Extended Stay America, Inc. and subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated balance sheet data at December 31, 1998 was derived from audited financial statements of the Company but does not include all disclosures required by generally accepted accounting principles. Operating results for the three-month and nine-month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Pursuant to the Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" issued by the Accounting Standards Executive Committee, effective January 1, 1999, the Company changed its method of accounting for start-up activities, including pre-opening and organizational costs, to expense them as they are incurred. Accordingly, the Company recorded an expense of $779,000, net of income tax benefit of $520,000, as the cumulative effect of this change in accounting. In the quarter ended September 30, 1998, unfavorable capital market conditions resulted in a reduction in the Company's development plans for 1999 and 2000. As a result, a valuation allowance of $12.0 million was established for the write-off of costs related to sites that would not be developed. This valuation allowance was reduced by $1.1 million in the quarter ended June 30, 1999 due to the renegotiation of the terms of a number of the optioned sites. For the nine months ended September 30, 1999 and 1998, the computation of diluted earnings per share does not include approximately 7,850,000 and 6,287,000 weighted average shares, respectively, of common stock represented by outstanding options because the exercise price of the options was greater than the average market price of common stock during the period. Certain previously reported amounts have been reclassified to conform with the current period's presentation. 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We own and operate three brands in the extended stay lodging market-- StudioPLUS/TM/ Deluxe Studios ("StudioPLUS"), EXTENDED STAYAMERICA Efficiency Studios ("EXTENDED STAY"), and Crossland Economy Studios/SM/ ("Crossland"). Each brand is designed to appeal to different price points below $500 per week. All three brands offer the same core components: a living/sleeping area; a fully- equipped kitchen or kitchenette; and a bathroom. StudioPLUS facilities serve the mid-price category and generally feature guest rooms that are larger than those in our other brands, an exercise room, and a swimming pool. EXTENDED STAY rooms are designed to compete in the economy category. Crossland rooms are typically smaller than EXTENDED STAY rooms and are targeted for the budget category. In this Quarterly Report on Form 10-Q, the words "Extended Stay America", "Company", "we", "our", "ours", and "us" refer to Extended Stay America, Inc. and its subsidiaries unless the context suggests otherwise. During the quarter ended June 30, 1999, 14 StudioPLUS properties were repositioned as EXTENDED STAY properties. All operating statistics reflect the repositioning of these properties as EXTENDED STAY properties for the entire periods presented. The table below provides a summary of our selected development and operational results for the three months and nine months ended September 30, 1999 and 1998.
Three Months Nine Months Ended September 30, Ended September 30, --------------------- --------------------- 1999 1998 1999 1998 ---------- --------- ---------- --------- Total Facilities Open (at Period End).. 356 269 356 269 Total Facilities Developed............. 9 30 51 84 Average Occupancy Rate................. 79% 78% 75% 74% Average Weekly Room Rate............... $ 296 $ 290 $ 292 $ 286
Average occupancy rates are determined by dividing the rooms occupied on a daily basis by the total number of rooms. Due to our rapid expansion, our overall average occupancy rate has been negatively impacted by the lower occupancy typically experienced during the pre-stabilization period for newly- opened facilities. We expect the negative impact on overall average occupancy to decline as the ratio of newly-opened properties to total properties in operation declines. Average weekly room rates are determined by dividing room revenue by the number of rooms occupied on a daily basis for the applicable period and multiplying by seven. The average weekly room rates generally will be greater than standard room rates because of (1) stays of less than one week, which are charged at a higher nightly rate, (2) higher weekly rates for rooms that are larger than the standard rooms, and (3) additional charges for more than one person per room. We expect that our future occupancy and room rates will be impacted by a number of factors, including the number and geographic location of new facilities as well as the season in which we open those facilities. We also cannot assure you that we can maintain our occupancy and room rates. The following is a summary of our development status as of September 30, 1999 by brand. We expect to complete the construction of the facilities currently under construction generally within the next twelve months, however, we cannot assure you that we will complete construction within the time periods we have historically experienced. Our ability to complete construction may be materially impacted by various factors including final permitting, inspections and obtaining certificates of occupancy, as well as weather-induced construction delays.
EXTENDED Crossland STAY StudioPLUS Total --------- -------- ---------- ----- Operating Facilities........... 39 228 89 356 Facilities Under Construction.. 0 21 2 23
5 Results of Operations For the Three Months Ended September 30, 1999 and 1998 Property Operations The following is a summary of the properties in operation at the end of each period along with the related average occupancy rates and average weekly room rates during each period:
For the Three Months Ended ------------------------------------------------------------------------ September 30, 1999 September 30, 1998 ----------------------------------- ----------------------------------- Average Average Average Average Facilities Occupancy Weekly Room Facilities Occupancy Weekly Room Open Rate Rate Open Rate Rate ---------- ---------- ----------- ---------- ---------- ----------- Crossland...... 39 75% $214 21 66% $198 EXTENDED STAY.. 228 80 301 177 81 285 StudioPLUS..... 89 77 338 71 74 341 --- -- ---- --- -- ---- Total........ 356 79% $296 269 78% $290 === == ==== === == ====
Because newly opened properties typically experience lower occupancies during their pre-stabilization period, average occupancy rates are impacted by the ratio of newly opened properties to total properties. The average occupancy rate in the third quarter of 1999 for the 239 properties we owned and operated as of June 30, 1998 was 81%. Similarly, the average occupancy rate in the third quarter of 1998 for the 116 properties we owned and operated as of June 30, 1997 was 85%. The decline in the average occupancy rate for properties open for at least one year at the beginning of the quarter of each year is primarily attributable to an increase during the last twelve months in the supply of available rooms in the lodging industry generally and specifically in certain of the markets in which we operate. We expect that this increase in supply, particularly in certain markets in Texas and North Carolina, will continue to impact our occupancies until incremental demand is sufficient to compensate for the additional supply of available rooms. The impact of the additional supply of available rooms was offset by the impact of a decline in the ratio of newly opened properties to total properties, particularly for the Studio Plus and Crossland brands, resulting in overall average occupancy rates of 79% for the third quarter of 1999 compared to 78% for the third quarter of 1998. The increase in overall average weekly room rates for the third quarter of 1999 as compared to the third quarter of 1998 reflects the geographic dispersion of properties opened since September 30, 1998 and the higher standard weekly room rates in certain of those markets. The increase also is due in part to increases in rates charged at previously opened properties. The average weekly room rate for the 239 properties that we owned and operated throughout both periods increased by 2% in the third quarter of 1999. The increase in our overall average weekly room rates for the third quarter of 1999 as compared to the same period of 1998 are diluted by an increase in the percentage of total occupied rooms attributable to the lower priced Crossland brand. Occupied rooms attributable to the Crossland brand were 13% of total occupied room nights for the third quarter of 1999 compared to 7% for the third quarter of 1998. The decrease in the average weekly room rate for the StudioPLUS brand is primarily the result of lower rates experienced in certain markets in Texas and North Carolina in response to an increase in the supply of available rooms in those markets. We recognized total revenue of $116.5 million for the third quarter of 1999 and $81.0 million for the third quarter of 1998. This is an increase of $35.5 million, or 44%. Approximately $33.3 million of the increased revenue was attributable to properties opened subsequent to June 30, 1998 and approximately $2.2 million was attributable to an increase in revenue for the 239 properties that we owned and operated throughout both periods. Property operating expenses, consisting of all expenses directly allocable to the operation of the facilities but excluding any allocation of corporate operating and property management expenses, depreciation or interest, were $48.2 million (41% of total revenue) for the third quarter of 1999, as compared to $32.6 million (40% of total revenue) for the third quarter of 1998. The increase in the property operating expense ratio for 1999 is primarily attributable to increasing maintenance costs inherent in the maturing of certain of our properties and increases in labor rates in certain markets in response to increased demand for hospitality employees in those markets. 6 The provisions for depreciation and amortization for the lodging facilities were $15.2 million for the third quarter of 1999 and $10.5 million for the third quarter of 1998. These provisions were computed using the straight-line method over the estimated useful lives of the assets. These provisions reflect a pro rata allocation of the annual depreciation and amortization charge for the periods for which the facilities were in operation. Depreciation and amortization for the third quarter of 1999 increased compared to the third quarter of 1998 because we operated 87 additional facilities in 1999 and because we operated for a full quarter the 30 properties that were opened in the third quarter of 1998. Corporate Operations Corporate operating and property management expenses include all expenses not directly related to the development or operation of lodging facilities. These expenses consist primarily of personnel and certain marketing costs, as well as development costs that are not directly related to a site that we will develop. We incurred corporate operating and property management expenses of $10.6 million (9% of total revenue) in the third quarter of 1999 and $10.0 million (12% of total revenue) in the third quarter of 1998. The increase in the amount of these expenses for the third quarter of 1999 as compared to the same period in 1998 reflects the impact of additional personnel and related expenses in connection with the increased number of facilities we operated. We expect these expenses will continue to increase in total amount but decline as a percentage of revenue as we develop and operate additional facilities in the future. Depreciation and amortization was $419,000 for the quarter ended September 30, 1999 and $333,000 for the comparable period in 1998. These provisions were computed using the straight-line method over the estimated useful lives of the assets for assets not directly related to the operation of our facilities. These assets were primarily office furniture and equipment. We realized $143,000 of interest income in the third quarter of 1999 and $1.2 million in the third quarter of 1998. This interest income was primarily attributable to the temporary investment of funds drawn under our credit facilities. We incurred interest charges of $17.2 million during the third quarter of 1999 and $12.5 million in the third quarter of 1998. Of these amounts, $2.1 million in the third quarter of 1999 and $4.9 million in the third quarter of 1998 were capitalized and included in the cost of buildings and improvements. We recognized income tax expense of $10.8 million for the third quarter of 1999 and $3.7 million for the third quarter of 1998 (40% of income before income taxes and the cumulative effect of an accounting change, in both periods). Income tax expense differs from the federal income tax rate of 35% primarily due to state and local income taxes. We expect the annualized effective income tax rate for 1999 will be approximately 40%. Valuation Allowance In the quarter ended September 30, 1998, unfavorable capital market conditions resulted in a reduction in our development plans for 1999 and 2000. As a result, a valuation allowance of $12.0 million was established for the write-off of costs related to sites that would not be developed. This valuation allowance was reduced by $1.1 million in the quarter ended June 30, 1999 due to the renegotiation of the terms of a number of the optioned sites. For the Nine Months Ended September 30, 1999 and 1998 Property Operations The following is a summary of the number of properties in operation at the end of each period along with the related average occupancy rates and average weekly room rates during each period:
For the Nine Months Ended ------------------------------------------------------------------------ September 30, 1999 September 30, 1998 ----------------------------------- ----------------------------------- Average Average Average Average Facilities Occupancy Weekly Room Facilities Occupancy Weekly Room Open Rate Rate Open Rate Rate ---------- ---------- ----------- ---------- ---------- ----------- Crossland...... 39 68% $210 21 63% $196 EXTENDED STAY.. 228 77 296 177 77 280 StudioPLUS..... 89 74 334 71 70 335 --- -- ---- --- -- ---- Total........ 356 75% $292 269 75% $286 === == ==== === == ====
Average occupancy rates for the Crossland and StudioPLUS brands increased for the nine-month period ended September 30, 1999 as compared to the same period in 1998 primarily due to a decrease in the ratio of newly 7 opened properties to total properties for those brands. The average occupancy rate in the nine months ended September 30, 1999 for the 185 properties that we owned and operated as of December 31, 1997 was 79%. Average occupancy rates during the period were diluted by the impact of an increase during the last twelve months in the supply of available rooms in the lodging industry generally and specifically in certain of the markets in which we operate. The increase in average weekly room rates for the nine months ended September 30, 1999 as compared to the same period of 1998 reflects the geographic dispersion of properties opened since September 30, 1998 and the higher standard weekly room rates in certain of those markets. The increase also is due to increases in rates charged at previously opened properties. The average weekly room rate for the 185 properties that we owned and operated throughout both periods increased 2% in the first nine months of 1999. For the StudioPLUS brand, the average weekly rate also reflects a change in pricing policies instituted in 1998. The new policies established a standard rate structure based on competitive rates in the markets served by the properties instead of variable rates based on actual and anticipated short-term demand factors. We believe that the current pricing strategy creates greater value for more customers and that, as a result, the properties will enjoy long-term benefits of increased customer retention and loyalty. This change in pricing strategy and the impact of lower rates experienced in certain markets in Texas and North Carolina resulted in a decline in average weekly rates for the StudioPLUS brand for the nine months ended September 30, 1999, which was partially offset by the higher weekly rates charged in certain markets in which properties have been opened since September 30, 1998. We recognized total revenue of $312.4 million for the nine months ended September 30, 1999 and $205.3 million for the nine months ended September 30, 1998. This is an increase of $107.1 million, or 52%. Approximately $102.5 million of the increased revenue was attributable to properties opened subsequent to December 31, 1997 and approximately $4.6 million was attributable to an increase in revenue for the 185 properties that were owned and operated throughout both periods. Property operating expenses for the nine months ended September 30, 1999 were $133.3 million (43% of total revenue) compared to $87.8 million (43% of total revenue) for the nine months ended September 30 1998. The provisions for depreciation and amortization for the lodging facilities was $43.4 million for the nine months ended September 30, 1999 and $29.3 million for the nine months ended September 30, 1998. Depreciation and amortization for the nine months ended September 30, 1999 increased compared to the same period in 1998 because we operated 87 additional facilities in 1999 and because we operated for a full nine months the 84 properties that were opened in the first nine months of 1998. Corporate Operations We incurred corporate operating and property management expenses of $31.3 million (10% of total revenue) in the nine months ended September 30, 1999 and $29.1 million (14% of total revenue) in the nine months ended September 30, 1998. The increase in the amount of these expenses for the nine-month period ended September 30, 1999 as compared to the same period of 1998 reflects the impact of additional personnel and related expenses in connection with the increased number of facilities we operated. We expect these expenses will continue to increase in total amount but to decline as a percentage of revenue as we develop and operate additional facilities in the future. Depreciation and amortization for assets not directly related to operation of our facilities was $1.1 million for the nine months ended September 30, 1999 and $1.1 million for the comparable period in 1998. We realized $0.5 million of interest income in the nine months ended September 30, 1999 and $2.6 million in the nine months ended September 30, 1998. This interest income was attributable to the temporary investment of funds drawn under our credit facilities. We incurred interest charges of $48.8 million in the nine months ended September 30, 1999 and $27.5 million in the nine months ended September 30, 1998. Of these amounts, $8.0 million in the nine months ended September 30, 1999 and $12.8 million in the nine months ended September 30, 1998 were capitalized and included in the cost of buildings and improvements. 8 We recognized income tax expense of $25.7 million for the nine-month period ended September 30, 1999 and $13.6 million for the nine-month period ended September 30, 1998 (40% of income before income taxes and the cumulative effect of an accounting change, in both periods). Income tax expense differs from the federal income tax rate of 35% primarily due to state and local income taxes. Valuation Allowance In the quarter ended September 30, 1998, unfavorable capital market conditions resulted in a reduction in our development plans for 1999 and 2000. As a result, a valuation allowance of $12.0 million was established for the write-off of costs related to sites that would not be developed. This valuation allowance was reduced by $1.1 million in the quarter ended June 30, 1999 due to the renegotiation of the terms of a number of the optioned sites. Cumulative Effect of a Change in Accounting Pursuant to the Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" issued by the Accounting Standards Executive Committee, effective January 1, 1999, we changed our method of accounting for compensation and other training related costs incurred prior to the opening of a property to expense them as they are incurred. Accordingly, we recorded an expense of $779,000, net of income tax benefit of $520,000, as the cumulative effect of this change in accounting. Liquidity and Capital Resources We had net cash and cash equivalents of $8.8 million as of September 30, 1999 and $0.6 million as of December 31, 1998. At September 30, 1999 and December 31, 1998, we had invested substantially all of the cash balances in short-term demand notes having credit ratings of A1/P1 or equivalent utilizing domestic commercial banks and other financial institutions. We also deposited excess funds during these periods in an overnight sweep account with a commercial bank which in turn invested these funds in short-term, interest- bearing reverse repurchase agreements. Due to the short-term nature of these investments, we did not take possession of the securities, which were instead held by the financial institution. The market value of the securities held pursuant to these arrangements approximates the carrying amount. Deposits in excess of $100,000 are not insured by the Federal Deposit Insurance Corporation. Our operating activities generated cash of $89.5 million during the nine months ended September 30, 1999 and $72.6 million during the nine months ended September 30, 1998. We used $251.6 million to acquire land, develop, or furnish a total of 74 sites opened or under construction in the nine months ended September 30, 1999 and $455.4 million for the 166 sites in the nine months ended September 30, 1998. Our cost to develop a property varies significantly by brand and by geographic location due to differences in land and labor costs. Similarly, the average weekly rate charged and the resultant cash flow from these properties will vary significantly but generally are expected to be in proportion to the development costs. For the 272 properties we opened from January 1, 1996 through December 31, 1998, the average development cost was approximately $5.0 million with an average of 107 rooms. In 1999, we expect to open a number of properties in the Northeast and West where average development costs are higher. Accordingly, we expect our average development cost for 1999 to increase to approximately $6.3 million per property. We expect our average development cost per property for 2000 to continue to increase as we continue to expand in the Northeast and West. We received net proceeds from the exercise of options to purchase common stock totaling $5.5 million in the nine months ended September 30, 1999 and $3.1 million in the nine months ended September 30, 1998. In addition to our $200 million 9.15% Senior Subordinated Notes due 2008 (the "Notes"), we have an $800 million credit facility (the "Credit Facility") which provides for a $350 million revolving loan facility (the "Revolving Facility"), a $150 million term loan facility (the "Tranche A Facility"), a $200 million term loan facility (the "Tranche B Facility"), and a $100 million term loan facility (the "Tranche C Facility"). Loans under the Credit 9 Facility bear interest, at our option, at either a variable prime-based rate or a variable LIBOR-based rate, plus an applicable margin. As of September 30, 1999, we had outstanding loans of $170 million under the Revolving Facility, $150 million under the Tranche A Facility, $200 million under the Tranche B Facility and $100 million under the Tranche C Facility, leaving $180 million available and committed under the Credit Facility. Availability of the Revolving Facility is dependent, however, upon us satisfying certain financial ratios of debt and interest compared to earnings before interest, taxes, depreciation, and amortization, with these amounts being calculated pursuant to definitions contained in the Credit Facility. In April 1999, $100 million in term loans under the Tranche C Facility were funded and were applied to reduce outstanding loans under the Revolving Facility. Our primary market risk exposures result from the variable nature of the interest rates on borrowings under the Credit Facility. The Credit Facility was entered into for purposes other than trading. We do not own derivative financial instruments or derivative commodity instruments. Based on the levels of borrowings under the Credit Facility at September 30, 1999, if interest rates changed by 1.0%, our annual cash flow and net income would change by $3.7 million. We manage our market risk exposures by periodic evaluation of such exposures relative to the costs of reducing the exposures by entering into interest rate swaps or by refinancing the underlying obligations with longer term fixed rate debt obligations. In connection with the Credit Facility and the Notes, we incurred additions to deferred loan costs of $345,000 during the nine months ended September 30, 1999 and $11.3 million during the nine months ended September 30, 1998. We had commitments not reflected in our financial statements at September 30, 1999 totaling approximately $85 million to complete construction of extended stay properties. We expect we will continue to rapidly expand our operations. In 1999 and 2000, we plan to open new properties with total costs of approximately $350 million per year. We expect to continue an active development program thereafter. We believe that the remaining availability under the Credit Facility, together with cash on hand and cash flows from operations, will provide sufficient funds to continue our expansion as presently planned and to fund our operating expenses through 2000. We may need additional capital depending on a number of factors, including the number of properties we construct or acquire, the timing of that development, and the cash flow generated by our properties. Also, if capital markets provide favorable opportunities, our plans or assumptions change or prove to be inaccurate, our existing sources of funds prove to be insufficient to fund our growth and operations, or if we consummate acquisitions, we may seek additional capital sooner than we currently anticipate. Sources of capital may include public or private debt or equity financing. We cannot assure you that we will be able to obtain additional capital on acceptable terms, if at all. Our failure to raise additional capital could result in the delay or abandonment of some or all of our development and expansion plans, and could have a material adverse effect on us. Impact of the Year 2000 Issue and Accounting Releases The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Based on our assessment, we do not anticipate that any significant modification or replacement of our hardware or software will be necessary for our computer systems to properly use dates beyond December 31, 1999 or that we will incur significant operating expenses to make any such computer system improvements. Based on inquiries of our significant suppliers, lenders, and service providers, we do not anticipate being adversely impacted by their failure, if any, to address the Year 2000 Issue. While we do not expect the failure of any third parties to address the Year 2000 Issue to uniquely impact our business, we could be adversely affected should the availability of electricity, gas, water, telephone, or banking services be interrupted. In addition, we could be adversely affected if other businesses are impacted by the Year 2000 Issue to the extent that business related travel is reduced significantly or in the event that our employees are unable to fulfill their responsibilities. While we do not expect these pervasive failures to result from the Year 2000 Issue, we cannot assure you that these problems will not arise. 10 Seasonality and Inflation Based upon the operating history of our facilities, we believe that extended stay lodging facilities are not as seasonal in nature as the overall lodging industry. We do expect, however, that our occupancy rates and revenues will be lower than average during the first and fourth quarters of each calendar year. Because many of our expenses do not fluctuate with changes in occupancy rates, declines in occupancy rates may cause fluctuations or decreases in our quarterly earnings. The rate of inflation as measured by changes in the average consumer price index has not had a material effect on our revenue or operating results during any of the periods presented. We cannot assure you, however, that inflation will not affect our future operating or construction costs. Special Note on Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements. Words such as "expects", "intends", "plans", "projects", "believes", "estimates", and similar expressions are used to identify these forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. However, these forward- looking statements are subject to risks, uncertainties, assumptions, and other factors which may cause our actual results, performance, or achievements to be materially different. These factors include, among other things: . our limited operating history and uncertainty as to our future profitability; . our ability to meet construction and development schedules and budgets; . our ability to develop and implement the operational and financial systems needed to manage rapidly growing operations; . uncertainty as to the consumer demand for extended stay lodging; . increasing competition in the extended stay lodging market; . our ability to integrate and successfully operate acquired properties and the risks associated with such properties; . our ability to obtain financing on acceptable terms to finance our growth; and . our ability to operate within the limitations imposed by financing arrangements. Other matters set forth in this Quarterly Report may also cause our actual future results to differ materially from these forward-looking statements. We can not assure you that our expectations will prove to be correct. In addition, all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements mentioned above. You are cautioned not to place undue reliance on these forward-looking statements. All of these forward-looking statements are based on our expectations as of the date of this Quarterly Report. We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 11 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description of Exhibit ------ ---------------------- 10.1 Aircraft Dry Lease, dated as of July 12, 1999, by and between Wyoming Associates, Inc. and ESA Management, Inc. (Learjet, Serial No. 132). 10.2 Aircraft Dry Lease, dated as of July 12, 1999, by and between Wyoming Associates, Inc. and ESA Management, Inc. (Challenger, Serial No. 3042) 10.3 Time Sharing Agreement, dated as of July 20, 1999, by and between ESA Management, Inc. and George Dean Johnson, Jr. 10.4 Time Sharing Agreement, dated as of August 10, 1999, by and between Advance America Cash Advance Centers, Inc. and Extended Stay America, Inc. 10.5 Time Sharing Agreement, dated as of August 30, 1999, by and between ESA Management, Inc. and Advance America, Cash Advance Centers, Inc. 27.1 Financial Data Schedule (for EDGAR filings only) (b) Reports on Form 8-K None 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 12, 1999. EXTENDED STAY AMERICA, INC. /s/ Robert A. Brannon ----------------------------------- Robert A. Brannon Senior Vice President, Chief Financial Officer, Secretary, and Treasurer (Principal Financial Officer) /s/ Gregory R. Moxley ----------------------------------- Gregory R. Moxley Vice President Finance (Principal Accounting Officer) 13 EX-10.1 2 AIRCRAFT DRY LEASE-1987 GATES LEARJET MODEL Exhibit 10.1 AIRCRAFT DRY LEASE This Lease of aircraft is made, effective as of July 12, 1999, by and between Wyoming Associates, Inc., a corporation incorporated under the laws of the State of South Carolina, with principal offices at 961 East Main Street, Spartanburg, SC 29302 (hereinafter referred to as "Lessor") and ESA Management, Inc., a corporation incorporated under the laws of the State of Delaware, with principal offices at 450 East Las Olas Blvd., Ft. Lauderdale, Florida 33301 (hereinafter referred to as "Lessee"). RECITALS The parties recite that: A. Lessor owns a 1987 Gates Learjet Model 55B aircraft, Serial No. 132 and currently registered as N122S (hereinafter referred to as the "Aircraft"). The Aircraft is available for use by a qualified Lessee; and B. Lessee desires to lease the Aircraft under such terms and conditions as are mutually satisfactory to the parties. The parties agree as follows: SECTION ONE LEASE OF AIRCRAFT For Fifty-Seven Thousand Dollars and No/100 ($57,000.00) monthly, Lessor agrees to lease the Aircraft to Lessee on a nonexclusive basis. The Aircraft shall be delivered to Lessee at Ft. Lauderdale Hollywood International Airport in Ft. Lauderdale, Florida on July 12, 1999, at which time Lessee shall inspect the Aircraft to the extent deemed necessary. Lessee shall have ten (10) flight hours following delivery of the Aircraft in which to notify Lessor in writing of any defects in the Aircraft or its equipment or accessories. If, at the end of such period, Lessor has not received such notification, it shall be conclusively presumed between the parties that Lessee has fully inspected the Aircraft having knowledge that it is in good condition and repair and that Lessee is satisfied with and has accepted the Aircraft in such condition and repair. SECTION TWO TERM This Lease shall commence on July 12, 1999 and continue for one year after said date. Thereafter, this Lease shall be automatically renewed on a month to month basis, unless sooner terminated by either party as hereinafter provided. Either party may at any time terminate this Lease upon thirty (30) days written notice to the other party, delivered personally or by certified mail, return receipt requested, at the address for said other party as set forth above. SECTION THREE COMMERCIAL OPERATION RESTRICTION Neither Lessee nor Lessor will make the Aircraft available for hire within the meaning of the Federal Aviation Regulations. The Aircraft is to be operated strictly in accordance with 14 C.F.R. Part 91. 2 SECTION FOUR INSURANCE At all times during the term of this Lease, Lessee shall cause to be carried and maintained, at Lessee's cost and expense, physical damage insurance with respect to the Aircraft in the amount set forth below:
Aircraft Physical Damage $5,650,000.00 (No Deductible While In Motion or Not In Motion)
At all times during the term of this Lease, Lessee shall also cause to be carried and maintained, at Lessee's cost and expense, third party aircraft liability insurance, passenger legal liability insurance, property damage liability insurance, and medical expense insurance in the amounts set forth below:
Combined Liability Coverage for Bodily Injury and Property Damage Including Passengers - Each Occurrence $100,000,000.00 Medical Expense Coverage - Each Person $5,000.00
Lessee shall also bear the cost of paying any deductible amount on any policy of insurance in the event of a claim or loss. Any policies of insurance carried in accordance with this Lease: (i) shall name Lessor as an additional insured; and (ii) shall contain a waiver by the underwriter thereof of any right of subrogation against Lessor; and (iii) shall provide that in respect of the interests of Lessor, such policies of insurance shall not be invalidated by any action or inaction of Lessee or 3 any other person and shall insure Lessor (subject to the limits of liability and war risk exclusion set forth in such policies) regardless of any breach or any violation of any warranty, declarations or conditions contained in such policies by Lessee or any other person; and (iv) shall provide that if the insurers cancel insurance for any reason whatsoever, or the same is allowed to lapse for non-payment of premium, or if there is any material change in policy terms and conditions, such a cancellation, lapse or change shall not be effective as to Lessor, except upon thirty (30) days prior written notice. Each liability policy shall be primary without right of contribution from any other insurance which is carried by Lessee or Lessor and shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. Lessee shall submit this Lease for approval to the insurance carrier for each policy of insurance on the Aircraft. Lessee shall arrange for a Certificate of Insurance evidencing appropriate coverage as to the Aircraft and the satisfaction of the requirements set forth above to be given by its insurance carriers to Lessor. SECTION FIVE RESTRICTIONS ON USE Lessee may operate the Aircraft only for the purposes and within the geographical limits set forth in the insurance policy or policies obtained in compliance with Section Four of this 4 Lease. The Aircraft shall be operated at all times in accordance with the flight manual and all manufacturer's suggested operating procedures. Furthermore, Lessee shall not use the Aircraft in violation of any foreign, federal, state, territorial, or municipal law or regulation and shall be solely responsible for any fines, penalties, or forfeitures occasioned by any violation by Lessee. If such fines or penalties are imposed on Lessor and paid by Lessor, Lessee shall reimburse Lessor for the amount thereof within thirty (30) days of receipt by Lessee of written demand from Lessor. Lessee will not base the Aircraft, or permit it to be based, outside the limits of the United States of America, without the written consent of Lessor. The Aircraft shall be flown only by certificated and qualified pilots and shall be maintained only by certificated and qualified mechanics. In the event the insurance on the Aircraft would be invalidated because Lessee is unable to obtain certificated and qualified pilots and mechanics, Lessee shall not operate the Aircraft until such time as certificated and qualified pilots and mechanics are obtained and insurance on the Aircraft is made valid. Lessee will not directly or indirectly create, incur, assume or suffer to exist any lien on or with respect to the Aircraft. Lessee will promptly, at its own expense, take such action as may be necessary to discharge any lien not excepted above if the same shall arise at any time. 5 SECTION SIX INSPECTION BY LESSOR Lessee agrees to permit Lessor or any authorized agent to inspect the Aircraft at any reasonable time and to furnish any information in respect to the Aircraft and its use that Lessor may reasonably request. SECTION SEVEN ALTERATIONS Except in accordance with other written agreements entered into subsequent to the date of this Lease between Lessee and Lessor regarding maintenance of the Aircraft, Lessee shall not have the right to alter, modify, or make additions or improvements to the Aircraft without the written permission of Lessor. All such alterations, modifications, additions, and improvements as are so made shall become the property of Lessor and shall be subject to all of the terms of this Lease. SECTION EIGHT MAINTENANCE AND REPAIR Lessee, at Lessee's own cost and expense, shall repair and maintain the Aircraft during the term of this Lease so as to keep it in as good and safe operating condition as when delivered by Lessor to Lessee, ordinary wear and tear from use and ordinary deterioration excepted. Lessee shall pay all costs and expenses of new parts and accessories for replacement, including transportation charges thereon. Lessee shall be entitled to any and all salvage from broken or worn out parts. The workmen who inspect, maintain, and repair the Aircraft on Lessee's behalf 6 shall not be employees of Lessor, but shall at all times be employees of Lessee or independent contractors, and Lessor shall have no control or authority to direct, employ, discharge or pay compensation to such employees. Subject to the foregoing limitations, Lessee agrees to indemnify Lessor against any liability arising from the negligent repair and maintenance of the Aircraft, as well as from failure to repair and maintain the Aircraft, and also against any claim or liability arising out of the repair work, and the delivery of material to and from the place where such repair and maintenance work is performed. All inspections, repairs, modifications, maintenance, and overhaul work to be accomplished by Lessee shall be performed by personnel certificated to perform such work and shall be performed in accordance with the standards set by the Federal Aviation Regulations. Lessee shall maintain all log books and records pertaining to the Aircraft during the term of this Lease in accordance with the Federal Aviation Regulations. Such records shall be made available for examination by Lessor, and Lessee, at the termination of this Lease, shall deliver such records to Lessor. SECTION NINE TITLE The registration of and title to the Aircraft shall be in the name of the Lessor, and the Aircraft, at all times during the term of this Lease or any extension, shall bear United States registration markings. All responsibility and obligations in 7 regard to the operation of the Aircraft as above owned, registered, and marked shall be borne by Lessee during the term of this Lease. SECTION TEN PAYMENT OF TAXES Lessee shall pay or cause to be paid all taxes incurred by reason of ownership of the Aircraft during the term of this Lease, including personal property taxes. Lessee shall pay all taxes associated with Lessee's use of the Aircraft on Lessee's own business, including landing fees, fuel taxes, and any other taxes or fees which may be assessed against a specific flight by Lessee. SECTION ELEVEN ASSIGNMENT Lessee shall not assign this Lease or any interest in the Aircraft, or sublet the Aircraft, without prior written consent of Lessor. Subject to the foregoing, this Lease inures to the benefit of, and is binding on, the heirs, legal representatives, successors, and assigns of the parties. SECTION TWELVE ACCIDENT AND CLAIM Lessee shall immediately notify Lessor of each accident involving the Aircraft, which notification shall specify the time, place, and nature of the accident or damage, the names and addresses of parties involved, persons injured, witnesses, and owners of properties damaged, and such other information as may be known. Lessee shall advise Lessor of all correspondence, 8 papers, notices, and documents whatsoever received by Lessee in connection with any claim or demand involving or relating to the Aircraft or its operation, and shall aid in any investigation instituted by Lessor and in the recovery of damages from third persons liable therefor. SECTION THIRTEEN RETURN OF AIRCRAFT TO LESSOR On the termination of this Lease by expiration or otherwise, Lessee shall return the Aircraft to Lessor at Spartanburg Downtown Airport in Spartanburg, South Carolina, in as good operating condition and appearance as when received, ordinary wear, tear and deterioration excepted, and shall indemnify Lessor against any claim for loss or damage occurring prior to the actual physical delivery of the Aircraft to Lessor. SECTION FOURTEEN MODIFICATION OF AGREEMENT This Lease constitutes the entire understanding between the parties, and any change or modification must be in writing and signed by both parties. SECTION FIFTEEN GOVERNING LAW This Lease is entered into under, and is to be construed in accordance with, the laws of the State of South Carolina. SECTION SIXTEEN TRUTH IN LEASING STATEMENT THE AIRCRAFT, A 1987 GATES LEARJET, MODEL 55B, MANUFACTURER'S SERIAL NO. 132, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N122SU, HAS BEEN MAINTAINED 9 AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF THIS LEASE. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE, ESA MANAGEMENT, INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FLORIDA 33301, IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE. THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS" ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE. I, THE UNDERSIGNED ROBERT A. BRANNON AS VICE PRESIDENT OF ESA MANAGEMENT, INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FLORIDA 33301, CERTIFY THAT I AM RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND MY RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. IN WITNESS WHEREOF, the parties have executed this Lease. WYOMING ASSOCIATES, INC. /s/ George Dean Johnson, Jr. July 9, 1999 2:30 p.m. - ---------------------------- ------------------------------- GEORGE DEAN JOHNSON, Jr. Date and Time of Execution President ESA MANAGEMENT, INC. /s/ Robert A. Brannon July 9, 1999 3:00 p.m. - ---------------------------- ------------------------------- ROBERT A. BRANNON Date and Time of Execution Vice President 10 EX-10.2 3 AIRCRAFT DRY LEASE-1985 CANADAIR CHALLENGER MODEL Exhibit 10.2 AIRCRAFT DRY LEASE This Lease of aircraft is made, effective as of July 12, 1999, by and between Wyoming Associates, Inc., a corporation incorporated under the laws of the State of South Carolina, with principal offices at 961 East Main Street, Spartanburg, SC 29302 (hereinafter referred to as "Lessor") and ESA Management, Inc., a corporation incorporated under the laws of the State of Delaware, with principal offices at 450 East Las Olas Blvd., Ft. Lauderdale, Florida 33301 (hereinafter referred to as "Lessee"). RECITALS The parties recite that: A. Lessor owns a 1985 Canadair Challenger Model CL-600-2A12 aircraft, Serial No. 3042, and currently registered as N333GJ (hereinafter referred to as the "Aircraft"). The Aircraft is available for use by a qualified Lessee; and B. Lessee desires to lease the Aircraft under such terms and conditions as are mutually satisfactory to the parties. The parties agree as follows: SECTION ONE LEASE OF AIRCRAFT For One Hundred Forty-Seven Thousand Dollars and No/100 ($147,000.00) monthly, Lessor agrees to lease the Aircraft to Lessee on a nonexclusive basis. The Aircraft shall be delivered to Lessee at Ft. Lauderdale Hollywood International Airport in Ft. Lauderdale, Florida on July 12, 1999, at which time Lessee shall inspect the Aircraft to the extent deemed necessary. Lessee shall have ten (10) flight hours following delivery of the Aircraft in which to notify Lessor in writing of any defects in the Aircraft or its equipment or accessories. If, at the end of such period, Lessor has not received such notification, it shall be conclusively presumed between the parties that Lessee has fully inspected the Aircraft having knowledge that it is in good condition and repair and that Lessee is satisfied with and has accepted the Aircraft in such condition and repair. SECTION TWO TERM This Lease shall commence on July 12, 1999 and continue for one year after said date. Thereafter, this Lease shall be automatically renewed on a month to month basis, unless sooner terminated by either party as hereinafter provided. Either party may at any time terminate this Lease upon thirty (30) days written notice to the other party, delivered personally or by certified mail, return receipt requested, at the address for said other party as set forth above. SECTION THREE COMMERCIAL OPERATION RESTRICTION Neither Lessee nor Lessor will make the Aircraft available for hire within the meaning of the Federal Aviation Regulations. The Aircraft is to be operated strictly in accordance with 14 C.F.R. Part 91. 2 SECTION FOUR INSURANCE At all times during the term of this Lease, Lessee shall cause to be carried and maintained, at Lessee's cost and expense, physical damage insurance with respect to the Aircraft in the amount set forth below: Aircraft Physical Damage $12,900,000.00 (No Deductible While In Motion or Not In Motion) At all times during the term of this Lease, Lessee shall also cause to be carried and maintained, at Lessee's cost and expense, third party aircraft liability insurance, passenger legal liability insurance, property damage liability insurance, and medical expense insurance in the amounts set forth below: Combined Liability Coverage for Bodily Injury and Property Damage Including Passengers - Each Occurrence $100,000,000.00 Medical Expense Coverage - Each Person $5,000.00 Lessee shall also bear the cost of paying any deductible amount on any policy of insurance in the event of a claim or loss. Any policies of insurance carried in accordance with this Lease: (i) shall name Lessor as an additional insured; and (ii) shall contain a waiver by the underwriter thereof of any right of subrogation against Lessor; and (iii) shall provide that in respect of the interests of Lessor, such policies of insurance shall not be invalidated by any action or inaction of Lessee or 3 any other person and shall insure Lessor (subject to the limits of liability and war risk exclusion set forth in such policies) regardless of any breach or any violation of any warranty, declarations or conditions contained in such policies by Lessee or any other person; and (iv) shall provide that if the insurers cancel insurance for any reason whatsoever, or the same is allowed to lapse for non-payment of premium, or if there is any material change in policy terms and conditions, such a cancellation, lapse or change shall not be effective as to Lessor, except upon thirty (30) days prior written notice. Each liability policy shall be primary without right of contribution from any other insurance which is carried by Lessee or Lessor and shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. Lessee shall submit this Lease for approval to the insurance carrier for each policy of insurance on the Aircraft. Lessee shall arrange for a Certificate of Insurance evidencing appropriate coverage as to the Aircraft and the satisfaction of the requirements set forth above to be given by its insurance carriers to Lessor. SECTION FIVE RESTRICTIONS ON USE Lessee may operate the Aircraft only for the purposes and within the geographical limits set forth in the insurance policy or policies obtained in compliance with Section Four of this 4 Lease. The Aircraft shall be operated at all times in accordance with the flight manual and all manufacturer's suggested operating procedures. Furthermore, Lessee shall not use the Aircraft in violation of any foreign, federal, state, territorial, or municipal law or regulation and shall be solely responsible for any fines, penalties, or forfeitures occasioned by any violation by Lessee. If such fines or penalties are imposed on Lessor and paid by Lessor, Lessee shall reimburse Lessor for the amount thereof within thirty (30) days of receipt by Lessee of written demand from Lessor. Lessee will not base the Aircraft, or permit it to be based, outside the limits of the United States of America, without the written consent of Lessor. The Aircraft shall be flown only by certificated and qualified pilots and shall be maintained only by certificated and qualified mechanics. In the event the insurance on the Aircraft would be invalidated because Lessee is unable to obtain certificated and qualified pilots and mechanics, Lessee shall not operate the Aircraft until such time as certificated and qualified pilots and mechanics are obtained and insurance on the Aircraft is made valid. Lessee will not directly or indirectly create, incur, assume or suffer to exist any lien on or with respect to the Aircraft. Lessee will promptly, at its own expense, take such action as may be necessary to discharge any lien not excepted above if the same shall arise at any time. 5 SECTION SIX INSPECTION BY LESSOR Lessee agrees to permit Lessor or any authorized agent to inspect the Aircraft at any reasonable time and to furnish any information in respect to the Aircraft and its use that Lessor may reasonably request. SECTION SEVEN ALTERATIONS Except in accordance with other written agreements entered into subsequent to the date of this Lease between Lessee and Lessor regarding maintenance of the Aircraft, Lessee shall not have the right to alter, modify, or make additions or improvements to the Aircraft without the written permission of Lessor. All such alterations, modifications, additions, and improvements as are so made shall become the property of Lessor and shall be subject to all of the terms of this Lease. SECTION EIGHT MAINTENANCE AND REPAIR Lessee, at Lessee's own cost and expense, shall repair and maintain the Aircraft during the term of this Lease so as to keep it in as good and safe operating condition as when delivered by Lessor to Lessee, ordinary wear and tear from use and ordinary deterioration excepted. Lessee shall pay all costs and expenses of new parts and accessories for replacement, including transportation charges thereon. Lessee shall be entitled to any and all salvage from broken or worn out parts. The workmen who inspect, maintain, and repair the Aircraft on Lessee's behalf 6 shall not be employees of Lessor, but shall at all times be employees of Lessee or independent contractors, and Lessor shall have no control or authority to direct, employ, discharge or pay compensation to such employees. Subject to the foregoing limitations, Lessee agrees to indemnify Lessor against any liability arising from the negligent repair and maintenance of the Aircraft, as well as from failure to repair and maintain the Aircraft, and also against any claim or liability arising out of the repair work, and the delivery of material to and from the place where such repair and maintenance work is performed. All inspections, repairs, modifications, maintenance, and overhaul work to be accomplished by Lessee shall be performed by personnel certificated to perform such work and shall be performed in accordance with the standards set by the Federal Aviation Regulations. Lessee shall maintain all log books and records pertaining to the Aircraft during the term of this Lease in accordance with the Federal Aviation Regulations. Such records shall be made available for examination by Lessor, and Lessee, at the termination of this Lease, shall deliver such records to Lessor. SECTION NINE TITLE The registration of and title to the Aircraft shall be in the name of the Lessor, and the Aircraft, at all times during the term of this Lease or any extension, shall bear United States registration markings. All responsibility and obligations in 7 regard to the operation of the Aircraft as above owned, registered, and marked shall be borne by Lessee during the term of this Lease. SECTION TEN PAYMENT OF TAXES Lessee shall pay or cause to be paid all taxes incurred by reason of ownership of the Aircraft during the term of this Lease, including personal property taxes. Lessee shall pay all taxes associated with Lessee's use of the Aircraft on Lessee's own business, including landing fees, fuel taxes, and any other taxes or fees which may be assessed against a specific flight by Lessee. SECTION ELEVEN ASSIGNMENT Lessee shall not assign this Lease or any interest in the Aircraft, or sublet the Aircraft, without prior written consent of Lessor. Subject to the foregoing, this Lease inures to the benefit of, and is binding on, the heirs, legal representatives, successors, and assigns of the parties. SECTION TWELVE ACCIDENT AND CLAIM Lessee shall immediately notify Lessor of each accident involving the Aircraft, which notification shall specify the time, place, and nature of the accident or damage, the names and addresses of parties involved, persons injured, witnesses, and owners of properties damaged, and such other information as may be known. Lessee shall advise Lessor of all correspondence, 8 papers, notices, and documents whatsoever received by Lessee in connection with any claim or demand involving or relating to the Aircraft or its operation, and shall aid in any investigation instituted by Lessor and in the recovery of damages from third persons liable therefor. SECTION THIRTEEN RETURN OF AIRCRAFT TO LESSOR On the termination of this Lease by expiration or otherwise, Lessee shall return the Aircraft to Lessor at Spartanburg Downtown Airport in Spartanburg, South Carolina, in as good operating condition and appearance as when received, ordinary wear, tear and deterioration excepted, and shall indemnify Lessor against any claim for loss or damage occurring prior to the actual physical delivery of the Aircraft to Lessor. SECTION FOURTEEN MODIFICATION OF AGREEMENT This Lease constitutes the entire understanding between the parties, and any change or modification must be in writing and signed by both parties. SECTION FIFTEEN GOVERNING LAW This Lease is entered into under, and is to be construed in accordance with, the laws of the State of South Carolina. SECTION SIXTEEN TRUTH IN LEASING STATEMENT THE AIRCRAFT, A 1985 CANADAIR CHALLENGER, MODEL CL-600-2A12, MANUFACTURER'S SERIAL NO. 3042, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N333GJ, HAS BEEN MAINTAINED 9 AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF THIS LEASE. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE, ESA MANAGEMENT, INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FLORIDA 33301, IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE. THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS" ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE. I, THE UNDERSIGNED ROBERT A. BRANNON AS VICE PRESIDENT OF ESA MANAGEMENT, INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FLORIDA 33301, CERTIFY THAT I AM RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND MY RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. IN WITNESS WHEREOF, the parties have executed this Lease. WYOMING ASSOCIATES, INC. /s/ George Dean Johnson, Jr. July 9, 1999 2:30 p.m. - ---------------------------- ---------------------------- GEORGE DEAN JOHNSON, Jr. Date and Time of Execution President ESA MANAGEMENT, INC. /s/ Robert A. Brannon July 9, 1999 3:00 p.m. - --------------------- --------------------------- ROBERT A. BRANNON Date and Time of Execution Vice President 10 EX-10.3 4 TIME SHARING AGREEMENT - GEORGE DEAN JOHNSON, JR. Exhibit 10.3 TIME SHARING AGREEMENT This Agreement is made, effective as of July 20, 1999, by and between ESA Management, Inc., a corporation organized under the laws of the State of Delaware, with principal offices at 450 East Las Olas Blvd., Ft. Lauderdale, FL 33301 (hereinafter referred to as "Lessor"), and GEORGE DEAN JOHNSON, JR., with principal offices at 961 East Main Street, Spartanburg, SC 29302 (hereinafter referred to as "Lessee"); RECITALS WHEREAS, Lessor is the owner of that certain civil Aircraft bearing the United States Registration Number N333GJ ("the Aircraft" or "Aircraft"), a 1985 Canadair Challenger Model CL-600-2A12, Manufacturer's Serial Number 3042; WHEREAS, Lessor employs a fully qualified flight crew to operate the Aircraft; and WHEREAS, Lessor and Lessee desire to lease said Aircraft with flight crew on a non-exclusive time sharing basis as defined in Section 91.501(c)(1) of the Federal Aviation Regulations ("FAR"); The parties agree as follows: 1. Lessor agrees to lease the Aircraft to Lessee pursuant to the provisions of FAR 91.501(c)(1) and to provide a fully qualified flight crew for all operations. This Agreement shall commence on the date that it is signed and continue for one year after said date. Thereafter, this Agreement shall be automatically renewed on a month to month basis, unless sooner terminated by either party as hereinafter provided. Either party may at any time terminate this Agreement upon thirty (30) days written notice to the other party, delivered personally or by certified mail, return receipt requested, at the address for said other party as set forth above. 2. Lessee shall pay Lessor for each flight conducted under this Agreement the actual expenses of each specific flight as authorized by FAR Part 91.501(d). These expenses include: (a) Fuel, oil, lubricants, and other additives; (b) Travel expenses of the crew, including food, lodging and ground transportation; (c) Hangar and tie down costs away from the Aircraft's base of operation; (d) Insurance obtained for the specific flight; (e) Landing fees, airport taxes and similar assessments including, but not limited to IRC Section 4261 and related excise taxes; (f) Customs, foreign permit, and similar fees directly related to the flight; (g) In-flight food and beverages; (h) Passenger ground transportation; (i) Flight planning and weather contract services; and (j) An additional charge equal to 100% of the expenses listed in subparagraph (a) of this paragraph. 3. Lessor will pay all expenses related to the operation of the Aircraft when incurred, and will provide an invoice and bill Lessee for the expenses enumerated in paragraph 2 above on the last day of the month in which any flight or flights for the account of Lessee occur. Lessee shall pay Lessor for said expenses within fifteen (15) days of receipt of the invoice and bill therefor. 4. Lessee will provide Lessor with requests for flight time and proposed flight schedules as far in advance of any given flight as possible, and in any case, at least twenty-four (24) hours in advance of Lessee's planned departure. Requests for flight time shall be in a form, whether written or oral, mutually convenient to, and agreed upon by the parties. In addition to 2 the proposed schedules and flight times Lessee shall provide at least the following information for each proposed flight at some time prior to scheduled departure as required by the Lessor or Lessor's flight crew: (a) proposed departure point; (b) destination; (c) date and time of flight; (d) the number of anticipated passengers; (e) the nature and extent of luggage and/or cargo to be carried; (f) the date and time of return flight, if any; and (g) any other information concerning the proposed flight that may be pertinent or required by Lessor or Lessor's flight crew. 5. Lessor shall have final authority over the scheduling of the Aircraft, provided, however, that Lessor will use its best efforts to accommodate Lessee's needs and to avoid conflicts in scheduling. 6. Lessor shall be solely responsible for securing maintenance, preventive maintenance and required or otherwise necessary inspections on the Aircraft, and shall take such requirements into account in scheduling the Aircraft. No period of maintenance, preventative maintenance or inspection shall be delayed or postponed for the purpose of scheduling the Aircraft, unless said maintenance or inspection can be safely conducted at a later time in compliance with all applicable laws and regulations, and within the sound discretion of the pilot in command. The pilot in command shall have final and complete authority to cancel any flight for any reason or condition which in his judgement would compromise the safety of the flight. 3 7. Lessor shall employ, pay for and provide to Lessee a qualified flight crew for each flight undertaken under this Agreement. 8. In accordance with applicable Federal Aviation Regulations, the qualified flight crew provided by Lessor will exercise all of its duties and responsibilities in regard to the safety of each flight conducted hereunder. Lessee specifically agrees that the flight crew, in its sole discretion, may terminate any flight, refuse to commence any flight, or take other action which in the considered judgement of the pilot in command is necessitated by considerations of safety. No such action of the pilot in command shall create or support any liability for loss, injury, damage or delay to Lessee or any other person. The parties further agree that Lessor shall not be liable for delay or failure to furnish the Aircraft and crew pursuant to this Agreement when such failure is caused by government regulation or authority, mechanical difficulty, war, civil commotion, strikes or labor disputes, weather conditions, or acts of God. 9. At all times during the term of this Lease, Lessor shall cause to be carried and maintained, at Lessor's cost and expense, physical damage insurance with respect to the Aircraft in the amount set forth below: Aircraft Physical Damage $12,900,000.00 (No Deductible While In Motion or Not In Motion) At all times during the term of this Lease, Lessor shall also cause to be carried and maintained, at Lessor's cost and expense, third party aircraft liability insurance, passenger legal liability insurance, property damage liability insurance, and medical expense insurance in the amounts set forth below: 4 Combined Liability Coverage for Bodily Injury and Property Damage Including Passengers - Each Occurrence $100,000,000.00 Medical Expense Coverage - Each Person $ 5,000.00 Lessor shall also bear the cost of paying any deductible amount on any policy of insurance in the event of a claim or loss. Any policies of insurance carried in accordance with this Lease: (i) shall name Lessee as an additional insured; and (ii) shall contain a waiver by the underwriter thereof of any right of subrogation against Lessee; and (iii) shall provide that in respect of the interests of Lessee, such policies of insurance shall not be invalidated by any action or inaction of Lessor or any other person and shall insure Lessee (subject to the limits of liability and war risk exclusion set forth in such policies) regardless of any breach or any violation of any warranty, declarations or conditions contained in such policies by Lessor or any other person; and (iv) shall provide that if the insurers cancel insurance for any reason whatsoever, or the same is allowed to lapse for non- payment of premium, or if there is any material change in policy terms and conditions, such a cancellation, lapse or change shall not be effective as to Lessee. Each liability policy shall be primary without right of contribution from any other insurance which is carried by Lessee or Lessor and shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. Lessor shall submit this Lease for approval to the insurance carrier for each policy of insurance on the Aircraft. Lessor shall arrange for a Certificate of Insurance evidencing appropriate coverage as to the Aircraft and the satisfaction of the requirements set forth above to be given by its insurance carriers to Lessor. 5 10. Lessee warrants that: (a) It will use the Aircraft for and on account of its own business only, and will not use the Aircraft for the purpose of providing transportation of passengers or cargo in air commerce for compensation or hire; (b) it shall refrain from incurring any mechanics or other lien in connection with inspection, preventative maintenance, maintenance or storage of the Aircraft, whether permissible or impermissible under this Agreement, nor shall there by any attempt by any party hereto to convey, mortgage, assign, lease or any way alienate the Aircraft or create any kind of lien or security interest involving the Aircraft or do anything or take any action that might mature into such a lien; and (c) during the term of this Agreement, it will abide by and conform to all such laws, governmental and airport orders, rules and regulations, as shall from time to time be in effect relating in any way to the operation and use of the Aircraft by a timesharing Lessee. 11. For purposes of this Agreement, the permanent base of operation of the Aircraft shall be Spartanburg, SC. 12. Neither this Agreement nor any party's interest herein shall be assignable to any other party whatsoever. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their heirs, representatives and successors. 13. TRUTH IN LEASING STATEMENT THE AIRCRAFT, A 1985 Canadair Challenger Model CL-600-2A12, MANUFACTURER'S SERIAL NO. 3042, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N333GJ, HAS BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF THIS LEASE. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE, GEORGE DEAN JOHNSON, JR., 961 East Main St., 6 Spartanburg, SC 29302, IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE. THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS" ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE. I, THE UNDERSIGNED, GEORGE DEAN JOHNSON, JR., 961 East Main Street, Spartanburg, SC 29302 CERTIFY THAT IT IS RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT IT UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. IN WITNESS WHEREOF, the parties have executed this Agreement. ESA Management, Inc. By: /s/ Robert A. Brannon ------------------------------------- Robert A. Brannon, Vice President By: /s/ George Dean Johnson, Jr. ------------------------------------- George Dean Johnson, Jr. 7 EX-10.4 5 TIME SHARING AGREEMENT-EXTENDED STAY AMERICA, INC. Exhibit 10.4 TIME SHARING AGREEMENT This Agreement is made, effective as of August 10, 1999, by and between Advance America Cash Advance Centers, Inc., a corporation organized under the laws of the State of Delaware, with principal offices at 961 East Main Street, Spartanburg, SC 29302 (hereinafter referred to as "Lessor"), and Extended Stay America, Inc., with principal offices at 405 East Las Olas Blvd., Suite 11, Ft. Lauderdale, FL 33301 (hereinafter referred to as "Lessee"); RECITALS WHEREAS, Lessor is the owner of that certain civil Aircraft bearing the United States Registration Number N543WW ("the Aircraft" or "Aircraft"), a 1980 Gates Learjet Model 35A, Manufacturer's Serial Number 332; WHEREAS, Lessor employs a fully qualified flight crew to operate the Aircraft; and WHEREAS, Lessor and Lessee desire to lease said Aircraft with flight crew on a non-exclusive time sharing basis as defined in Section 91.501(c)(1) of the Federal Aviation Regulations ("FAR"); The parties agree as follows: 1. Lessor agrees to lease the Aircraft to Lessee pursuant to the provisions of FAR 91.501(c)(1) and to provide a fully qualified flight crew for all operations. This Agreement shall commence on the date that it is signed and continue for one year after said date. Thereafter, this Agreement shall be automatically renewed on a month to month basis, unless sooner terminated by either party as hereinafter provided. Either party may at any time terminate this Agreement upon thirty (30) days written notice to the other party, delivered personally or by certified mail, return receipt requested, at the address for said other party as set forth above. 2. Lessee shall pay Lessor for each flight conducted under this Agreement the actual expenses of each specific flight as authorized by FAR Part 91.501(d). These expenses include: (a) Fuel, oil, lubricants, and other additives; (b) Travel expenses of the crew, including food, lodging and ground transportation; (c) Hangar and tie down costs away from the Aircraft's base of operation; (d) Insurance obtained for the specific flight; (e) Landing fees, airport taxes and similar assessments including, but not limited to IRC Section 4261 and related excise taxes; (f) Customs, foreign permit, and similar fees directly related to the flight; (g) In-flight food and beverages; (h) Passenger ground transportation; (i) Flight planning and weather contract services; and (j) An additional charge equal to 100% of the expenses listed in subparagraph (a) of this paragraph. 3. Lessor will pay all expenses related to the operation of the Aircraft when incurred, and will provide an invoice and bill Lessee for the expenses enumerated in paragraph 2 above on the last day of the month in which any flight or flights for the account of Lessee occur. Lessee shall pay Lessor for said expenses within fifteen (15) days of receipt of the invoice and bill therefor. 4. Lessee will provide Lessor with requests for flight time and proposed flight schedules as far in advance of any given flight as possible, and in any case, at least twenty-four (24) hours in advance of Lessee's planned departure. Requests for flight time shall be in a form, whether written or oral, mutually convenient to, and agreed upon by the parties. In addition to 2 the proposed schedules and flight times Lessee shall provide at least the following information for each proposed flight at some time prior to scheduled departure as required by the Lessor or Lessor's flight crew: (a) proposed departure point; (b) destination; (c) date and time of flight; (d) the number of anticipated passengers; (e) the nature and extent of luggage and/or cargo to be carried; (f) the date and time of return flight, if any; and (g) any other information concerning the proposed flight that may be pertinent or required by Lessor or Lessor's flight crew. 5. Lessor shall have final authority over the scheduling of the Aircraft, provided, however, that Lessor will use its best efforts to accommodate Lessee's needs and to avoid conflicts in scheduling. 6. Lessor shall be solely responsible for securing maintenance, preventive maintenance and required or otherwise necessary inspections on the Aircraft, and shall take such requirements into account in scheduling the Aircraft. No period of maintenance, preventative maintenance or inspection shall be delayed or postponed for the purpose of scheduling the Aircraft, unless said maintenance or inspection can be safely conducted at a later time in compliance with all applicable laws and regulations, and within the sound discretion of the pilot in command. The pilot in command shall have final and complete authority to cancel any flight for any reason or condition which in his judgement would compromise the safety of the flight. 3 7. Lessor shall employ, pay for and provide to Lessee a qualified flight crew for each flight undertaken under this Agreement. 8. In accordance with applicable Federal Aviation Regulations, the qualified flight crew provided by Lessor will exercise all of its duties and responsibilities in regard to the safety of each flight conducted hereunder. Lessee specifically agrees that the flight crew, in its sole discretion, may terminate any flight, refuse to commence any flight, or take other action which in the considered judgement of the pilot in command is necessitated by considerations of safety. No such action of the pilot in command shall create or support any liability for loss, injury, damage or delay to Lessee or any other person. The parties further agree that Lessor shall not be liable for delay or failure to furnish the Aircraft and crew pursuant to this Agreement when such failure is caused by government regulation or authority, mechanical difficulty, war, civil commotion, strikes or labor disputes, weather conditions, or acts of God. 9. At all times during the term of this Lease, Lessor shall cause to be carried and maintained, at Lessor's cost and expense, physical damage insurance with respect to the Aircraft in the amount set forth below: Aircraft Physical Damage $2,900,000.00 (No Deductible While In Motion or Not In Motion) At all times during the term of this Lease, Lessor shall also cause to be carried and maintained, at Lessor's cost and expense, third party aircraft liability insurance, passenger legal liability insurance, property damage liability insurance, and medical expense insurance in the amounts set forth below: 4 Combined Liability Coverage for Bodily Injury and Property Damage Including Passengers - Each Occurrence $100,000,000.00 Medical Expense Coverage - Each Person $5,000.00 Lessor shall also bear the cost of paying any deductible amount on any policy of insurance in the event of a claim or loss. Any policies of insurance carried in accordance with this Lease: (i) shall name Lessee as an additional insured; and (ii) shall contain a waiver by the underwriter thereof of any right of subrogation against Lessee; and (iii) shall provide that in respect of the interests of Lessee, such policies of insurance shall not be invalidated by any action or inaction of Lessor or any other person and shall insure Lessee (subject to the limits of liability and war risk exclusion set forth in such policies) regardless of any breach or any violation of any warranty, declarations or conditions contained in such policies by Lessor or any other person; and (iv) shall provide that if the insurers cancel insurance for any reason whatsoever, or the same is allowed to lapse for non- payment of premium, or if there is any material change in policy terms and conditions, such a cancellation, lapse or change shall not be effective as to Lessee. Each liability policy shall be primary without right of contribution from any other insurance which is carried by Lessee or Lessor and shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. Lessor shall submit this Lease for approval to the insurance carrier for each policy of insurance on the Aircraft. Lessor shall arrange for a Certificate of Insurance evidencing appropriate coverage as to the Aircraft and the satisfaction of the requirements set forth above to be given by its insurance carriers to Lessor. 5 10. Lessee warrants that: (a) It will use the Aircraft for and on account of its own business only, and will not use the Aircraft for the purpose of providing transportation of passengers or cargo in air commerce for compensation or hire; (b) it shall refrain from incurring any mechanics or other lien in connection with inspection, preventative maintenance, maintenance or storage of the Aircraft, whether permissible or impermissible under this Agreement, nor shall there by any attempt by any party hereto to convey, mortgage, assign, lease or any way alienate the Aircraft or create any kind of lien or security interest involving the Aircraft or do anything or take any action that might mature into such a lien; and (c) during the term of this Agreement, it will abide by and conform to all such laws, governmental and airport orders, rules and regulations, as shall from time to time be in effect relating in any way to the operation and use of the Aircraft by a timesharing Lessee. 11. For purposes of this Agreement, the permanent base of operation of the Aircraft shall be Spartanburg, SC. 12. Neither this Agreement nor any party's interest herein shall be assignable to any other party whatsoever. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their heirs, representatives and successors. 13. TRUTH IN LEASING STATEMENT THE AIRCRAFT, A 1980 GATES LEARJET MODEL 35A, MANUFACTURER'S SERIAL NO. 332, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N543WW, HAS BEEN MAINTAINED AND INSPECT UNDER FAR PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF THIS LEASE. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE, EXTENDED STAY AMERICA, INC., 450 EAST LAS OLAS 6 BLVD., SUITE 1100, FT. LAUDERDALE, FL 33301, IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE. THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS" ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE. I, THE UNDERSIGNED, GEORGE D. JOHNSON, JR. OF EXTENDED STAY AMERICA, INC. 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FL 33301 CERTIFY THAT IT IS RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND ITS RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. IN WITNESS WHEREOF, the parties have executed this Agreement. ADVANCE AMERICA, CASH ADVANCE CENTERS, INC. By: /s/ William M. Webster, IV August 10, 1999 11:30 a.m. ------------------------------------- ---------------------------- William M. Webster, IV, President Date and Time of Execution EXTENDED STAY AMERICA, INC. By: /s/ George D. Johnson, Jr. August 10, 1999 11:20 a.m. ------------------------------------- ---------------------------- George D. Johnson, Jr., President Date and Time of Execution 7 EX-10.5 6 TIME SHARING AGREEMENT - ADVANCE AMERICA Exhibit 10.5 TIME SHARING AGREEMENT This Agreement is made, effective as of August 30, 1999, by and between ESA Management, Inc., a corporation organized under the laws of the State of Delaware, with principal offices at 450 East Las Olas Blvd., Ft. Lauderdale, FL 33301 (hereinafter referred to as "Lessor"), and Advance America, Cash Advance Centers, Inc., with principal offices at 961 East Main Street, Spartanburg, SC 29302 (hereinafter referred to as "Lessee"); RECITALS WHEREAS, Lessor is the owner of that certain civil Aircraft bearing the United States Registration Number N333GJ ("the Aircraft" or "Aircraft"), a 1985 Canadair Challenger Model CL-600-2A12, Manufacturer's Serial Number 3042; WHEREAS, Lessor employs a fully qualified flight crew to operate the Aircraft; and WHEREAS, Lessor and Lessee desire to lease said Aircraft with flight crew on a non-exclusive time sharing basis as defined in Section 91.501(c)(1) of the Federal Aviation Regulations ("FAR"); The parties agree as follows: 1. Lessor agrees to lease the Aircraft to Lessee pursuant to the provisions of FAR 91.501(c)(1) and to provide a fully qualified flight crew for all operations. This Agreement shall commence on the date that it is signed and continue for one year after said date. Thereafter, this Agreement shall be automatically renewed on a month to month basis, unless sooner terminated by either party as hereinafter provided. Either party may at any time terminate this Agreement upon thirty (30) days written notice to the other party, delivered personally or by certified mail, return receipt requested, at the address for said other party as set forth above. 2. Lessee shall pay Lessor for each flight conducted under this Agreement the actual expenses of each specific flight as authorized by FAR Part 91.501(d). These expenses include: (a) Fuel, oil, lubricants, and other additives; (b) Travel expenses of the crew, including food, lodging and ground transportation; (c) Hangar and tie down costs away from the Aircraft's base of operation; (d) Insurance obtained for the specific flight; (e) Landing fees, airport taxes and similar assessments including, but not limited to IRC Section 4261 and related excise taxes; (f) Customs, foreign permit, and similar fees directly related to the flight; (g) In-flight food and beverages; (h) Passenger ground transportation; (i) Flight planning and weather contract services; and (j) An additional charge equal to 100% of the expenses listed in subparagraph (a) of this paragraph. 3. Lessor will pay all expenses related to the operation of the Aircraft when incurred, and will provide an invoice and bill Lessee for the expenses enumerated in paragraph 2 above on the last day of the month in which any flight or flights for the account of Lessee occur. Lessee shall pay Lessor for said expenses within fifteen (15) days of receipt of the invoice and bill therefor. 4. Lessee will provide Lessor with requests for flight time and proposed flight schedules as far in advance of any given flight as possible, and in any case, at least twenty-four (24) hours in advance of Lessee's planned departure. Requests for flight time shall be in a form, whether written or oral, mutually convenient to, and agreed upon by the parties. In addition to 2 the proposed schedules and flight times Lessee shall provide at least the following information for each proposed flight at some time prior to scheduled departure as required by the Lessor or Lessor's flight crew: (a) proposed departure point; (b) destination; (c) date and time of flight; (d) the number of anticipated passengers; (e) the nature and extent of luggage and/or cargo to be carried; (f) the date and time of return flight, if any; and (g) any other information concerning the proposed flight that may be pertinent or required by Lessor or Lessor's flight crew. 5. Lessor shall have final authority over the scheduling of the Aircraft, provided, however, that Lessor will use its best efforts to accommodate Lessee's needs and to avoid conflicts in scheduling. 6. Lessor shall be solely responsible for securing maintenance, preventive maintenance and required or otherwise necessary inspections on the Aircraft, and shall take such requirements into account in scheduling the Aircraft. No period of maintenance, preventative maintenance or inspection shall be delayed or postponed for the purpose of scheduling the Aircraft, unless said maintenance or inspection can be safely conducted at a later time in compliance with all applicable laws and regulations, and within the sound discretion of the pilot in command. The pilot in command shall have final and complete authority to cancel any flight for any reason or condition which in his judgement would compromise the safety of the flight. 3 7. Lessor shall employ, pay for and provide to Lessee a qualified flight crew for each flight undertaken under this Agreement. 8. In accordance with applicable Federal Aviation Regulations, the qualified flight crew provided by Lessor will exercise all of its duties and responsibilities in regard to the safety of each flight conducted hereunder. Lessee specifically agrees that the flight crew, in its sole discretion, may terminate any flight, refuse to commence any flight, or take other action which in the considered judgement of the pilot in command is necessitated by considerations of safety. No such action of the pilot in command shall create or support any liability for loss, injury, damage or delay to Lessee or any other person. The parties further agree that Lessor shall not be liable for delay or failure to furnish the Aircraft and crew pursuant to this Agreement when such failure is caused by government regulation or authority, mechanical difficulty, war, civil commotion, strikes or labor disputes, weather conditions, or acts of God. 9. At all times during the term of this Lease, Lessor shall cause to be carried and maintained, at Lessor's cost and expense, physical damage insurance with respect to the Aircraft in the amount set forth below: Aircraft Physical Damage $12,900,000.00 (No Deductible While In Motion or Not In Motion) At all times during the term of this Lease, Lessor shall also cause to be carried and maintained, at Lessor's cost and expense, third party aircraft liability insurance, passenger legal liability insurance, property damage liability insurance, and medical expense insurance in the amounts set forth below: 4 Combined Liability Coverage for Bodily Injury and Property Damage Including Passengers - Each Occurrence $100,000,000.00 Medical Expense Coverage - Each Person $5,000.00 Lessor shall also bear the cost of paying any deductible amount on any policy of insurance in the event of a claim or loss. Any policies of insurance carried in accordance with this Lease: (i) shall name Lessee as an additional insured; and (ii) shall contain a waiver by the underwriter thereof of any right of subrogation against Lessee; and (iii) shall provide that in respect of the interests of Lessee, such policies of insurance shall not be invalidated by any action or inaction of Lessor or any other person and shall insure Lessee (subject to the limits of liability and war risk exclusion set forth in such policies) regardless of any breach or any violation of any warranty, declarations or conditions contained in such policies by Lessor or any other person; and (iv) shall provide that if the insurers cancel insurance for any reason whatsoever, or the same is allowed to lapse for non- payment of premium, or if there is any material change in policy terms and conditions, such a cancellation, lapse or change shall not be effective as to Lessee. Each liability policy shall be primary without right of contribution from any other insurance which is carried by Lessee or Lessor and shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. Lessor shall submit this Lease for approval to the insurance carrier for each policy of insurance on the Aircraft. Lessor shall arrange for a Certificate of Insurance evidencing appropriate coverage as to the Aircraft and the satisfaction of the requirements set forth above to be given by its insurance carriers to Lessor. 5 10. Lessee warrants that: (a) It will use the Aircraft for and on account of its own business only, and will not use the Aircraft for the purpose of providing transportation of passengers or cargo in air commerce for compensation or hire; (b) it shall refrain from incurring any mechanics or other lien in connection with inspection, preventative maintenance, maintenance or storage of the Aircraft, whether permissible or impermissible under this Agreement, nor shall there by any attempt by any party hereto to convey, mortgage, assign, lease or any way alienate the Aircraft or create any kind of lien or security interest involving the Aircraft or do anything or take any action that might mature into such a lien; and (c) during the term of this Agreement, it will abide by and conform to all such laws, governmental and airport orders, rules and regulations, as shall from time to time be in effect relating in any way to the operation and use of the Aircraft by a timesharing Lessee. 11. For purposes of this Agreement, the permanent base of operation of the Aircraft shall be Spartanburg, SC. 12. Neither this Agreement nor any party's interest herein shall be assignable to any other party whatsoever. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their heirs, representatives and successors. 13. TRUTH IN LEASING STATEMENT THE AIRCRAFT, A 1985 Canadair Challenger Model CL-600-2A12, MANUFACTURER'S SERIAL NO. 3042, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N333GJ, HAS BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF THIS LEASE. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE, ADVANCE AMERICA, CASH ADVANCE CENTERS, INC., 6 961 EAST MAIN ST., SPARTANBURG, SC 29302, IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE. THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS" ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE. I, THE UNDERSIGNED, WILLIAM M. WEBSTER, IV, OF ADVANCE AMERICA, CASH ADVANCE CENTERS, INC., 961 EAST MAIN STREET, SPARTANBURG, SC 29302 CERTIFY THAT IT IS RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT IT UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. IN WITNESS WHEREOF, the parties have executed this Agreement. ESA Management, Inc. By: /s/ Robert A. Brannon ---------------------------------- Robert A. Brannon, Vice President Advance America, Cash Advance Centers, Inc. By: /s/ William M. Webster IV --------------------------------- William M. Webster IV 7 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 9-MOS DEC-31-1999 DEC-31-1999 JUL-01-1999 JAN-01-1999 SEP-30-1999 SEP-30-1999 8,788 0 0 0 7,350 0 0 0 0 0 51,788 0 1,918,937 0 115,824 0 1,872,129 0 76,324 0 818,000 0 0 0 0 0 965 0 909,402 0 1,872,129 0 0 0 116,491 312,397 0 0 48,231 133,277 26,226 74,720 0 0 14,942 40,210 27,092 64,190 10,837 25,677 16,255 38,513 0 0 0 0 0 779 16,255 37,734 0.17 0.39 0.17 0.39
-----END PRIVACY-ENHANCED MESSAGE-----