The Company made net cash advances to the marketing and reservation funds totaling $14.5 million in 2000. The advances are associated with a system-wide property and yield management systems implementation, the timing of expenditures associated with specific brand initiatives of the marketing fund and the recognition of costs and the timing of payments received from franchisees in conjunction with the Company’s frequency stay program. The Company has the ability under existing franchise agreements and expects to recover these advances through future marketing and reservation fees. The Company expects the marketing and reservation funds to generate positive cash flows of approximately $10 million in 2001 due to cost reductions associated with restructured operations, programmed brand initiatives, growth in fees from normal operations and increases in property and yield management fees.

On September 1, 2000, Sunburst transferred title to three MainStay properties under a put/ call agreement entered into between the Company and Sunburst in March 2000. These properties were received by the Company as consideration for $16.3 million of the then $149 million amount due under the Note. The initial Note carried a simple interest rate of 11% per annum. In connection with an amendment of the strategic alliance agreement (as defined in Note 7 to Consolidated Financial Statements), effective October 15, 2000, interest payable accrued at a rate of 11% per annum compounded daily. The Company implemented this amendment prospectively beginning on January 1, 1999, and has recognized interest on the outstanding principal and accrued interest amounts at an effective rate of 10.58%. Total interest accrued at December 31, 2000 and 1999 was $42.2 million and $27.0 million, respectively. On January 5, 2001, the Company received from Sunburst $101.9 million, a parcel of land valued at approximately $1.5 million and a new 11 3/ 8% seven-year senior subordinated note in the amount of $35 million as consideration for the five-year subordinated term note.

Financing cash flows relate primarily to the Company’s borrowings under its credit lines and treasury stock purchases. In 1997, the Company entered into a five-year, $300 million competitive advance and multi-currency revolving credit facility (as defined in Note 10 to Consolidated Financial Statements). The Credit Facility provides for a term loan of $150 million and a revolving credit facility of $150 million, $50 million of which is available in foreign currency borrowings. As of December 31, 2000, the Company had $80 million of term loans outstanding and $109 million of revolving loans. The term loan is payable over five years, $42.5 million of which is due in 2001. The Credit Facility includes customary financial and other covenants that require the maintenance of certain ratios including maximum leverage and interest coverage and restrict the Company’s ability to make certain investments, incur debt and dispose of assets. At the Company’s option, the interest rate may be based on LIBOR, a certificate of deposit rate or an alternate base rate (as defined), plus a facility fee percentage. The rate is determined based on the Company’s consolidated leverage ratio at the time of borrowing.

In 1998, the Company completed a $100 million senior unsecured note offering (“the Senior Notes”), bearing a coupon rate of 7.13% with an effective rate of 7.22%. The Senior Notes will mature on May 1, 2008, with interest on the Senior Notes to be paid semi-annually. The Company used the net proceeds from the offering of approximately $99 million to repay amounts outstanding under the Company’s Credit Facility.

In January 2001, the Company provided Friendly, in association with Friendly’s restructuring (see Note 5 to Consolidated Financial Statements), with a letter of credit in an amount up to £7.8 million (approximately US $11.4 million) to guarantee additional credit facilities from Friendly’s banks. As of March 20, 2001, Friendly had drawn £5.5 million on this letter of credit.