Choice Hotels International, Inc. and Subsidiaries

Accrued Expenses

Accrued expenses were as follows as of December 31:

Long-Term Debt and Notes Payable

As of December 31, debt consisted of the following:

Maturities of debt as of December 31, 1999 were as follows:

On October 15, 1997, the Company entered into a $300 million competitive advance and multi-currency revolving credit facility (the “Credit Facility”) provided by a group of 13 banks. 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 for borrowings in foreign currencies. The Credit Facility includes customary financial and other covenants that require the maintenance of certain ratios including maximum leverage, minimum net worth and interest coverage and restricts the Company’s ability to make certain investments, repurchase stock, incur debt and dispose of assets. The term loan ($112.5 million of which is outstanding at December 31, 1999) is payable over five years, $32.5 million of which is due in 2000. Borrowings under the facility are, at the option of the borrower, at one of several rates including LIBOR plus 20.0 to 87.5 basis points, based upon a defined financial ratio and the loan type. In addition, the Company has the option to request participating banks to bid on loan participation at lower rates than those contractually provided by the facility. The Credit Facility requires the Company to pay annual fees of 1/10 of 1% to 1/3 of 1%, based upon a defined financial ratio of the total loan commitment. The Credit Facility will terminate on October 15, 2002.

On May 1, 1998, the Company issued $100 million of senior unsecured notes (the “Notes”) at a discount of $0.6 million, bearing a coupon rate of 7.13% with an effective rate of 7.22%. The Notes will mature on May 1, 2008, with interest on the 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.

During April 1999, the Company renewed its $15 million revolving line of credit in order to finance short term working capital requirements and other short term general corporate goals. The line of credit is due to expire on April 30, 2000 and bears interest at 6.90%. Interest accrues monthly on the outstanding balance. The line of credit contains essentially the same covenants as the Credit Facility and is prepayable without penalty.

Cash paid for interest was $19.4 million, $19.2 million, $7.9 million and $11.6 million for the years ended December 31, 1999 and 1998, the seven months ended December 31, 1997, and the fiscal year ended May 31, 1997, respectively.

Interest Rate Hedges

The Company has entered into an interest rate swap agreement with a notional amount of $115 million at December 31, 1999 to fix certain of its variable rate debt in order to reduce the Company’s exposure to fluctuations in interest rates. The interest rate differential to be paid or received on the interest rate swap agreement is accrued as interest rates change and is recognized as an adjustment to interest expense. As of December 31, 1999, the interest rate swap agreement has a life of two months with a fixed rate of 5.85% and variable rate of 6.12%. As of December 31, 1999 and 1998, the interest rate swap agreements have a fair market valuation of approximately $0.1 million and $(2.8) million, respectively.