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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 16, 1997
____________________
EXTENDED STAY AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-27360 36-3996573
(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) Number) Identification No.)
450 E. LAS OLAS BOULEVARD
FT. LAUDERDALE, FLORIDA 33301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 713-1600
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Item 5 of the Report of Form 8-K dated January 16, 1997 filed by the
Registrant on January 21, 1997 is hereby amended to read in its entirety as
follows:
Item 5. Other Events.
THE MERGER
On January 16, 1997, Extended Stay America, Inc., a Delaware corporation
(the "Company"), ESA Merger Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("Merger Sub"), and Studio Plus Hotels, Inc., a
Virginia corporation ("Studio Plus"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which Studio Plus will be merged
with and into Merger Sub (the "Merger") in accordance with the General
Corporation Law of the State of Delaware ("DGCL") and the Virginia Stock
Corporation Act ("VSCA").
The Merger Agreement provides that Merger Sub will be the surviving
corporation and that upon consummation of the Merger (i) each share of Studio
Plus common stock, par value $.01 per share ("Studio Plus Common Stock"), will
be converted into the right to receive 1.2272 shares of Company common stock,
par value $.01 per share ("Company Common Stock"), (ii) all outstanding options
to purchase Studio Plus Common Stock from Studio Plus will be converted into
options to purchase Company Common Stock, (iii) the Certificate of Incorporation
of Merger Sub will be amended to change the name of Merger Sub to Studio Plus
Hotels, Inc. (the "Surviving Corporation"), (iv) the Certificate of
Incorporation and the Bylaws of Merger Sub will be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation, and (v) the Surviving
Corporation will become a wholly-owned subsidiary of the Company.
Upon the consummation of the Merger (i) the directors of Merger Sub shall
be the initial directors of the Surviving Corporation, and (ii) the officers of
Merger Sub shall be the initial officers of the Surviving Corporation. Norwood
Cowgill, Jr. is currently Chairman of the Board of Directors and Chief Executive
Officer of Studio Plus. As a condition to the consummation of the Merger, Mr.
Cowgill will be elected to the Board of Directors of the Company.
The obligations of the Company, Merger Sub, and Studio Plus to consummate
the Merger are subject to certain conditions, including, among others, (i) the
approval of the Merger Agreement by (a) the stockholders of the Company in
accordance with the DGCL and (b) the stockholders of Studio Plus in accordance
with the VSCA, (ii) a registration statement on Form S-4 having been declared
effective under the Securities Act of 1933, as amended (the "Securities Act"),
registering the Company Common Stock to be issued in the Merger, and having not
become the subject of any stop order, and (iii) that the Merger be accounted for
as a pooling of interests.
Pursuant to the Merger Agreement, Studio Plus has agreed that it shall not
initiate, solicit or encourage the submission of any proposal or offer with
respect to a merger, consolidation, reorganization, exchange, plan of
liquidation or similar transaction involving Studio Plus or its subsidiaries,
other than the Merger (each such proposal an "Alternative Proposal"), or engage
in
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any discussions or negotiations with any person or entity relating to an
Alternative Proposal or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal. Studio Plus may respond, however, to
unsolicited Alternative Proposals.
The Merger Agreement may be terminated at any time prior to the
consummation of the Merger, notwithstanding any approval thereof by the
stockholders of the Company or of Studio Plus, for a number of reasons,
including the following: (i) by mutual consent of the Boards of Directors of the
Company, Merger Sub and Studio Plus; (ii) by either the Company and Merger Sub
or Studio Plus if, the requisite vote of the stockholders of the Company and
Studio Plus in favor of the Merger Agreement is not obtained; (iii) by either
the Company and Merger Sub, or Studio Plus if the Merger is not consummated on
or before August 31, 1997; or (iv) by Studio Plus if its Board of Directors
determines in good faith that their fiduciary duties require them to recommend
an Alternative Proposal. In the event the Merger Agreement is terminated
pursuant to clause (iv) above or by the Company in the event that the Board of
Directors of Studio Plus has withdrawn or modified its approval or
recommendation of the Merger or shall have recommended an Alternative Proposal,
Studio Plus must pay the Company a fee of $7,500,000.
In connection with, and as a condition to, the Merger Agreement, the
Company, Studio Plus, Mr. Cowgill, and George D. Johnson, Jr., the President and
Chief Executive Officer of the Company, entered into various other agreements
that are described below.
The Company, Mr. Cowgill and Cowgill Partners, L.P., a limited partnership
controlled by Mr. Cowgill ("Cowgill Partners"), entered into a Stockholder
Agreement, dated January 16, 1997 the ("Stockholder Agreement") pursuant to
which Mr. Cowgill and Cowgill Partners granted to the Company (i) a proxy to
represent and vote the 985,927 shares of Studio Plus Common Stock beneficially
owned by Mr. Cowgill and the 470,000 shares of Studio Plus Common Stock
beneficially owned by Cowgill Partners (collectively, the "Cowgill Shares") with
respect to the Merger or any other business combination of Studio Plus with any
other party or on any other business presented to the stockholders of Studio
Plus that has been the subject of preliminary proxy materials filed by Studio
Plus with the Securities and Exchange Commission (subject to a requirement to
vote the Cowgill Shares in favor of the Merger), and (ii) an option (the
"Option") to purchase the Cowgill Shares at a cash price of $25.00 per share.
The Option is exercisable in the event that the Merger Agreement is
terminated by: (i) Studio Plus, upon receipt of an Alternative Proposal, or (ii)
the Company, in the event that the Board of Directors of Studio Plus shall have
(a) withdrawn or modified its approval or recommendation of the Merger or the
Merger Agreement, or (b) adopted resolutions to accept or implement an
Alternative Proposal.
During the term of the Stockholder Agreement, Mr. Cowgill and Cowgill
Partners each agreed (i) not to sell, transfer, pledge, encumber or otherwise
dispose of the Cowgill Shares, (ii) not to solicit or encourage inquiries or
proposals for the acquisition of all or any part of the securities, assets or
business of Studio Plus except as required by Mr. Cowgill's fiduciary duties as
a director of Studio Plus, and (iii) not to engage in any negotiations with
potential acquirers of Studio Plus other than the Company except as required by
Mr. Cowgill's fiduciary duties as a
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director of Studio Plus. The Stockholder Agreement expires on the first to occur
of (i) the closing of the Merger, or (ii) the date 180 days after the
termination of the Merger Agreement.
Mr. Johnson and Studio Plus entered into a Voting Agreement, dated January
16, 1997 (the "Voting Agreement"), pursuant to which Mr. Johnson agreed to vote
the 3,833,587 shares of the Company's Common Stock owned by him in favor of the
Merger and to recommend the Merger to other stockholders of the Company. The
Voting Agreement expires upon the first to occur of (i) the Merger, (ii) the
termination of the Merger Agreement, or (iii) August 31, 1997.
Studio Plus and Fifth Third Bank, as Rights Agent (the "Rights Agent"),
entered into an Amendment No. 2 (the "Rights Amendment") dated as of January 16,
1997 to the Amended and Restated Rights Agreement, dated as of June 6, 1995 and
amended as of February 27, 1996 (the "Rights Agreement"), between Studio Plus
and the Rights Agent. Pursuant to the Rights Amendment, neither the Company,
Merger Sub, nor any affiliate or associate of the Company or Merger Sub shall be
deemed to be an "Acquiring Person" as defined in the Rights Amendment by virtue
of the Merger Agreement or any of the transactions contemplated by the Merger
Agreement.
THE COMPANY
The Company was organized in January 1995 to develop, own, and manage
extended stay lodging facilities which are designed to appeal to value-conscious
guests. The Company's facilities are designed to offer quality accommodations
for guests at substantially lower rates than most other extended stay lodging
providers and hotels in the economy segment of the traditional lodging industry.
They feature fully furnished rooms which are generally rented on a weekly basis
to guests such as business travelers (particularly those with limited expense
accounts), professionals on temporary work assignment, persons between domestic
situations, and persons relocating or purchasing a home, with most guests
staying for multiple weeks. The Company's facilities provide a variety of
features that are attractive to the extended stay guest such as a fully-equipped
kitchenette, weekly housekeeping with twice-weekly towel service, color
television with cable or satellite hook-up, coin laundromat, and telephone
service with voice mail messaging. To help maintain affordability of room rates,
labor intensive services, such as daily cleaning, room service, and restaurants
are not provided.
The Company's goal is to become a national provider of extended stay
lodging. The Company intends to achieve this goal by rapidly developing
properties in selected markets, providing high value accommodations for its
guests, actively managing its properties to increase revenue and reduce
operating costs, and increasing awareness of the extended stay concept. Through
December 31, 1996, the Company had developed and opened 30 facilities, acquired
10 others, and had 50 facilities under construction. The Company plans to begin
construction of approximately 60 additional facilities during 1997 and to
continue an active development program thereafter. The Company's plans call for
the average facility to have approximately 120 extended stay rooms and to take
approximately 7-9 months to construct. During the nine months ended September
30, 1996, the Company's operating properties realized average occupancy of
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76% and average weekly room rates of $237 for the periods owned and operated by
the Company.
The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga,
who are the two largest shareholders of the Company. Mr. Johnson, who is the
President and Chief Executive Officer of the Company, was formerly the President
of the Consumer Products Division of Blockbuster Entertainment Group, a division
of Viacom, Inc. Mr. Huizenga who is the Chairman of the Board of Directors of
the Company, is the Chairman and Co-Chief Executive Officer of Republic
Industries, Inc. and was formerly Vice-Chairman of Viacom, Inc. and Chairman and
Chief Executive Officer of Blockbuster Entertainment Corporation. The Company's
management team has extensive experience in the acquisition and development of
real estate and the operation of properties on a national scale.
RECENT DEVELOPMENTS OF THE COMPANY
During 1996, the Company acquired ten existing lodging facilities in six
separate transactions (each such transaction is referred to herein as an
"Acquisition"), as summarized below. Each of the Acquisitions was accounted for
using the purchase method of accounting.
On January 26, 1996, the Company acquired substantially all of the
assets of Apartment/Inn, L.P., a Georgia limited partnership
("Apartment/Inn"). Apartment/Inn owned and operated a 196-room economy
extended stay lodging facility in Norcross, Georgia which is similar in
concept to the Company's lodging facilities. In consideration for such
acquisition, the Company issued an aggregate of 587,258 shares of Company
Common Stock.
On February 23, 1996, the Company acquired substantially all of the
assets of Hometown Inn I, LTD and Hometown Inn II, LTD (collectively
"Hometown Inn"). Hometown Inn owned and operated a 130-room economy
extended stay lodging facility in Norcross, Georgia and a 144-room economy
extended stay lodging facility in Riverdale, Georgia, both of which are
similar in concept to the Company's lodging facilities. In consideration
for such acquisition, the Company issued 857,216 shares of Company Common
Stock and paid an additional $75,000 in cash.
On May 10, 1996, the Company acquired substantially all of the assets
of American Apartmen-Tels Investors II, L.P. ("AATI"), which owned and
operated a 59-room extended stay lodging facility in Lenexa, Kansas, for a
purchase price of approximately $3.3 million in cash. This purchase
includes adjacent land on which the Company intends to build a new 60-room
economy extended stay lodging facility.
On June 25, 1996, the Company acquired substantially all of the assets
of Apartment Inn Partners/Gwinnett, L.P., a Georgia limited partnership
("Gwinnett"). Gwinnett owned and operated a 126-room economy extended stay
lodging facility in Lawrenceville, Georgia which is similar in concept to
the Company's lodging facilities. The facility was operated as The
Apartment Inn and rights for the use of that name and certain other rights
were controlled by Apartment/Inn. In consideration for such
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acquisition, the Company issued 344,200 shares of Company Common Stock and
paid an additional $23,000 in cash.
On July 9, 1996, the Company acquired substantially all of the assets
of Melrose Suites, Inc., St. Louis Manor, Inc., Boulder Manor, Inc.,
and Nicolle Manor (co-owned by Michael J. Mona, Jr. and Dean
O'Bannon), which owned extended stay lodging facilities in Las Vegas,
Nevada (collectively, the "M & M Facilities"), that have 177 rooms,
125 rooms, 211 rooms, and 125 rooms, respectively. Each of the M & M
Facilities was managed by M & M Development, with which the Company
has entered into a two-year consulting agreement with a fee of
$120,000 per year. In consideration for the M & M Facilities, in
addition to assuming liability under certain leases for personal
property, the Company issued 2,470,000 shares of Company Common Stock
and paid an additional $500,000 in cash.
On July 29, 1996, the Company acquired the lodging facility owned by
Kipling Hospitality Enterprise Corporation, which was a 145-room
traditional lodging facility located in Lakewood, Colorado, which the
Company is remodeling to convert it to the economy extended stay
format. In consideration for this acquisition, the Company issued
200,000 shares of Company Common Stock and paid an additional $25,000
in cash.
On May 9, 1996, the Board of Directors of the Company declared a stock
dividend of one additional share of Company Common Stock for each share issued
as of the close of business on July 5, 1996, which was distributed on July 19,
1996, thereby effecting a 2-for-1 stock split (the "ESA Stock Dividend"). All
references in this report to Company Common Stock, including prices per share,
have been adjusted to give effect to the ESA Stock Dividend.
CAPITALIZATION OF THE COMPANY
The Company was initially capitalized with approximately $60 million in
equity from a group of private investors, a number of whom constitute part of
the Company's management team. On December 19, 1995, the Company completed an
initial public offering of 10,120,000 shares of Company Common Stock at a price
of $6.50 per share and a concurrent offering to the Company's then existing
shareholders of 4,135,650 additional shares of Company Common Stock at a price
of $6.045 per share, being the initial public offering price per share less the
underwriting discounts and commissions (collectively, the "1995 Offerings"). The
net proceeds to the Company from the 1995 Offerings were approximately $85
million after deduction of the underwriting discounts and commissions and other
offering expenses. On June 5, 1996, the Company completed an additional offering
of 19,550,000 shares of Company Common Stock at a price to the public of $15.50
per share (the "1996 Offering"). The net proceeds to the Company from the 1996
Offering were approximately $289 million after deduction of the underwriting
discounts and commissions and other offering expenses. In addition, pursuant to
its mortgage loan facilities, the Company may be able to borrow up to $400
million to finance its properties.
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As of December 31, 1996, there were 68,290,984 shares of Company Common
Stock outstanding, all of which were either freely tradable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act)
without restriction or could be resold pursuant to an existing resale shelf
registration statement under the Securities Act. As of December 31, 1996, there
were also outstanding under the Company's various option plans, options to
purchase a total of 5,811,868 shares of Company Common Stock, which options have
been registered under the Securities Act. Pursuant to the Merger, the Company
expects to issue approximately 15,375,400 new shares of Company Common Stock and
to assume options to purchase from the Company approximately 1,474,500 shares of
Company Common Stock.
STUDIO PLUS
Studio Plus owns, develops, and operates StudioPLUS(TM) extended stay
hotels and owns the rights to the related trade name and service marks for
"StudioPLUS." StudioPLUS hotels are designed to combine the convenience of a
hotel with many of the comforts of an apartment in order to provide affordable
lodging for extended stay guests. Studio Plus believes that it accommodates an
underserved niche of guests in the extended stay sector of the lodging industry.
These guests include business travelers, professionals on temporary work
assignment, persons relocating or purchasing a home, tourists, and others
desiring high quality, furnished accommodations with full kitchens. Studio Plus
guests typically prefer weekly rather than daily accommodations.
Studio Plus believes that several factors distinguish its properties within
the extended stay category of the lodging industry. Studio Plus offers quality
accommodations at competitive rates within the mid-price segment of the extended
stay market. The average weekly rate at its 18 existing properties open
throughout the first nine months of both 1995 and 1996 (the "Existing Studio
Plus Properties") increased from $248 to $268 per suite, and average occupancy
at the Existing Studio Plus Properties increased from 84.5% to 84.7%.
Studio Plus designs its hotels, and markets and prices its suites, to
accommodate guests staying one week or longer and believes this strategy results
in longer guest stays and a more stable revenue stream. Studio Plus estimates
that over 65% of its guests stay one month or longer and believes the longer
term nature of guest stays and the limited number of suites per property lead to
operating efficiencies. Each StudioPLUS hotel has approximately five employees,
in addition to a resident general manager.
StudioPLUS hotels are designed and built to uniform plans and
specifications developed and periodically refined since 1985. Studio Plus
believes this standardization lowers construction costs and establishes uniform
quality and operational standards. A typical StudioPLUS hotel contains 72 suites
(one suite for the resident general manager and 71 suites available for rent)
and costs approximately $2.8 to $3.3 million to develop and construct, including
land costs, with an average cost per suite ranging from approximately $38,000 to
$46,000. Once a site is selected and acquired and regulatory permits and
approvals are obtained, the construction phase of development generally requires
approximately eight to nine months
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from groundbreaking to opening. On average, the StudioPLUS properties opened
since 1988 have reached at least a 70% occupancy level within approximately four
months after opening.
Each StudioPLUS hotel suite contains a fully equipped kitchen including a
full-size refrigerator, range with conventional oven, microwave and a direct-
dial telephone. A typical StudioPLUS hotel has two types of suites: designer
suites and larger deluxe suites. All of the properties have weekly maid service,
with an option for daily service, and coin-operated laundry facilities, and most
of the properties have an exercise room and a swimming pool. Each hotel employee
participates in incentive programs based on individual property level
performance. Studio Plus considers its incentive programs to be an important
part of its compensation plan.
From 1991 through 1995, (i) the number of StudioPLUS hotels increased from
14 to 22, (ii) consolidated average occupancy increased from 75.3% to 83.5%,
(iii) average weekly room rates increased from $174.79 to $254.11, representing
a compounded annual growth rate of approximately 9.8%, and (iv) weekly revenue
per available room increased from $131.68 to $212.19, representing a compounded
annual growth rate of 12.7%.
As of December 31, 1996, Studio Plus owned and operated 35 mid-priced
extended stay lodging facilities, had 11 facilities under construction and
options to purchase approximately 28 additional sites for development.
RECENT DEVELOPMENTS OF STUDIO PLUS
On July 9, 1996, Studio Plus effected a 3-for-2 stock split of the Studio
Plus Common Stock in the form of a stock dividend of three shares of Studio Plus
Common Stock for each two shares of Studio Plus Common Stock outstanding as of
the close of business on June 20, 1996 (the "Studio Plus Stock Split"). All
references in this report to Studio Plus Common Stock, including prices per
share, have been adjusted to give effect to the Studio Plus Stock Split, except
for information contained in Studio Plus' audited historical financial
statements.
CAPITALIZATION OF STUDIO PLUS
In June 1995, Studio Plus completed an initial public offering of 5,347,500
shares of Studio Plus Common Stock at a price of $10.00 per share (the "Studio
Plus IPO"). The net proceeds to Studio Plus from the Studio Plus IPO was
approximately $48.3 million after deduction of the underwriting discounts and
commissions and other offering expenses. In March 1996, Studio Plus completed an
additional offering of 4,855,347 shares of its Common Stock at a price to the
public of $16.83 per share (the "Studio Plus 1996 Offering"). The net proceeds
to Studio Plus from the Studio Plus 1996 Offering were approximately $76.8
million after deduction of the underwriting discounts and commissions and other
offering expenses. Studio Plus also has $50 million of borrowing capacity under
an existing line of credit available to fund the national expansion of Studio
Plus hotels. Studio Plus has received a commitment from a group of banks which
would increase the principal amount available for borrowing to $200 million.
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As of January 15, 1997, Studio Plus had (i) 12,528,845 shares of Common
Stock outstanding, (ii) options to purchase a total of 1,071,514 shares of
Studio Plus Common Stock under Studio Plus' various stock option plans, and
(iii) contractual commitments to issue additional options to purchase 130,000
shares of Studio Plus Common Stock.
All of the information contained in this report regarding Studio Plus has
been derived from documents filed by Studio Plus under the Securities Act or the
Securities Exchange Act of 1934, as amended, or otherwise provided by Studio
Plus. The Company disclaims all responsibility for the accuracy of such
information.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements of the business to be acquired are filed
herewith as Exhibit 99.1 hereto and are incorporated herein by this
reference.
(b) Pro Forma Financial Information.
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The pro forma financial information relating to the business to be acquired
is filed herewith as Exhibit 99.2 hereto and is incorporated herein by this
reference.
(c) Exhibits.
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The exhibits to this report are listed in the Exhibit Index set forth
elsewhere herein.
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SIGNATURE
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 hereunto duly authorized.
EXTENDED STAY AMERICA, INC.
By:/s/ Robert A. Brannon
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Robert A. Brannon
Senior Vice President and
Chief Financial Officer
Dated: January 28, 1997
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EXTENDED STAY AMERICA, INC.
Exhibit Index
Exhibit
Number Description of Exhibit
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2.1* Agreement and Plan of Merger dated as of January 16, 1997 by and
among Extended Stay America, Inc. (the "Company"), ESA Merger Sub,
Inc., and Studio Plus Hotels, Inc. ("Studio Plus").
2.2* Agreement dated January 21, 1997 by the Company to furnish
supplementally copies of omitted schedules.
2.3 Stockholder Agreement, dated as of January 16, 1997, among the
Company, Norwood Cowgill, Jr., and Cowgill Partners, L.P.
2.4 Voting Agreement, dated as of January 16, 1997, between Studio Plus
and George D. Johnson, Jr.
99.1 Audited consolidated financial statements of Studio Plus for the
three years ended December 31, 1995 and unaudited condensed
consolidated financial statements of Studio Plus for the nine-month
period ended September 30, 1996.
99.2 Unaudited pro forma condensed combined statements of income of the
Company for the three years ended December 31, 1995 and the nine-
month period ended September 30, 1996 and unaudited pro forma
condensed combined balance sheet of the Company as of September 30,
1996.
____________________
* Previously filed.
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STOCKHOLDER AGREEMENT
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THIS STOCKHOLDER AGREEMENT (the "Agreement") is entered into as of January
16, 1997, by and between Extended Stay America, Inc., a Delaware corporation
("ESA"), and Norwood Cowgill, Jr. ("Cowgill") and Cowgill Partners, L.P. (the
"Partnership"), stockholders (Cowgill and the Partnership each individually
referred to as a "Stockholder" and collectively as the "Stockholders") of Studio
Plus Hotels, Inc., a Virginia corporation (the "Company").
W I T N E S S E T H:
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Each Stockholder is the owner of shares (with respect to each Stockholder
the "Shares") of common stock, par value $.01 per share, of the Company
("Company Common Stock"). As used herein, the term "Shares" shall also include
any shares of Company Common Stock that the respective Stockholder shall obtain
beneficial ownership of (including sole investment and voting power) during the
term of this Agreement. ESA, ESA Merger Sub, Inc., a Delaware corporation
("Merger Sub"), and the Company have entered into an Agreement and Plan of
Merger dated January 16, 1997 (the "Merger Agreement") providing for the merger
of the Company into Merger Sub (the "Merger"). In order to induce ESA and Merger
Sub to enter into the Merger Agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the Stockholders desire to grant ESA an option to purchase, and proxy to vote,
the Shares.
ACCORDINGLY, the parties hereto agree as follows:
1. Option and Proxy. Subject to the terms and conditions of this
Agreement, each Stockholder hereby:
(a) Grants to ESA an option, exercisable from time to time and in
whole or in part under the conditions set forth below in this Paragraph 1(a) and
during the term of this Agreement, to purchase up to all of the Shares (the
"Option") at a price per Share equal to $25.00 (the "Purchase Price"). ESA may
exercise this Option, at any time after the occurrence of a Topping Event (as
defined in the Merger Agreement), upon three business days' notice to the
Stockholder indicating the Topping Event and the number of Shares to be acquired
together with the Purchase Price and the date, time and place of the closing of
such purchase (the "Closing"); provided that at the time of any exercise of the
Option there exists an Alternative Proposal (as defined in the Merger
Agreement).
(b) Appoints George D. Johnson, Jr. and Robert A. Brannon, or either
of them, with full power of substitution, as proxy holders (the "Proxy
Committee") to represent and to vote the Shares with respect to the Merger, or
any other merger or other business combination of the Company with any party
other than ESA or any Alternative Proposal (as defined in the Merger Agreement),
including with respect to any procedural matters related thereto, at any meeting
(whether special or annual, and whether or not adjourned) or by written action
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stockholders of the Company and, in the discretion of the Proxy Committee, upon
any other business as may properly come before such meeting or for written
action (provided that such business shall have been the subject of preliminary
proxy materials filed by the Company under the Securities Exchange Act of 1934,
as amended), such votes to be cast in any manner that the Proxy Committee in its
sole discretion shall deem proper except if the vote is on the Merger Agreement,
the Shares shall be voted in favor of the Merger Agreement; the authority
granted hereunder ("Proxy") shall be irrevocable during the term of this
Agreement and deemed to be coupled with an interest; and
(c) In the case of Cowgill, agrees to recommend the Merger to other
stockholders of the Company and to use his best efforts to bring about the
Merger, subject to applicable fiduciary duties as determined in good faith after
consultation with, and based upon the advice of, outside counsel.
2. Changes in Shares. For all purposes of this Agreement, the Shares shall
include any securities or cash or other property issued or exchanged with
respect to such Shares upon any recapitalization, reclassification, merger,
consolidation, spin-off, partial or complete liquidation, dividend in cash or
stock or other property, split-up or combination of the securities of the
Company, or any other change in its capital structure.
3. Closing.
3.1 Delivery of Shares. At the Closing, Stockholder shall deliver to
Purchaser certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers duly executed in blank, with signatures guaranteed,
or otherwise in form acceptable for transfer on the books of the Company.
3.2 Payment for Shares. All payments by the Purchaser of the Purchase Price
shall be made on the date of the Closing by wire transfer of immediately
available funds to an account designated by Stockholder by written notice to
Purchaser.
4. Representations and Warranties of the Stockholders. Each Stockholder
represents and warrants to ESA as follows:
4.1 Power to Transfer the Shares. The Stockholder now has, and upon
delivery of the Shares at the Closing, the Stockholder will sell, assign,
transfer and deliver to ESA, valid and marketable title to the Shares, free and
clear of all security interests, liens, claims, pledges, assessments, options,
equities, charges and encumbrances whatsoever, and with no proxies or
restrictions on the voting rights or other incidents of record or beneficial
ownership pertaining thereto (except for the Proxy being granted pursuant to
this Agreement) and there are no outstanding options, warrants or rights to
purchase or acquire or agreements relating to any of the Shares. The Shares are
validly issued and outstanding, fully paid and non-assessable with no personal
liability attaching to the ownership thereof.
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4.2 Valid and Binding Agreement; No Violation. This Agreement constitutes a
valid and binding agreement of the Stockholder, enforceable in accordance with
its terms. Neither the execution of this Agreement, the exercise of the Option,
the Proxy, nor the voting of the Shares by the Proxy Committee, will constitute
a violation of, or conflict with, or result in a default under, any contract,
commitment, agreement, understanding, arrangement or restriction of any kind to
which the Stockholder is a party or by which the Stockholder is bound or to
which the Shares are subject.
5. Representations and Warranties of ESA. ESA represents and warrants to
the Stockholder as follows:
5.1 Authorization. The execution and delivery of this Agreement by ESA has
been duly authorized by all requisite corporate action.
5.2 Valid and Binding Agreement. This Agreement constitutes a valid and
binding agreement of ESA, enforceable in accordance with its terms.
6. Covenants of the Stockholder. Each Stockholder hereby covenants and
agrees as follows:
6.1 Inquires or Proposals. From the date of execution of this Agreement to
termination hereof, the Stockholder shall not solicit or encourage any inquiries
or proposals for the acquisition of all or any part of the securities, assets or
business of the Company; the Stockholder shall not engage in any negotiations
with potential acquirers (other than ESA) or persons acting on their behalf;
provided, however, that nothing contained in this Section 6.1 shall prohibit
Cowgill from (i) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Alternative
Proposal, if, and only to the extent that, the Board of Directors of the
Company, based upon the advice of outside counsel, determines in good faith that
such action is required for the Board of Directors to comply with its fiduciary
duties to stockholders imposed by law.
6.2 Sale of Shares. The Stockholder agrees that Stockholder will not sell,
transfer, further pledge, encumber or otherwise dispose of the Shares except
pursuant to the Merger or this Agreement, between the date hereof and the
termination of this Agreement.
7. Miscellaneous.
7.1 Commissions. Each of the parties hereto represents and warrants that to
the best of such party's knowledge there are no agreements or claims for
brokerage commissions or finders' fees in connection with the transactions
contemplated by this Agreement, and the Stockholders and ESA will respectively
pay or discharge and will indemnify the other, for brokerage commissions or
finders' fees incurred by reason of any action taken by such indemnifying party.
3
<PAGE>
7.2 Expenses. All costs and expenses (including legal fees) incurred in
connection with this Agreement, and the sale and purchase of the Shares
contemplated hereby, shall be paid by the party incurring such expense.
7.3 Survival of Representations. Notwithstanding any provision of this
Agreement, all representations, warranties and agreements made by the
Stockholders and ESA in this Agreement shall survive until the earlier of (a)
the closing of the Merger or (b) the first anniversary of the date of exercise
of the Option.
7.4 Further Assurance and Cooperation. From time to time, and without
further consideration, each party will execute and deliver to the other such
documents and take such action as the other may reasonably request in order to
consummate more effectively the terms of this Agreement.
7.5 Parties in Interest. All authority herein conferred or agreed to be
conferred by a Stockholder shall survive such Stockholder's death or incapacity.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto without the prior written consent of the Purchaser (if
such assigning party is a Stockholder) or Cowgill (if such assigning party is
the Purchaser), which consent will not be unreasonably withheld, and except that
ESA may assign to any wholly-owned subsidiary of ESA the right to purchase all
of any part of the Shares.
7.6 Specific Performance. Each party acknowledges that its obligations
hereunder are unique, and agrees that the other shall have the right, in
addition to any other rights it may have, to specific performance or equitable
relief by way of injunction if it shall fail to perform any of its obligations
hereunder.
7.7 Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflicts of law doctrine thereof.
7.8 Term of the Agreement. The term of this Agreement shall be until the
first to occur of (i) the date 180 days after the termination of the Merger
Agreement, or (ii) the closing of the Merger.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Stockholder Agreement as
of the date first above written.
EXTENDED STAY AMERICA, INC.
By: /s/ George Dean Johnson, Jr.
-----------------------------
Authorized Representative
STOCKHOLDERS:
/s/ Norwood Cowgill, Jr.
--------------------------------
Norwood Cowgill, Jr.
COWGILL PARTNERS, L.P.
By: Cowgill Management Company, LLC
General Partner
/s/ Norwood Cowgill, Jr.
-------------------------------
Authorized Representative
5
<PAGE>
January 16, 1997
Studio Plus Hotels, Inc.
ATTN: Norwood Cowgill, Jr.
1999 Richmond Road, Suite Four
Lexington, KY 40502
Re: Vote Agreement
--------------
Gentlemen:
Studio Plus Hotels, Inc., a Virginia corporation (the "Company"), Extended
Stay America, Inc., a Delaware corporation (the "Purchaser") and ESA Merger Sub,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Purchaser,
intend to enter an Agreement and Plan of Merger as of January 16, 1997 (the
"Agreement"). In order to induce the Company to enter into the Agreement, the
undersigned hereby agrees to vote the shares (the "Shares") of common stock of
Purchaser owned by the undersigned in favor of the Merger and the transactions
contemplated thereby at any meeting (whether special or annual, and whether or
not adjourned) or by written action of stockholders of Purchaser. Further, the
undersigned hereby agrees to recommend the Merger to Purchaser stockholders,
subject to the exercise of applicable fiduciary duties as determined by the
undersigned in good faith after consultation with, and based upon the advice of,
outside counsel.
<PAGE>
Studio Plus Hotels, Inc.
January 16, 1997
Page 2
The term of this letter agreement shall be until the first to occur of (i)
the termination of the Merger Agreement, (ii) the closing of the Merger, or
(iii) August 31, 1997.
Very truly yours,
/s/George D. Johnson, Jr.
George D. Johnson, Jr.
ACCEPTED AND AGREED:
Studio Plus Hotels, Inc.
By: /s/Norwood Cowgill, Jr.
------------------------
Title: C.E.O
---------------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Studio Plus Hotels, Inc.
Lexington, Kentucky
We have audited the accompanying consolidated balance sheets of Studio Plus
Hotels, Inc. and Subsidiary as of December 31, 1994 and 1995 and the related
consolidated statements of operations, capital and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Studio Plus
Hotels, Inc. and Subsidiary as of December 31, 1994 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
February 8, 1996
Page 1
<PAGE>
STUDIO PLUS HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 457,445 $ 2,556,744
Accounts receivable, net of allowance
of $61,894 and $70,654 in 1994
and 1995, respectively...................... 254,636 372,771
Refundable income taxes...................... 162,096
Other current assets......................... 24,762 163,887
----------- -----------
Total current assets...................... 736,843 3,255,498
----------- -----------
Property and equipment, net................... 34,002,239 59,355,184
Deferred loan costs, net of accumulated
amortization of $250,865 and $48,281
in 1994 and 1995, respectively............... 293,811 244,991
Non-compete agreement, net of
accumulated amortization of $56,250
and $125,000 in 1994 and 1995,
respectively................................. 93,750 25,000
Pre-opening costs, net of accumulated
amortization of $274,057 and
$390,989 in 1994 and 1995, respectively...... 116,316 209,974
Deferred public offering costs................ 743,124
Other assets.................................. 236,395 285,726
----------- -----------
$36,222,478 $63,376,373
=========== ===========
LIABILITIES AND CAPITAL (DEFICIT)
Current liabilities:
Accounts payable............................. $ 1,213,670 $ 1,876,622
Accrued expenses:
Property taxes............................. 323,548 322,584
Interest................................... 275,712 18,136
Compensation............................... 12,958 245,581
Other...................................... 213,951 364,986
Current portion of long-term debt............ 2,896,789
Current portion of payable for
non-compete agreement....................... 75,000 75,000
----------- -----------
Total current liabilities................. 5,011,628 2,902,909
----------- -----------
Long-term debt................................ 30,922,848 4,000,000
Notes payable to shareholders and
partners..................................... 1,383,500
Payable for non-compete agreement............. 75,000
Deferred income taxes......................... 4,827,410
Commitments
Third party investors' interest............... 76,959
----------- -----------
Total liabilities......................... 37,469,935 11,730,319
----------- -----------
Capital(deficit):
Preferred stock, par value $.01 per
share, 10,000,000 shares authorized,
none issued or outstanding
Common stock, par value $.01 per share,
50,000,000 shares authorized,
5,115,000 shares issued and outstanding..... 210,000 51,150
Additional paid-in capital................... 128,296 50,490,353
Treasury stock............................... (75,000)
Retained earnings (deficit).................. (1,209,108) 1,104,551
Partners' deficit............................ (301,645)
----------- -----------
Total capital (deficit)................... (1,247,457) 51,646,054
----------- -----------
$36,222,478 $63,376,373
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
Page 2
<PAGE>
STUDIO PLUS HOTELS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ------------ -----------
<S> <C> <C> <C>
Revenue:
Room revenue........................................................... $ 9,984,966 $11,830,374 $15,308,835
Other revenue.......................................................... 324,135 322,159 581,416
----------- ----------- -----------
Total revenue..................................................... 10,309,101 12,152,533 15,890,251
----------- ----------- -----------
Costs and expenses:
Property operating expenses............................................ 4,457,662 5,256,359 6,374,355
Corporate operating expenses........................................... 792,295 880,511 2,113,731
Depreciation and amortization.......................................... 1,312,968 1,472,358 1,912,132
Interest expense, net of interest income of $161,591 in 1995........... 2,498,125 2,531,990 1,356,082
----------- ----------- -----------
Total costs and expenses.......................................... 9,061,050 10,141,218 11,756,300
----------- ----------- -----------
Income before third party investor's interests, income taxes
and extraordinary loss........................................ 1,248,051 2,011,315 4,133,951
Third party investors' interest........................................ (197,714) (358,432) (141,612)
----------- ----------- -----------
Income before income taxes and extraordinary loss.............. 1,050,337 1,652,883 3,992,339
Provision for income taxes............................................. -- -- 1,670,459
-----------
Income before extraordinary loss............................... 1,050,337 1,652,883 2,321,880
Extraordinary loss, net of tax benefit................................. (184,618)
-----------
Net income..................................................... $ 1,050,337 $ 1,652,883 $ 2,137,262
=========== =========== ===========
Pro forma income data: (Note 9)
Income before extraordinary loss....................................... $ 1,050,337 $ 1,652,883 $ 2,321,880
Pro forma adjustment for income taxes.................................. (390,725) (614,872) 176,458
----------- ----------- -----------
Pro forma income before extraordinary loss............................. 659,612 1,038,011 2,498,338
Extraordinary loss..................................................... -- -- (184,618)
-----------
Pro forma net income................................................... $ 659,612 $ 1,038,011 $ 2,313,720
=========== =========== ===========
Pro forma earnings per share: (Note 9)
Pro forma income before extraordinary loss............................. $0.75
Extraordinary loss..................................................... (0.06)
-----------
Pro forma net income................................................... $0.69
===========
Weighted average number of common shares outstanding..................... 3,330,069
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
Page 3
<PAGE>
STUDIO PLUS HOTELS, INC.
CONSOLIDATED STATEMENTS OF CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY (DEFICIT)
------------------------------
RETAINED
COMMON ADDITIONAL TREASURY EARNINGS PARTNERS'
STOCK PAID-IN CAPITAL STOCK (DEFICIT) DEFICIT TOTAL
------ --------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993............ $ 190,000 $ 106,846 $(1,602,455) $(394,265) $(1,699,874)
Cash dividends.................... (890,548) (890,548)
Partners' draws................... (70,678) (70,678)
Net income........................ 885,398 164,939 1,050,337
--------- ----------- -------- ----------- --------- -----------
Balance, December 31, 1993.......... 190,000 106,846 (1,607,605) (300,004) (1,610,763)
--------- ----------- -------- ----------- --------- -----------
Issuance of stock................. 20,000 20,000
Cash dividends.................... (1,139,111) (1,139,111)
Partners' draws................... (116,916) (116,916)
Conversion of note payable
to stock......................... 21,450 21,450
Repurchase of treasury stock...... $(75,000) (75,000)
Net income........................ 1,537,608 115,275 1,652,883
--------- ----------- -------- ----------- --------- -----------
Balance, December 31, 1994.......... 210,000 128,296 (75,000) (1,209,108) (301,645) (1,247,457)
--------- ----------- -------- ----------- --------- -----------
Cash dividends.................... (1,747,956) (1,747,956)
Partners' draws................... (547,074) (547,074)
Reclassification of shareholders'
and partners' interest to paid-in
capital in connection with
S corporation and partnership
termination...................... (210,000) (1,631,115) 75,000 1,250,795 515,320
Purchase of minority
shareholders' interest........... 3,955,515 673,558 333,399 4,962,472
Proceeds from initial public
offering of stock, net.......... 51,150 48,037,657 48,088,807
Net income........................ 2,137,262 2,137,262
--------- ----------- -------- ----------- --------- -----------
Balance, December 31, 1995.......... $ 51,150 $50,490,353 $ -- $ 1,104,551 $ -- $51,646,054
========= =========== ======== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
Page 4
<PAGE>
STUDIO PLUS HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 1,050,337 $ 1,652,883 $ 2,137,262
Adjustments to reconcile net income to net cash provided by
operating activities:
Third party investors' interest.......................................... 197,714 358,432 141,612
Depreciation............................................................. 1,135,611 1,305,119 1,648,780
Amortization............................................................. 177,357 167,239 263,352
Loss (gain) on sale of assets............................................ 12,812 2,746 (72,393)
Bad debt expense......................................................... 140,400 47,892
Deferred income tax expense.............................................. 593,186
Extraordinary loss....................................................... 184,618
Change in:
Accounts receivable..................................................... (49,160) (199,039) (166,027)
Other current assets.................................................... 12,394 (24,212) (139,125)
Other assets............................................................ (42,399) (171,680) (49,597)
Accounts payable........................................................ (10,718) (154,897) 167,354
Accrued expenses........................................................ 14,378 82,816 87,065
----------- ----------- ------------
Net cash provided by operating activities.............................. 2,498,326 3,159,807 4,843,979
----------- ----------- ------------
Cash flows from investing activities:
Purchase of land.......................................................... (409,220) (918,969) (4,902,413)
Expenditure for building and improvements................................. (1,398,463) (3,950,654) (8,273,199)
Purchase of furniture, fixtures and equipment............................. (921,522) (923,927) (2,493,270)
Sale of assets............................................................ 87,500 4,000 132,812
Additions to preopening costs............................................. (49,992) (101,175) (125,826)
Purchase of third party investors' interest............................... (1,500,000)
----------- ----------- ------------
Net cash used in investing activities.................................. (2,691,697) (5,890,725) (17,161,896)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt.............................................. 5,521,492 4,319,832 6,916,222
Proceeds from notes payable to shareholders and partners.................. 560,000 875,000 1,727,500
Principal payments on long-term debt...................................... (3,831,133) (517,314) (36,810,859)
Principal payments on notes payable to shareholders and partners.......... (613,500) (567,675) (3,111,000)
Partners' draws........................................................... (70,678) (116,916)
Cash dividends............................................................ (890,548) (1,139,111) (2,295,030)
Distribution to third party investors..................................... (197,714) (281,473)
Proceeds from sale of stock............................................... 20,000
Proceeds from public offering, net of underwriting costs.................. 49,731,750
Additions to deferred loan costs.......................................... (97,821) (27,320) (336,250)
Additions to public offering costs........................................ (237,826) (1,405,117)
----------- ----------- ------------
Net cash provided by financing activities.............................. 380,098 2,327,197 14,417,216
----------- ----------- ------------
Net increase (decrease) in cash........................................ 186,727 (403,721) 2,099,299
Cash at beginning of periods............................................... 674,439 861,166 457,445
----------- ----------- ------------
Cash at end of periods..................................................... $ 861,166 $ 457,445 $ 2,556,744
----------- ----------- ------------
Supplemental cash flow disclosures:
Interest paid, net of amount capitalized.................................. $ 2,477,164 $ 2,539,213 $ 1,775,249
----------- ----------- ------------
Income taxes paid......................................................... $ 1,182,200
------------
Non-cash transactions:
Contract payable for non-compete agreement................................ $ 150,000
-----------
Additions to public offering costs included in accounts payable........... $ 505,298
-----------
Conversion of note payable to stock....................................... $ 21,450
-----------
Repurchase of treasury stock for note payable............................. $ 75,000
-----------
Public offering costs netted against offering proceeds.................... $ 1,642,943
------------
Purchase of minority shareholders' interest for stock and assumption of
deficit capital balances................................................. $ 4,962,472
=============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
Page 5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Business
Studio Plus Hotels, Inc. and its wholly owned subsidiary, Studio Plus
Properties, Inc. (together, the "Company") own, develop and operate StudioPLUS
extended stay hotels and own the rights to the related trade name and service
marks for "StudioPLUS." StudioPLUS hotels are designed to combine the
convenience of a hotel with many of the comforts of an apartment in order to
provide affordable lodging for extended stay guests.
At December 31, 1995 the Company had 22 hotels in operation and 7 under
construction. The hotels open and under construction are located in eight states
in the Midwest and Southeast United States.
Corporate Organization and Initial Public Offering
The Company was formed on December 19, 1994, to acquire, through merger and
exchange of partnership interests all of the assets of Studio Plus, Inc. and the
corporations and partnerships (collectively, the "Predecessor Entities") which
owned and operated StudioPLUS extended stay hotels. On June 26, 1995, the
Company completed an initial public offering of 3,565,000 shares of Common
Stock, including shares issued as a result of the exercise of the underwriters'
over-allotment option, at $15.00 per share (the "IPO") and received net proceeds
of approximately $48 million, net of underwriting discounts and IPO expenses.
Just prior to completion of the IPO, the Company acquired through merger and
exchange of Common Stock for partnership interest, the assets of the Predecessor
Entities which owned and operated all of the StudioPLUS extended stay hotel
properties then in operation or under development (the "Corporate
Organization"). The Company issued an aggregate of 1,548,500 shares of Common
Stock and paid $1.5 million of cash to the partners and shareholders of the
Predecessor Entities. The acquisition of the interests of the controlling
shareholder or partner and affiliates of the Predecessor Entities, has been
accounted for as if it were a pooling of interests with no increase in the
carrying value for the interests acquired. The acquisition of the third party
investors' interests has been accounted for as a purchase which resulted in an
increase to the carrying value of the underlying assets acquired of $10,475,000.
Pro forma results of operations have not been presented as the effects of the
acquisition of the third party investors' interests were not significant.
Principles of Consolidation
The December 31, 1995 consolidated financial statements presented herein
reflect Studio Plus Hotels, Inc. and its wholly owned subsidiary Studio Plus
Properties, Inc. for the period subsequent to June 25, 1995 and combined
information of the Predecessor Entities for the period prior to June 26, 1995.
Page 6
<PAGE>
The December 31, 1994 accompanying financial statements reflect combined
financial data for the Predecessor Entities.
All significant intercompany balances and transactions have been eliminated
in the consolidation and combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost, including interest and salaries
and related expenses for site design and construction supervision incurred
during the construction period. Expenditures for replacements and improvements
are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. A summary of the estimated useful lives of the
assets are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements......................................... 40 years
Furniture, fixtures and equipment.................................. 5-10 years
</TABLE>
The carrying amounts of major assets sold, retired, or otherwise disposed
of, and the related accumulated depreciation amounts are eliminated from the
accounts. Any resulting gain or loss is included in income.
Deferred Loan Costs
The Company has incurred costs in obtaining financing. These costs have
been deferred and are being amortized over the life of the loan using the
straight-line method.
Page 7
<PAGE>
Preopening Costs
The Company capitalizes compensation, promotional costs and other costs
relating to the opening of new properties. Amortization is provided using the
straight-line method over a five year period for costs incurred through December
31, 1993. Commencing January 1, 1994 these costs are amortized using the
straight-line method over a twelve-month period.
Concentration of Credit Risk
The Company maintained deposits totaling $239,940 and $619,239 at December
31, 1994 and 1995, respectively with one bank. Deposits in excess of $100,000
are not insured by the Federal Deposit Insurance Corporation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
Hotel property and equipment:
<S> <C> <C>
Land.................................. $ 5,696,635 $12,403,803
Building and improvements............. 24,851,450 40,824,006
Furniture, fixtures and equipment..... 5,829,445 8,242,087
Construction in process............... 2,510,876 4,249,605
----------- -----------
38,888,406 65,719,501
Less accumulated depreciation...... (5,089,078) (6,678,808)
----------- -----------
33,799,328 59,040,693
Corporate property and equipment:
Furniture, fixtures and equipment..... 353,858 473,067
----------- -----------
Less accumulated depreciation...... (150,947) (158,576)
----------- -----------
202,911 314,491
----------- -----------
Total property and equipment.. $34,002,239 $59,355,184
=========== ===========
</TABLE>
Included in December 31, 1994 and 1995 accounts payable are amounts related
to purchases of property and equipment totaling approximately $677,000 and
$1,609,000, respectively. In addition, interest capitalized and included in the
cost of building and improvements for December 31, 1994 and 1995 was $152,679
and $157,592, respectively.
4. LONG-TERM DEBT
On May 23, 1995 the Company entered into a $30 million revolving credit
agreement (the "Line of Credit") maturing in June 1998 to fund future
development and construction of additional hotels and for working capital.
Outstanding indebtedness under the credit agreement bears interest at either a
rate based upon the London Interbank Offering Rate or the prime interest rate,
at the selection of the Company. The interest rate on the outstanding
indebtedness adjusts periodically based upon prevailing rates. Interest is
payable monthly with the unpaid principal due at maturity. The Line of Credit
contains certain financial covenants, including maintenance
Page 8
<PAGE>
of a minimum debt service coverage ratio and a maximum ratio of debt to tangible
net worth and limitations upon the incurrence of additional debt without the
consent of the lender.
At December 31, 1995, long term debt consisted of two separate loan
segments totaling $4,000,000, with a weighted average interest rate of 8.15%.
Borrowings under the Line of Credit are collateralized by 17 hotels with a
carrying value of $34,359,564 at December 31, 1995 and rents, profits, leases
and intangible property at all properties now or hereafter owned by the Company.
In February 1996 the Company amended its Line of Credit to increase its
borrowing capacity to $50 million.
The Company used the net proceeds of the IPO to retire approximately $36.8
million of outstanding mortgage debt, which was guaranteed by the former
shareholders and partners of the Predecessor Entities, and approximately $3.1
million of loans from shareholders. In connection with the early extinguishment
of mortgage debt, the Company incurred an extraordinary loss of $184,618, net of
$123,079 in taxes, relating to the write-off of unamortized loan fees.
5. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires recognition of deferred tax liabilities and assets for the
temporary differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities using currently enacted tax rates.
Deferred income taxes in the amount of $4,827,410 consists primarily of timing
differences relating to depreciation resulting from the increase in carrying
value of assets. The increase in the carrying value of assets is due to the
acquisition of third party investors' interests in connection with the Corporate
Organization.
The components of the provision for income taxes reflected in the
consolidated statement of operations for the year ended December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Currently payable:
<S> <C>
Federal........................................................... $ 929,183
State............................................................. 148,000
----------
1,077,183
----------
Deferred taxes:
Federal........................................................... 507,615
State............................................................. 85,661
----------
593,276
----------
Provision for income taxes.......................................... $1,670,459
==========
</TABLE>
Prior to the Corporate Organization, the Company's operations were
conducted through S corporations and partnerships. Accordingly, the deferred tax
provision includes approximately $540,000 relating to recognition of a net
deferred tax liability representing temporary differences existing on the date
of the Corporate Organization. Prior to the Corporate Organization, income taxes
on earnings were paid by the shareholders and partners of the Predecessor
Entities.
Page 9
<PAGE>
A reconciliation of the statutory federal tax rate to the company's
effective income tax rate follows:
<TABLE>
<CAPTION>
<S> <C>
Statutory federal tax rate.............................................. 34.0%
Effect of termination of S corporation
and partnership status with the
Corporate Organization................................................. 13.5
S corporation and partnership income
for which no current income taxes were
provided............................................................... (10.0)
State income taxes, net of federal
benefit................................................................ 2.5
Other................................................................... 1.8
------
41.8%
======
</TABLE>
6. OPERATING LEASES
The Company leases office space under two operating leases expiring in 1996
and 1997. The leases are renewable for various periods. The future minimum
rental payments under the operating leases as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1996................................................................... $155,164
1997................................................................... 138,964
--------
Total minimum payments required.................................... $294,128
========
</TABLE>
Rent expense on the office lease and other leases expiring during 1995 was
$132,864, $135,876 and $149,228 for 1993, 1994 and 1995, respectively.
7. RIGHTS AGREEMENT
Under the terms of the Company's Rights Agreement, one right (a "Right") is
attached to each share of Common Stock. Initially, each Right will entitle the
registered holder to purchase from the Company one one-hundredth of a share (a
"Unit") of Class A Cumulative Participating Preferred Stock ("Class A Preferred
Stock"), of which 100,000 shares have been reserved for issuance pursuant to the
Rights Agreement. Each Unit of Class A Preferred Stock is structured to be the
economic equivalent of one share of Common Stock. The exercise price per Right
will be $56 subject to adjustment (the "Purchase Price").
The Rights Agreement also provides that if any person becomes an Acquiring
Person (as defined below), proper provision shall be made so that each holder of
a Right (except as set forth below) will thereafter have the right to receive,
upon exercise and payment of the Purchase Price, Class A Preferred Stock or
Common Stock at the option of the Company (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to twice the
amount of the Purchase Price.
The Rights will separate from the Common Stock and a distribution of Rights
Certificates will occur (the "Distribution Date") upon the earlier of (i) 10
days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person")
Page 10
<PAGE>
has acquired, or obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding shares of Common Stock (the "Stock Acquisition Date"),
or (ii) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially becoming an
Acquiring Person.
Effective February 27, 1996, the Rights Agreement was amended to lower the
percentage of beneficial ownership required to be deemed an Acquiring Person
from 20% to 15% of the outstanding shares of Common Stock of the Company (the
"Ownership Reduction"), and to add a provision which permits a person who
becomes an Acquiring Person, solely because of the Ownership Reduction, to
reduce its beneficial ownership of Common Stock to less than 15% by the close of
business on the tenth business day following notice from the Company that such
person's beneficial ownership equals or exceeds 15% of the outstanding shares of
Common Stock to avoid classification as an Acquiring Person.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger, statutory share exchange, or other business
combination in which the Company is not the surviving corporation, or (ii) 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except as set forth below) shall thereafter have the right to
receive, upon exercise and payment of the Purchase Price, common stock of the
acquiring company having a value equal to twice the Purchase Price. The events
set forth in this paragraph and in the preceding paragraphs are referred to as
the "Triggering Events." The Rights are not exercisable until the Distribution
Date and will expire at the close of business on June 30, 2000, unless earlier
redeemed or exchanged by the Company as described below or unless such
expiration date is extended pursuant to the Rights Agreement.
The Purchase Price payable, and the number of shares of Class A Preferred
Stock, Common Stock or other securities or property issuable upon exercise of
the Rights, are subject to adjustment from time to time to prevent dilution.
At any time after any person becomes an Acquiring Person, the Company may
exchange all or part of the Rights (except as set forth below) for shares of
Common Stock (an "Exchange") at an exchange ratio of one share per Right, as
appropriately adjusted to reflect any stock split or similar transaction.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $0.01 per
Right (the "Redemption Price").
8. STOCK OPTIONS
The Company has two stock option plans, the 1995 Stock Incentive Plan (the
"1995 Plan") and the 1995 Non-Employee Directors' Stock Incentive Plan (the
"Directors Plan"). Under the 1995 Plan, an aggregate of 500,000 shares of common
stock have been reserved for awards. Grants or awards are issued at the
discretion of the Compensation Committee of the Board of
Page 11
<PAGE>
Directors and may be in the form of stock options, stock appreciation rights,
restricted stock awards or performance share awards. Options granted to date
under the 1995 Plan expire ten years from the grant date. Any vesting period is
at the discretion of the Compensation Committee. At December 31, 1995 options to
acquire an aggregate of 474,500 shares of Common Stock had been granted under
the 1995 Plan at exercise prices ranging from $15.00 to $23.00 per share.
Options to acquire an aggregate of 200,000 shares of Common Stock were
exercisable at December 31, 1995. No options under the 1995 Plan were exercised
in 1995.
Options granted under the Directors' Plan vest over a four year period from
the grant date and expire in ten years. The option price per share may not be
less than the fair market value of a share on the date the option is granted.
Under the Directors' Plan at December 31, 1995, options to acquire 30,000 and
10,000 shares had been granted at exercise prices per share of $15.00 and
$21.63, respectively. No options were exercisable under the Directors Plan at
year end or were exercised in 1995.
9. EARNINGS PER SHARE
Prior to June 26, 1995, the assets of the Company were owned and operated
by the Predecessor Entities. The outstanding shares or other equity interests of
the Predecessor Entities differ substantially from the shares of Common Stock of
the Company outstanding after the IPO. Accordingly, the Company believes that
the presentation of historical per share information for the periods prior to
the IPO is not meaningful.
The pro forma earnings per share for the year ended December 31, 1995 has
been calculated by dividing the pro forma net income by the weighted average
number of shares of Common Stock deemed to be outstanding. Income before
extraordinary loss has been adjusted to pro forma income before extraordinary
loss by reflecting the tax that would have been paid by the Company if it had
been subject to income tax for the full year, assuming a 37.2% effective tax
rate. Prior to June 26, 1995, the Company was not fully subject to income taxes
due to the election of S corporation and partnership tax status by the
Predecessor Entities. If the Company had been subject to tax, it would have
incurred income tax expense of approximately $391,000, $615,000 and $1,371,000
for the years ended December 31, 1993, 1994 and 1995, respectively.
The Company has also computed supplemental net income per common share to
be $0.82 for the year ended December 31, 1995. Supplemental net income of
approximately $3,549,000 has been computed by adjusting historical net income
for: (i) the elimination of interest expense on the debt repaid with a portion
of the proceeds of the IPO; (ii) the elimination of third party investors'
interest in the Predecessor Entities; (iii) the elimination of the extraordinary
loss; and (iv) provision for income taxes based on an effective tax rate of
37.2%. Supplemental weighted average number of common shares outstanding
(4,309,958 shares) is based on outstanding common shares from the beginning of
the period comprised of the following: (i) 1,548,500 shares issued to the
controlling shareholder and other minority investors; (ii) 100,000 shares issued
to acquire a third party investor's interest; and (iii) 2,661,458 shares issued
to fund the retirement of debt.
Page 12
<PAGE>
10. RELATED PARTY TRANSACTIONS
Borrowings from partners and shareholders of the Predecessor Entities were
$875,000 and $1,727,500 for 1994 and 1995, respectively. Principal repayments on
loans from shareholders and partners of the Predecessor Entities were $567,675
and $3,111,000 for 1994 and 1995, respectively. In addition, the Company
incurred interest expense of $73,625 and $156,851 for the same periods,
respectively, on shareholder debt.
Prior to the IPO, the Company distributed $2,295,030 to the shareholders of
the Predecessor Entities in accordance with the merger agreements.
11. NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets" which is effective for
years beginning after December 15, 1995. The statement requires that long-lived
assets and certain intangibles to be held and used by entities be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If during the review the sum
of the expected future cash flows is less than the carrying amount of the asset,
an impairment loss is recognized. The Company believes that the adoption of this
standard will not have a material impact on its financial condition or results
of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for
transactions entered into after December 15, 1995. The pronouncement allows the
Company to continue its current method of accounting for stock options or use
the method prescribed in SFAS No. 123. The Company intends to continue its
current accounting method for stock options. Therefore, the impact of adopting
the statement will not materially affect the future reported results of
operations or the financial condition of the Company.
Page 13
<PAGE>
Studio Plus Hotels, Inc.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996 and
December 31, 1995 2
Condensed Consolidated Statements of Operations for the three
month periods ended September 30, 1996 and 1995 3
Condensed Consolidated Statements of Operations for the nine
month periods ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1996 and 1995 5
Notes to Financial Statements 6
</TABLE>
Page 1
<PAGE>
Studio Plus Hotels, Inc.
Condensed Consolidated Balance Sheets
(Thousands)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,663 $ 2,557
Investments available-for-sale 18,227
Accounts receivable, net of allowance of $75 and
$71, respectively 739 372
Refundable income taxes 162
Other current assets 502 164
---------- ---------
Total current assets 51,131 3,255
---------- ---------
Property and equipment, net 91,426 59,630
Deferred loan costs, net of accumulated amortization
of $166 and $48, respectively 383 245
Preopening costs, net of accumulated amortization
of $633 and $391, respectively 552 210
Other assets 6 36
---------- ---------
$143,498 $63,376
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,544 $ 1,877
Property tax 512 322
Compensation 522 246
Income taxes payable 1,139
Accrued expenses 641 458
---------- ---------
Total current liabilities 6,358 2,903
---------- ---------
Long-term debt 4,000
Deferred income tax 4,846 4,827
Shareholders' equity:
Common stock 125 51
Additional paid-in capital 127,207 50,490
Net unrealized gains on investments 29
Retained earnings 4,933 1,105
---------- ---------
Total shareholders' equity 132,294 51,646
---------- ---------
$143,498 $63,376
========== =========
</TABLE>
See accompanying notes to financial statements
Page 2
<PAGE>
Studio Plus Hotels, Inc.
Condensed Consolidated Statements of Operations
(Thousands, except earnings per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Month Periods
Ended September 30,
--------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Revenue:
Room revenue $6,303 $4,353
Other revenue 210 141
---------- ----------
Total revenue 6,513 4,494
---------- ----------
Costs and expenses:
Property operating expenses 2,477 1,660
Corporate operating expenses 1,010 705
Depreciation and amortization 876 450
Interest income, net (722) (89)
---------- ----------
Total costs and expenses 3,641 2,726
---------- ----------
Income before income taxes 2,872 1,768
Provision for income taxes 1,120 705
---------- ----------
Net income $1,752 $1,063
========== ==========
Earnings per common and common equivalent shares,
primary and fully diluted (Note 4) $0.14 $0.14
========== ==========
Weighted average number of common and common
equivalent shares outstanding (note 4) 12,816,903 7,672,500
See accompanying notes to financial statements
Page 3
</TABLE>
<PAGE>
Studio Plus Hotels, Inc.
Condensed Consolidated Statements of Operations
(Thousands, except earnings per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Periods
Ended September 30,
----------------------------
1996 1995
---------- -------------
<S> <C> <C>
Revenue:
Room revenue $16,087 $11,397
Other revenue 553 434
------- -------
Total revenue 16,640 11,831
------- -------
Costs and expenses:
Property operating expenses 6,862 4,635
Corporate operating expenses 2,766 1,450
Depreciation and amortization 2,312 1,293
Interest (income) expense, net (1,577) 1,422
------- -------
Total costs and expenses 10,363 8,800
Income before third party investors' interest and ------- -------
income taxes 6,277 3,031
Third party investors' interest (142)
------- -------
Income before income taxes 6,277 2,889
Provision for income taxes 2,448 1,280
------- -------
Income before extraordinary loss 3,829 1,609
Extraordinary loss (185)
------- -------
Net income $ 3,829 $ 1,424
======= =======
Pro forma income data: (Note 4)
Income before income taxes $ 1,609
Pro forma provision for income taxes 125
-------
Pro forma income before extraordinary loss 1,734
Extraordinary loss (185)
-------
Pro forma net income $ 1,549
=======
Earnings per common and common equivalent shares,
primary and fully diluted (Note 4) $ 0.34
=======
Pro forma earnings per share: (Note 4)
Income before extraordinary loss $ 0.44
Extraordinary loss (0.05)
-------
Net income $ 0.39
=======
Weighted average number of common and common
equivalent shares outstanding (Note 4) 11,180,562 3,968,570
</TABLE>
See accompanying notes to financial statements
Page 4
<PAGE>
<TABLE>
<CAPTION>
Studio Plus Hotels, Inc.
Condensed Consolidated Statements of Cash Flows
(Thousands)
(Unaudited)
Nine Month Periods
Ended September 30,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,829 $ 1,424
Adjustments to reconcile net income to net cash provided
by operating activities:
Third party investors' interest 142
Depreciation and amortization 2,312 1,293
Gain on sale of investments and other assets (9) (70)
Bad debt expense 61 32
Extraordinary loss 185
Deferred income tax liability 540
Change in:
Accounts receivable (428) (162)
Other current assets (338) (231)
Other assets 6 (200)
Accounts payable 94 139
Income taxes 1,301
Accrued expenses 724 408
---------- ----------
Net cash provided by operating activities 7,552 3,500
---------- ----------
Cash flows from investing activities:
Expenditures for land, buildings, improvements, furniture and
fixtures (32,150) (7,994)
Sale of assets 156
Purchase of available-for-sale investments (39,171)
Proceeds from sale/maturity of available-for-sale investments 21,000
Additions to preopening costs (584) (50)
Purchase of third party investors' interest (1,500)
---------- ----------
Net cash used in investing activities (50,905) (9,388)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 7,000 3,979
Proceeds from notes payable to shareholders and partners 1,728
Principal payments on long-term debt (11,075) (37,874)
Principal payments on notes to shareholders (3,111)
Cash dividends (2,295)
Proceeds from public offering, net of underwriting costs 77,236 49,732
Proceeds from the exercise of stock options 7
Additions to deferred loan costs (256) (334)
Public offering costs (453) (1,365)
---------- ----------
Net cash provided by financing activities 72,459 10,460
---------- ----------
Net increase in cash and cash equivalents 29,106 4,572
Cash and cash equivalents, at beginning of periods 2,557 457
---------- ----------
Cash and cash equivalents, at end of periods $ 31,663 $ 5,029
========== ==========
</TABLE>
See accompanying notes to financial statements
Page 5
<PAGE>
Studio Plus Hotels, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain information
and footnotes required by generally accepted accounting principles for complete
financial statements have been omitted. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, which are necessary for
a fair presentation of financial position and results of operations have been
made. These interim financial statements should be read in conjunction with the
Studio Plus Hotels, Inc. 1995 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
All significant intercompany balances and transactions have been
eliminated.
(2) Income Taxes
Net income for periods prior to the completion of the Company's initial
public offering on June 26, 1995 (the "IPO") excludes taxes on income. Prior to
the IPO, the Company was organized as S-corporations and partnerships (the
"Predecessor Entities"), and therefore, was not subject to income tax.
(3) Stock Split
On July 9, 1996, a three-for-two split of the Company's Common Stock was
effected in the form of a stock dividend of three shares of Common Stock for
each two shares of Common Stock outstanding at the close of business on June 20,
1996. Effective with the stock split, Common Stock outstanding increased from
8,351,898 to 12,527,833 shares. Accordingly, all applicable share and per share
data have been adjusted for the stock split.
(4) Earnings Per Share
The weighted average number of common and common equivalent shares used in
the computation of earnings per share for the three months ended September 30,
1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Weighted average common shares issued 12,527,833
Dilutive effect of stock options 289,070
----------
Weighted average number of common and
common equivalent shares 12,816,903
</TABLE>
The weighted average number of common and common equivalent shares used in
the computation of earnings per share for the nine months ended September 30,
1996, are as follows:
<TABLE>
<S> <C>
Weighted average common shares issued 10,873,823
Dilutive effect of stock options 306,739
----------
Weighted average number of common and
common equivalent shares 11,180,562
</TABLE>
The pro forma earnings per share for the three month and nine month periods
ended September 30, 1995, have been calculated by dividing pro forma net income
by the weighted average number of shares of Common Stock deemed to be
outstanding. Net income has been adjusted to pro forma net income by reflecting
the tax that would have been paid by the Company if it had been subject to
income tax for the full period, assuming a 40.0% effective tax rate.
The Company believes that the earnings per share calculations discussed
above, required in accordance with Accounting Principles Board Opinion No. 15,
are not meaningful for periods prior to the IPO. Rather, if certain adjustments
are made to the combined historical operating results for the Predecessor
Entities and 7,672,500 shares are assumed outstanding the adjusted net income
per share for the nine months ended September 30, 1995 would be $0.32, compared
to $0.34 for the nine months ended September 30, 1996.
(5) Reclasssifications
Certain amounts within the prior year income statement captions have been
reclassified to provide consistency with current year presentation. These
reclassifications have no effect on net income of the prior year.
Page 6
<PAGE>
Unaudited Pro Forma Financial Information
The accompanying unaudited Pro Forma Condensed Combined Financial Statements are
presented as if the Company had completed the Acquisitions, along with the
acquisition of Welcome Inn America 89-1, L.P. ("Welcome") which occurred on
August 18, 1995, but excluding the acquisition of the assets of AATI
(collectively the "Significant Purchase Acquisitions") at January 9, 1995 (the
Company's date of inception) and as if the merger of Studio Plus had been
completed at January 1, 1993. The acquisition of AATI has been excluded from
Significant Purchase Acquisitions because the purchase price and the unaudited
results of operations for the periods , when measured in relation to the
Company, did not meet certain materiality standards and can be excluded as
permitted by the rules and regulations of the Securities and Exchange
Commission. This pro forma information is based in part upon the Consolidated
Financial Statements of the Company and Studio Plus and Statements of Operations
of Welcome and the Acquisitions, excluding AATI. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.
The unaudited Pro Forma Condensed Combined Statements of Income are not
necessarily indicative of what the actual results of operations of the Company
would have been assuming such transactions had been completed as of the
beginning of the periods discussed above, nor do they purport to represent the
results of operations for any future periods. Results of operations and the
related earnings or loss per share for future periods will be affected by a
number of factors, including but not limited to, the number of facilities opened
and the operating results therefrom, interest costs incurred on indebtedness
(including the amortization of deferred loan costs), corporate operating and
property management expenses, site selection costs and the number of future
shares issued.
Certain data and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The accompanying unaudited Pro Forma Condensed Combined Financial
Statements and notes should be read in conjunction with the Consolidated
Financial Statements of the Company and Studio Plus included in their respective
1995 Form 10-K and Form 10-Q for the quarterly period ended September 30, 1996.
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
as of September 30, 1996
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Studio
ASSETS Company Plus Merger Pro Forma
(Historical) (Historical) Adjustments Combined
------------------------------------------ ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $294,398 $ 31,663 $ $326,061
Securities available for sale 18,227 18,227
Accounts receivable, net 739 (739)
Refundable deposits 658 658
Supply inventories 1,239 60(a) 1,299
Prepaid expenses 232 262(a) 494
Other current assets 1,224 502 969(a) 2,695
------------------------------------------ ---------
Total current assets 297,751 51,131 552 349,434
------------------------------------------ ---------
Property and equipment, at cost 189,217 91,426 7,646(a) 288,289
Less accumulated depreciation (1,530) (8,766)(a) (10,296)
------------------------------------------ ---------
Property and equipment, net 187,687 91,426 (1,120) 277,993
------------------------------------------ ---------
Site deposits and preacquisition costs 8,430 1,120(a) 9,550
Deferred loan costs 9,005 383 9,388
Preopening costs, net 552 (552)(a)
Other assets 652 6 658
------------------------------------------ ---------
Total Assets $503,525 $ 143,498 $ $647,023
========================================== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,191 $ 3,544 $ 6,520(b) $ 10,985
Accrued salaries and related expenses 851 522 1,373
Due to related parties 85 85
Other accrued expenses 5,960 641 358(a) 6,959
Property taxes 512 (512)(a)
Income taxes payable 1,139 1,139
Deferred revenue 186 154(a) 340
------------------------------------------ ---------
Total current liabilities 8,273 6,358 6,250 20,881
Deferred income taxes 966 4,846 5,812
------------------------------------------ ---------
Total liabilities 9,239 11,204 6,250 26,693
------------------------------------------ ---------
Commitments
Shareholders' equity:
Preferred stock, $.01 value
Common stock, $.01 par value 683 125 28(c) 836
Additional paid in capital 492,632 127,207 (28)(c) 619,811
Unrealized gains on securities
available for sale, net 29 29
Retained earnings (deficit) 971 4,933 (6,250)(b) (346)
------------------------------------------ ---------
Total shareholders' equity 494,286 132,294 (6,250) 620,330
------------------------------------------ ---------
Total Liabilities & Shareholders' ------------------------------------------ ---------
Equity $503,525 $ 143,498 $ $647,023
========================================== =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
for the year ended December 31, 1993
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Studio Pro Forma Significant
Company Plus Merger Combined Purchase Pro Forma
(Historical) (Historical) Adjustments (Historical) Acquisitions Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue $ 9,985 $ 9,985 $ 9,985
324 324 324
Other revenue ---------- ---------- ---------- ---------- ---------- ----------
10,309 10,309 10,309
Total revenue ---------- ---------- ---------- ---------- ---------- ----------
Cost & expenses:
Property operating expenses (4,458) (4,458) (4,458)
Corporate operating expenses (792) (792) (792)
Depreciation and amortization (1,313) (1,313) (1,313)
---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses (6,563) (6,563) (6,563)
---------- ---------- ---------- ---------- ---------- ----------
Income from operations 3,746 3,746 3,746
Interest expense (198) (198) (198)
---------- ---------- ---------- ---------- ---------- ----------
Income before third party investors interest 3,548 3,548 3,548
Third party investors interest (2,498) (2,498) (2,498)
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 1,050 1,050 1,050
Provision for income taxes ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 1,050 $ 1,050 $ 1,050
========== ========== ========== ========== ========== ==========
Pro forma income data:
Net income $ 1,050 $ 1,050 $ 1,050
Pro forma adjustment for income taxes (390) (390) (390)
---------- ---------- ----------
Pro forma net income $ 660 $ 660 $ 660
========== ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
for the year ended December 31, 1994
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Studio Pro Forma Significant
Company Plus Merger Combined Purchase Pro Forma
(Historical) (Historical) Adjustments (Historical) Acquisitions Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue $11,830 $11,830 $11,830
Other revenue 322 322 322
Total revenue ---------- ------- ---------- ------- --------- -------
12,152 12,152 12,152
---------- ------- ---------- ------- --------- -------
Cost & Expenses:
Property operating expenses (5,256) (5,256) (5,256)
Corporate operating expenses (881) (881) (881)
Depreciation and amortization (1,472) (1,472) (1,472)
---------- ------- ---------- ------- --------- -------
Total costs and expenses (7,609) (7,609) (7,609)
---------- ------- ---------- ------- --------- -------
Income from operations 4,543 4,543 4,543
Interest expense (2,532) (2,532) (2,532)
---------- ------- ---------- ------- --------- -------
Income before third party investors interest 2,011 2,011 2,011
Third party investors interest (358) (358) (358)
---------- ------- ---------- ------- --------- -------
Income before income taxes 1,653 1,653 1,653
Provision for income taxes
---------- ------- ---------- ------- --------- -------
Net income $ 1,653 $ 1,653 $ 1,653
========== ======= ========== ======= ========= =======
Pro forma income data:
Net income $ 1,653 $ 1,653 $ 1,653
Pro forma adjustment for income taxes (615) (615) (615)
-------- -------- --------
Pro forma net income $ 1,038 $ 1,038 $ 1,038
======= ======= =======
See accompanying notes to the unaudited pro forma condensed combined financial statements.
</TABLE>
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
for the year ended December 31, 1995
(Unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Studio Pro Forma Significant
Company Plus Merger Combined Purchase Pro Forma
(Historical) (Historical) Adjustments (Historical) Acquisitions Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue $ 817 $ 15,309 $ $ 16,126 $ 12,612 (a) $ 28,738
Other revenue 61 581 642 675 (a) 1,317
---------- ---------- ---------- ---------- ---------- ----------
Total revenue 878 15,890 16,768 13,287 30,055
---------- ---------- ---------- ---------- ---------- ----------
Cost & expenses:
Property operating expenses (332) (6,374) (6,706) (5,555) (a) (12,261)
Corporate operating expenses (2,555) (2,114) (4,669) (876) (a) (5,545)
Depreciation and amortization (147) (1,912) (2,059) (2,047) (a) (4,106)
---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses (3,034) (10,400) (13,434) (8,478) (21,912)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations (2,156) 5,490 3,334 4,809 8,143
Interest income (expense) 849 (1,357) (508) (44) (a) (552)
---------- ---------- ---------- ---------- ---------- ----------
Income before third party investors interest (1,307) 4,133 2,826 4,765 7,591
Third party investors interest (141) (141) (141)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (1,307) 3,992 2,685 4,765 7,450
Provision for income taxes (1,670) 523(c) (1,147) (1,906) (a) (3,053)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ (1,307) $ 2,322 $ 523 $ 1,538 $ 2,859 $ 4,397
========== ========== ========== ========== ========== ==========
Net income (loss) per common share $ (0.05) $ (0.05) $ (0.12)
========== ========== ==========
Pro forma income data:
Net income $ 2,322 $ 1,538 $ 4,397
Pro forma adjustment for income taxes 176 176 176
---------- ---------- ----------
Pro forma net income $ 2,498 $ 1,714 $ 4,573
========== ========== ==========
Pro forma net income per share: $ 0.50 $ 0.05 $ 0.12
========== ========== ==========
Weighted average number of common and
equivalent shares outstanding during
the period 25,304 4,995 1,135(b) 31,434 5,216(a) $ 36,650
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
for the nine months ended September 30, 1996
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Studio Pro Forma Significant
Company Plus Merger Combined Purchase Pro Forma
(Historical) (Historical) Adjustments (Historical) Acquisitions Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue $ 8,653 $ 16,087 $ 24,740 $ 5,172(a) $ 29,912
Other revenue 260 553 813 41(a) 854
---------- ---------- ---------- ---------- ---------- ----------
Total revenue 8,913 16,640 25,553 5,213 30,766
---------- ---------- ---------- ---------- ----------
Cost & expenses:
Property operating expenses (3,588) (6,862) (10,450) (416)(a) (10,866)
Corporate operating expenses (8,706) (2,766) (11,472) (1,397)(a) (12,869)
Depreciation and amortization (1,430) (2,312) (3,742) (783)(a) (4,525)
---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses (13,724) (11,940) (25,664) (2,596) (28,260)
---------- ---------- ---------- ---------- ----------
Income (loss) from operations (4,811) 4,700 (111) 2,617 2,506
Interest income 8,056 (1,577) 9,633 9,633
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 3,245 6,277 9,522 2,617 12,139
Provision for income taxes (966) (2,448) (300)(c) (3,714) (1,020)(a) (4,734)
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 2,279 $ 3,829 $ (300) $ 5,808 $ 1,597 $ 7,405
========== ========== ========== ========== ========== ==========
Net income per commom share $ 0.04 $ 0.34 $ 0.08 $ 0.10
========== ========== ========== ==========
Weighted average number of common and
equivalent shares outstanding during
the period 55,908 11,181 2,540(b) 69,629 2,515(a) 72,144
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to the unadited pro forma condensed combined financial
statements.
<PAGE>
Extended Stay America, Inc. and Subsidiaries
Notes to Pro Forma Condensed Combined Financial Statements
(unaudited)
1. Basis of Presentation
Historical
The historical Condensed Consolidated Financial Statements of the Company and of
Studio Plus include the accounts of the Company and its subsidiaries and of
Studio Plus and its subsidiary, respectively. All significant intercompany
balances within each company have been eliminated. The Company was formed on
January 9, 1995. Studio Plus was formed on December 19, 1994 and on June 26,
1995 acquired through merger and exchange of partnership interests all of the
assets of Studio Plus, Inc. and the corporations and partnerships (collectively,
the "Predecessor Entities") which owned and operated StudioPLUS hotels. The
historical Condensed Consolidated Statements of Income of Studio Plus for the
years ended December 31, 1993, 1994 and 1995 reflect combined financial data for
the Predecessor Entities, accounted for as if the combination of the Predecessor
Entities were a pooling of interests. Income taxes on earnings were paid by
shareholders and partners of the Predecessor Entities. Accordingly, income taxes
are provided on a pro forma basis for the years ended December 31, 1993, 1994
and 1995.
The Merger
The Merger has been accounted for in the Pro Forma Condensed Combined Financial
Statements using the pooling of interests method of accounting whereby the
accounts of Extended Stay America, Inc. and subsidiaries are combined with the
accounts of Studio Plus as though both companies operated as one business for
the periods presented. The non-recurring costs associated with the Merger,
estimated to be $6.25 million, have been excluded from the Pro Forma Condensed
Combined Statements of Income to more accurately reflect the actual operation of
the companies. These costs will be expensed in the period that the Merger is
consummated.
Significant Purchase Acquisitions
The Pro Forma Condensed Combined Statements of Income reflect the results of the
operations for the Significant Purchase Acquisitions for the respective periods
as if they were acquired as of January 9, 1995 (the date of inception of the
Company). These acquisitions were accounted for using the purchase method of
accounting.
2. Earnings Per Share
Earnings per share have been calculated by dividing the net income by the
outstanding shares of Common Stock, adjusted to reflect the issuance of the
additional shares to be issued in the Merger at a ratio of 1.2272 shares per
share of Studio Plus Common Stock. Prior to June 26,1995 the assets of Studio
Plus were owned and operated by the Predecessor Entities. The outstanding shares
and other equity interests of the Predecessor Entities differ substantially from
the shares of Common Stock of Studio Plus outstanding after the initial public
offering by Studio Plus on June 26, 1995. Accordingly, Studio Plus has not
historically presented earnings per share information for the years ended
December 31, 1993 and 1994.
<PAGE>
Extended Stay America, Inc. and Subsidiaries
Notes to Pro Forma Condensed Combined Financial Statements - (Continued)
(unaudited)
The weighted average number of common and equivalent shares outstanding during
the period and the related earnings per share data as reflected in the
historical Consolidated Statements of Operations for the year ending December
31, 1995 for both the Company and Studio Plus have been adjusted to give effect
to the stock splits occurring in 1996.
3. Pro Forma Adjustments
Pro Forma Balance Sheet
a) To reclassify certain assets and liabilities of Studio Plus to
conform with the Company's presentation.
b) To reflect the estimated costs associated with the Merger.
c) To reflect the issuance of 2,843,818 incremental shares of Common
Stock in the Merger and the elimination of a corresponding amount
of additional paid in capital.
Pro Forma Statements of Income
a) To reflect the results of operations of the Significant Purchase
Acquisitions for the respective periods as if they were acquired
as of January 9, 1995 (the date of inception of the Company).
b) To reflect the issuance of the incremental shares of Common Stock
of the Company in the Merger based on a ratio of 1.2272 shares
per share of Studio Plus Common Stock.
c) To reflect the adjustment in the provision for income taxes
resulting from the combination on a pro forma basis.
