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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-21625
PROSPECTUS
11,500,000 SHARES
[EXTENDED STAY LOGO]
COMMON STOCK
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This Prospectus covers 11,500,000 shares (the "Shares") of common stock, par
value $.01 per share (the "Common Stock"), of Extended Stay America, Inc. (the
"Company") which may be offered and sold from time to time for the account of
persons (the "Selling Stockholders") who have acquired the Shares in certain
private placement transactions. The Shares are being registered under the
Securities Act of 1933, as amended (the "Securities Act"), on behalf of the
Selling Stockholders to permit the public sale or other distribution of the
Shares. THE COMPANY WILL RECEIVE NO PART OF THE PROCEEDS OF ANY SALES OF THE
SHARES AND WILL BEAR CERTAIN EXPENSES WITH RESPECT TO THEIR REGISTRATION. See
"Selling Stockholders" and "Plan of Distribution".
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in one or more transactions on the Nasdaq National Market
("Nasdaq") (which may involve block transactions), in special offerings, in
negotiated transactions, or otherwise, and at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, or at
negotiated prices. The Selling Stockholders may engage one or more brokers to
act as principal or agent in making sales, who may receive discounts or
commissions from the Selling Stockholders in amounts to be negotiated. The
Selling Stockholders and any such brokers may be deemed to be "underwriters"
under the Securities Act of the Shares sold.
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
THE HEADING "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
The Common Stock is traded on the Nasdaq National Market under the symbol
"STAY". On March 5, 1997, the closing sale price of the Common Stock, as
reported in The Wall Street Journal, was $19.00 per share.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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The date of this Prospectus is March 6, 1997
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TABLE OF CONTENTS
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PAGE
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Available Information...................................................... 2
The Company................................................................ 3
Recent Developments of the Company......................................... 3
Special Note on Forward-Looking Statements................................. 5
Risk Factors............................................................... 6
Selling Stockholders....................................................... 10
Plan of Distribution....................................................... 11
Experts.................................................................... 12
Documents Incorporated by Reference........................................ 12
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, registration
statements, proxy statements and other information which the Company files
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices, 500
West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as the Company, that file
electronically with the Commission.
The Company has filed a Registration Statement on Form S-3 with the
Commission under the Securities Act with respect to the Shares offered hereby
(including all amendments and supplements thereto, the "Registration
Statement"). This Prospectus omits certain information contained in the
Registration Statement as permitted by the rules and regulations of the
Commission. Consequently, statements herein concerning the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed with
the Commission as an exhibit to the Registration Statement, or otherwise. Each
such statement is qualified by, and subject to, such reference in all
respects. The Registration Statement and the exhibits thereto can be inspected
and copied at the Commission's public reference facilities referred to above.
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Unless the context suggests otherwise, references in this Prospectus to the
"Company" mean Extended Stay America, Inc. and its subsidiaries.
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. 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-operated 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 revenues and reduce
operating costs, and increasing awareness of the extended stay concept.
Through December 31, 1996, the Company had developed and opened 30 extended
stay lodging facilities, acquired ten others, and had 50 facilities under
construction. The Company plans to begin construction of approximately 80
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.
The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga. 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 the Chairman of the
Board of Directors of Florida Panthers Holdings, Inc. Mr. Huizenga 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.
The Company was formed in 1995 as a Delaware corporation, and its executive
offices are located at 450 E. Las Olas Boulevard, Suite 1100, Fort Lauderdale,
Florida 33301 and its telephone number is (954) 713-1600.
RECENT DEVELOPMENTS OF THE COMPANY
On January 16, 1997, the Company and its wholly-owned subsidiary, ESA Merger
Sub, Inc. ("Merger Sub"), entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Studio Plus Hotels, Inc., a Virginia corporation
("Studio Plus"), pursuant to which Studio Plus will be merged with and into
Merger Sub (the "Merger") in accordance with Delaware and Virginia law.
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
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Plus Common Stock"), will be converted into the right to receive 1.2272 shares
of Common Stock and (ii) all outstanding options to purchase Studio Plus
Common Stock from Studio Plus will be converted into options to purchase
Common Stock. As of January 15, 1997, there were outstanding 12,528,845 shares
of Studio Plus Common Stock and options to purchase an additional 1,201,923
shares of Studio Plus Common Stock. If the Merger is consummated, the shares
of Common Stock to be issued in the Merger will constitute approximately 16.2%
of the outstanding shares of the Company's Common Stock.
Consummation of the Merger is subject to (i) the approval of the Merger
Agreement by the stockholders of the Company and the stockholders of Studio
Plus, (ii) the Company's ability to account for the Merger as a pooling of
interests, (iii) the appointment to the Board of Directors of the Company of
Mr. Norwood Cowgill, Jr., the Chairman of the Board and Chief Executive
Officer of Studio Plus, and (iv) other customary closing conditions. The
Merger Agreement may be terminated prior to its consummation by any of the
parties if the Merger is not consummated on or before August 31, 1997. The
Merger Agreement also may be terminated prior to its consummation for a number
of other reasons, including the following: (i) by mutual written consent of
the Company and Studio Plus; (ii) by either the Company or Studio Plus if the
necessary stockholder approvals are not received; (iii) by Studio Plus if its
Board of Directors determines in good faith that their fiduciary duties
require them to terminate the Merger Agreement by reason 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 (an "Alternative Proposal"); or (iv) by
the Company if the Board of Directors of Studio Plus shall have (a) withdrawn,
or modified in a manner materially adverse to the Company, its approval of the
Merger Agreement, (b) recommended an Alternative Proposal, or (c) adopted
resolutions to accept or implement an Alternative Proposal. If the Merger
Agreement is terminated pursuant to clause (iii) or (iv) above, Studio Plus
must pay the Company a fee of $7,500,000.
During 1996, the Company acquired ten extended stay properties 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 199-room extended
stay lodging facility in Norcross, Georgia. In consideration for such
Acquisition, the Company issued an aggregate of 587,258 shares of
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 133-room extended
stay lodging facility in Norcross, Georgia and a 147-room extended stay
lodging facility in Riverdale, Georgia. In consideration for such
Acquisition, the Company issued 857,216 shares of 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., 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 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 129-room extended stay
lodging facility in Lawrenceville, Georgia. 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 Acquisition, the Company issued 344,200 shares of 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, which owned extended stay lodging facilities in Las
Vegas, Nevada (collectively, the "M & M Facilities"), that have 177
rooms, 125 rooms, 211
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rooms, and 122 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 for 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 Common Stock and paid an additional $500,000
in cash.
On July 29, 1996, the Company acquired from Kipling Hospitality
Enterprise Corporation ("KHEC") a 147-room traditional lodging facility
located in Lakewood, Colorado, which the Company is remodeling to the
extended stay format. In consideration for this Acquisition, the
Company issued 200,000 shares of 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 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. All references in this Prospectus to
Common Stock, including prices and earnings per share, give effect to such
stock dividend.
On February 6, 1997, the Company issued the Shares to the Selling
Stockholders in a private placement transaction (the "Private Placement"). The
purchase price in the Private Placement was $17.625 per share, for an
aggregate amount of approximately $202.7 million. Net proceeds received by the
Company from the Private Placement were approximately $198.2 million. The
Shares issued in the Private Placement were not registered under the
Securities Act and constitute "restricted securities" within the meaning of
Rule 144 under the Securities Act. All of the Shares issued in the Private
Placement may be resold in the public market pursuant to this Prospectus. See
"Selling Stockholders" and "Plan of Distribution."
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and under the caption "Risk Factors"
and elsewhere in this Prospectus (including documents incorporated herein by
reference) constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of the
Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the Company's limited operating history
and uncertainty as to the Company's future profitability; the ability to meet
construction and development schedules and budgets; the ability to develop and
implement operational and financial systems to manage rapidly growing
operations; the uncertainty as to the consumer demand for extended stay
lodging; increasing competition in the extended stay lodging market; the
ability to integrate and successfully operate acquired properties and the
risks associated with such properties; the ability to obtain financing on
acceptable terms to finance the Company's growth strategy; the ability of the
Company to operate within the limitations imposed by financing arrangements;
and other factors referenced in this Prospectus. See "Risk Factors."
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RISK FACTORS
In evaluating an investment in the Common Stock, prospective investors
should carefully consider the following factors in addition to the other
information contained in this Prospectus.
LIMITED OPERATING HISTORY AND COSTS ASSOCIATED WITH EXPANSION
The Company first began operating economy extended stay facilities in August
1995 and has a limited operating history upon which investors may evaluate the
Company's performance. The Company has incurred operating losses in the past
and, given the substantial development and financing expenses relating to the
Company's expansion, there can be no assurance that the Company will be
profitable in the future.
DEVELOPMENT RISKS
The Company intends to grow primarily by developing additional Company-owned
lodging facilities. Development involves substantial risks, including the risk
that development costs will exceed budgeted or contracted amounts, the risk of
delays in completion of construction, the risk of failing to obtain all
necessary zoning and construction permits, the risk that financing might not
be available on favorable terms, the risk that developed properties will not
achieve desired revenue or profitability levels once opened, the risk of
competition for suitable development sites from competitors (some of which
have greater financial resources than the Company), the risks of incurring
substantial costs in the event a development project must be abandoned prior
to completion, changes in governmental rules, regulations, and interpretations
(including interpretations of the requirements of the Americans with
Disabilities Act), and general economic and business conditions. Although the
Company intends to manage development to reduce such risks, there can be no
assurance that present or future developments will perform in accordance with
the Company's expectations. As of December 31, 1996, the Company had developed
and opened 30 extended stay lodging facilities, acquired 10 others, and had 50
facilities under construction. The Company plans to begin construction of
approximately 80 additional facilities during 1997 and to continue an active
development program thereafter. There can be no assurance, however, that the
Company will complete the development and construction of the facilities or
will acquire each of the planned properties and complete development of a
Company-owned facility thereon, or that any such developments will be
completed in a timely manner or within budget.
RISKS ASSOCIATED WITH RAPID GROWTH
The Company's rapid development plans will require the implementation of
enhanced operational and financial systems and will require additional
management, operational, and financial resources. For example, the Company
will be required to recruit and train property managers and other personnel
for each new lodging facility as well as additional accounting personnel. In
addition, the Company needs to complete the development of a systemwide
integrated computer network. There can be no assurance that the Company will
be able to manage its expanding operations effectively. The failure to
implement such systems and add such resources on a cost-effective basis could
have a material adverse effect on the Company's results of operations and
financial condition.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The extended stay segment of the lodging industry may be adversely affected
by changes in national or local economic conditions, neighborhood
characteristics and other local market conditions, such as an oversupply of
hotel space or a reduction in demand for hotel space in a geographic area,
changes in travel patterns, extreme weather conditions, changes in
governmental regulations which influence or determine wages, prices, or
construction costs, changes in interest rates, the availability of financing
for operating or capital needs, and changes in real estate tax rates and other
operating expenses. The Company's principal assets will consist of real
property, and real estate values are sensitive to changes in local market and
economic conditions and to fluctuations in the economy as a whole. In
addition, due in part to the strong correlation between the lodging
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industry's performance and economic conditions, the lodging industry is
subject to cyclical changes in revenues and profits. These risks may be
exacerbated by the relatively illiquid nature of real estate holdings. The
ability of the Company to vary its portfolio in response to changes in
economic and other conditions will be limited. There can be no assurance that
downturns or prolonged adverse conditions in real estate or capital markets or
in national, state or local economies, and the inability of the Company to
dispose of an investment when it finds disposition to be advantageous or
necessary, will not have a material adverse impact on the Company.
COMPETITION IN THE LODGING INDUSTRY
There is no single competitor or small number of competitors that is or are
dominant in the economy or mid-price extended stay markets. However, some of
the Company's indirect competitors have substantially larger networks of
locations and greater financial resources than the Company. A number of major
lodging companies recently have announced their intent to aggressively develop
extended stay lodging properties which may compete with the Company's
properties. Competition in the U.S. lodging industry is based generally on
convenience of location, price, range of services and guest amenities offered,
and quality of customer service. The Company considers the location of its
lodging facilities, the reasonableness of its room rates, and the services and
guest amenities provided by it to be among the most important factors in its
business. Demographic or other changes in one or more of the Company's markets
could impact the convenience or desirability of the sites of certain lodging
facilities, which would adversely affect their operations. Further, there can
be no assurance that new or existing competitors will not significantly lower
rates or offer greater convenience, services, or amenities or significantly
expand or improve facilities in a market in which the Company's facilities
compete, thereby adversely affecting the Company's operations.
RISKS ASSOCIATED WITH ACQUISITIONS
Although the Company expects that the construction and development of new
extended stay lodging facilities will be its primary means of expansion, the
Company has also made, and may continue making, acquisitions of existing
extended stay lodging facilities or other properties that are suitable for
conversion to the extended stay concept and acquisitions of companies that are
in the extended stay lodging industry, such as the pending acquisition of
Studio Plus. There can be no assurance that the Company will be able to
acquire other extended stay lodging facilities or companies on terms favorable
to the Company or that the Company will be able to consummate its pending
acquisition of Studio Plus. When the Company does make such acquisitions, it
encounters various associated risks, including possible environmental and
other regulatory costs, goodwill amortization, diversion of management's
attention, potential dilution of stockholders' equity, and unanticipated
problems or liabilities, some or all of which could have a material adverse
effect on the Company's operations and financial performance.
RISKS OF BORROWING
The Company may incur substantial borrowings in connection with its
expansion. Pursuant to its mortgage facilities, the Company may be able to
borrow up to $400 million to finance its properties, depending on certain
conditions. This compares to total equity of $495.5 million as of December 31,
1996. These borrowings will be secured by mortgages on the Company's
properties and various accounts and other assets. The Company may incur
additional debt from time to time. Leverage increases the risks to the Company
of any variations in its results, construction cost overruns, or any other
factors affecting its cash flow or liquidity. In addition, the Company's
interest costs could increase as the result of general increases in interest
rates because a portion of the Company's borrowings under these facilities
will bear interest at floating rates, the rates on individual term loans under
these facilities will depend on the level of prevailing yields on U.S.
Treasury securities at the times loans are made, and additional borrowings may
bear interest at floating rates.
NEED FOR ADDITIONAL CAPITAL
The extent to which the Company will be able to borrow under its mortgage
facilities will be dependent on the Company meeting certain conditions and
maintaining certain reserves. In addition, these mortgage facilities
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may restrict the ability of the Company to incur additional debt in the
future. Although the Company is unable to quantify its needs for additional
financing, the Company expects that it will need to procure additional
financing over time, the amount of which will depend on a number of factors
including the number of properties the Company constructs or acquires and the
cash flow generated by its properties. There can be no assurance regarding the
availability or terms of additional financing the Company may be able to
procure over time. Any future debt financings or issuances of preferred stock
by the Company will be senior to the rights of the holders of shares of Common
Stock, and any future issuances of shares of Common Stock will result in the
dilution of the then existing stockholders' proportionate equity interests in
the Company.
RESTRICTIONS ON OPERATIONS IN MORTGAGE FACILITIES
The Company's financing arrangements contain a number of provisions that
impose restrictions on the Company which could, under certain circumstances,
limit the Company's operating and financial flexibility and adversely affect
its results of operations. These provisions include restrictions on the
ability of the Company to incur additional indebtedness, prepay indebtedness,
declare dividends, enter into certain financing arrangements, acquire or
dispose of certain assets, or make certain investments. In addition, the
Company's ability to utilize these mortgage facilities is subject to it
meeting certain conditions.
IMPACT OF ENVIRONMENTAL REGULATIONS
The Company's operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances, and
regulations. In addition, in the event any future legislation is adopted, the
Company may, from time to time, be required to make significant capital and
operating expenditures in response to such legislation. The Company attempts
to minimize its exposure to potential environmental liability through its
site-selection procedures. The Company typically secures an option to purchase
land subject to certain contingencies. Prior to exercising such option and
purchasing the property, the Company conducts a Phase I environmental
assessment (which generally involves a physical inspection and database
search, but not soil or groundwater analyses). Under various federal, state,
and local environmental laws, ordinances, and regulations, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on, under, or in such
property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of contamination from hazardous or
toxic substances, or the failure to properly remediate such contaminated
property, may adversely affect the owner's ability to borrow using such real
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances also may be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, whether
or not such facility is or ever was owned or operated by such person. Certain
environmental laws and common-law principles could be used to impose liability
for releases of hazardous materials, including asbestos-containing materials
("ACMs"), into the environment, and third parties may seek recovery from
owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. Environmental laws
also may impose restrictions on the manner in which property may be used or
transferred or in which businesses may be operated, and these restrictions may
require expenditures. In connection with the ownership of its properties, the
Company may be potentially liable for any such costs. The cost of defending
against claims of liability or remediating contaminated property and the cost
of complying with environmental laws could materially adversely affect the
Company's results of operations and financial condition.
LOSSES IN EXCESS OF INSURANCE COVERAGE
The Company maintains comprehensive insurance on each of its properties,
including liability, fire, and extended coverage, in the types and amounts
customarily obtained by an owner and operator in the Company's industry.
Nevertheless, there are certain types of losses, generally of a catastrophic
nature, such as hurricanes, earthquakes, and floods, that may be uninsurable
or not economically insurable. The Company uses its discretion in determining
amounts, coverage limits, and deductibility provisions of insurance, with a
view to obtaining
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appropriate insurance on the Company's properties at a reasonable cost and on
suitable terms. This may result in insurance coverage that in the event of a
loss would not be sufficient to pay the full current market value or current
replacement value of the Company's lost investment and the insurance proceeds
received by the Company might not be adequate to restore its economic position
with respect to such property.
RELIANCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the efforts and
abilities of its senior management and key employees, particularly, Mr. George
D. Johnson, Jr., President and Chief Executive Officer, and Mr. Robert A.
Brannon, Senior Vice President and Chief Financial Officer. The loss of the
services of any of these individuals could have a material adverse effect upon
the Company. The Company does not have employment or consulting agreements
with any of its officers other than Mr. Harold E. Wright nor does it carry key
man life insurance on any of its officers. Studio Plus has an employment
agreement with Michael J. Moriarty which the Company will assume if it
completes the pending acquisition of Studio Plus.
CONTROL OF THE COMPANY BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
As of February 7, 1997, George D. Johnson, Jr., the President and Chief
Executive Officer of the Company, H. Wayne Huizenga, the Chairman of the Board
of Directors of the Company, and Stewart H. Johnson, a director of the
Company, beneficially owned approximately 27.5% of the outstanding shares of
Common Stock, and these individuals together with other executive officers and
directors of the Company as a group owned approximately 33.9% of the
outstanding shares of Common Stock. Following consummation of the Company's
pending acquisition of Studio Plus, these individuals will own approximately
23.0% of the outstanding shares of Common Stock, and all such officers and
directors of the Company as a group will own approximately 30.2% of the
outstanding shares of Common Stock (including shares of Common Stock to be
owned by Mr. Norwood Cowgill, Jr., the Chairman of the Board and Chief
Executive Officer of Studio Plus, upon consummation of the acquisition of
Studio Plus). In addition, the Company's debt agreements contain, and future
financing arrangements may contain, provisions regarding the composition of
the Company's Board of Directors.
ANTITAKEOVER EFFECT OF CHARTER, BYLAWS, STATUTORY PROVISIONS, AND FINANCING
ARRANGEMENTS
The ownership positions of Messrs. George D. Johnson, Jr., H. Wayne
Huizenga, and Stewart H. Johnson and the other executive officers and
directors of the Company as a group, together with the anti-takeover effects
of Section 203 of the Delaware General Corporation Law which, in general,
impose restrictions upon acquirers of 15% or more of the Common Stock, and of
certain provisions in the Company's Certificate of Incorporation and Bylaws,
may have the effect of delaying, deferring, or preventing a change of control
of the Company, even if such event would be beneficial to stockholders. For
example, the Certificate of Incorporation requires that all stockholder action
must be effected at a duly-called annual or special meeting of stockholders,
and the Bylaws require that stockholders follow an advance notification
procedure for certain stockholder nominations of candidates for the Board of
Directors and for certain other business to be conducted at any meeting of
stockholders. In addition, the Company's Certificate of Incorporation
authorizes "blank check" preferred stock, so that the Company's Board of
Directors may, without stockholder approval, issue preferred shares through a
stockholders' rights plan or otherwise which could inhibit a change of
control. In the event that the current members of the Company's Board of
Directors cease to constitute a majority of the Board or Mr. George D.
Johnson, Jr., or Mr. Huizenga cease to be a member of the Board, amounts
outstanding under its current financing arrangements, if any, would become
immediately due.
ABSENCE OF DIVIDENDS
The Company intends to retain its earnings to finance its growth and for
general corporate purposes and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's debt
agreements contain, and future financing agreements may contain, limitations
on the payment of cash dividends or other distributions of assets.
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SELLING STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock as of February 7, 1997 by each of the Selling Stockholders.
Each of the Selling Stockholders purchased the Shares offered hereby from the
Company in the Private Placement. Because certain of the Selling Stockholders
own shares of Common Stock in addition to the Shares and because such other
shares of Common Stock may be sold at any time and from time to time after the
date hereof, the total number of shares of Common Stock to be owned by the
Selling Stockholders after completion of this offering assumes that none of
such other shares of Common Stock are sold or otherwise transferred.
<TABLE>
<CAPTION>
TOTAL NUMBER SHARES TOTAL NUMBER OF
OF SHARES OFFERED SHARES REMAINING
NAME BEFORE SALE HEREBY AFTER SALE PERCENT
- ---- ------------ ---------- ---------------- -------
<S> <C> <C> <C> <C>
AGSPC--Growth Fund............ 300,000 300,000 0 *
Delaware Group Premium Fund,
Inc. for the Emerging Growth
Series....................... 35,000 35,000 0 *
Delaware Group Trend Fund,
Inc.......................... 410,000 410,000 0 *
IDS Life Managed Fund, Inc.... 2,000,000 2,000,000 0 *
Managed Account Services
Portfolio Trust.............. 55,000 55,000 0 *
Metropolitan Life Insurance
Company Separate
Account 43(1)................ 769,800 100,800 669,000 *
Metropolitan Series Fund, Inc.
Aggressive Growth
Portfolio(1)................. 1,955,400 449,000 1,506,400 1.89
MFS Series Trust II--MFS
Emerging Growth Fund......... 1,000,000 1,000,000 0 *
Park Avenue Partners.......... 550,000 550,000 0 *
Alden G. Pearce, as Trustee of
the Cheyne Walk Trust Dtd
12/22/88(2).................. 132,000 50,000 82,000 *
Putnam New Opportunities
Fund(3)...................... 3,726,800 934,900 2,791,900 3.50
Putnam Offshore Funds (Cayman)
Ltd.--Putnam New
Opportunities Fund(3)........ 1,400 1,400 0 *
Putnam OTC Emerging Growth
Fund(3)...................... 1,889,000 322,800 1,566,200 1.96
Putnam Variable Trust--Putnam
VT New Opportunities Fund(3). 503,400 125,400 378,000 *
Putnam Variable Trust--Putnam
VT Voyager Fund(3)........... 353,666 120,800 232,866 *
Putnam Voyager Fund(3)........ 1,446,700 463,100 983,600 1.23
Putnam Voyager Fund II(3)..... 125,000 31,600 93,400 *
Quantum Partners LDC(4)....... 3,698,800 3,000,000 698,800 *
State Street Research Capital
Appreciation Fund(1)......... 1,053,300 165,900 887,400 1.11
State Street Research Capital
Fund(1)...................... 1,046,700 249,300 797,400 *
State Street Research Emerging
Growth Fund(1)............... 75,300 35,300 40,000 *
State Street Research Growth
Fund(1)...................... 343,100 99,700 243,400 *
T. Rowe Price New America
Growth Fund, Inc. ........... 670,000 670,000 0 *
T. Rowe Price Equity Series,
Inc.
T. Rowe Price New America
Growth Portfolio............. 30,000 30,000 0 *
Vanni E. Treves, as Trustee of
the Ronald Family Trust B Dtd
12/22/88(2).................. 130,400 50,000 80,400 *
Westbury (Bermuda) Ltd.(5).... 724,000 200,000 524,000 *
Whittier Trust................ 50,000 50,000 0 *
----------
11,500,000
==========
</TABLE>
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- ---------------------
*Less than one percent
(1) State Street Research and Management Company, Inc., the Selling
Stockholder's investment adviser, has investment and voting control over
the shares of Common Stock set forth in the table above.
(2) Excludes certain shares of Common Stock as to which (i) Husic Capital
Management, the Selling Stockholder's investment adviser, (ii) Frank J.
Husic and Co., the sole general partner of Husic Capital Management, and
(iii) Frank J. Husic, the sole shareholder of Frank J. Husic and Co., have
reported beneficial ownership pursuant to a statement on Schedule 13G
filed with the Commission on February 5, 1997.
(3) Putnam Investment Management, Inc., the Selling Stockholder's investment
adviser, has shared investment and voting control over the shares of
Common Stock set forth, in the table above, which may exclude other shares
of Common Stock that Putnam Investment Management, Inc., may be deemed to
beneficially own.
(4) The Selling Stockholder disclaims beneficial ownership of 698,800 shares
of Common Stock over which Soros Fund Management LLC holds, pursuant to
contract, voting and disposition rights.
(5) Excludes 150,000 shares of Common Stock held by MGD Holdings which has the
same beneficial owner as the Selling Stockholder.
PLAN OF DISTRIBUTION
The Selling Stockholders may sell or distribute some or all of the Shares
from time to time through underwriters or dealers or brokers or other agents
or directly to one or more purchasers in transactions (which may involve
crosses and block transactions) on Nasdaq, in privately negotiated
transactions, in the over-the-counter market, or in a combination of such
transactions. Such transactions may be effected by the Selling Stockholders at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices, which may
be changed. Brokers, dealers, agents or underwriters participating in such
transactions as agent may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders (and, if they act as
agent for the purchaser of such Shares, from such purchaser). Such discounts,
concessions or commissions as to a particular broker, dealer, agent or
underwriter might be in excess of those customary in the type of transaction
involved. This Prospectus also may be used, with the Company's consent, by
other persons acquiring Shares and who wish to offer and sell such Shares
under circumstances requiring or making desirable its use.
The Selling Stockholders and any such underwriters, brokers, dealers or
agents that participate in such distribution may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
commissions or concessions received by any such underwriters, brokers, dealers
or agents might be deemed to be underwriting discounts and commissions under
the Securities Act. Neither the Company nor the Selling Stockholders can
presently estimate the amount of such compensation. The Company knows of no
existing arrangements between any Selling Stockholder and any other Selling
Stockholder, underwriter, broker, dealer or other agent relating to the sale
or distribution of the Shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of any of the Shares may not simultaneously engage
in market activities with respect to the Common Stock for a period of nine
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rule 10b-5 and Rules 10b-6 and 10b-7
(to be designated as Regulation M), which provisions may limit the timing of
purchases and sales of any of the Shares by the Selling Stockholders. All of
the foregoing may affect the marketability of the Common Stock.
The Company will pay substantially all of the expenses incident to this
offering of the Shares by the Selling Stockholders to the public other than
commissions and discounts of underwriters, brokers, dealers or agents. Each
Selling Stockholder may indemnify any broker, dealer, agent or underwriter
that participates in transactions involving sales of the Shares against
certain liabilities, including liabilities arising under the Securities Act.
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In order to comply with certain states' securities laws, if applicable, the
Shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the Common Stock may not be
sold unless the Common Stock has been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is
complied with.
EXPERTS
The consolidated balance sheet of Extended Stay America, Inc. and
subsidiaries as of December 31, 1996 and the related consolidated statements
of operations, stockholders' equity and cash flows for the period from January
9, 1995 (inception) through December 31, 1996, the statements of operations,
partners' deficit, and cash flows of Welcome Inn America 89-1, L.P. for each
of the two years in the period ended December 31, 1994 and the period from
January 1, 1995 through August 18, 1995, the balance sheets of Apartment/Inn,
L.P. as of December 31, 1994 and 1995 and the related statements of operations
and partners' deficit and cash flows for each of the two years in the period
ended December 31, 1995, the combined balance sheets of Hometown Inn I, LTD
and Hometown Inn II, LTD as of December 31, 1994 and 1995 and the related
combined statements of operations and partners' capital and cash flows for
each of the three years in the period ended December 31, 1995, the balance
sheet of Kipling Hospitality Enterprise Corporation as of December 31, 1995
and the related statements of operations and retained earnings and cash flows
for the year then ended, the balance sheet of Apartment Inn Partners/Gwinnett,
L.P. as of December 31, 1995 and the related statements of operations and
partners' capital and cash flows for the year then ended, and the combined
balance sheets of the M&M Facilities as of December 31, 1994 and 1995 and the
related combined statements of operations and equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1995, each as
incorporated by reference into in this Prospectus, have been included herein
in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents and information heretofore filed by the Company with
the Commission are incorporated herein by reference:
. The Company's Annual Report on Form 10-K for the year ended December 31,
1996.
. The Company's Current Reports on Form 8-K dated January 16, 1997 (as
amended on Form 8-K/A dated January 16, 1997) and February 5, 1997.
. The historical financial statements of Welcome Inn America 89-1, L.P.,
Apartment/Inn, Hometown Inn, Gwinnett, the M&M Facilities, and KHEC
included in Post-Effective Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-102).
. The description of the Common Stock set forth under the caption
"Description of Capital Stock--Common Stock" in the prospectus included
in the Company's registration statement on Form S-1 (Reg. No. 33-98452),
which description is incorporated by reference in the Company's
registration statement on Form 8-A dated November 8, 1996 for the
registration of the Common Stock under Section 12(g) of the Exchange
Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Shares hereby (except to the extent
specified therein or in rules or regulations of the Commission) shall be
deemed to be incorporated by reference in this Prospectus and to be part
hereof from the date of filing of such documents. Any statement, including
financial statements, contained in a document incorporated or deemed to be
incorporated by reference
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herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is, or is deemed to be, incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, at the written or oral request of such
person, a copy of any or all of the documents referred to above which have
been or may be incorporated in this Prospectus by reference, other than
exhibits to such documents. Requests for such copies should be directed to
Extended Stay America, Inc., 450 E. Las Olas Boulevard, Suite 1100, Fort
Lauderdale, Florida, 33301, Attention: Secretary (telephone: 954-713-1600).
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