<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EXTENDED STAY AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 36-3996573
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
450 E. LAS OLAS BOULEVARD, SUITE 1100
FORT LAUDERDALE, FLORIDA 33301
(954) 713-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT A. BRANNON
SECRETARY
EXTENDED STAY AMERICA, INC.
450 E. LAS OLAS BOULEVARD, SUITE 1100
FORT LAUDERDALE, FLORIDA 33301
(954) 713-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
D. MARK MCMILLAN, ESQ.
BELL, BOYD & LLOYD
70 WEST MADISON STREET
CHICAGO, ILLINOIS 60602
(312) 372-1121
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE (1)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 1,786,713 $15.1875 $27,135,704 $8,223
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</TABLE>
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(1) Calculated in accordance with Rule 457(c) based on the average of the high
and low sales prices of the Common Stock reported on the New York Stock
Exchange, Inc. on July 23, 1997, as reported in The Wall Street Journal.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
1SUBJECT TO COMPLETION, DATED JULY 29, 1997
PROSPECTUS
1,786,713 SHARES
LOGO
COMMON STOCK
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This Prospectus covers 1,786,713 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
the persons who are identified herein under the heading "Selling Stockholders"
and any other person who obtains the right to sell the Shares hereunder (the
"Selling Stockholders"). See "Selling Stockholders" and "Plan of Distribution."
THE COMPANY WILL RECEIVE NO PART OF THE PROCEEDS OF ANY SALES OF THE SHARES.
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in one or more transactions on the New York Stock Exchange,
Inc. ("NYSE") (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 "underwriters" under
the Securities Act of 1933, as amended (the "Securities Act"), of the Shares
sold.
The Common Stock is listed on the NYSE under the symbol "ESA". On July 23,
1997, the closing sale price of the Common Stock, as reported in The Wall
Street Journal, was $15.25 per share.
-----------
SEE "RISK FACTORS" AT PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
-----------
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.
-----------
The date of this Prospectus is , 1997.
<PAGE>
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.
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....................................................... 10
Experts.................................................................... 11
Documents Incorporated by Reference........................................ 11
</TABLE>
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. Such materials also can be inspected at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
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.
2
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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 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 kitchen or kitchenette, weekly housekeeping, color television
with cable or satellite hook-up, coin-operated laundromat, and telephone
service with voice mail messaging and a data port. 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. The
Company owns and operates three brands in the extended stay lodging market--
StudioPLUS(TM) hotels ("StudioPLUS"), EXTENDED STAYAMERICA Efficiency Studios
("ESA"), and Crossland Economy StudiosSM ("Crossland"), each designed to
appeal to differentiated price points below $500 per week. All three brands
offer the same core components: a living/sleeping area; a fully-equipped
kitchen or kitchenette; and a bathroom. Crossland guest rooms are typically
smaller than ESA studios, and StudioPLUS hotels feature larger guest rooms and
also offer an exercise facility and a swimming pool.
Through June 30, 1997, the Company had developed and opened 67 extended stay
lodging facilities, acquired 49 others, and had 98 facilities under
construction. The Company plans to begin construction of approximately 60
additional extended stay lodging facilities during 1997 and to continue an
active development program thereafter.
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
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. ("Apartment/Inn"). Apartment/Inn owned and operated
a 199-room extended stay lodging facility in Norcross, Georgia. In
consideration for this Acquisition, the Company issued an aggregate of
587,258 shares of its 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 this 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. ("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.
3
<PAGE>
On June 25, 1996, the Company acquired substantially all of the assets of
Apartment Inn Partners/Gwinnett, L.P. ("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 this 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 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 which were subsequently retired,
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 a 147-room traditional lodging
facility located in Lakewood, Colorado which was owned by Kipling
Hospitality Enterprise Corporation ("KHEC"). The Company has remodeled this
facility to convert it 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.
On June 5, 1996, the Company completed a public offering of 19,550,000
shares of Common Stock at a price to the public of $15.50 per share. The net
proceeds to the Company from that offering were approximately $289 million
after deduction of the underwriting discounts and commissions and other
offering expenses.
On February 6, 1997, the Company issued 11,500,000 shares of Common Stock to
a number of institutional investors 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 $203 million. Net proceeds
received by the Company from the Private Placement were approximately $198
million. The Company has registered under the Securities Act all of the shares
of Common Stock issued in the Private Placement so that the holders of such
shares may make resales in the public market of those shares.
On February 20, 1997, the Company announced its intention to develop and
launch the Crossland Economy StudiosSM brand of extended stay lodging
facilities. The Company opened the first Crossland lodging facility on January
2, 1997. The Company expects to open three additional Crossland facilities
during 1997 and 30 additional Crossland facilities per year for the
foreseeable future, beginning in 1998. Six of the Company's extended stay
lodging facilities under construction as of June 30, 1997 were Crossland
facilities. Crossland facilities will be priced to compete in the budget
segment of the extended stay lodging market. The Company's Crossland, ESA, and
StudioPLUS brands of lodging facilities compete in the budget, economy, and
mid-price categories, respectively, of the extended stay lodging market.
On April 11, 1997, the Company and ESA Merger Sub, Inc., a wholly-owned
subsidiary of the Company ("Merger Sub"), completed a merger (the "Merger")
with Studio Plus Hotels, Inc. ("Studio Plus") in accordance with the terms of
an Agreement and Plan of Merger (the "Merger Agreement") by and among the
parties dated January 16, 1997. Pursuant to the terms of the Merger Agreement,
Studio Plus was merged with and into Merger Sub and the 12,557,786 shares of
Studio Plus common stock that were outstanding on the closing date were
converted into the right to receive 15,410,915 shares of Common Stock of the
Company and options to purchase 1,072,565 shares of Studio Plus common stock
were converted into options to purchase 1,316,252 shares of the Company's
Common Stock. As a result of the Merger, Studio Plus is a wholly-owned
subsidiary of the Company.
4
<PAGE>
As of March 31, 1997, Studio Plus owned and operated 38 mid-priced
StudioPLUS brand extended stay lodging facilities, had 19 such facilities
under construction, and had contracts to purchase 17 additional sites for
development. For the year ended December 31, 1996, Studio Plus had revenue of
approximately $23.1 million, income from operations of approximately $6.3
million, and net income of approximately $5.2 million. Studio Plus also had
total assets of approximately $146.2 million as of December 31, 1996.
In connection with the Merger, the Company has recorded in the second
quarter of 1997 a one-time pre-tax charge of $9.7 million representing merger
expenses and costs associated with the integration of Studio Plus' operations
following the Merger. The Merger was accounted for as a pooling of interests
and the Company's supplemental consolidated financial statements now include
the accounts and results of operations of Studio Plus.
On June 9, 1997, the Company announced that its Board of Directors had
approved a plan to have the Common Stock listed on the NYSE and to move
trading in the Common Stock from the Nasdaq National Market ("Nasdaq") to the
NYSE. The Common Stock began trading on the NYSE on June 30, 1997. The Company
has recorded a one-time pre-tax charge of $500,000 in connection with listing
of the Common Stock on the NYSE.
On July 21, 1997, the Company accepted from Morgan Stanley Senior Funding,
Inc. a commitment to provide a $500 million senior secured revolving credit
facility (the "Revolving Facility") which is to be used for general corporate
purposes, including the construction and acquisition of extended stay lodging
properties. The Revolving Facility will be a five year senior secured facility
structured as a corporate bank loan and syndicated to relationship banks. In
addition to the Revolving Facility, the Company expects to issue approximately
$300 million of unsecured subordinated debt as part of an overall financing
plan that is expected to increase the Company's credit availability to $800
million.
Upon execution of the Revolving Facility, the Company will terminate its two
existing mortgage loan facilities, which provide for an aggregate of $400
million in available mortgage loans. Accordingly, the Company has recorded a
one-time pre-tax charge of $9.7 million. The charge represents deferred costs
associated with its previous mortgage facilities and has been reflected in the
Company's financial results for the second quarter of 1997.
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."
5
<PAGE>
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 lodging 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
extended stay 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 unrecoverable 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 June 30, 1997, the
Company had developed and opened 67 extended stay lodging facilities, acquired
49 others, and had 98 facilities under construction. The Company plans to begin
construction of approximately 60 additional extended stay lodging 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 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
6
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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 budget, economy, or mid-price extended stay categories.
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 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
operate in the extended stay lodging market. 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. 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 existing mortgage facilities, the Company may be
able to borrow up to $400 million to finance its properties, depending on
certain conditions. Upon entering into a new $500 million senior secured
revolving credit facility the Company will terminate its existing mortgage
facilities. The Company anticipates issuing approximately $300 million of
unsecured subordinated debt in the future. This compares to total equity of
approximately $831 million as of March 31, 1997 (giving effect to the merger
with Studio Plus). 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 the mortgage facilities and
the unsecured subordinated debt 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.
7
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NEED FOR ADDITIONAL CAPITAL
The extent to which the Company will be able to borrow under its debt
facilities will be dependent on the Company meeting certain conditions and
maintaining certain reserves. In addition, these debt facilities 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 DEBT FACILITIES
The Company's financing arrangements contain, and new facilities are
expected to 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 debt facilities is, or will be, subject to it meeting
certain conditions.
IMPACT OF ENVIRONMENTAL REGULATIONS
The Company's operating results 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
8
<PAGE>
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
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 of the Company, Mr.
Norwood Cowgill, Jr., President and Chief Executive Officer of Studio Plus,
and Mr. Robert A. Brannon, Senior Vice President and Chief Financial Officer
of the Company. 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 nor does it carry
key man life insurance on any of its officers.
CONTROL OF THE COMPANY BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
As of June 30, 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 15.1% 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 22.6% of the
outstanding shares of Common Stock. 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 Restated 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 Restated 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 Restated
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.
9
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock as of June 30, 1997 by each of the Selling Stockholders.
Because certain of the Selling Stockholders may be deemed to beneficially 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 each of 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>
PRIOR TO OFFERING AFTER OFFERING
----------------- SHARES -----------------
NUMBER OFFERED NUMBER
NAME OF SHARES PERCENT HEREBY OF SHARES PERCENT
- ---- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Norwood Cowgill, Jr.(1)........... 1,578,089 1.7 1,209,929 368,160 *
Cowgill Partners, L.P............. 576,784 * 576,784 -- *
</TABLE>
- ---------------------
*Represents less than 1% of the outstanding Common Stock.
(1) Includes 368,160 shares of Common Stock issuable upon exercise of
outstanding stock options which were exercisable within 60 days of June
30, 1997, but does not include 576,784 shares of Common Stock owned by
Cowgill Partners, L.P., a limited partnership controlled by Mr. Cowgill.
The names of the Selling Stockholders are set forth above. This Prospectus
may also be used by transferees, assignees, distributees, and pledgees of any
of the Selling Stockholders. Mr. Cowgill is the President and Chief Executive
Officer of Studio Plus Hotels, Inc., a Delaware corportion and a wholly-owned
subsidiary of the Company, and a director of the Company. The Selling
Stockholders received all of their respective Shares offered hereby in the
Merger.
PLAN OF DISTRIBUTION
The Selling Stockholders may sell or distribute some or all of the Shares
from time to time through underwriters, dealers, or brokers, or other agents
or directly to one or more purchasers in transactions (which may involve
crosses and block transactions) on the NYSE, 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.
The Company will pay all expenses of filing the Registration Statement and
preparing and reproducing this Prospectus. The Selling Stockholders will pay
any selling expenses, including brokerage commissions, incurred in connection
with their sale of any Shares covered by this Prospectus. 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.
10
<PAGE>
EXPERTS
The supplemental consolidated balance sheets of Extended Stay America, Inc.
and subsidiaries as of December 31, 1996 and 1995 and the related supplemental
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996, included
herein and the consolidated balance sheets of Extended Stay America, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year
ended December 31, 1996 and for period from January 9, 1995 (inception)
through December 31, 1995, the consolidated balance sheets of Studio Plus
Hotels, Inc. and subsidiary as of December 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended 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 (Commission File No. 0-27360).
. The Company's Current Reports on Form 8-K dated January 16, 1997 (as
amended on Form 8-K/A dated January 16, 1997), February 5, 1997, and
April 11, 1997.
. The historical financial statements of Welcome Inn America 89-1, L.P.,
Apartment/Inn, Hometown Inn, Gwinnett, the M & M Facilities, and KHEC
(collectively, the "Significant Acquisitions"), included in Post-
Effective Amendment No. 4 to the Company's Registration Statement on
Form S-1 (Registration No. 333-102).
. The historical financial statements of Studio Plus Hotels, Inc. included
in Studio Plus' Annual Report on Form 10-K for the year ended December
31, 1996 (Commission File No. 0-25340).
. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
. 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 June 23, 1997 for the
registration of the Common Stock under Section 12(b) of the Exchange
Act.
11
<PAGE>
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 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).
12
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS OF
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
Report of Independent Accountants......................................... F-2
Supplemental Consolidated Balance Sheets as of March 31, 1997 (unaudited)
and December 31, 1996 and 1995........................................... F-3
Supplemental Consolidated Statements of Operations for the three month
periods ended March 31, 1997 and 1996 (unaudited) and for the years ended
December 31, 1996, 1995, and 1994 ....................................... F-4
Supplemental Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995, and 1994 and the three month period ended
March 31, 1997 (unaudited)............................................... F-5
Supplemental Consolidated Statements of Cash Flows for the three month
periods ended March 31, 1997 and 1996 (unaudited) and for the years ended
December 31, 1996, 1995, and 1994 ....................................... F-6
Notes to Supplemental Consolidated Financial Statements................... F-7
PRO FORMA FINANCIAL STATEMENTS OF EXTENDED STAY AMERICA, INC.
AND SUBSIDIARIES
Pro Forma Condensed Combined Balance Sheet as of March 31, 1997
(unaudited).............................................................. F-21
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1994 (unaudited)............................................ F-22
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1995 (unaudited)............................................ F-23
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited)............................................ F-24
Pro Forma Condensed Combined Statement of Operations for the three-months
ended March 31, 1996 (unaudited)......................................... F-25
Pro Forma Condensed Combined Statement of Operations for the three-months
ended March 31, 1997 (unaudited)......................................... F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying supplemental consolidated balance sheets of
Extended Stay America, Inc. and subsidiaries as of December 31, 1996 and 1995
and the related supplemental consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. 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.
The supplemental consolidated financial statements give retroactive effect
to the merger of Extended Stay America Inc. and Studio Plus Hotels, Inc. on
April 11, 1997, which has been accounted for as a pooling-of-interests as
described in Note 1 to the supplemental consolidated financial statements.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation;
however, they will become the historical consolidated financial statements of
Extended Stay America, Inc. and subsidiaries after financial statements
covering the date of consummation of the business combination are issued.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Extended Stay
America, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles applicable after financial statements
are issued for a period which includes the date of consummation of the
business combination.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
July 22, 1997
F-2
<PAGE>
EXTENDED STAY AMERICA, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.............. $ 324,356 $ 224,325 $125,915
Accounts receivable.................... 3,188 1,665 663
Prepaid expenses....................... 1,405 796 316
Deferred income taxes.................. 1,063 1,143 453
Other current assets................... 428 1,580 602
--------- --------- --------
Total current assets................. 330,440 229,509 127,949
Property and equipment, net.............. 519,264 428,749 79,584
Deferred loan costs...................... 10,656 9,519 5,538
Other assets............................. 3,225 658 374
--------- --------- --------
$ 863,585 $ 668,435 $213,445
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable....................... $ 6,524 $ 14,827 $ 2,545
Accrued salaries and related expenses.. 1,565 1,694 517
Due to related parties................. 94 204 133
Other accrued expenses................. 6,583 3,642 864
Accrued retainage...................... 9,305 11,371 607
Note payable........................... 630
--------- --------- --------
Total current liabilities............ 24,071 31,738 5,296
Deferred income taxes.................... 8,479 7,983 4,827
--------- --------- --------
Long-term debt........................... 4,000
--------- --------- --------
Commitments
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized, no
shares issued and outstanding.........
Common stock, $.01 par value,
200,000,000 shares authorized,
95,297,274, 83,666,383, and 53,677,402
shares issued and outstanding,
respectively.......................... 953 837 537
Additional paid-in capital............. 819,605 619,870 198,534
Retained earnings...................... 10,477 8,007 251
--------- --------- --------
Total shareholders' equity........... 831,035 628,714 199,322
--------- --------- --------
$ 863,585 $ 668,435 $213,445
========= ========= ========
</TABLE>
See notes to the supplemental consolidated financial statements.
F-3
<PAGE>
EXTENDED STAY AMERICA, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
------------------- --------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
--------- --------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue.......... $19,109 $5,389 $37,480 $16,126 $11,830
Other revenue......... 654 205 1,329 642 322
------- ------ ------- ------- -------
Total revenue....... 19,763 5,594 38,809 16,768 12,152
------- ------ ------- ------- -------
Costs and expenses:
Property operating
expenses............. 10,180 2,374 16,560 6,706 5,256
Corporate operating
and property
management expenses.. 5,755 3,394 16,867 4,669 881
Depreciation and
amortization......... 3,712 878 6,139 2,059 1,472
------- ------ ------- ------- -------
Total costs and
expenses........... 19,647 6,646 39,566 13,434 7,609
------- ------ ------- ------- -------
Income (loss) from
operations............. 116 (1,052) (757) 3,334 4,543
Interest income
(expense)............ 3,987 1,482 13,744 (507) (2,532)
------- ------ ------- ------- -------
Net income before third
party investor's
interest, income taxes
and extraordinary loss. 4,103 430 12,987 2,827 2,011
Third party investor's
interest............... (142) (358)
------- ------ ------- ------- -------
Income before income
taxes and extraordinary
loss................... 4,103 430 12,987 2,685 1,653
Provision for income
taxes.................. 1,633 172 5,231 1,217
------- ------ ------- ------- -------
Income before
extraordinary loss..... 2,470 258 7,756 1,468 1,653
Extraordinary loss, net
of income tax benefit.. (185)
------- ------ ------- ------- -------
Net income.............. $ 2,470 $ 258 $ 7,756 $ 1,283 $ 1,653
======= ====== ======= ======= =======
Net income per common
share.................. $ 0.03 $ 0.00 $ 0.10
======= ====== =======
Pro forma income data:
Income before
extraordinary loss... $ 1,468 $ 1,653
Pro forma adjustment
for income taxes..... 176 (615)
------- -------
Pro forma income
before extraordinary
loss................. 1,644 1,038
Extraordinary loss.... (185)
------- -------
Pro forma net income.. $ 1,459 $ 1,038
======= =======
Pro forma earnings per
share:
Pro forma income
before extraordinary
loss................. $ 0.05
Extraordinary loss.... --
-------
Pro forma net income.. $ 0.05
=======
Weighted average common
and equivalent shares
outstanding............ 92,900 54,728 73,935 31,434
======= ====== ======= =======
</TABLE>
See notes to the supplemental consolidated financial statements.
F-4
<PAGE>
EXTENDED STAY AMERICA, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON TREASURY PAID-IN (ACCUMULATED PARTNER'S SHAREHOLDERS'
STOCK STOCK CAPITAL DEFICIT) DEFICIT EQUITY
------ -------- ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1,
1994................... $ 190 $ $ 107 $(1,608) $(300) $ (1,611)
Issuance of common
stock.................. 20 20
Cash dividends ......... (1,139) (1,139)
Partners' draws ........ (117) (117)
Conversion of note
payable to stock ...... 21 21
Repurchase of treasury
stock ................. (75) (75)
Net income.............. 1,538 115 1,653
----- ---- -------- ------- ----- --------
Balance as of December
31, 1994............... 210 (75) 128 (1,209) (302) (1,248)
Cash dividends ......... (1,748) (1,748)
Partner's draws......... (546) (546)
Reclassification in
connection with S
corporation and
partnership
termination............ (210) 75 (1,631) 1,251 515
Purchase of minority
shareholders' interest
....................... 3,955 674 333 4,962
Issuance of common
stock.................. 284 196,335 196,619
Retroactive effect of
two-for-one stock split
on July 19, 1996....... 221 (221)
Retroactive effect of
three-for-two stock
split on July 9, 1996.. 32 (32)
Net income.............. 1,283 1,283
----- ---- -------- ------- ----- --------
Balance as of December
31, 1995............... 537 198,534 251 199,322
Acquisitions of extended
stay facilities........ 45 55,198 55,243
Issuance of common
stock.................. 255 365,972 366,227
Stock options exercised,
including tax benefit
of $108................ 166 166
Net income.............. 7,756 7,756
----- ---- -------- ------- ----- --------
Balance as of December
31, 1996............... 837 619,870 8,007 628,714
Stock options exercised
including tax benefit
of $388 (unaudited).... 2 1,623 1,625
Issuance of common
stock, net of issuance
costs (unaudited)...... 114 198,112 198,226
Net income (unaudited).. 2,470 2,470
----- ---- -------- ------- ----- --------
Balance as of March 31,
1997 (unaudited)....... $ 953 $ $819,605 $10,477 $ $831,035
===== ==== ======== ======= ===== ========
</TABLE>
See notes to the supplemental consolidated financial statements.
F-5
<PAGE>
EXTENDED STAY AMERICA, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
-------------------- --------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
--------- --------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 2,470 $ 258 $ 7,756 $ 1,283 $1,653
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Third party investor
interest........... 142 359
Depreciation and
amortization....... 3,712 878 6,139 2,059 1,472
Write-off of site
deposits and
preacquisition
costs.............. 704 187 1,475 289
Bad debt expense.... 170 14 97 48 140
Deferred income
taxes.............. 949 (103) 2,574 140
Extraordinary loss.. 185
Other, net.......... (469) (72) 3
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts
receivable....... (1,557) (250) (1,099) (212) (199)
Prepaid expenses.. (444) (273) (480) (319)
Other current
assets........... (28) (165) (24)
Other assets...... 2 (50) (172)
Accounts payable.. (208) 543 643 233 (155)
Income taxes
payable.......... 50 379 401 (162)
Accrued salaries
and related
expenses......... (128) 246 885 271
Due to related
parties.......... (110) (133) 71 133
Deferred revenue.. 354 413 167 12
Other accrued
expenses......... 1,881 269 2,696 321 83
--------- -------- --------- -------- ------
Net cash provided
by operating
activities...... 7,843 2,428 20,830 4,136 3,160
--------- -------- --------- -------- ------
Cash flows from
investing activities:
Acquisitions of
extended stay
properties........... (355) (4,271) (2,342)
Additions to property
and equipment........ (104,562) (25,886) (273,260) (31,380) (5,794)
Purchase of
investments
available-for-sale... (38,829)
Proceeds from
sale/maturity of
investments
available-for-sale... 39,298
Purchase of third
party interest....... (1,500)
Other assets.......... (1,832) 118 (2,199) (58) (97)
--------- -------- --------- -------- ------
Net cash used in
investing
activities...... (106,394) (26,123) (279,261) (35,280) (5,891)
--------- -------- --------- -------- ------
Cash flows from
financing activities:
Proceeds from issuance
of common stock...... 199,729 365,636 192,208 20
Proceeds from long-
term debt............ 7,000 27,000 6,916 4,320
Principal payments on
long-term debt....... (630) (31,630) (36,811) (517)
Additions to deferred
loan and other costs. (1,147) (925) (4,165) (2,034) (265)
Proceeds from related
party loans.......... 7,863 875
Payments of related
party loans.......... (9,246) (568)
Distributions to
owners............... (2,295) (1,538)
--------- -------- --------- -------- ------
Net cash provided
by financing
activities...... 198,582 5,445 356,841 156,601 2,327
--------- -------- --------- -------- ------
Increase (decrease) in
cash and cash
equivalents........... 100,031 (18,250) 98,410 125,457 (404)
Cash and cash
equivalents at
beginning of period... 224,325 125,915 125,915 458 862
--------- -------- --------- -------- ------
Cash and cash
equivalents at end of
period................ $ 324,356 $107,665 $ 224,325 $125,915 $ 458
========= ======== ========= ======== ======
Noncash investing and
financing
transactions:
Issuances of common
stock for
acquisitions of
extended stay
properties........... $ $ 17,853 $ 55,243 $ 1,700 $
========= ======== ========= ======== ======
Capitalized or
deferred items
included in accounts
payable and accrued
liabilities.......... $ 15,344 $ 2,473 $ 17,671 $ 1,212 $ 655
========= ======== ========= ======== ======
Issuances of common
stock for notes
receivable from
shareholders......... $ $ $ $ 28,050 $
========= ======== ========= ======== ======
Issuance of common
stock for deferred
loan costs........... $ $ $ $ 3,574 $
========= ======== ========= ======== ======
Note payable for the
purchase of property
site................. $ $ $ $ 630 $
========= ======== ========= ======== ======
Purchase of minority
shareholders'
interest for stock
and assumption of
deficit capital
balance.............. $ $ $ $ 4,963 $
========= ======== ========= ======== ======
Supplemental Cash Flow
disclosures...........
Cash paid for:
Income taxes.......... $ 133 $ 74 $ 2,267 $ 1,182 $
========= ======== ========= ======== ======
Interest expense, net
of amounts
capitalized.......... $ $ $ 3 $ 1,775 $2,539
========= ======== ========= ======== ======
</TABLE>
See notes to the supplemental consolidated financial statements.
F-6
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
Extended Stay America, Inc. ("ESA, Inc.") was organized on January 9, 1995,
as a Delaware corporation to develop, own, and manage extended stay lodging
facilities.
Studio Plus Hotels, Inc. ("Studio Plus") 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 "Studio Plus Predecessor Entities") which owned and
operated StudioPLUS extended stay hotels. On June 26, 1995, Studio Plus
completed an initial public offering (the "Studio Plus IPO"). Prior to
completion of the Studio Plus IPO, Studio Plus acquired, through merger and
exchange of Studio Plus common stock for partnership interests, the assets of
the Studio Plus Predecessor Entities which owned and operated all of the
StudioPLUS extended stay hotel properties then in operation or under
development (the "Corporate Organization"). The acquisition of the interests
of the controlling shareholder or partner and affiliates of the Studio Plus
Predecessor Entities was accounted for as if it were a pooling of interests.
On April 11, 1997, ESA, Inc., ESA Merger Sub, Inc. ("Merger Sub"), a wholly-
owned subsidiary of ESA, Inc., and Studio Plus consummated a merger (the
"Merger") pursuant to which Studio Plus was merged with and into Merger Sub
and each of the approximately 12.5 million shares of Studio Plus common stock
issued and outstanding on such date were converted into the right to receive
1.2272 shares of common stock, par value $.01 per share, of ESA, Inc. ("Common
Stock"). The Merger was accounted for using the pooling of interests method of
accounting.
The accompanying supplemental consolidated financial statements of ESA, Inc.
and Studio Plus (together the "Company") have been restated to reflect the
merger accounted for as a pooling of interests.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation;
however, they will become the historical consolidated financial statements of
the Company after financial statements covering the dates of consummation of
the business combinations are issued.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying supplemental consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
Estimates
The preparation of 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.
F-7
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and on deposit, and highly
liquid instruments with maturities of three months or less when purchased. The
carrying amount of cash and cash equivalents is the estimated fair value at
the respective balance sheet date.
As of December 31, 1996, the Company had invested approximately $216 million
in short-term commercial paper and other securities. In addition, the Company
invests excess funds in an overnight sweep account with a commercial bank
which invests in short-term, interest-bearing reverse repurchase agreements.
Due to the short-term nature of these investments, the Company did not take
possession of the securities, which were instead held by the respective
financial institutions. The market value of the securities held pursuant to
the agreements approximates the carrying amount. Deposits in excess of
$100,000 are not insured by the Federal Deposit Insurance Corporation.
Property and Equipment
Property and equipment is stated at cost. The Company capitalizes interest,
salaries and related costs for site selection, design and construction
supervision.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.
The lives of the assets are as follows:
<TABLE>
<S> <C>
Building and improvements...................................... 40 years
Furniture, fixtures and equipment.............................. 3-10 years
</TABLE>
Preacquisition Costs
The Company incurs costs related to the acquisition of property sites. These
costs are capitalized when it is probable that a site will be acquired. These
costs are included in property and equipment. In the event the acquisition of
the site is not consummated, the costs are charged to corporate operating
expenses.
Deferred Loan Costs
The Company has incurred costs in obtaining financing. These costs have been
deferred and will be amortized over the life of the respective loans.
Pre-Opening Costs
The Company capitalizes compensation and other training-related costs
incurred prior to the opening of a property. Pre-opening costs of $1,008,000
and $218,000, net of accumulated amortization of $893,000 and $397,000 as of
December 31, 1996 and 1995, respectively, are included in other assets and are
being amortized over a period of twelve months.
Organization Costs
Organization costs of $219,000 and $41,000 net of accumulated amortization
of $26,000 and $10,000 as of December 31, 1996 and 1995, respectively, are
included in other assets, and are being amortized over sixty months using the
straight-line method.
F-8
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Revenue Recognition
Room revenue and other income are recognized when earned.
Business Segment
The Company operates principally in one business segment which is to
develop, own, and manage extended stay lodging facilities.
Reclassification
Certain previously reported amounts have been reclassified to conform with
the current presentation.
Unaudited Interim Financial Statements
The unaudited interim financial statements have been prepared pursuant to
generally accepted accounting principles applicable to interim financial
statements and include all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. All such adjustments are, in the opinion of management, of
a normal recurring nature. Results for the three months ended March 31, 1997
and 1996 are not necessarily indicative of results to be expected for a full
year. All data at March 31, 1997 and for the interim periods ended March 31,
1997 and 1996 are unaudited.
Net Income (Loss) Per Common Share
The net income per common share amount in the statement of operations for
the year ended December 31, 1996 has been computed in accordance with
Accounting Principles Board Opinion (APB) No. 15.
The pro forma earnings per share for the year ended December 31, 1995, has
been calculated by dividing net income by the weighted average number of
shares of Common Stock deemed to be outstanding. Common Stock outstanding has
been computed in accordance with a Staff Accounting Bulletin (SAB) of the
Securities and Exchange Commission and APB No. 15. According to the SAB,
equity securities, including stock, warrants, options and other potentially
dilutive securities, issued within a twelve-month period prior to an initial
public offering of common stock must be treated as common stock equivalents
when computing earnings per share for all periods presented if the issue price
of the common stock or the exercise price of the warrants, options or other
potentially dilutive securities is substantially less than the initial public
offering price, including loss years where the impact of the incremental
shares is antidilutive. As permitted by the SAB, the treasury stock method has
been used in determining the weighted average number of shares of Common Stock
outstanding during the period presented. 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 a full year. Prior to June 26, 1995, the Company was not fully subject
to income taxes due to the election of
F-9
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
S corporation and partnership tax status by the Studio Plus Predecessor
Entities. If the Company had been fully subject to tax, it would have incurred
income tax expense of approximately $918,000 and $615,000 for the years ended
December 31, 1995 and 1994, respectively.
Prior to 1995, the Company consisted of the Studio Plus Predecessor
Entities. The outstanding shares or other equity interests of the Studio Plus
Predecessor Entities differ substantially from the shares of Common Stock of
the Company. Accordingly, the Company believes that the presentation of
historical per share information for the periods prior to 1995 is not
meaningful.
On October 19, 1995, the Board of Directors of ESA, Inc. declared a 210-for-
1 stock split effected in the form of a dividend. On May 9, 1996, the Board of
Directors of ESA, Inc. declared a 2-for-1 stock split effected in the form of
a stock dividend payable on July 19, 1996. On July 9, 1996, a three-for-two
split of Studio Plus common stock was effected in the form of a stock
dividend. Accordingly, all share and per share amounts have been adjusted
retroactively to reflect these events.
The Company will adopt Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," on December 31, 1997. SFAS No. 128 requires the
Company to change its method of computing, presenting and disclosing earnings
per share information. Upon adoption, all prior period dates presented will be
restated to conform to the provisions of SFAS No. 128. This restatement is not
expected to have a material impact on net income per share.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements, including land under
current development.......................... $134,707 $23,409
Buildings and improvements.................... 204,001 46,174
Furniture, fixtures, equipment and supplies... 55,318 10,005
Construction in progress...................... 47,126 6,965
-------- -------
441,152 86,553
Less: Accumulated depreciation................ 12,403 6,969
-------- -------
Total property and equipment.................. $428,749 $79,584
======== =======
</TABLE>
The Company had commitments to construct additional extended stay properties
totaling approximately $388.3 million at December 31, 1996.
For the years ended December 31, 1996, 1995 and 1994 the Company incurred
interest of $332,000, $1,773,000, and $2,685,000, respectively, of which
$329,000, $256,000, and $153,000, respectively, was capitalized and included
in the cost of buildings and improvements.
NOTE 4--OPTIONS TO PURCHASE PROPERTY SITES
As of December 31, 1996, the Company had options to purchase parcels of real
estate in 132 locations in 36 states. The Company had paid approximately $3.9
million in connection with these options as of December 31, 1996. If for any
reason the Company does not acquire these parcels, the amounts paid in
connection with the options are generally refundable. These amounts are
included in property and equipment.
F-10
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PURCHASE ACQUISITIONS OF EXTENDED STAY PROPERTIES
On August 18, 1995, the Company acquired an existing extended stay property
from Welcome Inn America 89-1, L.P. ("Welcome Inn") for approximately $4
million which was paid for by the issuance of 714,000 shares of the Company's
Common Stock valued at $1.7 million and approximately $2.3 million in cash.
During 1996, the Company acquired ten (10) extended stay facilities from a
number of unrelated sellers (together with the acquisition of Welcome Inn, the
"Acquisitions") for approximately $59.6 million, which was paid for by the
issuance of approximately 4.5 million shares of Common Stock valued at
approximately $55.3 million and approximately $4.3 million in cash. As a part
of the Acquisitions, the Company assumed and subsequently retired liabilities
aggregating approximately $470,000 under certain leases for personal property.
The Acquisitions were accounted for using the purchase method of accounting
and, accordingly, the results of operations of the properties are included in
the consolidated supplemental statements of operations from the date of
acquisition.
The following unaudited pro forma condensed statements of operations of the
Company are presented as if the Company had completed the Acquisitions,
excluding the acquisition of substantially all of the assets of American
Apartmen-Tels Investors II, L.P. ("AATI"), (the "Significant Purchase
Acquisitions") and the issuance of shares to acquire and to fund the cash
portion of the purchase prices had occurred on January 1, 1995. 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. These pro forma
condensed statements of operations are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of January 1, 1995, nor does it purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue..................................... $44,022 $30,055
Total costs and expenses.......................... 42,162 23,040
------- -------
Income from operations............................ 1,860 7,015
Interest income (expense)......................... 13,744 (551)
------- -------
Income before income taxes........................ 15,604 6,464
Provision for income taxes........................ 6,277 2,586
------- -------
Net income........................................ $ 9,327 $ 3,878
======= =======
Net income per common share....................... $ 0.12 $ 0.11
======= =======
Weighted average number of common and equivalent
shares outstanding during the period............. 76,450 36,650
======= =======
</TABLE>
NOTE 6--NOTE PAYABLE
In conjunction with the acquisition of a property site, the Company issued a
note payable to the seller in the amount of $630,200 in 1995. The note was
collateralized by a deed of trust on the property. The note bore interest at a
rate of three percent per year and was paid on January 2, 1996.
F-11
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--PREFERRED STOCK
Shares of preferred stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors. Prior to issuance of shares of
each series, the Board will designate for each such series, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as are permitted by law. No shares of preferred stock are
outstanding and the Company has no present plans to issue any shares of
preferred stock.
NOTE 8--STOCK OPTION PLANS
ESA, Inc. has three stock option plans including the 1995 and 1996 Employee
Stock Option Plans (the "Employee Plans") and the 1995 Stock Option Plan for
Non-Employee Directors (the "Directors' Plan") and Studio Plus had two stock
option plans (collectively, the "Plans"). The Employee Plans and the Directors'
Plan provide for grants to certain officers, directors and key employees of
stock options to purchase shares of Common Stock of the Company. Options
granted under the Employee Plans and the Directors' Plan expire ten years from
the date of grant. Options granted under the Employee Plans vest ratably over a
four year period and options granted under the Directors' Plan vest six months
from the date of grant.
Studio Plus had two stock option plans, the 1995 Stock Incentive Plan and the
1995 Non-Employee Directors' Stock Incentive Plan (collectively, the "Studio
Plus Plans"). Two types of options, incentive stock options and nonqualified
stock options, were granted under the Studio Plus Plans. All options granted
under the Studio Plus Plans were granted at an exercise price equal to the
market price of the Studio Plus common stock on the date of grant and may not
be exercised more than 10 years after the date of its grant. Options granted
under the Studio Plus Plans to purchase 1,072,565 shares of Studio Plus common
stock were converted into options to purchase 1,316,252 shares of the Company's
Common Stock (with a corresponding adjustment to the exercise price) upon
completion of the Merger. Because the Merger effected a "control change date,"
each of these options became immediately exercisable.
A summary of the status of the Plans as of December 31, 1996 and 1995 and
changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
----------------------- ---------------------
NUMBER OF PRICE PER NUMBER OF PRICE PER
SHARES SHARE SHARES SHARE
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 3,266,756 $2.38-12.49
Granted....................... 4,030,000 10.50-22.38 3,266,756 $2.38-12.49
Exercised..................... (20,600) 2.38
Forfeited..................... (148,296) 2.38-14.44
---------- ----------- --------- -----------
Outstanding at end of year.... 7,127,860 $2.38-22.38 3,266,756 $2.38-12.49
Options exercisable at year-
end.......................... 1,489,300 $2.38-12.81
Available for future grants... 3,240,614 1,409,118
Total shares reserved for
issuance as of
December 31.................. 10,368,474 4,675,874
Weighted average fair value of
options
granted during the year...... $ 5.55 $ 1.95
</TABLE>
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). As
permitted by SFAS 123, the Company has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for the Plans. Accordingly, no compensation cost has been
recognized for options granted under the Plans. Had compensation cost for the
Plans been determined based on the fair value at the date
F-12
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of grant for awards under the Plans consistent with the method of SFAS 123,
the Company's net income and net income per share would have been reduced to
the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ------ -------- -----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
Net income ................................... $7,756 $3,482 $1,459 $ 316
Net income per share.......................... $ 0.10 $ 0.05 $ 0.05 $0.01
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes multiple option-pricing model with the following assumptions
used for grants in 1996 and 1995: dividend yield of 0%, expected volatility of
33.47%, risk-free interest rate of 6% and expected life of 5.5 years.
The following table summarizes information about the Company's stock options
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED OUTSTANDING WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
1996 YEARS PRICE 1996 PRICE
------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 2.38-2.38......... 1,356,266 8.44 $ 2.38 337,557 $ 2.38
$ 6.50-6.50......... 980,844 8.90 6.50 365,214 6.50
$ 8.15-8.15......... 664,142 8.47 8.15 442,120 8.15
$10.50-10.50........ 1,242,382 8.94 10.50 300,000 10.50
$10.59-12.81........ 516,952 9.15 11.86 44,409 11.44
$12.84-13.31........ 621,472 9.04 13.07 0 0.00
$13.38-13.38........ 912,812 8.87 13.38 0 0.00
$14.00-20.06........ 712,519 9.35 16.28 0 0.00
$20.31-22.38........ 120,471 9.89 20.82 0 0
--------- ---- ------ --------- ------
$ 2.38-22.38........ 7,127,860 8.87 $ 9.63 1,489,300 $ 7.01
========= ==== ====== ========= ======
</TABLE>
NOTE 9--MORTGAGE FACILITIES
On October 31, 1995 the Company executed a mortgage facility with DLJ
Mortgage Capital, Inc. (an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation, one of the representatives of the underwriters of the
Company's Common Stock offerings) (the "DLJ Mortgage Facility") providing for
up to $100 million in mortgage financing (which was reduced by the Company
from $200 million in connection with the establishment of the CSFB mortgage
facility described below) to be used to finance, subject to certain
conditions, on a long-term basis, newly constructed extended stay lodging
facilities. Draws under the DLJ Mortgage Facility will be made on an
individual property basis in amounts ranging from 50% to 75% of construction
costs, depending on the operating results of the individual property.
The DLJ Mortgage Facility provides for the following fees to be paid by the
Company: (1) a commitment fee of $1,600,000 which was paid pursuant to the
execution of the facility; (2) a drawdown fee of 1% of the funds loaned under
the facility; and (3) a fee paid by the issuance of 1,501,080 shares of Common
Stock of the Company at the time the facility was executed. These fees, which
include the estimated fair market value of the Common Stock issued to the
lender, will be amortized over the life of the facility using the effective
yield method, thus increasing the effective interest rate above the stated
interest rate discussed below. Additionally, the lender was provided the
right, which it has exercised, to purchase 1,000,860 shares of Common Stock at
a price of $2.38 per share upon the execution of the facility.
F-13
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All amounts borrowed under the DLJ Mortgage Facility will be fully
guaranteed by the Company and will be collateralized by, among other things,
first mortgages on the properties financed and assignment of leases, rents and
security deposits related to each property. The amounts drawn under the
facility will bear interest at a base rate equal to the ten-year U.S. Treasury
securities rate plus 4.0% at the times the loans under the facility are made.
Advances under the facility will be provided on an interest only basis for a
pre-stabilization period and will be amortized based on a 25-year schedule
thereafter with a final maturity on the December 31 following the tenth
anniversary of the date that the loan begins to amortize.
Prepayment of mortgage loans made under the DLJ Mortgage Facility may be
made subject to specified penalties provided certain conditions are met. Such
prepayments may be made without penalty within five years of their respective
final maturity dates. The facility provides that the Company must maintain a
tangible net worth of not less than $40,000,000 and amounts due under the
facility may at any time become immediately due and payable if the current
members of the Board of Directors cease to constitute a majority of the board.
The Company must place $22,500,000 in an escrow account in the name of the
lender prior to obtaining the first loan and an additional $22,500,000 once
the loan amount exceeds $33,750,000. Funds deposited in the escrow account
will be classified as non-current and will be used to acquire and construct
extended stay lodging facilities. The loan also requires the Company to fund
certain other escrow accounts. The Company's dividends cannot exceed 50% of
the excess of its net income for any period over its cumulative losses not
previously applied in computing the limitation.
The Company also has a mortgage facility (the "CSFB Mortgage Facility") from
CS First Boston Mortgage Capital Corporation (an affiliate of CS First Boston
Corporation, one of the representatives of the underwriters of the Company's
June 1996 Common Stock offering) which provides up to $300 million in mortgage
financing, subject to certain conditions and limitations, for completed
facilities.
Under the CSFB Mortgage Facility, each extended stay lodging facility
financed thereby will, upon obtaining a certificate of occupancy, receive
funding of 65% of the lesser of the total development cost, the approved
budget, or the appraised value, subject to limitations based on projected debt
service coverage ratios. The Company may choose either a fixed rate loan or a
floating rate loan at the time the loan is to be funded, subject, however, to
a requirement that a minimum of $50 million of loans must be made under the
chosen rate program before the other rate program can be selected. Interest on
each loan will be payable monthly at either (i) a fixed rate equal to the rate
of 7-year U.S. Treasury securities on the date of funding plus from 3.55% to
3.85% depending upon the aggregate amount of fixed rate loans, or (ii) a
floating rate equal to the 30-day LIBOR rate plus 3%. Principal amortization
will generally be based on a 15-year term for fixed rate loans and based on a
20-year term with an assumed 9.9% interest rate for floating rate loans. Fixed
rate loans will mature on the earlier of seven years and three months from the
date that the first such loan is funded or May 2004. All floating rate loans
will mature three years from the execution of a credit facility agreement.
Prepayments of fixed rate loans may be made after five years, subject to
certain penalties. Prepayments of floating rate loans may be made after one
year without penalty. Amounts borrowed under the CSFB Mortgage Facility will
be collateralized by, among other things, a first mortgage encumbering each
lodging facility so financed and an assignment of the revenues and profits
from such facilities.
Funding under the CSFB Mortgage Facility is subject to, among other things,
market capitalization of the Company of at least $300 million, maintenance of
certain debt service coverage ratios, maintenance of unrestricted and
unpledged cash of not less than $20 million, the funding by the Company of
certain escrow accounts, and prior approval by the lender of the construction
and operating budgets. The CSFB Mortgage Facility also contains certain
affirmative and negative covenants similar to those contained in the DLJ
Mortgage Facility. The Company, may, however, finance new properties through
other lenders without first submitting such property for approval by the
lender for financing under the CSFB Mortgage Facility. However, in the event
that the Company finances more than $175 million of secured facility debt
(other than construction financing and
F-14
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
certain other financings) with another lender prior to May 1999, without
having financed at least $100 million of such debt under the CSFB Mortgage
Facility, the lender may terminate its obligation to fund additional
facilities under the CSFB Mortgage Facility.
All or any portion of the amounts outstanding under the CSFB Mortgage
Facility will become due and payable, at the option of the lender, if an event
of default occurs, including, among other things, (i) a declared default or
acceleration under other indebtedness of the Company; (ii) certain events of
bankruptcy with respect to the Company or any of its subsidiaries; (iii) the
Company's tangible net worth ceases to exceed $50 million; (iv) a dividend
pay-out by the Company in excess of 50% of the excess of its net income for
any period over its cumulative losses not previously applied in computing the
limitation; (v) the current members of the Company's Board of Directors cease
to constitute a majority of the Board; or (vi) Mr. H. Wayne Huizenga or Mr.
George D. Johnson, Jr. cease to be Board members to the extent that they are
living and have not been judicially declared incompetent.
On May 23, 1995 Studio Plus entered into a $30 million revolving credit
agreement (the "Studio Plus Line of Credit") maturing on June 22, 1998 to fund
future development and construction of additional hotels and for working
capital. On February 28, 1996, Studio Plus increased its $30 million revolving
line of credit to $50 million. Outstanding indebtedness under the Studio Plus
Line of Credit 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 Studio Plus Line of Credit contains certain financial covenants,
including maintenance of a minimum debt service coverage ratio and maximum
ratio of debt to tangible net worth and limitations upon additional debt
without the consent of the lender. Borrowings under the Studio Plus Line of
Credit are collateralized by certain property and equipment. 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%. At December 31,
1996, there were no outstanding borrowings under the Studio Plus Line of
Credit. The Studio Plus Line of Credit was effectively cancelled upon
consummation of the Merger.
The Company used the net proceeds of the Studio Plus IPO to retire
approximately $36.8 million of outstanding mortgage debt, which was guaranteed
by the former shareholders and partners of the Studio Plus Predecessor
Entities, and approximately $3.1 million of loans from shareholders. In
connection with the early extinguishment of mortgage debt in 1995, the Company
incurred an extraordinary loss of $185,000, net of $123,000 in taxes, relating
to the write-off of unamortized loan fees.
The Company believes that there is no material difference in the carrying
amount (including the terms and conditions outlined above) and estimated fair
value of the Company's mortgage facilities.
NOTE 10--RELATED PARTY TRANSACTIONS
During 1995, the Company borrowed under an informal revolving loan agreement
from shareholders and their affiliates, which was paid on August 18, 1995. The
maximum amount outstanding during the period was approximately $4,476,000. In
1995, interest payments of approximately $92,000 were made on the loans from
shareholders and their affiliates, all of which were capitalized and included
in the cost of buildings and improvements.
During 1995, the Company acquired a property site for approximately $562,000
in cash from a partnership in which certain shareholders are partners.
In 1996, the Company entered into a 10-year lease for a suite at Pro Player
Stadium (formerly Joe Robbie Stadium) for a base rental of $115,000 per year,
subject to certain additional charges and periodic escalation, and a 3-year
lease for a suite at Homestead Motor Sports Complex for a base rental of
approximately $53,000 per year, subject to certain additional charges. The
Chairman of the Company's Board of Directors owns Pro Player Stadium and has
an approximate 50% interest in Homestead Motor Sports Complex.
During 1996 and 1995, the Company incurred charges of approximately $
983,000 and $412,000 from a company controlled by the Chief Executive Officer
of the Company for the use of airplanes, including approximately $204,000 and
$133,000 in amounts due to related parties as of December 31, 1996 and 1995,
respectively.
F-15
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A director of the Company is a partner of a law firm which charged the
Company fees of approximately $54,000 and $126,000 during 1996 and 1995,
respectively. Substantially all of such charges were incurred in connection
with the Company's organization, offerings of Common Stock, mortgage
facilities and acquisition of extended stay facilities.
Borrowings from partners and shareholders of the Studio Plus Predecessor
Entities were $1,727,500 and $875,000 for 1995 and 1994, respectively.
Principal repayments on loans from shareholders and partners of the Studio
Plus Predecessor Entities were $3,111,000 and $568,000 for 1995 and 1994,
respectively. In addition, the Company incurred interest expense of $157,000
and $74,000 for the same periods, respectively, on shareholder debt.
Prior to the Studio Plus IPO, the Company distributed $2,295,000 to the
shareholders of the Studio Plus Predecessor Entities in accordance with the
merger agreements.
NOTE 11--INCOME TAXES
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Current income taxes:
U.S. federal.............................................. $2,137 $ 929
State and local........................................... 520 148
------ ------
2,657 1,077
------ ------
Deferred taxes:
U.S. federal.............................................. 2,069 55
State and local........................................... 505 85
------ ------
2,574 140
------ ------
$5,231 $1,217
====== ======
</TABLE>
Prior to the Corporate Organization, a portion of Studio Plus operations
were conducted through S corporations and partnerships. Accordingly, the
deferred tax provision for the year ended December 31, 1995, includes
approximately $540,000 relating to recognition of a net deferred tax liability
representing temporary differences exiting 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 Studio Plus Predecessor
Entities.
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35 percent to pretax income as a result of the
following:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Computed "expected" tax rate................................ 35.0% 35.0%
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefit...... 4.9 3.7
Effect of termination of S corporation and partnership
items.................................................... 20.0
S corporation and partnership for which no current income
taxes were provided...................................... (14.9)
Other..................................................... .4 1.5
---- -----
Annual effective income tax rate............................ 40.3% 45.3%
==== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 (in thousands) are presented below:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Start up expenses capitalized for tax................ $ $ 242
Net operating loss carryforward...................... 986 155
Other................................................ 157 56
------- -------
Total deferred tax assets.......................... 1,143 453
Deferred tax liability:
Property and equipment............................... (7,983) (4,827)
------- -------
$(6,840) $(4,374)
======= =======
</TABLE>
F-16
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $2,300,000, which are available
to offset future federal taxable income, if any, through 2011.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax
assets is dependent upon the generation of future taxable income during the
period in which those temporary differences become deductible. Management
considered the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment.
Based upon the level of taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
NOTE 12--PUBLIC OFFERINGS
On December 19, 1995, ESA, Inc. closed an initial public offering of
10,120,000 shares of its Common Stock at a public offering price of $ 6.50 per
share and a concurrent offering to existing shareholders of 4,135,650 shares
of Common Stock at an offering price of $ 6.05 per share, being the initial
public offering price per share less the underwriting discounts and
commissions. The proceeds to ESA, Inc. of such offerings were approximately
$85 million, net of offering expenses.
On June 5, 1996, ESA, Inc. closed a public offering of 19,550,000 shares of
its Common Stock at a public offering price of $15.50 per share. The proceeds
to ESA, Inc. of such offering were approximately $289 million, net of offering
expenses.
On June 26, 1995, Studio Plus completed an initial public offering of
5,347,500 shares of its common stock at $10.00 per share (number of shares and
price per share have not been adjusted for the Merger) and received net cash
proceeds of $48.1 million. Studio Plus also issued an aggregate of 2,322,750
shares of common stock and paid $1.5 million in cash to the partners and
shareholders of the Studio Plus Predecessor Entities in connection with the
Corporate Organization. The acquisition of the interests of the controlling
shareholder or partner and affiliates of the Studio Plus 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 of $10,475,000 to the carrying value of the underlying assets
acquired.
In April, 1996, Studio Plus closed a public offering of 4,855,347 shares of
common stock, and 319,653 shares sold by selling shareholders at $16.83 per
share (number of shares and price per share have not been adjusted for the
Merger). Net cash proceeds to Studio Plus were approximately $76.8 million,
which excluded any proceeds from the selling shareholders.
NOTE 13--QUARTERLY RESULTS (UNAUDITED)
The following is a summary of quarterly operations for the years ended
December 31, 1996 and 1995 (in thousands except per share data):
<TABLE>
<CAPTION>
1996
---------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue................................ $ 5,569 $8,035 $11,923 $13,282
Operating (loss) income...................... (1,052) (188) 827 (344)
Net income................................... 258 1,656 3,619 2,223
Net income per share......................... $ 0.00 $ 0.03 $ 0.04 $ 0.03
</TABLE>
F-17
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995
--------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue................................. $3,136 $4,221 $4,789 $4,622
Operating income (loss)....................... 824 1,344 1,229 (63)
Net income (loss)............................. 132 (270) 742 678
</TABLE>
NOTE 14--SUBSEQUENT EVENTS
In January 1997, the Company adopted the 1997 Employee Stock Option Plan (the
"1997 Plan"). The 1997 Plan provides for grants to certain officers, directors
and key employees of stock options to purchase shares of Common Stock of the
Company. Options may be granted with respect to a total of not more than
6,000,000 shares of Common Stock under the 1997 Plan, subject to antidilution
and other adjustment provision. Such options expire ten years from the date of
grant and vest over a four-year period.
On February 6, 1997, the Company completed a private placement of 11.5
million shares of its Common Stock at a purchase price of $17.625 per share,
for an aggregate amount of approximately $203 million. Net proceeds received by
the Company from the private placement were approximately $198 million.
On February 20, 1997, the Company announced its intention to develop and
launch the Crossland Economy StudiosSM ("Crossland") brand of budget extended
stay lodging facilities. The Company opened the first Crossland lodging
facility on January 2, 1997. The Company expects to open three additional
Crossland facilities during 1997 and 30 additional Crossland facilities per
year for the foreseeable future, beginning in 1998. Three of the Company's
extended stay lodging facilities under construction as of December 31, 1996
were Crossland facilities. Crossland facilities will be priced to compete in
the budget segment of the extended stay lodging market. The Company's
Crossland, EXTENDED STAYAMERICA Efficiency Studios, and StudioPLUS(TM) brands
of lodging facilities compete in the budget, economy, and mid-price segments,
respectively, of the extended stay lodging market.
On April 11, 1997, ESA, Inc. and Merger Sub completed the Merger in
accordance with the terms of an Agreement and Plan of Merger (the "Merger
Agreement") by and among the parties dated January 16, 1997. Pursuant to the
terms of the Merger Agreement, Studio Plus was merged with and into Merger Sub
and the 12,557,786 shares of Studio Plus common stock that were outstanding on
the closing date were converted into the right to receive 15,410,515 shares of
Common Stock of the Company and options to purchase 1,072,565 shares of Studio
Plus common stock were converted into options to purchase 1,316,252 shares of
the Company's Common Stock. As a result of the Merger, Studio Plus is a wholly-
owned subsidiary of the Company.
In connection with the Merger, the Company has recorded in the second quarter
of 1997 a one-time pre-tax charge of $9.7 million representing merger expenses
and costs associated with the integration of Studio Plus' operations following
the Merger. The Merger was accounted for as a pooling of interests and the
Company's historical financial statements now include the accounts and results
of operations of Studio Plus.
F-18
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying supplemental
consolidated financial statements are summarized below.
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
MARCH 31, -------------------------
1997 1996 1995 1994
------------ ------- ------- -------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
ESA, Inc. ....................... $12,316 $15,745 $ 878 $
Studio Plus...................... 7,447 23,064 15,890 12,152
------- ------- ------- -------
Combined......................... $19,763 $38,809 $16,768 $12,152
======= ======= ======= =======
Extraordinary items:
ESA, Inc. ...................... $ $ $ $
Studio Plus...................... (185)
------- ------- ------- -------
Combined......................... $ $ $ (185) $
======= ======= ======= =======
Net income:
ESA, Inc. ....................... $ 1,422 $ 3,436 $(1,307) $
Studio Plus...................... 1,048 5,173 2,137 1,653
Adjustments...................... (853) 453
------- ------- ------- -------
Combined......................... $ 2,470 $ 7,756 $ 1,283 $ 1,653
======= ======= ======= =======
</TABLE>
The combined financial results presented above include adjustments made to
conform the accounting policies of the two companies. The adjustments relate
to restatement of ESA, Inc.'s income tax expense in 1996 and 1995 due to the
reduction of the valuation allowance for deferred tax assets of $453,000 in
1995 that were not expected to be realized by ESA, Inc. operating separately
and restatement of Studio Plus' expenses of $400,000 in 1996 to conform its
method of recording preopening costs with that of ESA, Inc.
On June 9, 1997, the Company announced that its Board of Directors had
approved a plan to have the Common Stock listed on the New York Stock
Exchange, Inc. ("NYSE") and to move trading in the Common Stock from the
Nasdaq National Market ("Nasdaq") to the NYSE. The Common Stock began trading
on the NYSE on June 30, 1997. The Company has recorded a one-time pre-tax
charge of $500,000 in connection with listing of the Common Stock on the NYSE.
On July 21, 1997, the Company accepted from Morgan Stanley Senior Funding,
Inc. a commitment to provide a $500 million senior secured revolving credit
facility (the "Revolving Facility") which is to be used for general corporate
purposes, including the construction and acquisition of extended stay lodging
properties. The Revolving Facility will be a five year senior secured facility
structured as a corporate bank loan and syndicated to relationship banks. In
addition to the Revolving Facility, the Company expects to issue approximately
$300 million of unsecured subordinated debt as part of an overall financing
plan that is expected to increase the Company's credit availability to $800
million.
Upon execution of the Revolving Facility, the Company will terminate its two
existing mortgage loan facilities, which provide for an aggregate of $400
million in available mortgage loans. Accordingly, the Company has recorded a
one-time pre-tax charge of $9.7 million. The charge represents deferred costs
associated with its previous mortgage facilities and has been reflected in the
Company's financial results for the second quarter of 1997.
F-19
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF ESA, INC. AND STUDIO PLUS
The accompanying unaudited Pro Forma Condensed Combined Financial Statements
are presented as if Extended Stay America, Inc. ("ESA, Inc.") had completed
eleven acquisitions during 1995 and 1996 (the "Acquisitions"), excluding the
acquisition of substantially all of the assets of American Apartmen-Tels
Investors II, L.P. ("AATI"), (the "Significant Purchase Acquisitions") at
January 9, 1995 (ESA, Inc.'s date of inception) and as if the Merger with
Studio Plus Hotels, Inc. ("Studio Plus") had been completed at January 1,
1994. 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 operations of
ESA, Inc. and Studio Plus (collectively, 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
ESA, Inc. and Studio Plus and Statements of Operations of each of the
Significant Purchase Acquisitions. 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 operating 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 Supplemental
Consolidated Financial Statements of the Company included herein and the
Consolidated Financial Statements of ESA, Inc. and Studio Plus which have been
incorporated by reference.
F-20
<PAGE>
ESA, INC. AND STUDIO PLUS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
ESA, INC. STUDIO PLUS MERGER FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
ASSETS ------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $309,999 $ 14,357 $324,356
Accounts receivable, net.... 2,207 981 3,188
Prepaid expenses............ 1,188 217 1,405
Deferred income taxes....... 954 109 1,063
Other current assets........ 321 107 428
-------- -------- ------- --------
Total current assets...... 314,669 15,771 330,440
Property and equipment, net... 388,164 131,100 519,264
Deferred loan costs........... 9,471 1,185 10,656
Other assets.................. 2,171 1,054 (1,115) 2,110
-------- -------- ------- --------
Total assets.............. $714,475 $149,110 $(1,115) $862,470
======== ======== ======= ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS'
EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable............ $ 2,122 $ 4,402 $ 8,585(b) $ 15,109
Accrued salaries and related
expenses................... 939 626 1,565
Due to related parties...... 94 -- 94
Other accrued expenses...... 3,849 2,067 (1,455) 4,461
Accrued retainage........... 7,826 1,479 9,305
Deferred revenue............ 459 208 667
-------- -------- ------- --------
Total current liabilities. 15,289 8,782 7,130 31,201
-------- -------- ------- --------
Deferred income taxes......... 2,891 5,588 8,479
-------- -------- ------- --------
Commitments
Shareholders' equity:
Preferred stock, $.01 par
value......................
Common stock, $.01 par
value...................... 799 126 28 (a) 953
Additional paid in capital.. 691,945 127,688 (28)(a) 819,605
Retained earnings........... 3,551 6,926 (8,245)(b) 2,232
-------- -------- ------- --------
Total shareholders'
equity................... 696,295 134,740 (8,245) 822,790
-------- -------- ------- --------
Total liabilities and
shareholders' equity..... $714,475 $149,110 $ $862,470
======== ======== ======= ========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-21
<PAGE>
ESA, INC. AND STUDIO PLUS
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ESA, INC. STUDIO PLUS MERGER PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Room revenue................. $11,830 $11,830
Other revenue................ 322 322
-------- ------- ------- -------
Total revenue.............. 12,152 12,152
-------- ------- ------- -------
Costs and expenses:
Property operating expenses.. 5,256 5,256
Corporate operating expenses. 881 881
Depreciation and
amortization................ 1,472 1,472
-------- ------- ------- -------
Total costs and expenses... 7,609 7,609
-------- ------- ------- -------
Income from operations......... 4,543 4,543
Interest expense............... (2,532) (2,532)
-------- ------- ------- -------
Income before third party
investors' interest........... 2,011 2,011
Third party investors'
interest...................... (358) (358)
-------- ------- ------- -------
Income before income taxes..... 1,653 1,653
Provision for income taxes.....
-------- ------- ------- -------
Net income..................... $ 1,653 $ 1,653
======== ======= ======= =======
Pro forma income data:
Net income................... $ 1,653 $ 1,653
Pro forma adjustment for
income taxes................ (615) (615)
------- -------
Pro forma net income......... $ 1,038 $ 1,038
======= =======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-22
<PAGE>
ESA, INC. AND STUDIO PLUS
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ESA, INC. STUDIO PLUS MERGER PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Room revenue................ $ 817 $15,309 $16,126
Other revenue............... 61 581 642
------- ------- ------ -------
Total revenue............. 878 15,890 16,768
------- ------- ------ -------
Costs and expenses:
Property operating expenses. 332 6,374 6,706
Corporate operating
expenses................... 2,555 2,114 4,669
Depreciation and
amortization............... 147 1,912 2,059
------- ------- ------ -------
Total costs and expenses.. 3,034 10,400 13,434
------- ------- ------ -------
Income (loss) from operations. (2,156) 5,490 3,334
Interest income (expense)..... 849 (1,356) (507)
------- ------- ------ -------
Income before third party
investors' interest.......... (1,307) 4,134 2,827
Third party investors'
interest..................... (142) (142)
------- ------- ------ -------
Income (loss) before income
taxes........................ (1,307) 3,992 2,685
Provision for income taxes.... 1,670 $ (453)(c) 1,217
------- ------- ------ -------
Income (loss) before
extraordinary item........... $(1,307) $ 2,322 $ 453 $ 1,468
======= ======= ====== =======
Income (loss) per share before
extraordinary item........... $ (0.05) $ 0.05
======= =======
Pro forma income data:
Income before extraordinary
item....................... $ 2,322 $ 1,468
Pro forma adjustment for
income taxes............... 176 176
------- -------
Pro forma income before
extraordinary item......... $ 2,498 $ 1,644
======= =======
Pro forma income per share
before extraordinary item.... $ 0.50 $ 0.05
======= =======
Weighted average number of
shares of common stock and
equivalents outstanding...... 25,304 4,995 1,135 (b) 31,434
======= ======= ====== =======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-23
<PAGE>
ESA, INC. AND STUDIO PLUS
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA SIGNIFICANT PRO
ESA, INC. STUDIO PLUS MERGER COMBINED PURCHASE FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS (HISTORICAL) ACQUISITIONS COMBINED
------------ ------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue.......... $15,280 $22,200 $37,480 $5,172(a) $42,652
Other revenue......... 465 864 1,329 41(a) 1,370
------- ------- ----- ------- ------ -------
Total revenue....... 15,745 23,064 38,809 5,213 44,022
------- ------- ------- ------ -------
Costs and expenses:
Property operating
expenses............. 6,929 9,631 16,560 416(a) 16,976
Corporate operating
expenses............. 12,645 3,822 400(d) 16,867 1,397(a) 18,264
Depreciation and
amortization......... 2,803 3,336 6,139 783(a) 6,922
------- ------- ----- ------- ------ -------
Total costs and
expenses........... 22,377 16,789 400 39,566 2,596 42,162
------- ------- ----- ------- ------ -------
Income (loss) from
operations............. (6,632) 6,275 (400) (757) 2,617 1,860
Interest income......... 11,538 2,206 13,744 13,744
------- ------- ----- ------- ------ -------
Income (loss) before
income taxes........... 4,906 8,481 (400) 12,987 2,617 15,604
Provision for income
taxes.................. 1,470 3,308 $ 453(c) 5,231 1,046(a) 6,277
------- ------- ----- ------- ------ -------
Net income (loss)....... $ 3,436 $ 5,173 $(853) $ 7,756 $1,571 $ 9,327
======= ======= ===== ======= ====== =======
Net income per common
share.................. $ 0.06 $ 0.45 $ 0.10 $ 0.12
======= ======= ======= =======
Weighted average number
of shares of common
stock and equivalents
outstanding............ 59,724 11,580 2,631(b) 73,935 2,515(a) 76,450
======= ======= ===== ======= ====== =======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-24
<PAGE>
ESA, INC. AND STUDIO PLUS
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA SIGNIFICANT PRO
ESA, INC. STUDIO PLUS MERGER COMBINED PURCHASE FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS (HISTORICAL) ACQUISITIONS COMBINED
------------ ------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue.......... $1,138 $4,251 $ 5,389 $2,606(a) $7,995
Other revenue......... 33 172 205 127(a) 332
------ ------ ----- ------- ------ ------
Total revenue....... 1,171 4,423 5,594 2,733 8,327
------ ------ ------- ------ ------
Costs and expenses:
Property operating
expenses............. 443 1,931 2,374 1,078(a) 3,452
Corporate operating
expenses............. 2,404 890 100 3,394 194(a) 3,588
Depreciation and
amortization......... 203 675 878 383(a) 1,261
------ ------ ----- ------- ------ ------
Total costs and
expenses........... 3,050 3,496 100 6,646 1,655 8,301
------ ------ ----- ------- ------ ------
Income (loss) from
operations............. (1,879) 927 (100) (1,052) 1,078 26
Interest income......... 1,450 32 1,482 1,482
------ ------ ----- ------- ------ ------
Income (loss) before
income taxes........... (429) 959 (100) 430 1,078 1,508
Provision for income
taxes.................. -- 375 (203)(c) 172 431(a) 603
------ ------ ----- ------- ------ ------
Net income (loss)....... $ (429) $ 584 $ 103 $ 258 $ 647 $ 905
====== ====== ===== ======= ====== ======
Net income (loss) per
common share........... $(0.01) $ 0.07 $ 0.00 $ 0.02
====== ====== ======= ======
Weighted average common
and equivalent shares
outstanding............ 44,935 7,980 1,813(b) 54,728 4,636(a) 59,364
====== ====== ===== ======= ====== ======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-25
<PAGE>
ESA, INC. AND STUDIO PLUS
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ESA, INC. STUDIO PLUS MERGER COMBINED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS (HISTORICAL)
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
Room revenue.............. $11,926 $ 7,183 $19,109
Other revenue............. 390 264 654
------- ------- ----- -------
Total revenue........... 12,316 7,447 19,763
------- ------- -------
Costs and expenses:
Property operating
expenses................. 6,763 3,417 10,180
Corporate operating and
property management
expenses................. 4,446 1,309 5,755
Depreciation and
amortization............. 2,377 1,335 3,712
------- ------- ----- -------
Total costs and
expenses............... 13,586 6,061 19,647
------- ------- ----- -------
Income (loss) from
operations................. (1,270) 1,386 116
Interest income............. 3,641 346 3,987
------- ------- ----- -------
Net income before income
taxes...................... 2,371 1,732 4,103
Provision for income taxes.. 949 684 1,633
------- ------- ----- -------
Net income.................. $ 1,422 $ 1,048 $ 2,470
======= ======= ===== =======
Net income per common share. $ 0.02 $ 0.08 $ 0.03
======= ======= =======
Weighted average common and
equivalent shares
outstanding................ 77,013 12,946 2,941 92,900
======= ======= ===== =======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-26
<PAGE>
ESA, INC. AND STUDIO PLUS
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Historical. The historical Condensed Combined Financial Statements of ESA,
Inc. and Studio Plus include the accounts of ESA, Inc. and its subsidiaries
and of Studio Plus and its subsidiary, respectively. All significant
intercompany balances within each company have been eliminated. ESA, Inc. 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 the Studio Plus Predecessor Entities which owned and
operated StudioPLUS hotels. The historical Condensed Consolidated Statements
of Operations of Studio Plus for the years ended December 31, 1994 and 1995
reflect combined financial data for the Studio Plus Predecessor Entities,
accounted for as if the combination of the Studio Plus Predecessor Entities
were a pooling of interests. Income taxes on earnings were paid by
stockholders and partners of the Studio Plus Predecessor Entities.
Accordingly, income taxes are provided on a pro forma basis for the years
ended December 31, 1994 and 1995.
Pursuant to the rules and regulations of the Commission, the historical
Condensed Consolidated Statement of Operations of Studio Plus for the year
ended December 31, 1995 does not reflect an extraordinary loss, net of the
related income tax benefit, of $185,000.
The Merger. The Merger has been accounted for in the Pro Forma Condensed
Consolidated Financial Statements using the pooling of interests method of
accounting whereby the accounts of ESA, Inc. 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
$9.7 million, have been excluded from the Pro Forma Condensed Combined
Statements of Income to more accurately reflect the actual operations 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 1, 1996. 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 ESA, Inc. 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 the Studio Plus IPO,
the assets of Studio Plus were owned and operated by the Studio Plus
Predecessor Entities. The outstanding shares and other equity interests of the
Studio Plus Predecessor Entities differ substantially from the shares of
Studio Plus common stock outstanding after the Studio Plus IPO. Accordingly,
Studio Plus has not historically presented earnings per share information for
the year ended December 31, 1994.
The weighted average number of shares of common stock and equivalents
outstanding during the period and the related earnings per share data as
reflected in the historical Consolidated Statements of Operations for the year
ended December 31, 1995 for both ESA, Inc. and Studio Plus have been adjusted
to give effect to the stock splits occurring in 1996.
F-27
<PAGE>
ESA, INC. AND STUDIO PLUS
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
(UNAUDITED)
3. PRO FORMA ADJUSTMENTS
Pro Forma Condensed Combined Balance Sheet.
(a) To reflect the issuance of 2,853,108 incremental shares of ESA, Inc.
Common Stock in the Merger and the elimination of a corresponding amount of
additional paid in capital.
(b) To reflect the estimated costs associated with the Merger, net of income
tax benefit.
Pro Forma Condensed Combined Statements of Income.
(a) To reflect the results of operations of the Significant Purchase
Acquisitions for the respective periods as if they were acquired on January 1,
1996.
(b) To reflect the issuance of the incremental shares of ESA, Inc. Common
Stock 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.
(d) To reflect the adjustment in conforming accounting policies related to
preopening costs.
F-28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities being registered hereby. All amounts are estimates except the
Commission registration fee.
<TABLE>
<S> <C>
Commission registration fee..................................... $ 7,513
Printing and engraving expenses................................. 5,000
Legal fees and expenses......................................... 7,500
Accounting fees and expenses.................................... 85,000
Miscellaneous................................................... 14,987
--------
Total....................................................... $120,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware authorizes the
Company to indemnify its directors and officers under specified circumstances.
The Restated Certificate of Incorporation and Bylaws of the Company provide
that the Company shall indemnify, to the extent permitted by Delaware law, its
directors and officers (and may indemnify its employees and agents) against
liabilities (including expenses, judgments, and settlements) incurred by them
in connection with any actual or threatened action, suit, or proceeding to
which they are or may become parties and which arises out of their status as
directors, officers, or employees.
The Company's Restated Certificate of Incorporation and Bylaws eliminate, to
the fullest extent permitted by Delaware law, liability of a director to the
Company or its stockholders for monetary damages for a breach of such
director's fiduciary duty of care except for liability where a director (a)
breaches his duty of loyalty to the Company or its stockholders, (b) fails to
act in good faith or engages in intentional misconduct or knowing violation of
law, (c) authorizes payment of an illegal dividend or stock repurchase, or (d)
obtains an improper personal benefit. While liability for monetary damages has
been eliminated, equitable remedies such as injunctive relief or rescission
remain available. In addition, a director is not relieved of his
responsibilities under any other law, including the federal securities laws.
The directors and officers of the Company are insured within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of actions, suits, or proceedings and certain
liabilities which might be imposed as a result of such actions, suits, or
proceedings, to which they are parties by reason of being or having been such
directors or officers.
ITEM 16. EXHIBITS
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index appearing elsewhere herein and is incorporated by
this reference.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement.
II-1
<PAGE>
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
LAUDERDALE, STATE OF FLORIDA, ON JULY 28, 1997.
Extended Stay America, Inc.
/s/ George D. Johnson, Jr.
By:__________________________________
George D. Johnson, Jr.
President and Chief Executive
Officer
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS GEORGE D. JOHNSON,
JR., ROBERT A. BRANNON, AND GREGORY R. MOXLEY, AND EACH OF THEM SEVERALLY,
ACTING ALONE AND WITHOUT THE OTHERS, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT WITH
AUTHORITY TO EXECUTE IN THE NAME OF EACH SUCH PERSON AND TO FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION, TOGETHER WITH ANY EXHIBITS THERETO AND
OTHER DOCUMENTS THEREWITH, ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT NECESSARY OR ADVISABLE TO ENABLE
THE REGISTRANT TO COMPLY WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
RULES, REGULATIONS, AND REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION
IN RESPECT THEREOF, WHICH AMENDMENTS MAY MAKE SUCH OTHER CHANGES IN THE
REGISTRATION STATEMENT AS THE AFORESAID ATTORNEY-IN-FACT EXECUTING THE SAME
DEEMS APPROPRIATE, AND ANY FILINGS PURSUANT TO RULE 462(B) UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 28, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ George D. Johnson, Jr. President and Chief Executive Officer
- -------------------------------------------
George D. Johnson, Jr.
PRINCIPAL FINANCIAL OFFICER:
/s/ Robert A. Brannon Senior Vice President, Chief Financial
___________________________________________ Officer, Secretary, and Treasurer
Robert A. Brannon
PRINCIPAL ACCOUNTING OFFICER:
/s/ Gregory R. Moxley Vice President--Finance
___________________________________________
Gregory R. Moxley
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
A MAJORITY OF THE DIRECTORS:
/s/ H. Wayne Huizenga Director
___________________________________________
H. Wayne Huizenga
/s/ Norwood Cowgill, Jr. Director
___________________________________________
Norwood Cowgill, Jr.
/s/ Donald F. Flynn Director
___________________________________________
Donald F. Flynn
/s/ George D. Johnson, Jr. Director
___________________________________________
George D. Johnson, Jr.
/s/ Stewart H. Johnson Director
___________________________________________
Stewart H. Johnson
/s/ John J. Melk Director
___________________________________________
John J. Melk
/s/ Peer Pedersen Director
___________________________________________
Peer Pedersen
</TABLE>
II-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of
our report dated July 22, 1997 on our audits of the supplemental consolidated
financial statements of Extended Stay America, Inc. and to the incorporation
by reference in this registration statement on Form S-3 of our report dated
February 6, 1997, on our audits of the consolidated financial statements of
Extended Stay America, Inc., our report dated January 26, 1996, on our audits
of the financial statements of Apartment/Inn, L.P., our report dated February
23, 1996, on our audits of the combined financial statements of Hometown Inn
I, LTD and Hometown Inn II, LTD, our report dated October 16, 1995, on our
audits of the financial statements of Welcome Inn America 89-1, L.P., our
report dated May 4, 1996, on our audit of the financial statements of Kipling
Hospitality Enterprise Corporation, our report dated June 25, 1996, on our
audit of the financial statements of Apartment Inn Partners/Gwinnett, L.P.,
and our report dated June 27, 1996, on our audits of the combined financial
statements of Boulder Manor, Inc., Melrose Suites, Inc., Nicolle Manor and St.
Louis Manor, Inc. (the "M & M Facilities"). We also consent to the reference
to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Spartanburg, South Carolina
July 25, 1997
II-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-3 of our report dated February 4, 1997, on our audits of the
consolidated financial statements of Studio Plus Hotels, Inc. as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996. We also consent to the reference to our firm under the caption
"Experts."
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
July 25, 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.1 Contribution Agreement, dated August 18, 1995, between the Company and
Welcome Inn America 89-1, L.P. (incorporated by reference to the
corresponding exhibit to the Company's Registration Statement on Form
S-1, Registration No. 33-98452 (the "IPO S-1")).
2.2 Agreement to Purchase Hotel and related agreements dated January 24,
1996 between the Company and John W. Baker and Apartment/Inn, L.P.
(incorporated by reference to the corresponding exhibit to the
Company's Registration Statement on Form S-1, Registration No. 333-102
(the "Acquisition Shelf S-1")).
2.3 Agreement to Purchase Hotel and related agreements dated February 23,
1996 among ESA 0992, Inc., ESA 0993, Inc., Hometown Inn I, LTD, and
Hometown Inn II, LTD (incorporated by reference to the corresponding
exhibit to the Acquisition Shelf S-1).
2.4 Agreement to Purchase Hotel dated May 1, 1996 and related agreements
among ESA Properties, Inc., Kipling Hospitality Enterprise
Corporation, and J. Craig McBride (incorporated by reference to the
corresponding exhibit to the Company's Report on Form 10-Q for the
quarter ended March 31, 1996).
2.5 Agreement to Purchase Hotel dated as of June 24, 1996 and related
agreements among the Company, ESA 0996, Inc., Apartment Inn
Partners/Gwinnett, L.P., and Rosa Dziewienski Pajonk (incorporated by
reference to the corresponding exhibit to the Acquisition Shelf S-1).
2.6 Agreements to Purchase Hotels dated as of June 25, 1996 and related
agreements between the Company and ESA Properties, Inc. and Boulder
Manor, Inc., Melrose Suites, Inc., St. Louis Manor, Inc., and Michael
J. Mona, Jr. and Dean O'Bannon (incorporated by reference to the
corresponding exhibit to the Acquisition Shelf S-1).
2.7 Agreement and Plan of Merger dated as of January 16, 1997 by and among
the Company, ESA Merger Sub, Inc., and Studio Plus Hotels, Inc.
("Studio Plus") (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated January 16, 1997).
4.1 Specimen certificate representing shares of Common Stock (incorporated
by reference to the corresponding exhibit to the IPO S-1).
5.1 Opinion of Bell, Boyd & Lloyd as to the legality of the Common Stock.
23.1 Consent of Coopers & Lybrand L.L.P. (included in Part II of this
registration statement).
23.2 Consent of Coopers & Lybrand L.L.P. (included in Part II of this
registration statement).
23.3 Consent of Bell, Boyd & Lloyd (included in Exhibit 5.1).
24.1 Powers of Attorney (included on the signature page of this
registration statement).
</TABLE>
EX-1
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BELL, BOYD & LLOYD]
July 24, 1997
Extended Stay America, Inc.
450 E. Las Olas Boulevard
Suite 1100
Ft. Lauderdale, FL 33301
Registration Statement on Form S-3
Ladies and Gentlemen:
We have represented Extended Stay America, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of a registration statement
on Form S-3 (the "Registration Statement") filed under the Securities Act of
1933, as amended (the "Act"), for the purpose of registering under the Act
1,786,713 shares of common stock, par value $.01 per share (the "Common Stock"),
of the Company (the "Shares") owned by certain stockholders of the Company. In
this connection, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, corporate and other records,
certificates and other papers, including the Registration Statement and
pertinent resolutions of the board of directors of the Company, as we deemed it
necessary to examine for the purpose of this opinion.
Based upon such examination, it is our opinion that the Shares are legally
issued, fully paid, and non-assessable shares of Common Stock of the Company.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the Act.
Very truly yours,
