<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 34-0-25340
STUDIO PLUS HOTELS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 61-1273532
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1999 RICHMOND ROAD, SUITE 4
LEXINGTON, KENTUCKY 40502
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (606) 269-1999
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------------------- ------------------------
Common Stock, $.01 par value The Nasdaq Stock Market
National Market
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of February 28, 1997, there were outstanding 12,557,320 shares of
the registrant's common stock, par value $.01, which is the only class of
common or voting stock of the registrant.
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PART I
ITEM 1. BUSINESS
Studio Plus Hotels, Inc. (the "Company") owns, develops and operates
StudioPLUS(TM) extended stay hotels and owns the rights to the related trade
name and service marks for "StudioPLUS." StudioPLUS hotels are designed to
combine the convenience of a hotel with many of the comforts of an apartment in
order to provide affordable lodging for extended stay guests. The Company
believes that StudioPLUS accommodates an underserved niche of guests in the
extended stay sector of the lodging industry. These guests include business
travelers, professionals on temporary work assignment, persons relocating or
purchasing a home, tourists and others desiring high quality, furnished
accommodations with full kitchens. StudioPLUS guests typically prefer weekly
rather than daily accommodations.
The Company's Predecessor Entities (defined hereafter) were founded in
1985 by Norwood Cowgill, Jr. ("Mr. Cowgill"), Chairman of the Board of
Directors and Chief Executive Officer. On December 19, 1994, the Company was
formed to acquire, through merger and exchange of partnership interests all of
the assets of Studio Plus, Inc. and the corporations and partnerships which
owned and operated StudioPLUS extended stay hotels (collectively, the
"Predecessor Entities").
In June, 1995, the Company completed an initial public offering of
5,347,500 shares of common stock ("Common Stock") at $10.00 per share and
received net cash proceeds of approximately $48.1 million (the "IPO"). In
April, 1996, the Company completed a follow-on equity offering of 4,855,347
shares of common stock at $16.83 per share and received net cash proceeds of
approximately $76.8 million (the "Offering") . In July, 1996, a three-for-two
split of the Company's Common Stock was effected in the form of a stock
dividend of three shares of Common Stock for each two shares of Common Stock
outstanding at the close of business on June 20, 1996 (the "Stock Split"). For
a discussion of the Company's credit facilities, see "Management's Discussions
and Analysis of Financial Condition and Results of Operations" in this report.
The StudioPLUS concept was developed to meet the demand for high
quality extended stay lodging and provide an affordable alternative to the
nightly rates of hotels and the long-term commitments of apartment leases. Mr.
Cowgill designed the StudioPLUS concept to target this market segment.
Currently, a typical StudioPLUS hotel contains 72 suites; however, the Company
has developed prototype plans for larger hotels it can construct when it is
determined appropriate based on market size and demand. All StudioPLUS hotels
have weekly maid service, with an option for daily service, and coin-operated
laundry facilities; most of the hotels have an exercise room and a swimming
pool.
The Company is currently operating, constructing or has sites under
contract on which to construct StudioPLUS hotels in 22 states. As of February
28, 1997, the Company owned and
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operated 37 StudioPLUS hotels (the "Existing Hotels"), and had 11 StudioPLUS
hotels under construction (the "Construction Properties") and had contracts to
purchase 28 additional sites (the "Planned Sites"). The Existing Hotels contain
an aggregate of 2,650 suites, average approximately four years in age, and are
located in Ohio (8), North Carolina (6), Kentucky (5), Tennessee (5), Indiana
(4), Alabama (3), South Carolina (3), Missouri (2) and Mississippi (1).
The Company's strategy is to grow by (i) developing and operating
additional affordable extended stay hotels, (ii) actively managing its hotels
to increase revenues and reduce operating costs and (iii) increasing awareness
of StudioPLUS hotels by consistently providing high quality accommodations for
its guests. As its primary development strategy, the Company intends to expand
into new markets and, to a lesser extent, to develop additional hotels in its
existing markets. The Company oversees all phases of development to facilitate
on-time, within budget, quality construction. The Company also may consider
franchising opportunities and may consider acquiring operating properties for
conversion to StudioPLUS hotels if appropriate opportunities are identified.
For a discussion of seasonality, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this report.
OPERATING PRACTICES
The Company has operated each of the Existing Hotels since its
opening. The Company's operating strategy is to encourage decision-making by
on-site employees. Each StudioPLUS hotel employs a general manager who is
responsible for the operations of the particular hotel. Each general manager
typically oversees a staff of five employees, including an assistant manager,
housekeeping and maintenance personnel. Hotel level employees are cross-
trained to afford greater staffing flexibility in responding to guests' needs,
which management believes helps minimize operating costs. StudioPLUS hotels'
office typically is open Monday through Saturday from 9:00 a.m. to 6:00 p.m.
and on Sunday from 12:00 p.m. to 5:00 p.m. Maid service is provided on a weekly
basis, with daily service available at the option of each guest for an
additional charge. A manager resides on-site at each hotel, thereby providing
after-hour accessability to guests.
Each general manager reports to a regional manger, both of whom are
supported by the Company's executive officers and headquarters staff. Prior to
assuming responsibility for a hotel, general managers and assistant managers
undergo a management training program designed to familiarize each trainee with
various facets of the Company's management, operation and development programs.
The program also emphasizes the Company's guest service policies and provides
hands-on operating experience at the hotel level. The Company's management
training program also is intended to train assistant managers for promotion to
general manager.
Each general manager is responsible for local marketing and
advertising programs and for promoting StudioPLUS hotels within the local
community. The Company's Vice President of Marketing coordinates system wide
and regional marketing, and facilitates the Company's sales, promotion and
marketing efforts. The Company offers a cash bonus program for each hotel
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employee, based on property performance and profitability at the Existing
Hotels.
Management of the Company's hotels is coordinated from the Company's
headquarters in Lexington, Kentucky. The Company employs approximately 325
persons and performs all marketing, accounting and management functions
necessary to operate the Existing Hotels and complete the development of the
Construction Properties and Planned Sites.
COMPETITION
The lodging industry is highly competitive. Competitive factors within
the industry include room rates, quality of accommodations, name recognition,
supply and availability of alternative lodging, including short-term lease
apartments, service levels, name recognition, reputation, reservation systems
and convenience of location. Each of the Existing Hotels and Construction
Properties is located in a developed area that includes competing lodging
facilities. In addition, each of the Planned Sites will be located in an area
that includes competing facilities.
The Company anticipates that competition within the extended stay
lodging market will increase substantially in the foreseeable future. A number
of other lodging chains and developers have announced their intent to develop
or are attempting to implement rollouts of extended stay lodging hotels which
may compete with the Company's hotels. In particular, some of these entities
have announced their intent to target the mid-price segment of the extended
stay market in which the Company competes. The Company may compete for guests
and for new development sites with certain of these established entities which
have greater financial resources than the Company and better relationships with
lenders and real estate sellers.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner
or operator of real estate may be liable for the cost of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment a
hazardous substance at a property owned by another may be liable for the costs
of removal or remediation of hazardous substances released into the environment
at that property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely effect the owner's ability to use or
sell such real property or borrow using such real property as collateral. In
connection with the ownership and operation of its properties, the Company may
be potentially liable for any such costs.
Phase I environmental site assessments (the "Assessments") have been
obtained on all of the Existing Hotels and the Construction Properties. For
recently constructed Existing Hotels and all of the Construction Properties,
Phase I Assessments were conducted as part of the pre- development review
process. The Phase I Assessments were intended to identify potential
environmental contamination and regulatory compliance concerns. The Phase I
Assessments
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generally include historical reviews of the properties, reviews of certain
public records, preliminary investigations of the site and surrounding
properties, screening for the presence of hazardous substances, toxic
substances, and underground storage tanks, and the preparation and issuance of
written reports. The Phase I Assessments did not include invasive procedures,
such as soil sampling or ground water analysis. The Company will obtain Phase I
Assessments on the Planned Sites prior to purchasing such properties.
The Phase I Assessments have not revealed any environmental liability
or compliance concern that the Company believes would have a material adverse
effect on the Company's business, assets, results of operations or liquidity,
nor is the Company aware of any such liability or concern. Nevertheless, it is
possible that the Phase I Assessments do not reveal all environmental
liabilities or compliance concerns or that there are material environmental
liabilities or compliance concerns of which the Company is unaware. Moreover,
no assurances can be given that (i) future laws, ordinances or regulations will
not impose any material environmental liability, or (ii) the current
environmental condition of the Existing Hotels or Construction Properties will
not be affected by the condition of the properties in the vicinity of the
Existing Hotels or Construction Properties (such as the presence of leaking
underground storage tanks) or by actions of third parties unrelated to the
Company.
The Company believes that the Existing Hotels and the Construction
Properties are in compliance in all material respects with all federal, state
and local ordinances and regulations regarding hazardous or toxic substances
and other environmental matters. Neither the Company nor, to the knowledge of
the Company, any of the current owners of the Planned Sites have been notified
by any governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental matter in
connection with the Existing Hotels, the Construction Properties or the Planned
Sites.
SUBSEQUENT EVENT
On January 16, 1997, the Company and Extended Stay America, Inc.
("ESA"), together with ESA Merger Sub, Inc., a wholly-owned subsidiary of ESA
("Merger Sub") a Delaware corporation whose common stock is traded on The
Nasdaq Stock Market under the symbol "STAY," entered into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which the Company will be
merged with and into Merger Sub (the "Merger"). The Merger Agreement provides
that Merger Sub will be the surviving corporation and that upon consummation of
the Merger (i) each share of the Company's common stock, par value $.01 per
share (the "Common Stock"), will be converted into the right to receive 1.2272
shares of ESA common stock and (ii) all outstanding options to purchase the
Company's Common Stock from the Company will be converted into options to
purchase common stock in ESA. As of December 31, 1996, ESA owned and operated
40 extended stay lodging facilities, had 50 of such facilities under
construction, and options to purchase 106 additional sites for development.
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Consummation of the Merger is subject to (i) the approval of the
Merger Agreement by the stockholders of the Company and the stockholders of
ESA, (ii) the ability to account for the Merger as a pooling of interests,
(iii) the appointment of Mr. Norwood Cowgill, Jr., the Chairman of the Board
and Chief Executive Officer of the Company to ESA's board of directors, and
(iv) other customary closing conditions. The Merger Agreement may be terminated
prior to its consummation by any of the parties if the Merger is not
consummated on or before August 31, 1997. The Merger Agreement also may be
terminated prior to its consummation for a number of other reasons, including
the following: (i) by mutual written consent of the of the Company and ESA;
(ii) by either the Company or ESA if the necessary stockholder approvals are
not received; (iii) by the Company if its Board of Directors determines in good
faith that their fiduciary duties require them to terminate the Merger
Agreement by reason of any proposal or offer with respect to a merger,
consolidation, reorganization, exchange, plan of liquidation, or similar
transaction involving the Company or its subsidiary, other than the Merger (an
"Alternative Proposal"); or (iv) by ESA, if the Board of Directors of the
Company shall have (a) withdrawn, or modified in a manner materially adverse to
ESA, its approval of the Merger Agreement, (b) recommended an Alternative
Proposal, or (c) adopted resolutions to accept or implement an Alternative
Proposal. If the Merger Agreement is terminated pursuant to clause (iii) or
(iv) above, the Company must pay ESA a fee of $7,500,000.
ITEM 2. PROPERTIES
The Existing Hotels are located in nine southeastern and midwestern
states and contain a total of 2,650 extended stay suites. The exterior of each
Studio PLUS hotel is constructed of either brick or synthetic stucco. Each
Studio PLUS hotel currently contains two types of suites: designer suite and
deluxe suite. The deluxe suite is approximately one-third larger than the
designer suite. The newer hotels contain a third type of suite, a double suite
that consists of two queen beds. All suites contain a separate dining area and
a complete kitchen, including a full-size refrigerator, range with conventional
oven, microwave, cooking and eating utensils, and bed, sofa, easy chair, voice
mail, a computer data port, a direct-dial telephone and remote control cable or
satellite television. Each StudioPLUS hotel also has a coin-operated laundry
facility and offers weekly or optional daily maid service. Most properties also
have an exercise room and a swimming pool.
The following tables set forth certain information with respect to the
Existing Hotels and Construction Properties.
<TABLE>
<CAPTION>
Location of Existing Hotels Year Opened Number of Suites (1)
--------------------------- ----------- --------------------
<S> <C> <C>
1. Lexington, KY 1986 60
2. Lexington, KY 1987 72
3. Cincinnati, OH 1988 72
4. Louisville, KY 1988 76
5. Louisville, KY 1989 66
6. Cincinnati, OH 1989 72
7. Columbus, OH 1989 72
</TABLE>
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<TABLE>
<S> <C> <C>
8. Dayton, OH 1989 72
9. Columbus, OH 1990 72
10. Knoxville, TN 1990 72
11. Indianapolis, IN 1990 72
12. Memphis, TN 1990 72
13. Nashville, TN 1991 72
14. Indianapolis, IN 1991 72
15. Cincinnati, OH 1992 72
16. St. Louis, MO 1992 72
17. Nashville, TN 1993 72
18. St. Louis, MO 1994 72
19. Greenville, SC 1995 72
20. Charlotte, NC 1995 72
21. Greensboro, NC 1995 72
22. Columbia, SC 1995 72
23. Montgomery, AL 1996 72
24. Charlotte, NC 1996 72
25. Birmingham, AL 1996 72
26. Cary, NC 1996 72
27. Birmingham, AL 1996 72
28. Florence, KY 1996 72
29. Charleston, SC 1996 72
30. Raleigh, NC 1996 72
31. Durham, NC (2) 1996 72
32. Jackson, MS 1996 72
33. Akron, OH 1996 72
34. Fort Wayne, IN 1996 72
35. Memphis, TN 1996 72
36. Dayton, OH 1997 72
37. Evansville, IN 1997 72
-----
Total 2,650
=====
</TABLE>
(1) One suite at each StudioPLUS hotel is occupied by a resident manager.
(2) The Company leases the real estate for this hotel.
<TABLE>
<CAPTION>
Estimated Number of
Location of Construction Properties Opening (1) Suites (2)
- ----------------------------------- ----------- ----------
<S> <C> <C>
1. Richmond, VA 1997 92
2. Atlanta, GA 1997 73
3. Tulsa, OK 1997 73
4. Toledo, OH 1997 73
5. Newport News, VA 1997 73
6. Atlanta, GA 1997 92
7. St. Louis, MO 1997 73
8. Dallas, TX 1997 98
9. Dallas, TX 1997 137
10. Cleveland, OH 1997 92
11. Cleveland, OH 1997 73
---
Total 949
===
</TABLE>
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(1) There can be no assurance that the Company will complete the
development of the Construction Properties as scheduled.
(2) One suite at each StudioPLUS hotel is occupied by a resident manager.
The Company's corporate headquarters in Lexington, Kentucky, is
occupied pursuant to a lease that expires in 1997 and the Company also owns
office condominium space (purchased in 1997) at the same location. Management
believes that such offices are sufficient to meet its present needs and does
not anticipate any difficulty in securing additional space, as needed, on terms
acceptable to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company currently is not involved in any material litigation nor,
to the Company's knowledge, is any material litigation currently threatened
against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders
during the Company's fourth quarter.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
The Common Stock is listed on The Nasdaq Stock Market under the symbol
"SPHI." The price to the public for the Common Stock in the IPO was $10.00 per
share (the "IPO Price") and the Common Stock began trading on June 21, 1995.
The last reported sale price of the Company's Common Stock on The Nasdaq Stock
Market on February 28, 1997 was $23.75. All per share amounts have been
adjusted to reflect the July 9, 1996, three-for-two Stock Split.
The following table sets forth for the indicated periods the high and
low closing sale prices for the Common Stock:
<TABLE>
<CAPTION>
Price Range
-----------
Year Ended December 31, 1995 High Low
------ ------
<S> <C> <C>
Second Quarter (since June 21, 1995) .................. $11.16 $10.83
Third Quarter ......................................... 18.67 11.16
Fourth Quarter ........................................ 17.75 12.50
Year Ended December 31, 1996
First Quarter ......................................... 21.67 14.33
Second Quarter ........................................ 22.00 16.67
Third Quarter ......................................... 23.88 15.50
Fourth Quarter ........................................ 18.50 14.75
</TABLE>
As of February 28, 1997, the Company estimates that there are
approximately 72 holders of record and 2,500 beneficial owners, respectively,
of the Common Stock.
DIVIDEND POLICY
The Company, to date, has not paid any cash dividends on its Common
Stock. The Board of Directors presently intends to retain all earnings to
finance the future growth of the Company's operations and the development of
additional StudioPLUS hotels and does not anticipate the payment of cash
dividends on the Common Stock in the foreseeable future. Any payment of cash
dividends on the Common Stock in the future will be at the sole discretion of
the Board of Directors and will depend upon the Company's earnings, capital
expenditure requirements, financial condition and such other factors as the
Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial information and
other data consisting of the Predecessor Entities prior to the Company's IPO
and for the Company since the date of the IPO. The selected historical
financial information and other data for the Company and the Predecessor
Entities for each of the five years in the period ended December 31, 1996, have
been derived from the historical financial statements and notes of the Company
audited by Coopers & Lybrand L.L.P., independent accountants. The following
selected financial information should be read in conjunction with the
historical financial statements and related notes.
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STUDIO PLUS HOTELS, INC.
SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT SHARE AND CERTAIN OTHER DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of operations:
Revenue:
Room revenue .................................................... $ 22,201 $ 15,309 $ 11,830 $ 9,985 $ 8,316
Other revenue ................................................... 864 581 322 324 199
---------- --------- -------- -------- --------
Total revenue .............................................. 23,065 15,890 12,152 10,309 8,515
---------- --------- -------- -------- --------
Operating expenses ................................................ 13,453 8,488 6,137 5,250 4,100
Depreciation and amortization ..................................... 3,336 1,912 1,472 1,313 1,185
Interest expense, net ............................................. (2,206) 1,356 2,532 2,498 2,542
---------- --------- -------- -------- --------
Total costs and expenses ................................... 14,583 11,756 10,141 9,061 7,827
---------- --------- -------- -------- --------
Income before third party investors' interest,
income taxes and extraordinary loss .............................. 8,482 4,134 2,011 1,248 688
Third party investors' interest ..................................... (142) (358) (198) (126)
---------- --------- -------- -------- --------
Income before income taxes and extraordinary loss ................... 8,482 3,992 1,653 1,050 562
Provision for income taxes (1) ...................................... 3,308 1,670
-------- --------
Income before extraordinary loss .................................... 5,174 2,322 1,653 1,050 562
Extraordinary loss (2) .............................................. (185)
-------- --------
Net income ................................................. $ 5,174 $ 2,137 $ 1,653 $ 1,050 $ 562
========== ========= ======== ======== ========
Earnings per common and common equivalent
shares, primary and fully diluted........................... $ 0.45
==========
Pro forma income data: (3)
Income before income taxes ........................................ $ 2,322
Pro forma provision for income taxes .............................. 176
---------
Pro forma income before extraordinary loss ........................ 2,498
Extraordinary loss ................................................ (185)
---------
Pro forma net income .............................................. $ 2,313
=========
Pro forma earnings per share: (4)
Pro forma income before extraordinary loss ........................ $ 0.50
Extraordinary loss ................................................ (0.04)
---------
Pro forma net income .............................................. $ 0.46
=========
Weighted average number of common shares outstanding ................ 11,580,169 4,995,104
OTHER DATA:
EBITDA (5) ........................................................ $ 9,612 $ 7,402 $ 6,015 $ 5,059 $ 4,415
Cash flows provided by (used in):
Operating activities ............................................ $ 9,720 $ 4,844 $ 3,160 $ 2,498 $ 1,708
Investing activities ............................................ (50,112) (17,162) (5,891) (2,692) (3,583)
Financing activities ............................................ 72,514 14,417 2,327 380 1,918
Number of properties open at period end ........................... 35 22 18 17 16
Occupancy ......................................................... 80.8% 83.5% 84.8% 83.0% 82.1%
Average weekly rate ............................................... $ 284.13 $ 254.11 $ 222.37 $ 202.32 $ 179.81
Weekly revenue per available room ................................. $ 229.60 $ 212.19 $ 188.64 $ 167.99 $ 147.67
BALANCE SHEET DATA:
Total assets ...................................................... $ 146,240 $ 63,376 $ 36,222 $ 30,313 $ 28,541
Long-term debt .................................................... -- 4,000 32,306 28,831 29,018
Shareholders' equity (deficit) .................................... 133,613 51,646 (1,247) (1,611) (1,699)
</TABLE>
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(1) Historical financial information prior to the IPO does not include a
provision for income taxes because the Predecessor Entities were S
corporations or partnerships not subject to income taxes.
(2) As a result of repaying approximately $37,049 of mortgage
indebtedness, including approximately $226 of accrued interest, with
the proceeds of the IPO, the Company wrote off approximately $308 of
unamortized deferred loan costs associated with this debt. The charge
has been recorded as an extraordinary loss, net of related income tax
benefit of approximately $123.
(3) Prior to June 26, 1995, the Company was not fully subject to income
taxes due to the election of S corporation and partnership tax status
by the Predecessor Entities. Income before extraordinary loss has been
adjusted to pro forma income before extraordinary loss by reflecting
the tax that would have been paid by the Company if it had been
subject to income tax for the full year.
(4) The pro forma earnings per share for the year ended December 31, 1995,
has been calculated by dividing the pro forma net income by the
weighted average number of shares of Common Stock deemed to be
outstanding. Prior to June 26, 1995, the assets of the Company were
owned and operated by the Predecessor Entities. The outstanding shares
or other equity interests of the Predecessor Entities differ
substantially from the shares of Common Stock of the Company
outstanding after the IPO. Accordingly, the Company believes that the
presentation of historical per share information for the periods prior
to the IPO is not meaningful.
(5) EBITDA represents income (loss) before third party investors'
interest, income taxes, extraordinary loss, interest expense, net, and
depreciation and amortization. EBITDA is used by the Company for the
purpose of analyzing operating performance, leverage and liquidity.
Such data are not a measure of financial performance under generally
accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of
liquidity.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company owns, develops, and operates StudioPLUS(TM) extended stay
hotels and owns the rights to the related trade name and service marks for
"StudioPLUS." StudioPLUS hotels are designed to combine the convenience of a
hotel with many of the comforts of an apartment in order to provide affordable
lodging for extended stay guests.
The Company is currently operating or developing hotels in 22 states.
As of February 28, 1997, the Company owned and operated 37 StudioPLUS hotels
and had 11 StudioPLUS hotels under construction. The Company has developed all
of its hotels and intends to continue expanding geographically through the
development of additional StudioPLUS hotels. The Company may consider
franchising the StudioPLUS concept or acquiring properties for conversion to
StudioPLUS hotels if appropriate opportunities arise.
On January 16, 1997, the Company signed a definitive agreement to
merge with Extended Stay America, Inc. ("ESA"). Under the agreement, ESA will
issue 1.2272 shares of its common stock for each share of the Company's Common
Stock. The transaction will be accounted for as a pooling of interests and is
currently expected to be completed in April, 1997.
The following table sets forth historical operating information for
the Company and the Predecessor Entities, as a percentage of total revenue, for
the periods indicated.
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<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996
---- ----- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Room Revenue ........................... 97.3% 96.3% 96.3%
Other Revenue .......................... 2.7% 3.7% 3.7%
----- ----- -----
Total Revenue ................. 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses ..................... 50.6% 53.5% 58.3%
Depreciation and amortization .......... 12.1% 12.0% 14.5%
Interest expense, net .................. 20.8% 8.5% (9.6%)
----- ----- -----
Total costs and expenses ...... 83.5% 74.0% 63.2%
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Comparison of year ended December 31, 1996 to year ended December 31, 1995
Total revenue for 1996 was $23,065,000, an increase of approximately
$7,175,000, or 45.2% over 1995. Room revenue for the year increased by
approximately $6,892,000, of which (i) approximately $993,000 is attributable
to the 18 hotels open throughout both periods and (ii) approximately $5,899,000
is attributable to the 17 hotels opened during 1995 and 1996 (the "1996 New
Hotels"). The increase in room revenue from the 18 hotels opened throughout
both periods resulted from a 7.0% increase in weekly revenue per available room
from $207.27 to $221.73, which reflects an 8.7% increase in average weekly
rates from $247.32 to $268.93 and a decrease in occupancy from 83.8% to 82.4%.
Other revenue during 1996 increased approximately $283,000, or 48.7%, over
1995, due primarily to the other revenue generated from the 1996 New Hotels.
Property operating expenses for 1996 were $9,631,000, an increase of
approximately $3,257,000, or 51.1%, over 1995, of which (i) approximately
$728,000 is attributable to the 18 hotels open throughout both periods and (ii)
approximately $2,529,000 is attributable to the 1996 New Hotels. The increase
in property operating expenses for the 18 hotels open throughout both periods
resulted primarily from higher housekeeping and labor expenses. Corporate
operating expenses increased by approximately $1,708,000 as a result of (i)
operating the entire year as a public company and (ii) expanding the Company's
corporate infrastructure to support its national expansion program.
Depreciation and amortization expense increased approximately
$1,424,000, or 74.5%, primarily as a result of operating the 1996 New Hotels
and the associated amortization of their preopening costs. The increase of
approximately $3,562,000 in net interest income during 1996 over 1995 can
primarily be attributed to the investment of the net cash proceeds from the
Company's follow-on offering completed April 2, 1996. The provision for income
taxes for 1996 was approximately $3,308,000, for an effective tax rate of
39.0%. Prior to the Company's IPO, the
12
<PAGE> 13
Predecessor Entities were not subject to income taxes.
Comparison of year ended December 31, 1995 to year ended December 31, 1994
Total revenue for 1995 was $15,890,000, an increase of approximately
$3,738,000 or 30.8%, over 1994. Room revenue for 1995 increased by
approximately $3,479,000 of which (i) approximately $807,000 is attributable to
the 17 hotels open throughout both periods and (ii) approximately $2,672,000 is
attributable to the five new hotels opened during 1994 and 1995 (the "1995 New
Hotels"). The increase in room revenue from the 17 hotels open throughout both
periods resulted from an increase in weekly revenue per available room from
$189.58 to $202.55, which reflects a 9.0% increase in average weekly rates from
$222.21 to $242.12 that offset a decline in occupancy from 85.3% to 83.7%.
Other revenue during 1995 increased $259,000, which resulted primarily from an
increase in telephone commissions and gains from disposition of assets.
Property operating expenses for 1995 were $6,374,000, or an increase
of approximately $1,118,000, or 21.3%, over 1994, of which (i) approximately
$133,000 is attributable to the 17 hotels open throughout both periods and (ii)
approximately $985,000 is attributable to the 1995 New Hotels. Corporate
operating expenses increased approximately $1,233,000 as a result of (i)
corporate infrastructure expansion and (ii) various expenses associated with
operating as a public company during the second half of 1995.
Depreciation and amortization expense increased approximately
$440,000, or 29.9%, principally as a result of operating the 1995 New Hotels,
as well as an increase in the carrying value of assets acquired at the time of
the IPO. Interest expense decreased approximately $1,176,000, or 46.4%, from
$2,532,000 to $1,356,000 as a result of debt being repaid with proceeds of the
IPO.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company generated $9,720,000 in cash provided by
operating activities, an increase of $4,876,000 over 1995. This 100.7% increase
can be attributed primarily to an improvement in net income resulting from
operating the 1996 New Hotels.
In February, 1996, the Company amended its existing line of credit
with Bank One, Kentucky, NA to increase its borrowing capacity from $30 million
to $50 million (the "$50 Million Facility"). In December, 1996, the Company
received a commitment from a group of banks (the "Commitment") for a "$200
million, revolving credit facility (the "$200 Million Line of Credit") which
expired February 28, 1997. The Commitment for the $200 Million Line of Credit
included financial covenants and terms and conditions which the Company
believed to be customary for loans of this type.
Under the terms of the $200 Million Line of Credit, a merger, such as
the one presently anticipated with ESA, would have restricted future borrowings.
Therefore, the Company has concluded that it is in its best interest to
re-evaluate the available alternatives with regard to revolving credit
facilities and negotiate for a facility that would provide for the Company's
short term construction commitment requirements, while substantially reducing
the amount of commitment fees that would need to be paid prior to consummation
of the merger. In the event the Company does not close on the $200 Million Line
of Credit the related unamortized loan cost of approximately $278,000 as of
February 28, 1996 would be charged off.
13
<PAGE> 14
The Company expects to open the Construction Properties by the end of
1997, and estimates that these 11 StudioPLUS hotels should have a total
development cost of approximately $48.7 million, of which approximately $14.9
million has already been incurred. The Company currently intends to fund the
development of these hotels with available cash, borrowings under the $50
Million Facility and cash flow from operations. However, there can be no
assurance that the Company will complete the development of such additional
StudioPLUS hotels in a timely manner or within budget.
The Company in the future may seek to increase the amount of its
credit facilities, negotiate additional credit facilities, or issue corporate
debt instruments. Any debt incurred or issued by the Company may be secured or
unsecured at fixed or variable interest rates and may be subject to such terms
as the Board of Directors of the Company deems prudent.
INFLATION
The rate of inflation as measured by changes in the average consumer
price index has not had a material effect on the revenue or operating results
of the Company during the three most recent fiscal years.
SEASONALITIES AND OTHER FACTORS AFFECTING QUARTERLY EARNINGS
The lodging industry is seasonal in nature. During 1996, approximately
53.0% of the Company's revenue occurred during the second and third quarters.
Because many of the Company's expenses do not fluctuate with revenue, this
seasonality in revenue may cause even greater quarterly fluctuations to the
Company's earnings. Quarterly earnings may be adversely effected by risks
beyond the Company's control, including poor weather conditions, economic
factors and competition. In addition, quarterly earnings may be effected by the
timing of development and the opening of new hotels.
14
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants 16
Financial Statements
Consolidated Balance Sheets for the years ended December 31, 1996 and 17
1995
Consolidated Statements of Operations for the years ended December 31, 18
1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity for the years ended 19
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31, 20
1996, 1995 and 1994
Notes to Consolidated Financial Statements 21
</TABLE>
15
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Studio Plus Hotels, Inc.
Lexington, Kentucky
We have audited the accompanying consolidated balance sheets of Studio
Plus Hotels, Inc. and Subsidiary as of December 31, 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. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Studio
Plus Hotels, Inc. and Subsidiary as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- --------------------------------
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
February 4, 1997
16
<PAGE> 17
STUDIO PLUS HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,678,343 $ 2,556,744
Accounts receivable, net of allowance of $102,126
and $70,654 as of 1996 and 1995, respectively 638,012 372,771
Pre-opening costs, net of accumulated amortization of
$822,550 and $390,989 as of 1996 and 1995, respectively 725,911 209,974
Other current assets 335,569 325,983
------------ ------------
Total current assets 36,377,835 3,465,472
------------ ------------
Property and equipment, net 107,566,933 59,355,184
Site deposits and preacquisition costs 1,924,820 275,000
Deferred loan costs, net of accumulated amortization of
$211,227 and $48,281 as of 1996 and 1995, respectively 360,978 244,991
Non-compete agreement, net of accumulated amortization
of $125,000 as of 1995 25,000
Other assets 9,300 10,726
------------ ------------
$146,239,866 $ 63,376,373
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,057,245 $ 1,876,622
Accrued expenses:
Property tax 467,888 322,584
Compensation 537,612 245,581
Income taxes 238,969
Other accrued expenses 737,583 458,122
------------ ------------
Total current liabilities 7,039,297 2,902,909
------------ ------------
Long-term debt 4,000,000
Deferred income taxes 5,587,758 4,827,410
Commitments
Shareholders' equity:
Preferred stock, par value $.01 per share, 10,000,000 shares authorized,
none issued or outstanding
Common stock, par value $.01 per share, 50,000,000 shares
authorized, 12,528,845 shares issued and outstanding 125,288 51,150
Additional paid-in capital 127,209,452 50,490,353
Retained earnings 6,278,071 1,104,551
------------ ------------
Total shareholders' equity 133,612,811 51,646,054
------------ ------------
$146,239,866 $ 63,376,373
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE> 18
STUDIO PLUS HOTELS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
Revenue:
<S> <C> <C> <C>
Room revenue $ 22,200,495 $ 15,308,835 $11,830,374
Other revenue 864,010 581,416 322,159
------------ ------------ -----------
Total revenue 23,064,505 15,890,251 12,152,533
Costs and expenses: ------------ ------------ -----------
Property operating expenses 9,631,338 6,374,355 5,256,359
Corporate operating expenses 3,821,369 2,113,731 880,511
Depreciation and amortization 3,336,121 1,912,132 1,472,358
Interest expense, net of interest income (2,205,539) 1,356,082 2,531,990
------------ ------------ -----------
Total costs and expenses 14,583,289 11,756,300 10,141,218
------------ ------------ -----------
Income before third party investors' interest, income taxes
and extraordinary loss 8,481,216 4,133,951 2,011,315
Third party investors' interest (141,612) (358,432)
------------ ------------ -----------
Income before income taxes and extraordinary loss 8,481,216 3,992,339 1,652,883
Provision for income taxes 3,307,696 1,670,459
------------ ------------ -----------
Income before extraordinary loss 5,173,520 2,321,880 1,652,883
Extraordinary loss, net of tax benefit (184,618)
------------ ------------ -----------
Net income $ 5,173,520 $ 2,137,262 $ 1,652,883
============ ============ ===========
Earnings per common and common equivalent shares,
primary and fully diluted (Note 9) $ 0.45
= ===========
Pro forma income data: (Note 9)
Income before extraordinary loss $ 2,321,880 $1,652,883
Pro forma adjustment for income taxes 176,458 (614,872)
----------- ----------
Pro forma income before extraordinary loss 2,498,338 1,038,011
Extraordinary loss (184,618)
----------- ----------
Pro forma net income $ 2,313,720 $1,038,011
=========== ==========
Pro forma earnings per share: (Note 9)
Pro forma income before loss $ 0.50
Extraordinary loss (0.04)
-----------
Pro forma net income $ 0.46
-----------
Weighted average number of common shares outstanding 11,580,169 4,995,104
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
18
<PAGE> 19
STUDIO PLUS HOTELS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Shareholders' Equity (Deficit)
--------------------------------------------------
Retained
Common Additional Treasury Earnings Partners'
Stock Paid-in capital Stock (Deficit) (Deficit Total
-------- --------------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $190,000 $106,846 $(1,607,605) (300,004) $(1,610,763)
Issuance of stock 20,000 20,000
Cash dividends (1,139,111) (1,139,111)
Partners' draws (116,916) (116,916)
Conversion of note payable to stock 21,450 21,450
Repurchase of treasury stock $(75,000) (75,000)
Net income 1,537,608 115,275 1,652,883
-------- ------------ -------- ---------- -------- ------------
Balance, December 31, 1994 210,000 128,296 (75,000) (1,209,108) (301,645) (1,247,457)
-------- ------------ -------- ---------- -------- ------------
Cash dividends (1,747,956) (1,747,956)
Partners' draws (547,074) (547,074)
Reclassification of shareholders' and
partners' interest to paid-in capital in
connection with S corporation and
partnership termination (210,000) (1,631,115) 75,000 1,250,795 515,320
Purchase of minority shareholders'
interest 3,955,515 673,558 333,399 4,962,472
Proceeds from initial public offering of
stock, net 51,150 48,037,657 48,088,807
Net income 2,137,262 2,137,262
-------- ------------ -------- ---------- -------- ------------
Balance, December 31, 1995 51,150 50,490,353 -- 1,104,551 -- 51,646,054
-------- ------------ -------- ---------- -------- ------------
Proceeds from follow-on offering 32,369 76,750,748 76,783,117
Proceeds from exercise of stock options 10 10,110 10,120
Effect of three-for-two stock split 41,759 (41,759)
Net income 5,173,520 5,173,520
-------- ------------ -------- ---------- -------- ------------
Balance, December 31, 1996 $125,288 $127,209,452 -- $6,278,071 -- $133,612,811
======== ============ ======== ========== ======== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE> 20
STUDIO PLUS HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $5,173,520 $2,137,262 $1,652,883
Adjustments to reconcile net income to net cash provided by
operating activities:
Third party investors' interest 141,612 358,432
Depreciation and amortization 3,336,121 1,912,132 1,472,358
Discount accretion on investment securities (378,953)
Gain on sale of investment securities (89,960)
Loss (gain) on sale of assets (72,393) 2,746
Bad debt expense 96,858 47,892 140,400
Deferred income tax expense 650,891 593,186
Extraordinary loss 184,618
Change in:
Accounts receivable (362,099) (166,027) (199,039)
Other current assets (62,225) (139,125) (24,212)
Other assets 1,426 (49,597) (171,680)
Accounts payable 236,346 167,354 (154,897)
Income taxes payable 401,065 (162,096)
Accrued expenses 716,796 249,161 82,816
---------- ---------- ----------
Net cash provided by operating activities 9,719,786 4,843,979 3,159,807
---------- ---------- ----------
Cash flows from investing activities:
Expenditures for land, buildings and furnishings (46,962,647) (14,806,613) (5,558,901)
Payment for site deposits and preacquisition costs (2,671,259) (862,269) (234,649)
Proceeds from sale of land and furnishings 132,812 4,000
Purchase of investments available-for-sale (38,829,263)
Proceeds from sale/maturity of investments available-for-sale 39,298,176
Additions to preopening costs (947,498) (125,826) (101,175)
Purchase of third party investors' interest (1,500,000)
----------- ---------- ----------
Net cash used in investing activities (50,112,491) (17,161,896) (5,890,725)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 27,000,000 6,916,222 4,319,832
Proceeds from notes payable to shareholders and partners 1,727,500 875,000
Principal payments on long-term debt (31,000,000) (36,810,859) (517,314)
Principal payments on notes payable to shareholders and partners (3,111,000) (567,675)
Partners' draws (116,916)
Cash dividends (2,295,030) (1,139,111)
Distribution to third party investors (281,473)
Proceeds from sale of stock 20,000
Proceeds from public offering, net of underwriting costs 77,236,432 49,731,750
Proceeds from exercise of stock options 10,120
Additions to deferred loan costs (278,933) (336,250) (27,320)
Additions to public offering costs (453,315) (1,405,117) (237,826)
----------- ---------- ----------
Net cash provided by financing activities 72,514,304 14,417,216 2,327,197
----------- ---------- ----------
Net increase (decrease) in cash 32,121,599 2,099,299 (403,721)
Cash and cash equivalents at beginning of periods 2,556,744 457,445 861,166
----------- ---------- ----------
Cash and cash equivalents at end of periods $34,678,343 $2,556,744 $ 457,445
=========== ========== ==========
Supplemental cash flow disclosures:
Interest paid, net of amount capitalized $ 2,808 $1,775,249 $2,539,213
=========== ========== ==========
Income taxes paid $ 2,266,837 $1,182,200
=========== ==========
Non-cash transactions:
Contract payable for non-compete agreement $ 150,000
==========
Additions to public offering costs included in accounts payable $ 505,298
==========
Conversion of note payable to stock $ 21,450
==========
Repurchase of treasury stock for note payable $ 75,000
==========
Public offering costs netted against offering proceeds $1,642,943
==========
Purchase of minority shareholders' interest for stock and assumption of deficit
capital balances $4,962,472
==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Business
Studio Plus Hotels, Inc. and its wholly owned subsidiary, Studio Plus
Properties, Inc. (together, the "Company") own, develop and operate
StudioPLUS(TM) extended stay hotels and own the rights to the related trade
name and service marks for "StudioPLUS." StudioPLUS hotels are designed to
combine the convenience of a hotel with many of the comforts of an apartment in
order to provide affordable lodging for extended stay guests.
At December 31, 1996, the Company had 35 StudioPLUS hotels in
operation and 11 StudioPLUS hotels under construction. These 46 hotels are
located in 13 states in the Midwest and Southeast United States.
Corporate Organization and Initial Public Offering
The Company was formed on December 19, 1994, to acquire, through
merger and exchange of partnership interests all of the assets of Studio Plus,
Inc. and the corporations and partnerships (collectively, the "Predecessor
Entities") which owned and operated StudioPLUS extended stay hotels. On June
26, 1995, the Company completed an initial public offering of 5,347,500 shares
of common stock, $0.01 par value (the "Common Stock") including shares issued
as a result of the exercise of the underwriters' over-allotment option, at
$10.00 per share and received net cash proceeds of approximately $48.1 million
( the "IPO"). Just prior to completion of the IPO, the Company acquired through
merger and exchange of Common Stock for partnership interests the assets of the
Predecessor Entities which owned and operated all of the StudioPLUS extended
stay hotel properties then in operation or under development ( the "Corporate
Organization"). The Company issued an aggregate of 2,322,750 shares of common
stock and paid $1.5 million of cash to the partners and shareholders of the
Predecessor Entities. The acquisition of the interests of the controlling
shareholder or partner and affiliates of the Predecessor Entities has been
accounted for as if it were a pooling of interests, with no increase in the
carrying value for the interests acquired. The acquisition of the third party
investors' interests has been accounted for as a purchase which resulted in an
increase to the carrying value of the underlying assets acquired of
$10,475,000.
Follow-on Offering and Stock Split
In April, 1996, the Company completed a follow-on equity offering of
5,175,000 shares of Common Stock, including 675,000 shares issued as a result
of the exercise of the underwriters' over-allotment option, and 319,653 shares
sold by selling shareholders at $16.83 per share. Net cash proceeds to the
Company were approximately $76.8 million, which excluded any proceeds from the
selling shareholders.
On July 9, 1996, a three-for-two split of the Company's Common Stock
was effected in the form of a stock dividend of three shares of Common Stock
for each two shares of Common Stock outstanding at the close of business on
June 20, 1996 (the "Stock Split"). Accordingly, all applicable share and per
share data have been adjusted for the Stock Split.
21
<PAGE> 22
Principles of Consolidation
The consolidated financial statements include the accounts of Studio
Plus Hotels, Inc. and its wholly owned subsidiary Studio Plus Properties, Inc.
All significant intercompany items and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost, including interest, salaries
and related expenses from site design and construction supervision incurred
during the construction period. Expenditures for replacements and improvements
are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is computed by the straight-line method over the
estimated useful lives of the assets. A summary of the estimated useful lives
of the assets is as follows:
<TABLE>
<S> <C>
Building and improvements................................ 40 years
Furniture, fixtures and equipment........................3-10 years
</TABLE>
The carrying amounts of major assets sold, retired, or otherwise
disposed of, and the related accumulated depreciation amounts are eliminated
from the accounts. Any resulting gain or loss is included in income.
Preacquisition Costs
The Company incurs costs related to the acquisition of hotel sites.
These costs are capitalized when it is probable that a site will be acquired.
These costs are reclassified to property and equipment upon acquisition. In the
event the acquisition is not consummated, the costs are expensed. All other
site selection costs are expensed as incurred.
Deferred Loan Costs
The Company has incurred costs in obtaining financing. These costs
have been deferred and are being amortized over the life of the loan using the
straight-line method.
22
<PAGE> 23
Preopening Costs
The Company capitalizes compensation and other costs relating to the
opening of new properties. Amortization is provided using the straight-line
method over a twelve-month period.
Concentration of Credit Risk
The Company maintained deposits totaling $7,498,927 and $619,239 at
December 31, 1996 and 1995, respectively with one bank. Deposits in excess of
$100,000 are not insured by the Federal Deposit Insurance Corporation.
Stock Options
The Company accounts for stock options issued to employees in
accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees". Under APB No. 25 the Company recognizes expense
based on the intrinsic value of the options. Pro forma disclosure of income and
earnings per share, based on the fair market value of the options, have been
provided in Note 8 as required by The Financial Accounting Standards Board
(SFAS) No. 123, "Accounting for Stock-Based Compensation".
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
Hotel, property and equipment:
<S> <C> <C>
Land $ 23,428,908 $ 12,403,803
Building and improvements 67,603,333 40,824,006
Furniture, fixtures and equipment 16,892,961 8,242,087
Construction in process 8,247,616 4,249,605
------------- -------------
116,172,818 65,719,501
Less accumulated depreciation (9,261,988) (6,678,808)
------------- -------------
106,910,830 59,040,693
------------- -------------
Corporate property and equipment:
Furniture, fixtures and equipment 942,674 473,067
------------- -------------
Less accumulated depreciation (286,571) (158,576)
------------- -------------
656,103 314,491
------------- -------------
Total property and equipment $ 107,566,933 $ 59,355,184
============= =============
</TABLE>
Included in December 31, 1996 and 1995 accounts payable are
amounts related to the purchase of property and equipment totaling
approximately $4,635,000 and $1,609,000, respectively. In addition, interest
capitalized and included in the cost of building and improvements for December
31, 1996, 1995 and 1994 was $329,432, $157,592 and $152,679, respectively. The
Company incurred total interest expense of $332,240, $1,675,265 and $2,684,669
for the years ended December 31, 1996, 1995 and 1994, respectively.
23
<PAGE> 24
4. LINE OF CREDIT
On February 28, 1996, the Company increased its $30 million
revolving line of credit to $50 million (the "Line of Credit"), maturing June
22, 1998, to fund future development and construction of additional hotels and
for working capital. Outstanding indebtedness under the 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 Line
of Credit contains certain financial covenants, including maintenance of a
minimum debt service coverage ratio and a maximum ratio of debt to tangible net
worth and limitations upon the incurrence of additional debt without the
consent of the lender. Borrowings under the Line of Credit are collateralized
by certain property and equipment. At December 31, 1996 there were no
outstanding borrowings under the Line of Credit.
The Company used the net proceeds of the IPO to retire
approximately $36.8 million of outstanding mortgage debt, which was guaranteed
by the former shareholders and partners of the Predecessor Entities, and
approximately $3.1 million of loans from shareholders. In connection with the
early extinguishment of mortgage debt in 1995, the Company incurred an
extraordinary loss of $184,618, net of $123,079 in taxes, relating to the
write-off of unamortized loan fees.
5. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of
deferred tax liabilities and assets for the temporary differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities using currently enacted tax rates.
The components of the provision for income taxes reflected in the
consolidated statements of operations for the years ended December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Currently payable:
Federal $ 2,136,700 $ 929,183
State and local 520,105 148,000
------------- -------------
2,656,805 1,077,183
------------- -------------
Deferred taxes:
Federal 413,444 507,615
State 237,447 785,661
------------- -------------
650,891 593,276
------------- -------------
Provision for income taxes $ 3,307,696 $ 1,670,459
============= =============
</TABLE>
24
<PAGE> 25
Prior to the Corporate Organization, the Company's 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 existing on the date of the Corporate Organization. Prior
to the Corporate Organization, income taxes on earnings were paid by the
shareholders and partners of the Predecessor Entities.
The differences between the statutory federal income tax rate and
the effective tax rate expressed as a percentage of income before income taxes
were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Statutory federal tax rate 34.0% 34.0%
Effect of termination of S corporation
and partnership status with the
Corporate Organization -- 13.5
S corporation and partnership income
for which no current income taxes
were provided -- (10.0)
State income taxes, net of federal benefit 4.6 2.5
Other 0.4 1.8
---- ----
39.0% 41.8%
==== ====
</TABLE>
Components of the Company's net deferred asset and liability
included in the consolidated balance sheets were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Compensation and benefits $ 55,143 $ --
Bad debt and other allowances 69,555 $ 59,270
Other 18,407 --
------------ -----------
143,105 59,270
------------ -----------
Deferred tax liabilities:
Property and equipment (5,621,406) (4,886,680)
------------ -----------
Net deferred tax liability $(5,478,301) $(4,827,410)
=========== ===========
</TABLE>
6. OPERATING LEASES
The Company leases office space under an operating lease expiring
in 1997. The lease is renewable for two five-year periods. In addition the
Company leases the land on which one hotel is built. The land lease is for a
term of 20 years with four five-year renewal options with an option to purchase
under certain conditions. The future minimum rental payments under the
operating leases as of December 31, 1996, are as follows:
25
<PAGE> 26
<TABLE>
<S> <C> <C>
1997 $ 171,964
1998 33,990
1999 35,010
2000 36,060
2001 37,142
Thereafter 711,521
-----------
Total $ 1,025,687
===========
</TABLE>
The Company incurred rent expense of $166,096, $149,228 and
$135,876 for the years ended December 31, 1996, 1995 and 1994, respectively.
7. RIGHTS AGREEMENT
Under the terms of the Company's Rights Agreement, one right (a
"Right") is attached to each share of Common Stock. Initially, each Right will
entitle the registered holder to purchase from the Company one one-hundredth of
a share (a "Unit") of Class A Cumulative Participating Preferred Stock ("Class
A Preferred Stock"), of which 100,000 shares have been reserved for issuance
pursuant to the Rights Agreement. Each Unit of Class A Preferred Stock is
structured to be the economic equivalent of one share of Common Stock. The
exercise price per Right will be $56.00 subject to adjustment (the "Purchase
Price").
The Rights Agreement also provides that if any person becomes an
Acquiring Person (as defined below), proper provision shall be made so that
each holder of a Right (except as set forth below) will thereafter have the
right to receive, upon exercise and payment of the Purchase Price, Class A
Preferred Stock or Common Stock at the option of the Company (or, in certain
circumstances, cash, property or other securities of the Company) having a
value equal to twice the amount of the Purchase Price.
The Rights will separate from the Common Stock and a distribution
of Rights Certificates will occur (the "Distribution Date") upon the earlier of
(i) 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially becoming an Acquiring
Person.
Effective February 27, 1996, the Rights Agreement was amended to
lower the percentage of beneficial ownership required to be deemed an Acquiring
Person from 20% to 15% of the outstanding shares of Common Stock of the Company
(the "Ownership Reduction"), and to add a provision which permits a person who
becomes an Acquiring Person, solely because of the Ownership Reduction, to
reduce its beneficial ownership of Common Stock to less than 15% by the close
of business on the tenth business day following notice from the Company that
such person's beneficial ownership equals or exceeds 15% of the outstanding
shares of Common Stock to avoid classification as an Acquiring Person.
In the event that, at any time following the Stock Acquisition
Date, (i) the Company is acquired in a merger, statutory share exchange, or
other business combination in which the Company is not the surviving
corporation, or (ii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right (except as set forth below) shall
thereafter have the right to
26
<PAGE> 27
receive, upon exercise and payment of the Purchase Price, common stock of the
acquiring company having a value equal to twice the Purchase Price. The events
set forth in this paragraph and in the preceding paragraphs are referred to as
the "Triggering Events." The Rights are not exercisable until the Distribution
Date and will expire at the close of business on June 30, 2000, unless earlier
redeemed or exchanged by the Company as described below or unless such
expiration date is extended pursuant to the Rights Agreement.
The Purchase Price payable, and the number of shares of Class A
Preferred Stock, Common Stock or other securities or property issuable upon
exercise of the Rights, are subject to adjustment from time to time to prevent
dilution.
At any time after any person becomes an Acquiring Person, the
Company may exchange all or part of the Rights (except as set forth below) for
shares of Common Stock (an "Exchange") at an exchange ratio of one share per
Right, as appropriately adjusted to reflect any stock split or similar
transaction.
At any time until ten days following the Stock Acquisition Date,
the Company may redeem the Rights in whole, but not in part, at a price of
$0.01 per Right (the "Redemption Price").
The Rights Agreement may be amended by authorization of the Board
of Directors, in the event of a merger or acquisition of the Company, whereby
the acquiring company would not be deemed an "Acquiring Person" within the
meaning of the Rights Agreement as defined above. Refer to Note 11 regarding
subsequent amendment to the Rights Agreement.
8. STOCK OPTIONS
The Company has two stock option plans, the 1995 Stock Incentive
Plan (the "1995 Plan") and the 1995 Non-Employee Directors' Stock Incentive
Plan (the "Directors Plan"). Under the 1995 Plan, an aggregate of 1,251,488
shares of common stock have been reserved for awards. Grants or awards are
issued at the discretion of the Compensation Committee of the Board of
Directors and may be in the form of stock options, stock appreciation rights,
restricted stock awards or performance share awards. Options granted to date
under the 1995 Plan have an exercise price equal to the market price of the
Company's stock on the date of grant and an option's maximum term is 10 years.
Any vesting period is at the discretion of the Compensation Committee; however,
the majority of the options vest over a four year period.
Options granted under the Directors' Plan vest over a four year
period from the grant date and expire in ten years. The option price per share
may not be less than the fair market value of a share on the date the option is
granted. Under the Directors' Plan at December 31, 1996, options to acquire
45,000 and 15,000 shares had been granted at exercise prices per share of
$10.00 and $14.42, respectively. Options to acquire an aggregate of 11,250
shares of Common Stock were exercisable at December 31, 1996, with an exercise
price of $10.00 per share. All options under the Directors Plan were issued in
1995 with none having been exercised to date.
The following is a summary of stock option activity and number of
shares reserved for outstanding options under the 1995 Plan:
27
<PAGE> 28
<TABLE>
<CAPTION>
Weighted Average
Option Price Number
per Share of Shares
--------- ---------
<S> <C> <C>
Balance at January 1, 1996 $11.02 711,750
Granted $17.63 396,502
Exercised $10.00 (1,012)
Forfeited $13.05 (95,726)
---------
Balance at December 31, 1996 $13.43 1,011,514
=========
</TABLE>
All options included in the January 1, 1996, balance were issued
during 1995 with none being forfeited or exercised. The following is a summary
of stock options outstanding at December 31, 1996, under the 1995 Plan:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- ------------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$10.00 to $13.67 596,512 8.75 $10.61 395,361 $10.36
$15.33 to $20.83 415,002 9.50 $17.44 7,126 $15.33
--------- -------
$10.00 to $20.83 1,011,514 9.00 $13.43 402,487 $10.45
========= =======
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations
in accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock-based compensation plans. Had compensation cost for
the Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income As reported $5,173,520 $2,313,720
Pro forma $4,484,576 $1,398,979
Primary and fully diluted
earnings per share As reported $ 0.45 $ 0.46
Pro forma $ 0.39 $ 0.28
</TABLE>
Options granted during the year had a weighted-average fair value
of $7.66 per share. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option- pricing model with the following
assumptions for grants made during 1995 and 1996: expected volatility of 31.7
percent, risk-free interest rate of 6.0 percent, zero dividend yield, and an
expected life of 6 years.
28
<PAGE> 29
9. EARNINGS PER SHARE
Prior to June 26, 1995, the assets of the Company were owned and
operated by the Predecessor Entities. The outstanding shares or other equity
interests of the Predecessor Entities differ substantially from the shares of
Common Stock of the Company outstanding after the IPO. Accordingly, the Company
believes that the presentation of historical per share information for the
periods prior to the IPO is not meaningful.
The pro forma earnings per share for the year ended December 31,
1995, has been calculated by dividing the pro forma net income by the weighted
average number of shares of Common Stock deemed to be outstanding. Income
before extraordinary loss has been adjusted to pro forma income before
extraordinary loss by reflecting the tax that would have been paid by the
Company if it had been subject to income tax for the full year, assuming a
37.2% effective tax rate. Prior to June 26, 1995, the Company was not fully
subject to income taxes due to the election of S corporation and partnership
tax status by the Predecessor Entities. If the Company had been subject to tax,
it would have incurred income tax expense of approximately $1,371,000 and
$615,000 for the years ended December 31, 1995 and 1994, respectively.
Included in the weighted average number of common shares
outstanding at December 31, 1996 and 1995 is an average of 292,590 and 92,940
common stock equivalents for each year, respectively.
10. RELATED PARTY TRANSACTIONS
Borrowings from partners and shareholders of the Predecessor
Entities were $1,727,500 and $875,000 for 1995 and 1994, respectively.
Principal repayments on loans from shareholders and partners of the Predecessor
Entities were $3,111,000 and $567,675 for 1995 and 1994, respectively. In
addition, the Company incurred interest expense of $156,851 and $73,625 for the
same periods, respectively, on shareholder debt.
Prior to the IPO, the Company distributed $2,295,030 to the
shareholders of the Predecessor Entities in accordance with the merger
agreements.
11. SUBSEQUENT EVENT
On January 16, 1997, the Company entered into a merger agreement
(the "Merger Agreement") with Extended Stay America, Inc. ("ESA") whereby each
share of the Company's Common Stock would be exchanged for 1.2272 shares of ESA
common stock (the "Merger"). The Merger is expected to be accounted for as a
"pooling of interests" in accordance with APB Opinion No. 16, "Business
Combinations." Pending shareholder approval, the approval of the Merger by
certain regulatory bodies, and barring the occurrence of certain events as
detailed in the Merger Agreement, the merger is expected to be completed in
April, 1997.
The Company and Fifth Third Bank, as rights agent (the "Rights
Agent"), entered into an Amended and Restated Rights Agreement, dated as of
June 6, 1995, and amended as of February 27, 1996 (the "Rights Agreement"),
between the Company and the Rights Agent. On January 16, 1997, the Company and
the Rights Agent entered into Amendment No. 2 to the Rights Agreement (the
"Rights Amendment"). Pursuant to the Rights Amendment, neither ESA, Merger Sub,
Inc., or any affiliate or associate of ESA or Merger Sub, Inc. shall be deemed
to be an "Acquiring Person" by
29
<PAGE> 30
virtue of the Merger Agreement or any of the transactions contemplated by the
Merger Agreement, and immediately prior to the consummation of the Merger all
Rights (as defined in the Rights Agreement) shall expire.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
30
<PAGE> 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors presently consists of seven members and is
divided into three classes. Certain information regarding the directors and
executive officers (the "Named Executive Officers") of the Company is set forth
below.
<TABLE>
<CAPTION>
Term
Name Age Position Class Expires
- ---- --- -------- ----- -------
<S> <C> <C> <C> <C>
Norwood Cowgill, Jr. 53 Chairman of the Board & III 1998
Chief Executive Officer
Michael J. Moriarty 50 Director, President & III 1998
Chief Operating Officer
William E. Anderson 53 Director, Executive Vice President, II 1997
Secretary and General Counsel
Warren W. Rosenthal 73 Director I 1999
Daniel W. Daniele 42 Director I 1999
Richard W. Furst 58 Director II 1997
Thomas P. Dupree 66 Director III 1998
Michael L. Tetterton 36 Vice President of Operations
Creighton R. Schneck 51 Vice President of Development
James C. Baughman, Jr. 34 Chief Financial Officer & Treasurer
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Norwood Cowgill, Jr. is the Chairman of the Board of Directors and
Chief Executive Officer of the Company, and founded the Company's Predecessor
Entities in 1985. Prior to 1985, Mr. Cowgill was a real estate developer in
Lexington, Kentucky, who was active in various aspects of real estate,
including subdivision of land, construction of single family housing,
conversion of apartments to condominiums, and construction, ownership,
management and renovation of multi-housing communities. Mr. Cowgill has been a
director of the Company since 1994.
Michael J. Moriarty has been employed by the Company since August,
1996, and is the President, Chief Operating Officer as well as a Director.
Prior to joining the Company, Mr. Moriarty was the Brand Vice President for
Fairfield Inn by Marriott, where he worked for approximately fifteen years.
Other positions he held at Marriott include Vice President Operations and Vice
President Finance and Development for Residence Inn by Marriott.
William E. Anderson II has been employed by the Company since
January, 1995, and is the Company's Executive Vice President, Secretary and
General Counsel as well as a Director. Before joining the Company, Mr. Anderson
served as Senior Vice President, Secretary and General Counsel of Long John
Silver's Restaurants, Inc. and its predecessor, Jerrico, Inc., positions he
held from October, 1984, until January, 1995. Mr. Anderson has been a director
of the Company since 1995.
Warren W. Rosenthal is a private investor. From 1963 to 1985, Mr.
Rosenthal served as Chairman of the Board of Directors, President and Chief
Executive Officer of Jerrico, Inc. and, from 1985 to 1989, served as Chairman
of the Board of Directors of Jerrico, Inc., which owned or
31
<PAGE> 32
franchised approximately 1,500 restaurants. Mr. Rosenthal presently serves on
the Board of Directors of Immunomedics, Inc. where he serves as a member of the
Compensation, Finance and Nomination Committees. Mr. Rosenthal has been a
director of the Company since 1994.
Daniel W. Daniele serves as Executive Vice President of Motels
of America, Inc. a position has held since September 1994. From March, 1991, to
September, 1994, Mr. Daniele was National Hospitality Director and Principal
for the consulting practice of Ernst & Young, L.L.P. Mr. Daniele has been a
director of the Company since 1995.
Richard W. Furst, Ph.D. has served as the Dean and Professor of
Finance of the Carol Martin Gatton College of Business and Economics at the
University of Kentucky since 1981. Dr. Furst serves on the Board of Trustees of
Armada Funds. He also serves as a consultant to several private companies and
non-profit organizations. Dr. Furst has been a director of the Company since
1994.
Thomas P. Dupree is President of Dupree and Company, Inc., an
investment advisory firm, a position he has held since 1970. Since 1979, Mr.
Dupree has also been President and a trustee of Dupree Mutual Funds, managing a
portfolio of municipal and government bonds. Mr.
Dupree has been a director of the Company since 1994.
Michael L. Tetterton has been Vice President of Operations of the
Company since January, 1994. Before joining the Company, Mr. Tetterton was a
Southeast regional manager for Residence Inn by Marriott, overseeing the
operation of various Marriott-managed properties in North Carolina, South
Carolina, Alabama and Mississippi from 1990 to 1993. From 1988 to 1990, he was
a district manager for Residence Inn by Marriott for North Carolina, South
Carolina, Florida and Georgia.
Creighton R. Schneck has been Vice President of Development since
September, 1996. Since 1995 and prior to joining the Company, Mr. Schneck was
Director of Development for Tishman Speyer Properties and was responsible for
development of residential and commercial real estate projects. From 1990 to
1994 Mr. Schneck was a Principal of Palisades Realty and Development which was
engaged in the development of retail office space. Since 1993, Mr. Schneck has
served as a director of Mid-Atlantic Medical Services, Inc.
James C. Baughman, Jr. has been associated with the Company since
September, 1994 and is Chief Financial Officer and Treasurer of the Company.
Before joining the Company, Mr. Baughman served as Senior Trust Officer for The
Vine Street Trust Company from 1993 to 1994, and as a Trust Officer for Bank
One, Lexington, NA from 1988 to 1993. Mr. Baughman also served as an adjunct
instructor in the Department of Business and Economics of Transylvania
University from 1992 to 1994. Mr. Baughman is Mr. Cowgill's son-in-law.
There is no arrangement or understanding between any officer and
any other person regarding any executive officer being selected as an officer.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires executive officers and
directors of the Company and persons who beneficially own more than 10 percent
of the Company's Common Stock to file with the Commission certain reports, and
to furnish copies thereof to the Company, with respect to each such person's
beneficial ownership of the Company's equity securities. Based solely
32
<PAGE> 33
upon a review of the form copies of such persons, the Company's executive
officers and directors have complied with the applicable reporting requirements
except that Messrs. Cowgill and Baughman filed one Form 4 late.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid to the Company's executive officers (the "Named Executive
Officers") whose salary and bonus compensation exceeded $100,000 for the years
ended December 31, 1996, 1995 or 1994.
<TABLE>
<CAPTION>
Other Annual
Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1)(2)
- --------------------------- ---- ---------- --------- -----------
<S> <C> <C> <C> <C>
Norwood Cowgill, Jr. 1996 150,000 -- --
Chairman of the Board 1995 73,797 -- --
and Chief Executive Officer 1994 100,000 -- --
Michael J. Moriarty 1996 66,923 50,000 --
President and Chief Operating Officer
William E. Anderson, II 1996 125,000 25,000 --
Executive Vice President, 1995 113,450 25,000 --
Secretary and General Counsel
Michael L. Tetterton 1996 100,000 50,000 --
Vice President of Operations 1995 98,961 50,000 --
1994 78,500 70,000 --
James C. Baughman, Jr. 1996 100,000 50,000 --
Chief Financial Officer and Treasurer 1995 37,693 25,000 --
</TABLE>
(1) The aggregate amount of perquisites and personal benefits for Messrs.
Cowgill, Moriarty, Anderson, Tetterton and Baughman for the years ended
December 31, 1996, 1995 and 1994 did not exceed the lesser of (a) $50,000
or (b) 10% of their respective annual salary and bonus for the fiscal
years presented.
(2) All other compensation for Messrs. Cowgill, Moriarty, Anderson, Tetterton
and Baughman consists of an auto allowance.
OPTION GRANTS
The following table sets forth information regarding grants of stock
options to the Named Executive Officers during 1996 pursuant to the 1995 Plan.
Options to acquire 396,502 shares of Common Stock were granted under the 1995
Plan during 1996. No separate stock appreciation rights ("SARs") were granted
during 1996.
33
<PAGE> 34
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
Number of % of Total Potential Realizable Value
Securities Options at Assumed Annual Rates
Underlying Granted to Exercise of Stock Price
Options Employees in Price Expiration Apreciation for
Name Granted Fiscal Year (1) Per Share (6) Date Option Term (2)
- ---- ------- --------------- ------------ ---- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
Michael J. Moriarty 150,000 (3) 37.8% $15.75 8/22/06 $1,486,500 $ 3,765,000
Creighton R. Schneck 75,000 (4) 18.9% $15.25 11/11/06 $ 719,250 $ 1,822,500
James C. Baughman, Jr. 75,000 (5) 18.9% $20.83 5/28/06 $ 982,500 $ 2,490,000
</TABLE>
(1) Includes options to acquire an aggregate of 96,502 shares granted to
11 other employees of the Company during 1996.
(2) Represents potential realizable value at assumed annual rates of
appreciation over the exercise price of the options for the option
term.
(3) Thirty-three percent of such options became exercisable on August 22,
1996, grant date. An additional one-third of such options will become
exercisable on August 22 of each of the two years thereafter. The
options are exercisable for ten years from the grant date.
(4) Twenty-five percent of such options become exercisable on November
11, 1997, and an additional twenty-five percent of such options will
become exercisable on November 11 of each of the three years
thereafter. The options are exercisable for ten years from the grant
date.
(5) Twenty-five percent of such options become exercisable on May 28,
1997, and an additional twenty- five percent of such options will
become exercisable on May 28 of each of the three years thereafter.
The options are exercisable for ten years from the grant date.
(6) The exercise price equals the closing market price on the date of
grant.
1995 YEAR-END OPTION VALUE TABLE
The following table sets forth certain information with respect to
the value of unexercised "in-the-money" options held by the Named Executive
Officers of the Company at December 31, 1996. No options were exercised by the
Named Executive Officers of the Company during 1996.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Name Options at 12/31/96 12/31/96
Exercisable Unexercisable Exercisable Unexercisable
# # $ $
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Norwood Cowgill, Jr. 300,000 -- 1,725,000 --
Michael J. Moriarty 50,000 100,000 -- --
William E. Anderson II 28,125 84,375 161,719 485,156
Michael L. Tetterton 28,125 84,375 122,719 368,157
Creighton R. Schneck -- 75,000 37,500
James C. Baughman, Jr. 9,376 103,124 23,926 71,775
</TABLE>
(1) The value of unexercised "in-the-money" options is based on the
difference between the December 31, 1996, closing price of the
Company's Common Stock of $15.75 as reported by The Nasdaq Stock
Market, on which the Company's Common Stock trades, and the exercise
price of the options.
COMPENSATION OF DIRECTORS
Each non-employee director serving at the time of the Company's IPO
was awarded 750 shares of Common Stock and each non-employee director was
granted options to purchase 15,000 shares of Common Stock at an exercise price
equal to the closing price of a share of the Company's Common Stock on the date
of their election to the Board of Directors, or for the directors serving at
the time of the IPO, the price of a share of common stock in the IPO. Each
non-employee director
34
<PAGE> 35
also is paid a $10,000 annual retainer paid quarterly, plus $500 for each Board
of Directors meeting attended, $250 for each committee meeting attended and
$250 for each telephonic Board of Directors or committee meeting attended. In
addition, the Company reimburses all directors for their out-of-pocket expenses
incurred in connection with their service on the Board of Directors. Messrs.
Cowgill, Moriarty and Anderson receive no compensation as directors, other than
reimbursement for out-of-pocket expenses incurred in connection with attendance
at meetings of the Board of Directors.
EMPLOYMENT AGREEMENTS, UNDERSTANDINGS, NON-COMPETE AGREEMENTS AND EMPLOYEE
COMPENSATION
In June, 1995, Mr. Cowgill entered into an employment agreement (the
"Cowgill Employment Agreement") with the Company. Pursuant to the Cowgill
Employment Agreement, Mr. Cowgill serves as Chairman of the Board of Directors
and Chief Executive Officer of the Company. The Cowgill Employment Agreement
provides for initial annual base compensation of approximately $150,000,
subject to any increase in base compensation approved by the Compensation
Committee of the Board of Directors. The Cowgill Employment Agreement provides
for a term of approximately two years from the closing of the IPO, subject to
earlier termination in the event of death, disability or other termination. The
Cowgill Employment Agreement also provides that Mr. Cowgill may voluntarily
terminate his employment with the Company upon 90 days written notice but would
remain subject to the non-compete provisions of the Cowgill Employment
Agreement. The Cowgill Employment Agreement provides for certain severance
payments in the event of death or disability or upon termination of employment
by the Company without cause and, after a Change in Control of the Company (as
defined in the Cowgill Employment Agreement). In addition, the Cowgill
Employment Agreement contains certain non-compete covenants which prohibit Mr.
Cowgill from managing or developing any extended stay hotels during the term of
employment with the Company and for a period of two years thereafter.
In July, 1996, Mr. Moriarty who is a director, President and Chief
Operating Officer of the Company, entered into an employment agreement (the
"Moriarty Employment Agreement") with the Company. The Moriarty Employment
Agreement provides for an annual salary of approximately $200,000, subject to
any increase in base salary approved by the Compensation Committee of the Board
of Directors. The Moriarty Employment Agreement provides for a term of
approximately two and one-half years, expiring December 31, 1998, subject to
earlier termination in the event of death, disability or other termination. The
Moriarty Employment Agreement also provides that Mr. Moriarty may voluntarily
terminate his employment with the Company upon 90 days written notice but would
remain subject to the non-compete provisions of the Moriarty Employment
Agreement. The Moriarty Employment Agreement provides for certain severance
payments in the event of death or disability or upon termination of employment
by the Company without Cause, as defined in the agreement. In addition, Mr.
Moriarty is entitled to a lump-sum payment of $300,000 in the event his
employment with the Company continues through August 21, 2001, or he is
terminated by the Company without Cause prior to August 31, 2001; earlier
Voluntary Termination will entitle Mr. Moriarty to a pro-rated payment between
$15,000 and $60,000. The Moriarty Employment Agreement contains certain
non-compete covenants which prohibit Mr. Moriarty from managing or developing
any extended stay hotels during the term of employment with the Company and for
a period of two years thereafter.
Messrs. Anderson, Tetterton, Schneck and Baughman have entered into
non-compete agreements with the Company, which provide that if each such
executive officer voluntarily terminates his employment, such executive officer
shall not for a period of two years thereafter serve
35
<PAGE> 36
as an officer, director, owner or in any other capacity in an extended stay
hotel within 300 miles of a StudioPLUS hotel. If such executive officer's
employment is terminated by the Company, the Company may elect to put in effect
the non-compete provision described above for any period of time between 6
months and 24 months by so advising such executive officer within 14 days of
his termination date and paying that executive officer during such period an
amount equal to the higher of his rate of weekly salary in effect when the
agreement was entered into or his weekly salary at the time of termination of
his employment.
Salaries for the other Named Executive Officers of the Company are
Mr. Anderson - $125,000, Mr. Tetterton - $100,000, and Mr. Schneck - $150,000,
Mr. Baughman - $125,000 subject to any increase approved by the Compensation
Committee of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Warren W. Rosenthal, Chairman,
Richard W. Furst, Thomas P. Dupree and Daniel W. Daniele. All Compensation
Committee members are non-employee directors and none has any direct or
indirect material interest in or a relationship with the Company, other than as
less than one percent (1%) shareholders and as related to his position as a
director. During 1996, none of the executive officers of the Company served on
the board of directors or compensation committee of any other entity, whose
executive officers served on the Compensation Committee or Board of the
Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Common Stock as of February 28, 1997, for (i) directors of the Company, (ii)
the Chief Executive Officer and each of the Named Executive Officers, (iii) the
directors and officers of the Company as a group, and (iv) each person who is a
shareholder of the Company holding more than a 5% interest in the Company.
Unless otherwise indicated in the footnotes, all such interests are owned
directly, and the indicated person or entity has sole voting and disposition
power. The number of shares represents (a) the number of shares of Common Stock
the person beneficially owns plus (b) the number of shares issuable upon
exercise of currently exercisable options.
Amount and Nature of Beneficial Ownership
<TABLE>
<CAPTION>
Number of
Beneficial Owners(1) Shares Percent of Class
- --------------------- ------ ----------------
<S> <C> <C>
Norwood Cowgill, Jr.(2) 1,755,927 13.50%
1999 Richmond Road, Suite 4
Lexington, Kentucky 40502
Cohen & Steers Capital 1,641,100 12.61%
Management, Inc.
757 Third Avenue
New York, New York 10017
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C> <C>
Putnam Investments, Inc. 1,522,104 11.70%
One Post Office Square
Boston, Massachusetts 02109
T. Rowe Price Associates, Inc 802,900 6.20%
100 E. Pratt Street
Baltimore, Maryland 21202
William E. Anderson II(3) 93,750 *
Michael L. Tetterton(4) 79,830 *
Michael J. Moriarty(5) 50,000 *
James C. Baughman, Jr.(6) 74,215 *
Warren W. Rosenthal(7) 23,250 *
Thomas P. Dupree(7) 12,750 *
Richard W. Furst(7) 9,750 *
Daniel W. Daniele(8) 3,750 *
Creighton R. Schneck 1,000 *
--------- -----
Total for all directors and
executive officers as a group
(ten persons)(2)(3)(4)(5)
(6)(7)(8) 6,070,326 46.65%
========= =====
</TABLE>
* Represents less than 1% of the outstanding shares of Common Stock
(1) Unless otherwise indicated, the address of such person is c/o Studio Plus
Hotels, Inc., 1999 Richmond Road, Suite 4, Lexington, Kentucky 40502.
(2) Includes 300,000 shares subject to options granted to Mr. Cowgill under
the 1995 Plan exercisable at $10.00 per share. All such options are
currently exercisable. Also includes 470,000 shares owned by Cowgill
Partners, L.P., a limited Partnership controlled by Mr. Cowgill and
certain of his family members.
(3) Includes 56,250 shares issuable to Mr. Anderson upon the exercise of
options which are currently exercisable at an exercise price of $10.00 per
share.
(4) Includes 37,500 shares issuable to Mr. Tetterton upon the exercise of
options of which 18,750 are exercisable at $10.00 per share and an
additional 18,750 are exercisable at $13.67 per share.
(5) Includes 50,000 shares issuable to Mr. Moriarty upon the exercise options
which are currently exercisable at an exercise price of $15.75 per share.
(6) Includes 13,125 shares issuable to Mr. Baughman upon the exercise of
options of which 7,500 are exercisable at $10.00 per share and 5,624 are
exercisable at $15.33 per share. Mr. Baugman's balance also includes
29,590 shares owned by Mrs. Baughman, as to which he disclaims beneficial
ownership. Mr Baughman's balance also includes 30,000 shares held in a
Cowgill family trust of which he is co-trustee.
(7) Includes 7,500 shares issuable to each to Messrs. Rosenthal, Dupree and
Furst upon the exercise of options which are currently exercisable at an
exercise price of $10.00 per share.
(8) Includes 3,750 shares issuable to Mr. Daniele upon the exercise of options
which are currently exercisable at an exercise price of $14.42 per share.
In connection with the Merger of the Company with ESA as discussed in
Item 7 of this report on Form 10-K, Mr. Cowgill has entered into a stockholder
agreement (the "Stockholder Agreement") with ESA. The terms of the Stockholder
Agreement provide that Mr. Cowgill may not sell, transfer, pledge, encumber or
otherwise dispose of his shares of Studio Plus Hotels, Inc. Common Stock (the
"Cowgill Shares"). In addition, ESA is granted an option to
37
<PAGE> 38
purchase all of the Cowgill Shares at a purchase price of $25.00 per share. The
Stockholder Agreement also permits certain executive officers of ESA to
represent and to vote the Cowgill Shares with respect to the merger.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1996, the Company's executive officers,
directors and nominees for director did not have significant business relations
with the Company.
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON
FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS
1. Financial Statements:
The financial statements filed as part of this report are listed on the
Index to Financial Statements on page 15.
2. Financial Statement Schedules:
-27- Financial Data Schedule (for SEC use only).
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1995.
(C) EXHIBITS
EXHIBIT
NUMBER
- -------
2.1 Agreement and Plan of Merger dated as of January 16, 1997, by and among
Studio Plus Hotels, Inc. and Extended Stay America, Inc. (previously filed
as Exhibit 2 to the Company's Current Report on Form 8-K dated January 16,
1997, and incorporated by reference hereto).
3.1 Amended and Restated Articles of Incorporation of the Registrant
(previously filed as Exhibit 3.1(b) to Registration Statement on Form S-1
(Registration No. 33-87836) and incorporated by reference hereto).
3.2 First Amended and Restated By-Laws of the Registrant (previously filed as
Exhibit 3.2(b) to Registration Statement on Form S-1 (Registration No.
33-87836) and incorporated by reference hereto).
4.1 Form of Rights Agreement Between Studio Plus Hotels, Inc. and Bank One,
Indianapolis, NA. (previously filed as Exhibit 4.2 to Registration
Statement on Form S- 1 (Registration No. 33-87836) and incorporated by
reference hereto).
4.2 Form of Amendment and Substitution Agreement to Rights Agreement among
Studio Plus Hotels, Inc., Bank One, Indianapolis N.A. and Fifth Third Bank
(previously filed as Exhibit 4.3 to Registration Statement on Form S-1
(Registration No. 333-1864) and incorporated by reference hereto).
*4.3 Form of Amendment No. 2 to Rights Agreement among Studio Plus Hotels,
Inc., and Fifth Third Bank.
39
<PAGE> 40
*10.1 Employment Agreement and Offer Letter between the Company and Michael J.
Moriarty.
*10.2 Confidentiality and Non-Compete Agreement between the Company and
Creighton R. Schneck.
10.3 Trademark Assignment Agreement between Studio Plus, Inc. and Studio Plus
of America, Inc. (previously filed as Exhibit 10.29 to Registration
Statement on Form S-1 (Registration No. 33-87836) and incorporated by
reference hereto).
10.4 Indemnification Agreement among Studio Plus of America, Inc., Studio Plus
Properties, Inc. and Norwood Cowgill, Jr. (previously filed as Exhibit
10.29 to Registration Statement on Form S-1 (Registration No. 33-87836)
and incorporated by reference hereto).
10.5 Studio Plus Hotels, Inc. 1995 Stock Incentive Plan (previously filed as
Exhibit 10.29 to Registration Statement on Form S-1 (Registration No.
33-87836) and incorporated by reference hereto).
10.6 Studio Plus Hotels, Inc. Non-Employee Directors' Stock Incentive Plan
(previously filed as Exhibit 10.29 to Registration Statement on Form S-1
(Registration No. 33- 87836) and incorporated by reference hereto).
10.7 Revolving Credit Loan Agreement between Studio Plus Hotels, Inc., Studio
Plus Properties, Inc. and Bank One, Lexington, NA dated as of May 23,
1995 (previously filed as Exhibit 10.33 to Registration Statement on
Form S-1 (Registration No. 333- 1864) and incorporated by reference
hereto).
10.8 First Amendment to Revolving Credit Loan Agreement between Studio Plus
Hotels, Inc., Studio Plus Properties, Inc. and Bank One, Lexington, NA
dated as of May 23, 1995 (previously filed as Exhibit 10.33(a) to
Registration Statement on Form S-1 (Registration No. 333-1864) and
incorporated by reference hereto).
10.9 Second Amendment to Revolving Credit Loan Agreement between Studio Plus
Hotels, Inc., Studio Plus Properties, Inc. and Bank One, Lexington, NA
dated as of February 28, 1996 (previously filed as Exhibit 10.33(b) to
Registration Statement on Form S-1 (Registration No. 333-1864) and
incorporated by reference hereto).
10.10 Form of Indemnification Agreement between Studio Plus Hotels, Inc. and
its directors and officers (previously filed as Exhibit 10.34 to
Registration Statement on Form S-1 (Registration No. 33-87836) and
incorporated by reference hereto).
10.11 Employment Agreement between Studio Plus, Inc. and Norwood Cowgill, Jr.
(previously filed as Exhibit 10.35 to Registration Statement on Form S-1
(Registration No. 33-87836) and incorporated by reference hereto).
10.12 Confidentiality and Non-Compete Agreement between the Company and William
E. Anderson, II dated October 26, 1995 (previously filed as Exhibit 10.36
to Registration
40
<PAGE> 41
Statement on Form S-1 (Registration No. 333-1864) and incorporated by
reference hereto).
10.13 Confidentiality and Non-Compete Agreement between the Company and
Benjamin A. Keam dated October 26, 1995 (previously filed as Exhibit 10.37
to Registration Statement on Form S-1 (Registration No. 333-1864) and
incorporated by reference hereto).
10.14 Confidentiality and Non-Compete Agreement between the Company and Michael
L. Tetterton dated October 26, 1995 (previously filed as Exhibit 10.38 to
Registration Statement on Form S-1 (Registration No. 333-1864) and
incorporated by reference hereto).
10.15 Confidentiality and Non-Compete Agreement between the Company and James
C. Baughman, Jr. dated October 26, 1995 (previously filed as Exhibit 10.39
to Registration Statement on Form S-1 (Registration No. 333-1864) and
incorporated by reference hereto).
10.16 Form of Canadian Trademark Assignment Agreement between Studio Plus, Inc.
and Studio Plus Hotels, Inc. (previously filed as Exhibit 10.36 to
Registration Statement on Form S-1 (Registration No. 33-87836) and
incorporated by reference hereto).
10.17 Registration Rights Agreement between Studio Plus Hotels, Inc. and
Affiliated Shareholders (previously filed as Exhibit 10.37 to Registration
Statement on Form S-1 (Registration No. 33-87836) and incorporated by
reference hereto).
10.18 Merger Agreement among Studio Plus at Greensboro, Inc., Studio Plus
Hotels, Inc. and Studio Plus Properties, Inc. (previously filed as Exhibit
10.41 to Registration Statement on Form S-1 (Registration No. 33-87836)
and incorporated by reference hereto).
10.19 Form of Amendment to Merger Agreement between Subchapter S Predecessor
Entities, Studio Plus Properties, Inc. and Studio Plus Hotels, Inc.
(previously filed as Exhibit 10.42 to Registration Statement on Form S-1
(Registration No. 33-87836) and incorporated by reference hereto).
10.20 Form of Second Amendment to Merger Agreement between Studio Plus, Inc.
and Studio Plus Hotels, Inc. (previously filed as Exhibit 10.43 to
Registration Statement on Form S-1 (Registration No. 33-87836) and
incorporated by reference hereto).
10.21 Form of First Amendment to Exchange Agreement among Norwood Cowgill, Jr.,
Walker L. Newton and Studio Plus Hotels, Inc. (previously filed as Exhibit
10.44 to Registration Statement on Form S-1 (Registration No. 33-87836)
and incorporated by reference hereto).
10.22 Form of First Amendment to Exchange Agreement among Norwood Cowgill, Jr.,
Walker L. Newton and Studio Plus Hotels, Inc. (previously filed as Exhibit
10.45 to Registration Statement on Form S-1 (Registration No. 33-87836)
and incorporated by reference hereto).
41
<PAGE> 42
10.23 Form of Amendment to Exchange Agreement among W&W, Inc. Studio Plus North
Lindbergh, Inc. and Studio Plus Hotels, Inc. (previously filed as Exhibit
10.46 to Registration Statement on Form S-1 (Registration No. 33-87836)
and incorporated by reference hereto).
10.24 Form of Amendment to Exchange Agreement among Myrtle Redevelopment
Corporation, Studio Plus at Westport, Inc. and Studio Plus Hotels, Inc
(previously filed as Exhibit 10.47 to Registration Statement on Form S-1
(Registration No. 33-87836) and incorporated by reference hereto).
*11.1 Computation of Earnings Per Share.
21.1 List of subsidiaries (previously filed as Exhibit 21.1 to the 1995
Current Report on Form 10-K dated March 18, 1996 and incorporated by
reference hereto).
*23.1 Consent of Coopers & Lybrand L.L.P.
*27 Financial Data Schedule (for SEC use only).
* Filed herewith
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereto duly authorized.
STUDIO PLUS HOTELS, INC.
a Virginia Corporation
(Registrant)
By: /s/ NORWOOD COWGILL, JR
----------------------------------
Norwood Cowgill, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ NORWOOD COWGILL, JR. Chairman of the Board of March 4, 1997
- -------------------------------- Directors and Chief Executive
Norwood Cowgill, Jr. Officer
/s/ RICHARD W. FURST Director March 4, 1997
- --------------------------------
Richard W. Furst
Director March 4, 1997
- --------------------------------
Thomas P. Dupree
Director March 4, 1997
- --------------------------------
Warren W. Rosenthal
Director March 4, 1997
- --------------------------------
Daniel W. Daniele
/s/ Michael J. Moriarty Director, President and Chief March 4, 1997
- -------------------------------- Operating Officer
Michael J. Moriarty
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C> <C>
/s/ WILLIAM E. ANDERSON, JR. Director, Executive Vice March 4, 1997
- -------------------------------- President, Secretary and
William E. Anderson, Jr. General Counsel
/s/ JAMES C. BAUGHMAN, JR. Chief Financial Officer and March 4, 1997
- --------------------------------- Treasurer (Principal Financial
James C. Baughman, Jr. Officer)
/s/ DONALD F. VITTITOW Vice President, Controller
- --------------------------------- (Principal Accounting Officer) March 4, 1997
Donald F. Vittitow
</TABLE>
44
<PAGE> 1
EXHIBIT 4.3
45
<PAGE> 2
AMENDMENT NO. 2 TO RIGHTS AGREEMENT
THIS AGREEMENT No. 2 (the "Agreement"), dated as of January 16, 1997,
is between Studio Plus Hotels, Inc., a Virginia corporation (the "Company"),
and FIFTH THIRD BANK, as Rights Agent (the "Rights Agent")
Recitals
A. The Company and the Rights Agent are parties to
an Amended and Restated Rights Agreement dated as of June 6, 1995, as amended
on February 27, 1996 (the "Rights Agreement").
B. Extended Stay America, Inc., a Delaware
corporation ("Merger Partner"), ESA Merger Sub. Inc., a Delaware corporation
and a wholly owned subsidiary of Merger Partner ("Merger Sub"), and the Company
propose to enter into an Agreement and Plan of Merger dated as of January 16,
1997 (the "Merger Agreement") pursuant to which the Company will be merged with
and into Merger Sub, with the Merger Sub as the surviving corporation (the
"Merger")
C. Pursuant to section 27 of the Rights Agreement,
the Board of Directors of the Company has determined that an amendment to the
Rights Agreement as set forth herein is necessary and desirable to reflect the
foregoing and certain other matters, and the Company and the Rights Agent
desire to evidence such amendment in writing.
Accordingly, the parties agree as follows:
1. Amendment of Section 1(a). Section 1(a) of the
Rights Agreement is amended by inserting the following at the end of Section
1(a):
"In addition, notwithstanding anything in
this Rights Agreement to the contrary neither
Extended Stay America, Inc., a Delaware corporation
("Merger Partner"), ESA Merger Sub, Inc., a Delaware
corporation and wholly owned subsidiary of Merger
Partner ("Merger Sub"), nor any Affiliate or
Associate of Merger Partner or Merger Sub, shall be
deemed to be an Acquiring Person by virtue of the
Agreement and Plan of Merger, to be entered into as
of January 16, 1997, between the Company, Merger
Partner and Merger Sub, as it may be amended or
supplemented from time to time in accordance with
its terms (the "Merger Agreement"), or by virtue of
any of the transactions contemplated by the Merger
Agreement, including without limitation, the
publication or other announcement of the Merger in
accordance with Section 5.6 of the Merger
Agreement."
2. Amendment of Section 1(k). Section 1(k) of the
Rights Agreement is amended by deleting the word "or" before the numeral (iii)
therein and by adding to the end thereof the following:
"or (iv) immediately prior to the Effective Time
(as defined in
46
<PAGE> 3
the Merger Agreement) of the Merger contemplated by
and in accordance with the terms of the Merger
Agreement."
3. Amendment of Section 3(a). Section 3(a) of the
rights Agreement is amended by adding the following sentence at the end thereof:
"Notwithstanding the foregoing or anything
in this Rights Agreement to the contrary, a
Distribution Date shall not be deemed to have
occurred by virtue of the execution, consummation or
public announcement of the Merger Agreement or by
virtue of any of the transactions contemplated by
the Merger Agreement."
4. Amendment of Section 13. Section 13 of the
Rights Agreement is hereby amended by inserting the following sentence at the
end of such Section:
"Notwithstanding the foregoing, this
Section 13 shall not apply to the Merger or as a
result of the execution and delivery of the Merger
Agreement or the transactions contemplated thereby."
5. Effectiveness. This Amendment shall be deemed
effective as of January 16, 1997, as if executed on such date. Except as
amended hereby, the Rights Agreement shall remain in full force and effect and
shall be otherwise unaffected hereby.
6. Miscellaneous. This Amendment shall be deemed to
be a contract made under the laws of the Commonwealth of Virginia and for all
purposes shall be governed by and construed in accordance with the laws of such
Commonwealth applicable to contracts to be made and performed entirely within
such Commonwealth. This Amendment may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute bu one and the
same instrument. If any term, provision, covenants or restriction of this
Amendment is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Amendment shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
47
<PAGE> 4
EXECUTED as of the date first set forth above.
STUDIO PLUS HOTELS, INC.
Attest: a Virginia corporation
- ------------------------------ ---------------------------------
Name: Name:
Title: Title:
Attest: FIFTH THIRD BANK, as Rights Agent
- ------------------------------ ---------------------------------
Name: Name:
Title: Title:
48
<PAGE> 1
Exhibit 10.1
49
<PAGE> 2
July 16, 1996
Mr. Michael J. Moriarty
10701 Wynkoop Drive
Great Falls, VA 22066
Dear Mike:
I am excited to offer you the position of President and Chief Operating Officer
of Studio Plus Hotels, Inc. This position will have the following salary,
options and benefits:
Position: President and Chief Operating Officer
Salary: $7692.31 bi-weekly
Bonus: $50,000 minimum for each of the first
two fiscal years
Start Date: Employment date of July 16, 1996 with first
workday at corporate headquarters
anticipated to be August 19, 1996
Benefits: Medical Insurance - Studio Plus pays 100%
of monthly premium
Long-term Disability - group coverage of
60% of salary and individual wrap policy of
20% of salary, aggregate of 80% of salary,
subject to $11,250 per month maximum
Life Insurance - $25,000 coverage
Holiday Pay - Six (6) days per year New
Years, Memorial Day, July 4th, Labor Day,
Thanksgiving, Christmas Day). Studio Plus
properties are currently closed on these
days.
Sick Pay - Six (6) days per year
Vacation - Four (4) weeks; Five (5) weeks
after 25 years.
Employment You will enter into an Employment
Agreement: Agreement with the Company for the period
through December 31, 1998 on the terms in
the separate Employment Agreement
enclosed with this letter.
Stock Options: a) On July 16, 1996, your first day of
employment, you will be granted an option
for 150,000 shares of the Company's common
stock under the Company's 1995 Stock
Incentive Plan, with 50,000 shares to vest
on the first day you report for work at the
50
<PAGE> 3
Company's headquarters in Lexington,
Kentucky, 50,000 shares to vest on the date
of your first anniversary of the first day
you report for work at the Company's
headquarters in Lexington, Kentucky and
50,000 shares to vest on the date of your
second anniversary of the first day you
report for work at the Company's
headquarters in Lexington, Kentucky, with
an exercise price equal to the closing
price of a share of the Company's common
stock on July 16, 1996. If a share of the
Company's common stock during the period
from your first day of employment through
December 31, 1996 decreases by more than
ten percent (10%) of the exercise price
above, you will have the right, subject to
any applicable legal considerations,
exercisable once, to substitute a new
option for the same number of shares above
on the same terms as above but at a lower
exercise price equal to the closing price
of a share of the Company's common stock on
the day you make the decision to
substitute.
b) On the first anniversary of the day you
report for work at the Company's
headquarters in Lexington, Kentucky, you
will be granted an option to purchase fifty
thousand (50,000) shares of the Company's
common stock to vest half on December 31,
1997 and half on December 31, 1998,
exercisable at the closing price of a share
of the Company's common stock on the date
of the first anniversary of your grant date
under this subparagraph (b) or, if there is
no closing price for the Company's common
stock on that date, on the last preceding
trading day before that date. However,
regardless of whether this option is vested
or not, it cannot be exercised until after
December 31, 1997, and then only if the
Company, on December 31, 1997, has at least
sixty-seven (67) Studio Plus hotels in
operation which it owns or leases and which
have been constructed by the Company.
Acquisitions of hotels, mergers or
development by outside development firms
developing for the Company, etc. will not
be counted in the 67 hotel number. Full and
not substantial compliance is required to
satisfy this condition to exercise.
c) On the second anniversary of the day you
report for work at the Company's
headquarters in Lexington, Kentucky, you
will be granted an option to purchase fifty
thousand (50,000) shares of the Company's
common stock to vest half on December 31,
1998 and half on December 31, 1999 at the
closing price of a share of the Company's
common stock on the date of the second
anniversary of your grant date under this
subparagraph (c) or, if there is no closing
price for the Company's common stock on
that date, on the last preceding trading
day before that date. However, regardless
of whether this option is vested or not, it
cannot be exercised until after December
31, 1998, and then only if the Company, on
December 31, 1998, has at least one hundred
ten (110) Studio Plus hotels in operation
which it owns or leases
51
<PAGE> 4
and which have been constructed by the
Company. Acquisitions of hotels, mergers or
development by outside development firms
developing for the Company, etc. will not
be counted in the 110 hotel number. Full
and not substantial compliance is required
to satisfy this condition to exercise.
(d) All other option terms for each of the
above options shall be the same as
contained in the Company's standard stock
option grant agreement. As many options as
possible will be granted as incentive stock
options.
Lump Sum If you are Terminated Without Cause, as
Payment: that term is defined in your Employment
Agreement of even date herewith, by the
Company on or before August 31, 2001, then,
as a severance benefit, the Company agrees
to pay you Three Hundred Thousand Dollars
($300,000) in a lump sum on or before
September 5, 2001. If you are still
employed by the Company on August 31, 2001
as an Executive Officer, then, as a bonus,
the Company agrees to pay you, on or before
September 5, 2001, Three Hundred Thousand
Dollars ($300,000) in a lump sum. If,
before August 31, 2001 but after August 31,
1997, you have a Voluntary Termination, as
that term is defined in your Employment
Agreement of even date herewith, of your
employment with the Company (death or
Disability, as defined in your Employment
Agreement, is not a Voluntary Termination),
then the Company agrees to pay you a
severance benefit between Fifteen Thousand
Dollars ($15,000) and Sixty Thousand
Dollars ($60,000), based on the following
vesting schedule:
<TABLE>
<CAPTION>
Total Total
Voluntary Termination After Vesting Benefit
--------------------------- ---------------
<S> <C> <C>
8/31/97 - but before 8/31/98 5% $15,000
8/31/98 - but before 8/31/99 10% $30,000
8/31/99 - but before 8/31/2000 15% $45,000
8/31/2000 - but before 8/31/2001 20% $60,000
</TABLE>
For example, if you have a Voluntary Termination in July 1999, your total
severance benefit payment would be $30,000.
If this letter correctly sets forth our understanding, please execute this
letter where indicated below and return an executed copy to my attention.
Very truly yours,
/s/ (Norwood Cowgill, Jr.)
Norwood Cowgill, Jr.
Chairman of the Board
/sam
52
<PAGE> 5
The above terms correctly set forth our complete understanding.
Date: /s/ Michael J. Moriarty
------------------------ --------------------------------
EMPLOYMENT AGREEMENT BETWEEN
STUDIO PLUS HOTELS, INC.
AND MICHAEL J. MORIARTY
THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as of July
16, 1996, by and between STUDIO PLUS HOTELS, INC., a Virginia corporation (the
"Company"), and MICHAEL J. MORIARTY (the "Executive").
WITNESSETH:
WHEREAS, the Company is a Virginia corporation which owns, develops
and manages extended stay lodging properties, including "Studio Plus" brand
hotel properties (the "Properties"); and
WHEREAS, the Company desires to employ the Executive to devote his
full time efforts and skills to the business of the Company and to serve as the
President and Chief Operating Officer of the Company; and
WHEREAS, the Executive desires to be so employed on the terms and
subject to the conditions hereinafter stated;
NOW, THEREFORE, in consideration of the premises and mutual
obligations hereinafter set forth, the parties agree as follows:
1. Employment. The Company shall employ the Executive and the
Executive agrees to be so employed initially in the capacity of President and
Chief Operating Officer of the Company to serve for the Term, defined
hereinbelow, subject to earlier termination as hereinafter provided.
2. Term. The term of the Executive's employment hereunder (the "Term")
shall be for a period commencing on the first day of the Executive's
employment, July 16, 1996, and continuing through December 31, 1998, unless
terminated earlier as provided herein; provided, however, that this Agreement
shall continue after the Term on a year-to-year term (the "Extended Term")
unless terminated by either party on at least forty-five (45) days written
notice to the other party prior to the end of the then-current Term or Extended
Term.
3. Services. The Executive shall devote such amount of his time and
attention to the Company's affairs as is necessary to competently perform his
duties, consistent with directions from the Company's Chairman of the Board or
the Board of Directors ("Board") and as set forth in the Company's By-laws.
53
<PAGE> 6
4. Compensation.
(a) During each year of the Term, commencing on the first day
Executive reports for work at the Company's headquarters in Lexington,
Kentucky, the Company shall pay the Executive for his services a base salary at
a rate of Seven Thousand Six Hundred Ninety-Two and 31/100 Dollars ($7692.31),
bi-weekly, with such base salary being subject to increases as approved by the
Compensation Committee of the Board (the "Compensation Committee"). Such base
salary as increased from time to time and in effect at the time certain
termination events specified herein occur shall thereafter be the base salary
for all purposes under this Agreement relating to such termination ("Base
Salary"). In the event of any extension or extensions of the Term or Extended
Term in accordance with Section 2 hereof, the annual base salary for each
Extended Term shall be determined by the Compensation Committee but shall not
be less than the annual base salary in effect for the immediately preceding
Term or Extended Term, unless consented to in writing by the Executive.
(b) In addition to the annual Base Salary described in Section (a)
above, the Executive shall be eligible for an annual cash bonus in accordance
with such policies, rules and criteria as shall be established by the
Compensation Committee, in its sole discretion or for each of the first two (2)
years of the Term as may be agreed upon in writing by the Executive and the
Company at the time of hire.
(c) In addition, the Board or the Compensation Committee may from
time to time authorize the payment to the Executive of other incentive
compensation, including but not limited to stock options or restricted stock,
in accordance with rules and criteria established by the Compensation
Committee, in its sole discretion. Such criteria may include, but not be
limited to, the growth in net income per share of Common Stock and/or other
performance goals.
5. Benefits. The Company agrees to provide the Executive with
the following benefits:
(a) Vacation. The Executive shall be entitled each year to take
four (4) weeks vacation, during which time his compensation shall be paid in
full.
(b) Employee Benefits. This Agreement shall be in addition to and
not be in lieu of any rights, benefits and privileges to which the Executive
may be entitled as a management level employee of the Company, including but
not limited to any retirement, pension, profit-sharing, life insurance,
disability, hospitalization, major medical, dental or other plans which may now
be in effect or which may hereafter be authorized by the Compensation Committee
or adopted by the Company. During the initial Term, and, if the Term is
extended during an Extended Term, the Executive shall have the same rights and
privileges to participate in such plans and benefits intended generally for
management employees on the same basis as any other management level employee.
6. Expenses. The Company recognizes that the Executive will have to
incur certain out-of-pocket expenses, including but not limited to travel
expenses, related to his services and the Company's business and the Company
agrees to reimburse the Executive for all reasonable expenses incurred by him
in the performance of his duties upon presentation of a voucher or
documentation, as reasonably specified by the Company, indicating the amount
and business
54
<PAGE> 7
purposes of any such expenses. If the Company adopts a travel and expense
reimbursement policy applicable uniformly to all management employees, the
Executive agrees to adhere to the terms of such policy.
7. Definitions. For purposes of this Agreement, the following terms
shall have the following definitions:
(a) "Disability" means the Executive's inability, by reason of
physical or mental impairment, confirmed by a licensed physician designated by
the Board, to perform the services described in Section 3 above which inability
continues for a period equal to the then current elimination period in the
Company's group disability insurance policy, presently ninety (90) days, within
any period of three hundred sixty-five (365) days and results in termination of
the Executive's employment with the Company.
(b) "Voluntary Termination" means the Executive's voluntary
termination of his employment hereunder, which may be effected by the Executive
giving the Company's Chairman of the Board or Board of Directors notice of the
Executive's desire to terminate his employment (ninety (90) days written notice
is preferred) or the Executive's failure after written notice from the Company
to provide substantially all the services described in Section 3 hereof for a
period greater than four (4) consecutive weeks by reason of the Executive's
voluntary refusal to perform such services. Notwithstanding the foregoing, if
the Executive gives notice of Voluntary Termination and, prior to the
expiration of any notice period, the Executive voluntarily refuses or fails to
provide substantially all the services described in Section 3 hereof for a
period of five (5) or more business days after notice from the Company, the
Voluntary Termination shall be deemed to be effective as of the date on which
the Executive so ceases to carry out his duties. For purposes of this Section
7, voluntary refusal to perform services shall not include taking vacation
otherwise permitted in accordance with Section 5(a) hereof, the Executive's
failure to perform services on account of his illness or death or the illness
of a member of his immediate family, provided such illnesses or death is
adequately substantiated at the reasonable request of the Company, or any other
absence from service with the written consent of the Company's Chairman of the
Board or the Board. For purposes of this Section 7(b), immediate family shall
constitute the Executive's parents, spouse and children, if any.
(c) "Termination With Cause" means the termination by the Company
of the Executive's employment for any of the following reasons:
(i) the Executive's conviction of a crime
involving some act of dishonesty or moral
turpitude (specifically excepting simple
misdemeanors not involving acts of
dishonesty and all minor traffic
violations;
(ii) the Executive's conviction of theft,
embezzlement or misappropriation of the
Company's property or a final judgment
against the Executive for the intentional
and malicious infliction of damage to the
Company's business, property or business
opportunity;
(iii) the Executive's material breach of the
confidentiality and
55
<PAGE> 8
noncompetition covenants in Section 10
hereof;
(iv) the Executive's continuous neglect of his
service and duties with the Company under
Section 3 hereof or his continuous failure
or refusal to follow any reasonable,
unambiguous, duly adopted written directive
of the Board of Directors or any duly
constituted committee thereof, after
written notice from the Company of such
neglect, failure or refusal; and
(v) the Executive's sustained abuse of alcohol
or use of illegal drugs, or the abuse of
other controlled substances, or his
engaging in other extreme personal
activities in a manner that, in the
reasonable judgment of the Board of
Directors, adversely affects the
reputation, goodwill or business position
or prospects of the Company.
(d) "Termination Without Cause" means the termination of the
Executive's employment by the Company for any reason other than Voluntary
Termination or Termination With Cause or termination because of death or
Disability.
8. Voluntary Termination; Termination With Cause. During the Term or
an Extended Term, if the Executive shall cease being an employee of the Company
on account of a Voluntary Termination or shall suffer a Termination With Cause,
then the Executive shall not be entitled to any compensation or other benefits
after the effective date of such Voluntary Termination or Termination With
Cause (except compensation earned but unpaid on the date of such event, accrued
but not taken vacation and stock options which the Executive may have a vested
right to exercise or benefits required by law). In the event of such Voluntary
Termination or Termination With Cause, the Executive shall continue to be
subject to the noncompetition and confidentiality covenants contained in
Section 10 hereof.
9. Termination Without Cause. In the event of the Executive's
Termination Without Cause during the Term, the Executive shall be entitled to
receive, in addition to the Base Salary earned and expenses incurred but not
paid through the date of the Executive's termination, accrued but not taken
vacation, and stock options which the Executive may have a vested right to
exercise on the date of termination, bi-weekly payments equal to the
Executive's Base Salary in effect at the time of termination for twenty-four
(24) months. In the event of the Executive's Termination Without Cause during
an Extended Term, the Executive shall be entitled to receive, in addition to
the Base Salary earned and expenses incurred but not paid through the date of
the Executive's termination, accrued but not taken vacation, and stock options
which the Executive may have a vested right to exercise on the date of
termination, bi-weekly payments equal to the Executive's Base Salary in effect
at the time of termination for the balance of the Extended Term then in effect.
Such payments shall be made on the Company's normal payroll dates and shall be
in the amount of the Executive's bi-weekly Base Salary for that payroll period
as if he were still working. In the event of such Termination Without Cause,
the Executive shall continue to be subject to the noncompetition and
confidentiality covenants contained in Section 10 hereof.
10.Confidentiality; Noncompetition.
56
<PAGE> 9
(a) The Executive acknowledges that he has access to proprietary
information developed by the Company with respect to the development,
construction, operation and marketing of the Company's extended stay lodging
business and properties (the "Confidential Information") and the Executive
hereby acknowledges that the Confidential Information represents a valuable,
special and unique asset of the Company' business. The Executive agrees that he
will not either during or after the Term, or any Extended Term, disclose the
Confidential Information, or any portion thereof, to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever,
except with respect to performance of his duties hereunder or as may be
required by applicable federal or state regulations or law and then only after
written notice to the Company. Executive's duty to keep the Confidential
Information confidential shall continue for two (2) years after termination of
employment unless the Confidential Information becomes public knowledge sooner
through no fault of Executive.
(b) During the Term and Extended Term of this Agreement and for
a period of two (2) years following the termination of this Agreement, the
Executive shall not serve as an officer, director, trustee, member, consultant,
advisor, employee, agent or in any other capacity or as an owner, shareholder
or partner, in any corporation, partnership, sole proprietorship, joint
venture, trust, limited liability company or any other entity engaged in
managing, developing, constructing, operating or owning any interest in, any
extended stay hotel, provided this restriction shall not prohibit being a
shareholder owning less than five percent (5%) of the outstanding stock in any
class of a public corporation. An extended stay hotel for the purposes of this
Section 10 shall mean a hotel composed of hotel suite rooms rented
predominantly by the week at an average weekly rate of Three Hundred Sixty
Dollars ($360.00) per week or less, each room having a kitchen with at least a
refrigerator, a range top burner and a microwave oven.
(c) The Executive agrees that damages at law for violation of
the restrictive covenants contained in this Section 10 would not be an adequate
or prior remedy to the Company, and that should the Executive violate or
threaten to violate any of the provisions of such covenant, the Company, its
successors or assigns, shall be entitled to obtain a temporary or permanent
injunction against the Executive in any court having personal and subject
matter jurisdiction, prohibiting any further violation of any such covenants.
The injunctive relief provided herein shall be in addition to any award of
damages, compensatory, exemplary or otherwise, payable by reason of such
violation. The running of the term of the noncompetition period shall be
extended day for day for any period during which the Executive is in breach of
the covenants and agreements contained herein for any reason whatsoever. The
Executive further agrees that the Company need not post any bond in connection
with seeking to obtain injunctive relief under this Section 10.
(d) The Executive acknowledges that this Agreement has been
negotiated at arm's length by the parties, neither being under any compulsion
to enter into this Agreement, and that the foregoing restrictive covenant does
not in any respect inhibit his ability to earn a livelihood in his chosen
profession without violating the restrictive covenant contained herein. The
Company by these presents has attempted to limit the Executive's right to
compete only to the extent necessary to protect the Company from unfair
competition. The Company recognizes, however, that reasonable people may differ
in making such a determination. Consequently, the Company agrees that if the
scope or enforceability of the noncompetition covenant contained herein is in
any way disputed at any time, a court or other trier of fact may modify and
enforce
57
<PAGE> 10
the covenant to the extent that it believes to be reasonable under the
circumstances existing at the time.
11. Notices. All notices or deliveries authorized or required pursuant
to this Agreement shall be deemed to have been given when in writing and
personally delivered, one day after being deposited prepaid with a national
overnight delivery service for next day delivery, or three days after being
deposited in the U.S. mail, certified, return receipt requested, postage
prepaid, addressed to the parties at the following addresses or to such other
addresses as either may designate in writing to the other party:
To the Company: Studio Plus Hotels, Inc.
1999 Richmond Road, Suite Four
Lexington, Kentucky 40502
Attn: Board of Directors
To the Executive: Michael J. Moriarty
c/o Studio Plus Hotels, Inc.
1999 Richmond Road, Suite Four
Lexington, Kentucky 40502
12. Entire Agreement. This Agreement contains the entire understanding
between the parties with respect to the subject matter hereof and shall not be
modified, waived or discharged, in any manner except by an instrument in
writing signed, by or on behalf of, the Executive and an officer authorized by
the Board. Waiver by any party of any breach of or failure to comply with any
provision of this Agreement by the other party shall be not construed as, or
constitute, a continuing waiver of such provision, or a waiver of any other
breach of, or failure to comply with, any other provision of this Agreement;
provided, however, that any amendment or termination of the covenants of
noncompetition and confidentiality in Section 10 must be approved by a majority
of the Company's directors who are not officers or employees of the Company.
This Agreement shall be binding upon and inure to the benefit of the heirs,
successors, legal representations and assigns of the parties hereto.
13. Applicable Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Kentucky. Should any provision
of this Agreement be declared and determined by any court to be illegal or
invalid, the validity of the remaining parts, terms or provisions shall not be
affected thereby and said illegal or invalid part, term or provision shall be
deemed not to be a part of this Agreement. Should any provision of this
Agreement be declared and determined by any Court to be unenforceable as
written, the Court shall interpret the unenforceable provision in a manner so
it will be enforceable to the maximum extent possible to require the least
change in the meaning of the language being interpreted.
14. Assignment. The Executive acknowledges that his services are
unique and personal. Accordingly, the Executive may not assign his rights or
delegate his duties or obligations under this Agreement. The Company shall
assign its rights and obligations under this Agreement in connection with a
merger, business combination or sale of substantially all of the assets of the
Company. The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation, liquidation or otherwise) to all or
substantially all
58
<PAGE> 11
of the business and/or assets of the Company to agree to assume all of the
obligations of the Company under this Agreement upon or prior to such
succession taking place. A copy of such assumption and agreement shall be
delivered to the Executive promptly after its execution by the successor. As
used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which is
required to execute and deliver the agreement provided for in this Section 14
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
15. Headings. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
16. Tax Withholding. The Company may withhold from any amounts payable
to the Executive hereunder all federal, state, city or other taxes that the
Company may reasonably determine are required to be withheld pursuant to any
applicable law or regulation.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original.
18. Mitigation. The Executive shall not be required to mitigate the
amount of any payment or benefit provided for in this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
STUDIO PLUS HOTELS, INC.
BY: /s/ Norwood Cowgill, Jr.
--------------------------------------
Name: NORWOOD COWGILL, JR.
Title: Chairman of the Board
EXECUTIVE:
/s/ Michael J. Moriarty
--------------------------------------
Name: Michael J. Moriarty
59
<PAGE> 1
EXHIBIT 10.2
60
<PAGE> 2
CONFIDENTIALITY AND
NON-COMPETE AGREEMENT
AGREEMENT is made this 11th day of November, 1996, between STUDIO PLUS
HOTELS, INC., a Virginia corporation with its principal office at 1999 Richmond
Road, Suite 4, Lexington, Kentucky, on behalf of itself and its predecessors,
affiliates and subsidiaries (including Studio Plus Properties, Inc.)
previously, now or hereafter existing (collectively referred to herein as the
"Company") and CREIGHTON SCHNECK (the "Employee") of the Company.
WHEREAS, the Employee has access to and uses in his employment with the
Company valuable proprietary information of the Company, which the Company
desires to continue to protect; and
WHEREAS, the Company wants to protect its proprietary information, competitive
advantage and the investment it has made in Employee;
IN CONSIDERATION of Company granting Employee a Stock Option for Company's
common stock on the terms in the Stock Option Agreement dated the date hereof,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, IT IS AGREED:
1. The Employee acknowledges that he has access to proprietary information
developed by the Company with respect to the development, construction,
operation, marketing and administration of the Company's extended stay lodging
business and properties, information that the Company has furnished and is
furnishing to Employee, as well as all information generated by Employee that
contains, reflects or is derived from the furnished information, including, but
not limited to, the items in paragraph 6 hereof (the "Confidential
Information")
61
<PAGE> 3
and the Employee hereby acknowledges that the Confidential Information
represents a valuable, special and unique asset of the Company's business. The
Employee agrees that he will not, either during or after the term of his
employment with the Company (the "Term"), disclose the Confidential
Information, or any portion thereof, whether furnished before or after the date
of this Agreement, whether tangible or intangible, and in whatever form or
medium provided, to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, except with respect to performance of his
duties as an employee of the Company or as may be required by applicable law
and then only after ten (10) days written notice to the Company. Employee's
duty to keep the Confidential Information confidential shall continue for two
(2) years after termination of his employment for any reason unless the
Confidential Information becomes public knowledge sooner through no fault of
Employee.
2. During the Employee's employment and for a period of twelve (12) months
following the Employee's resignation or termination of his employment, the
Employee shall not serve as an officer, director, trustee, member, consultant,
advisor, employee, agent or in any other capacity or as an owner, shareholder
or partner, in any corporation, partnership, sole proprietorship, joint
venture, trust, limited liability company or any other entity engaged in
managing, developing, constructing, operating or owning any interest in, any
extended stay hotel located within a Metropolitan Statistical Area (MSA) in
which a Studio Plus hotel is operating, under construction or a contract or
lease has been executed to acquire land on which to develop a Studio Plus hotel
as of the day on which Employee's employment terminates. An extended stay hotel
for the purposes of this Agreement shall mean a hotel composed of a hotel suite
room rented predominantly by the week or for stays of more than three (3) days,
with each suite containing a kitchen with at least a refrigerator, a range top
burner unit and a microwave or radiant heat oven and rented at a price per
night within a range fifteen percent (15%) above and fifteen percent (15%)
below the average weekly rate of the Studio Plus hotel
62
<PAGE> 4
chain at that time. An MSA shall be determined by the latest edition of "County
& City Extra" published by Bernan Press, Lanham, Maryland in existence at the
time of Employee's termination.
3. The Employee agrees that damages at law for violation of the restrictive
covenants contained in this Agreement would not be an adequate or prior remedy
to the Company, and that should the Employee violate or threaten to violate any
of the provisions of such covenants, the Company, its successors or assigns,
shall be entitled to obtain a temporary or permanent injunction against the
Employee in any court having personal and subject matter jurisdiction,
prohibiting any violation of such covenants. The injunctive relief provided
herein shall be in addition to any award of damages, compensatory, exemplary or
otherwise, payable by reason of such violation. The running of the term of the
noncompetition period shall be extended day for day for any period during which
the Employee is in breach of the covenants and agreements contained herein for
any reason whatsoever. The Employee further agrees that the Company need not
post any bond or prove actual damage in connection with seeking to obtain
injunctive relief.
4. The Employee acknowledges that this Agreement has been negotiated at arm's
length by the parties, neither being under any compulsion to enter into this
Agreement, and that the foregoing restrictive covenant does not in any respect
inhibit his ability to earn a livelihood in his chosen profession without
violating the restrictive covenants contained herein. The Company, by these
presents, has attempted to limit the Employee's right to compete only to the
extent necessary to protect the Company from unfair competition. The Company
recognizes, however, that reasonable people may differ in making such a
determination. Consequently, the parties agree that if a court of competent
jurisdiction will not enforce the noncompetition covenant in Paragraph 2 hereof
as written, then the court or other trier of fact may modify the covenant to
the least extent where it will be enforceable and to enforce the covenant as
63
<PAGE> 5
modified to the maximum extent that it believes to be reasonable under the
circumstances existing at the time.
5. All inventions, discoveries, improvements, whether patentable or
unpatentable, made, devised, or discovered by the Employee, whether by Employee
singly or jointly with others, from the time of entering the Company's employ
until termination of his employment, relating or pertaining in any way to his
employment or the business of the Company, shall be promptly disclosed in
writing to the President of the Company (or such other officer as the President
may designate) and are to accrue to the benefit of the Company and become and
remain its sole and exclusive property. Any original or derivative works of
authorship, whether copyrightable or uncopyrightable, including, without
limitation, plans, specifications, booklets, manuals, procedures, computer
programs, and the like, created by the Employee within the scope of his
employment with the Company shall be and remain the Company's sole and
exclusive property. The Employee agrees, at the Company's request and cost, to
execute any assignments to the Company or its nominee, of his entire right,
title, and interest in and to any such inventions, discoveries, improvements
and works of authorship and to execute any other instruments and documents
requisite or desirable in applying for and obtaining patents or copyrights with
respect thereto in the United States and in all foreign countries. The Employee
further agrees, whether or not in the employ of the Company, to cooperate to
the extent and in the manner requested by the Company in the prosecution or
defense of any patent and/or copyright claims or any litigation or other
proceeding involving any inventions, trade secrets, processes, discoveries,
methods or works covered by this Agreement, but all expense thereof shall be
paid by the Company.
6. All records, files, software, memoranda, reports, price lists, customer
lists, manuals, drawings, plans, sketches, procedures, documents, equipment,
and the like, relating to the business of the Company which the Employee shall
use or prepare or come into contact with
64
<PAGE> 6
during his employment with the Company, shall be and remain the sole property
of the Company and the Employee shall promptly deliver to the Company at the
termination of his employment, or at any time on the Company's request, without
retaining copies, any or all of such items which have been loaned or disclosed
to, or otherwise obtained by, Employee.
7. This Agreement may not be changed or terminated orally, and no change,
termination, or attempted waiver of any of the provisions hereof shall be
binding unless in writing and signed by both the Employee and the Chairman of
the Board and Chief Executive Officer of the Company or the President of the
Company. The Employee's compensation, position or capacity may be changed at
any time by the Company, or his employment terminated at any time, without in
any way affecting any of the terms and conditions of this Agreement, which in
all respects shall remain in full force and effect, and without incurring any
liability to the Employee.
8. This Agreement shall be governed by the laws of the Commonwealth of
Kentucky. The invalidity of any provision hereof shall not invalidate any other
provision hereof.
9. This Agreement shall be binding on and shall inure to the heirs,
successors and assigns of the parties hereto.
10. All of the terms and words used in this Agreement, regardless of the
gender used, shall be deemed and construed to include any other gender
(masculine, feminine or neuter) as the context or sense of the Agreement or any
paragraph or clause hereof may require, or as required by the sex of the
Employee executing the Agreement, the same as if such words had been fully and
properly written in the appropriate gender.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
65
<PAGE> 7
ATTEST: STUDIO PLUS HOTELS, INC.
/s/ William Anderson By: /s/ Norwood Cowgill, Jr.
- ---------------------- -------------------------------
Title: Chief Executive Officer
WITNESS:
/s/ William Anderson /s/ Creighton Schneck
- ----------------------- ---------------------------------
Creighton Schneck
66
<PAGE> 1
EXHIBIT 11.1
67
<PAGE> 2
COMPUTATION OF EARNINGS PER SHARE
(ALL MONEY AMOUNTS STATED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996
Shares Amount
<S> <C> <C>
Weighted average number of shares and net income applicable to common stock ...... 11,287,579 $ 5,174.00
Stock Options, in equivalent shares under the treasury stock method, primary ..... 292,590
---------- ----------
11,580,169 5,174.00
---------- ----------
Per share, primary ............................................................... $ 0.45
Stock options, in equivalent shares under the treasury stock method, fully diluted 18,618
----------
11,598,787 $ 5,174.00
========== ==========
Per share, fully diluted ......................................................... $ 0.45
==========
</TABLE>
68
<PAGE> 1
EXHIBIT 23.1
69
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Studio Plus Hotels, Inc. on Form S-8 (File No. 333-09907 and 333-09923) 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 the years ended December 31, 1996, 1995 and 1994, which report is included
in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
- --------------------------------
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
March 4, 1997
70
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF STUDIO PLUS HOTELS, INC. FOR THE YEAR ENDED DECEMBER 31,
1996 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 34,678
<SECURITIES> 0
<RECEIVABLES> 740
<ALLOWANCES> 102
<INVENTORY> 0
<CURRENT-ASSETS> 36,378
<PP&E> 119,040
<DEPRECIATION> 9,549
<TOTAL-ASSETS> 146,240
<CURRENT-LIABILITIES> 7,039
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 133,488
<TOTAL-LIABILITY-AND-EQUITY> 146,240
<SALES> 0
<TOTAL-REVENUES> 25,271
<CGS> 0
<TOTAL-COSTS> 9,534
<OTHER-EXPENSES> 7,157
<LOSS-PROVISION> 99
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,481
<INCOME-TAX> 3,307
<INCOME-CONTINUING> 5,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,174
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
