-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IALsaP2CEKAt5O0JjQGy9w49boBSwFJlU3Xz6WTZ9RL0hSZzzhaljRftIVVgEFps 8/0HkaUErNcH9eunTVTpKg== 0000950131-97-000411.txt : 19970129 0000950131-97-000411.hdr.sgml : 19970129 ACCESSION NUMBER: 0000950131-97-000411 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970116 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970128 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXTENDED STAY AMERICA INC CENTRAL INDEX KEY: 0001002579 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 363996573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27360 FILM NUMBER: 97512565 BUSINESS ADDRESS: STREET 1: 500 E BROWARD BLVD STREET 2: STE 950 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394 BUSINESS PHONE: 9547131600 MAIL ADDRESS: STREET 1: 500 E BROWARD BLVD STREET 2: STE 950 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394 8-K/A 1 FORM 8-K/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 16, 1997 ____________________ EXTENDED STAY AMERICA, INC. (Exact name of registrant as specified in its charter) DELAWARE 0-27360 36-3996573 (State or other jurisdiction of (Commission File (IRS Employer incorporation or organization) Number) Identification No.) 450 E. LAS OLAS BOULEVARD FT. LAUDERDALE, FLORIDA 33301 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (954) 713-1600 ____________________ ================================================================================ Item 5 of the Report of Form 8-K dated January 16, 1997 filed by the Registrant on January 21, 1997 is hereby amended to read in its entirety as follows: Item 5. Other Events. THE MERGER On January 16, 1997, Extended Stay America, Inc., a Delaware corporation (the "Company"), ESA Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and Studio Plus Hotels, Inc., a Virginia corporation ("Studio Plus"), entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Studio Plus will be merged with and into Merger Sub (the "Merger") in accordance with the General Corporation Law of the State of Delaware ("DGCL") and the Virginia Stock Corporation Act ("VSCA"). The Merger Agreement provides that Merger Sub will be the surviving corporation and that upon consummation of the Merger (i) each share of Studio Plus common stock, par value $.01 per share ("Studio Plus Common Stock"), will be converted into the right to receive 1.2272 shares of Company common stock, par value $.01 per share ("Company Common Stock"), (ii) all outstanding options to purchase Studio Plus Common Stock from Studio Plus will be converted into options to purchase Company Common Stock, (iii) the Certificate of Incorporation of Merger Sub will be amended to change the name of Merger Sub to Studio Plus Hotels, Inc. (the "Surviving Corporation"), (iv) the Certificate of Incorporation and the Bylaws of Merger Sub will be the Certificate of Incorporation and the Bylaws of the Surviving Corporation, and (v) the Surviving Corporation will become a wholly-owned subsidiary of the Company. Upon the consummation of the Merger (i) the directors of Merger Sub shall be the initial directors of the Surviving Corporation, and (ii) the officers of Merger Sub shall be the initial officers of the Surviving Corporation. Norwood Cowgill, Jr. is currently Chairman of the Board of Directors and Chief Executive Officer of Studio Plus. As a condition to the consummation of the Merger, Mr. Cowgill will be elected to the Board of Directors of the Company. The obligations of the Company, Merger Sub, and Studio Plus to consummate the Merger are subject to certain conditions, including, among others, (i) the approval of the Merger Agreement by (a) the stockholders of the Company in accordance with the DGCL and (b) the stockholders of Studio Plus in accordance with the VSCA, (ii) a registration statement on Form S-4 having been declared effective under the Securities Act of 1933, as amended (the "Securities Act"), registering the Company Common Stock to be issued in the Merger, and having not become the subject of any stop order, and (iii) that the Merger be accounted for as a pooling of interests. Pursuant to the Merger Agreement, Studio Plus has agreed that it shall not initiate, solicit or encourage the submission of any proposal or offer with respect to a merger, consolidation, reorganization, exchange, plan of liquidation or similar transaction involving Studio Plus or its subsidiaries, other than the Merger (each such proposal an "Alternative Proposal"), or engage in 2 any discussions or negotiations with any person or entity relating to an Alternative Proposal or otherwise facilitate any effort or attempt to make or implement an Alternative Proposal. Studio Plus may respond, however, to unsolicited Alternative Proposals. The Merger Agreement may be terminated at any time prior to the consummation of the Merger, notwithstanding any approval thereof by the stockholders of the Company or of Studio Plus, for a number of reasons, including the following: (i) by mutual consent of the Boards of Directors of the Company, Merger Sub and Studio Plus; (ii) by either the Company and Merger Sub or Studio Plus if, the requisite vote of the stockholders of the Company and Studio Plus in favor of the Merger Agreement is not obtained; (iii) by either the Company and Merger Sub, or Studio Plus if the Merger is not consummated on or before August 31, 1997; or (iv) by Studio Plus if its Board of Directors determines in good faith that their fiduciary duties require them to recommend an Alternative Proposal. In the event the Merger Agreement is terminated pursuant to clause (iv) above or by the Company in the event that the Board of Directors of Studio Plus has withdrawn or modified its approval or recommendation of the Merger or shall have recommended an Alternative Proposal, Studio Plus must pay the Company a fee of $7,500,000. In connection with, and as a condition to, the Merger Agreement, the Company, Studio Plus, Mr. Cowgill, and George D. Johnson, Jr., the President and Chief Executive Officer of the Company, entered into various other agreements that are described below. The Company, Mr. Cowgill and Cowgill Partners, L.P., a limited partnership controlled by Mr. Cowgill ("Cowgill Partners"), entered into a Stockholder Agreement, dated January 16, 1997 the ("Stockholder Agreement") pursuant to which Mr. Cowgill and Cowgill Partners granted to the Company (i) a proxy to represent and vote the 985,927 shares of Studio Plus Common Stock beneficially owned by Mr. Cowgill and the 470,000 shares of Studio Plus Common Stock beneficially owned by Cowgill Partners (collectively, the "Cowgill Shares") with respect to the Merger or any other business combination of Studio Plus with any other party or on any other business presented to the stockholders of Studio Plus that has been the subject of preliminary proxy materials filed by Studio Plus with the Securities and Exchange Commission (subject to a requirement to vote the Cowgill Shares in favor of the Merger), and (ii) an option (the "Option") to purchase the Cowgill Shares at a cash price of $25.00 per share. The Option is exercisable in the event that the Merger Agreement is terminated by: (i) Studio Plus, upon receipt of an Alternative Proposal, or (ii) the Company, in the event that the Board of Directors of Studio Plus shall have (a) withdrawn or modified its approval or recommendation of the Merger or the Merger Agreement, or (b) adopted resolutions to accept or implement an Alternative Proposal. During the term of the Stockholder Agreement, Mr. Cowgill and Cowgill Partners each agreed (i) not to sell, transfer, pledge, encumber or otherwise dispose of the Cowgill Shares, (ii) not to solicit or encourage inquiries or proposals for the acquisition of all or any part of the securities, assets or business of Studio Plus except as required by Mr. Cowgill's fiduciary duties as a director of Studio Plus, and (iii) not to engage in any negotiations with potential acquirers of Studio Plus other than the Company except as required by Mr. Cowgill's fiduciary duties as a 3 director of Studio Plus. The Stockholder Agreement expires on the first to occur of (i) the closing of the Merger, or (ii) the date 180 days after the termination of the Merger Agreement. Mr. Johnson and Studio Plus entered into a Voting Agreement, dated January 16, 1997 (the "Voting Agreement"), pursuant to which Mr. Johnson agreed to vote the 3,833,587 shares of the Company's Common Stock owned by him in favor of the Merger and to recommend the Merger to other stockholders of the Company. The Voting Agreement expires upon the first to occur of (i) the Merger, (ii) the termination of the Merger Agreement, or (iii) August 31, 1997. Studio Plus and Fifth Third Bank, as Rights Agent (the "Rights Agent"), entered into an Amendment No. 2 (the "Rights Amendment") dated as of January 16, 1997 to the Amended and Restated Rights Agreement, dated as of June 6, 1995 and amended as of February 27, 1996 (the "Rights Agreement"), between Studio Plus and the Rights Agent. Pursuant to the Rights Amendment, neither the Company, Merger Sub, nor any affiliate or associate of the Company or Merger Sub shall be deemed to be an "Acquiring Person" as defined in the Rights Amendment by virtue of the Merger Agreement or any of the transactions contemplated by the Merger Agreement. THE COMPANY The Company was organized in January 1995 to develop, own, and manage extended stay lodging facilities which are designed to appeal to value-conscious guests. The Company's facilities are designed to offer quality accommodations for guests at substantially lower rates than most other extended stay lodging providers and hotels in the economy segment of the traditional lodging industry. They feature fully furnished rooms which are generally rented on a weekly basis to guests such as business travelers (particularly those with limited expense accounts), professionals on temporary work assignment, persons between domestic situations, and persons relocating or purchasing a home, with most guests staying for multiple weeks. The Company's facilities provide a variety of features that are attractive to the extended stay guest such as a fully-equipped kitchenette, weekly housekeeping with twice-weekly towel service, color television with cable or satellite hook-up, coin laundromat, and telephone service with voice mail messaging. To help maintain affordability of room rates, labor intensive services, such as daily cleaning, room service, and restaurants are not provided. The Company's goal is to become a national provider of extended stay lodging. The Company intends to achieve this goal by rapidly developing properties in selected markets, providing high value accommodations for its guests, actively managing its properties to increase revenue and reduce operating costs, and increasing awareness of the extended stay concept. Through December 31, 1996, the Company had developed and opened 30 facilities, acquired 10 others, and had 50 facilities under construction. The Company plans to begin construction of approximately 60 additional facilities during 1997 and to continue an active development program thereafter. The Company's plans call for the average facility to have approximately 120 extended stay rooms and to take approximately 7-9 months to construct. During the nine months ended September 30, 1996, the Company's operating properties realized average occupancy of 4 76% and average weekly room rates of $237 for the periods owned and operated by the Company. The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga, who are the two largest shareholders of the Company. Mr. Johnson, who is the President and Chief Executive Officer of the Company, was formerly the President of the Consumer Products Division of Blockbuster Entertainment Group, a division of Viacom, Inc. Mr. Huizenga who is the Chairman of the Board of Directors of the Company, is the Chairman and Co-Chief Executive Officer of Republic Industries, Inc. and was formerly Vice-Chairman of Viacom, Inc. and Chairman and Chief Executive Officer of Blockbuster Entertainment Corporation. The Company's management team has extensive experience in the acquisition and development of real estate and the operation of properties on a national scale. RECENT DEVELOPMENTS OF THE COMPANY During 1996, the Company acquired ten existing lodging facilities in six separate transactions (each such transaction is referred to herein as an "Acquisition"), as summarized below. Each of the Acquisitions was accounted for using the purchase method of accounting. On January 26, 1996, the Company acquired substantially all of the assets of Apartment/Inn, L.P., a Georgia limited partnership ("Apartment/Inn"). Apartment/Inn owned and operated a 196-room economy extended stay lodging facility in Norcross, Georgia which is similar in concept to the Company's lodging facilities. In consideration for such acquisition, the Company issued an aggregate of 587,258 shares of Company Common Stock. On February 23, 1996, the Company acquired substantially all of the assets of Hometown Inn I, LTD and Hometown Inn II, LTD (collectively "Hometown Inn"). Hometown Inn owned and operated a 130-room economy extended stay lodging facility in Norcross, Georgia and a 144-room economy extended stay lodging facility in Riverdale, Georgia, both of which are similar in concept to the Company's lodging facilities. In consideration for such acquisition, the Company issued 857,216 shares of Company Common Stock and paid an additional $75,000 in cash. On May 10, 1996, the Company acquired substantially all of the assets of American Apartmen-Tels Investors II, L.P. ("AATI"), which owned and operated a 59-room extended stay lodging facility in Lenexa, Kansas, for a purchase price of approximately $3.3 million in cash. This purchase includes adjacent land on which the Company intends to build a new 60-room economy extended stay lodging facility. On June 25, 1996, the Company acquired substantially all of the assets of Apartment Inn Partners/Gwinnett, L.P., a Georgia limited partnership ("Gwinnett"). Gwinnett owned and operated a 126-room economy extended stay lodging facility in Lawrenceville, Georgia which is similar in concept to the Company's lodging facilities. The facility was operated as The Apartment Inn and rights for the use of that name and certain other rights were controlled by Apartment/Inn. In consideration for such 5 acquisition, the Company issued 344,200 shares of Company Common Stock and paid an additional $23,000 in cash. On July 9, 1996, the Company acquired substantially all of the assets of Melrose Suites, Inc., St. Louis Manor, Inc., Boulder Manor, Inc., and Nicolle Manor (co-owned by Michael J. Mona, Jr. and Dean O'Bannon), which owned extended stay lodging facilities in Las Vegas, Nevada (collectively, the "M & M Facilities"), that have 177 rooms, 125 rooms, 211 rooms, and 125 rooms, respectively. Each of the M & M Facilities was managed by M & M Development, with which the Company has entered into a two-year consulting agreement with a fee of $120,000 per year. In consideration for the M & M Facilities, in addition to assuming liability under certain leases for personal property, the Company issued 2,470,000 shares of Company Common Stock and paid an additional $500,000 in cash. On July 29, 1996, the Company acquired the lodging facility owned by Kipling Hospitality Enterprise Corporation, which was a 145-room traditional lodging facility located in Lakewood, Colorado, which the Company is remodeling to convert it to the economy extended stay format. In consideration for this acquisition, the Company issued 200,000 shares of Company Common Stock and paid an additional $25,000 in cash. On May 9, 1996, the Board of Directors of the Company declared a stock dividend of one additional share of Company Common Stock for each share issued as of the close of business on July 5, 1996, which was distributed on July 19, 1996, thereby effecting a 2-for-1 stock split (the "ESA Stock Dividend"). All references in this report to Company Common Stock, including prices per share, have been adjusted to give effect to the ESA Stock Dividend. CAPITALIZATION OF THE COMPANY The Company was initially capitalized with approximately $60 million in equity from a group of private investors, a number of whom constitute part of the Company's management team. On December 19, 1995, the Company completed an initial public offering of 10,120,000 shares of Company Common Stock at a price of $6.50 per share and a concurrent offering to the Company's then existing shareholders of 4,135,650 additional shares of Company Common Stock at a price of $6.045 per share, being the initial public offering price per share less the underwriting discounts and commissions (collectively, the "1995 Offerings"). The net proceeds to the Company from the 1995 Offerings were approximately $85 million after deduction of the underwriting discounts and commissions and other offering expenses. On June 5, 1996, the Company completed an additional offering of 19,550,000 shares of Company Common Stock at a price to the public of $15.50 per share (the "1996 Offering"). The net proceeds to the Company from the 1996 Offering were approximately $289 million after deduction of the underwriting discounts and commissions and other offering expenses. In addition, pursuant to its mortgage loan facilities, the Company may be able to borrow up to $400 million to finance its properties. 6 As of December 31, 1996, there were 68,290,984 shares of Company Common Stock outstanding, all of which were either freely tradable (other than by an "affiliate" of the Company as such term is defined in the Securities Act) without restriction or could be resold pursuant to an existing resale shelf registration statement under the Securities Act. As of December 31, 1996, there were also outstanding under the Company's various option plans, options to purchase a total of 5,811,868 shares of Company Common Stock, which options have been registered under the Securities Act. Pursuant to the Merger, the Company expects to issue approximately 15,375,400 new shares of Company Common Stock and to assume options to purchase from the Company approximately 1,474,500 shares of Company Common Stock. STUDIO PLUS Studio Plus owns, develops, and operates StudioPLUS(TM) extended stay hotels and owns the rights to the related trade name and service marks for "StudioPLUS." StudioPLUS hotels are designed to combine the convenience of a hotel with many of the comforts of an apartment in order to provide affordable lodging for extended stay guests. Studio Plus believes that it accommodates an underserved niche of guests in the extended stay sector of the lodging industry. These guests include business travelers, professionals on temporary work assignment, persons relocating or purchasing a home, tourists, and others desiring high quality, furnished accommodations with full kitchens. Studio Plus guests typically prefer weekly rather than daily accommodations. Studio Plus believes that several factors distinguish its properties within the extended stay category of the lodging industry. Studio Plus offers quality accommodations at competitive rates within the mid-price segment of the extended stay market. The average weekly rate at its 18 existing properties open throughout the first nine months of both 1995 and 1996 (the "Existing Studio Plus Properties") increased from $248 to $268 per suite, and average occupancy at the Existing Studio Plus Properties increased from 84.5% to 84.7%. Studio Plus designs its hotels, and markets and prices its suites, to accommodate guests staying one week or longer and believes this strategy results in longer guest stays and a more stable revenue stream. Studio Plus estimates that over 65% of its guests stay one month or longer and believes the longer term nature of guest stays and the limited number of suites per property lead to operating efficiencies. Each StudioPLUS hotel has approximately five employees, in addition to a resident general manager. StudioPLUS hotels are designed and built to uniform plans and specifications developed and periodically refined since 1985. Studio Plus believes this standardization lowers construction costs and establishes uniform quality and operational standards. A typical StudioPLUS hotel contains 72 suites (one suite for the resident general manager and 71 suites available for rent) and costs approximately $2.8 to $3.3 million to develop and construct, including land costs, with an average cost per suite ranging from approximately $38,000 to $46,000. Once a site is selected and acquired and regulatory permits and approvals are obtained, the construction phase of development generally requires approximately eight to nine months 7 from groundbreaking to opening. On average, the StudioPLUS properties opened since 1988 have reached at least a 70% occupancy level within approximately four months after opening. Each StudioPLUS hotel suite contains a fully equipped kitchen including a full-size refrigerator, range with conventional oven, microwave and a direct- dial telephone. A typical StudioPLUS hotel has two types of suites: designer suites and larger deluxe suites. All of the properties have weekly maid service, with an option for daily service, and coin-operated laundry facilities, and most of the properties have an exercise room and a swimming pool. Each hotel employee participates in incentive programs based on individual property level performance. Studio Plus considers its incentive programs to be an important part of its compensation plan. From 1991 through 1995, (i) the number of StudioPLUS hotels increased from 14 to 22, (ii) consolidated average occupancy increased from 75.3% to 83.5%, (iii) average weekly room rates increased from $174.79 to $254.11, representing a compounded annual growth rate of approximately 9.8%, and (iv) weekly revenue per available room increased from $131.68 to $212.19, representing a compounded annual growth rate of 12.7%. As of December 31, 1996, Studio Plus owned and operated 35 mid-priced extended stay lodging facilities, had 11 facilities under construction and options to purchase approximately 28 additional sites for development. RECENT DEVELOPMENTS OF STUDIO PLUS On July 9, 1996, Studio Plus effected a 3-for-2 stock split of the Studio Plus Common Stock in the form of a stock dividend of three shares of Studio Plus Common Stock for each two shares of Studio Plus Common Stock outstanding as of the close of business on June 20, 1996 (the "Studio Plus Stock Split"). All references in this report to Studio Plus Common Stock, including prices per share, have been adjusted to give effect to the Studio Plus Stock Split, except for information contained in Studio Plus' audited historical financial statements. CAPITALIZATION OF STUDIO PLUS In June 1995, Studio Plus completed an initial public offering of 5,347,500 shares of Studio Plus Common Stock at a price of $10.00 per share (the "Studio Plus IPO"). The net proceeds to Studio Plus from the Studio Plus IPO was approximately $48.3 million after deduction of the underwriting discounts and commissions and other offering expenses. In March 1996, Studio Plus completed an additional offering of 4,855,347 shares of its Common Stock at a price to the public of $16.83 per share (the "Studio Plus 1996 Offering"). The net proceeds to Studio Plus from the Studio Plus 1996 Offering were approximately $76.8 million after deduction of the underwriting discounts and commissions and other offering expenses. Studio Plus also has $50 million of borrowing capacity under an existing line of credit available to fund the national expansion of Studio Plus hotels. Studio Plus has received a commitment from a group of banks which would increase the principal amount available for borrowing to $200 million. 8 As of January 15, 1997, Studio Plus had (i) 12,528,845 shares of Common Stock outstanding, (ii) options to purchase a total of 1,071,514 shares of Studio Plus Common Stock under Studio Plus' various stock option plans, and (iii) contractual commitments to issue additional options to purchase 130,000 shares of Studio Plus Common Stock. All of the information contained in this report regarding Studio Plus has been derived from documents filed by Studio Plus under the Securities Act or the Securities Exchange Act of 1934, as amended, or otherwise provided by Studio Plus. The Company disclaims all responsibility for the accuracy of such information. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired. The financial statements of the business to be acquired are filed herewith as Exhibit 99.1 hereto and are incorporated herein by this reference. (b) Pro Forma Financial Information. ------------------------------- The pro forma financial information relating to the business to be acquired is filed herewith as Exhibit 99.2 hereto and is incorporated herein by this reference. (c) Exhibits. -------- The exhibits to this report are listed in the Exhibit Index set forth elsewhere herein. 9 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EXTENDED STAY AMERICA, INC. By:/s/ Robert A. Brannon -------------------------------- Robert A. Brannon Senior Vice President and Chief Financial Officer Dated: January 28, 1997 10 EXTENDED STAY AMERICA, INC. Exhibit Index Exhibit Number Description of Exhibit ------- ---------------------- 2.1* Agreement and Plan of Merger dated as of January 16, 1997 by and among Extended Stay America, Inc. (the "Company"), ESA Merger Sub, Inc., and Studio Plus Hotels, Inc. ("Studio Plus"). 2.2* Agreement dated January 21, 1997 by the Company to furnish supplementally copies of omitted schedules. 2.3 Stockholder Agreement, dated as of January 16, 1997, among the Company, Norwood Cowgill, Jr., and Cowgill Partners, L.P. 2.4 Voting Agreement, dated as of January 16, 1997, between Studio Plus and George D. Johnson, Jr. 99.1 Audited consolidated financial statements of Studio Plus for the three years ended December 31, 1995 and unaudited condensed consolidated financial statements of Studio Plus for the nine-month period ended September 30, 1996. 99.2 Unaudited pro forma condensed combined statements of income of the Company for the three years ended December 31, 1995 and the nine- month period ended September 30, 1996 and unaudited pro forma condensed combined balance sheet of the Company as of September 30, 1996. ____________________ * Previously filed. EX-2.3 2 STOCKHOLDER AGREEMENT STOCKHOLDER AGREEMENT --------------------- THIS STOCKHOLDER AGREEMENT (the "Agreement") is entered into as of January 16, 1997, by and between Extended Stay America, Inc., a Delaware corporation ("ESA"), and Norwood Cowgill, Jr. ("Cowgill") and Cowgill Partners, L.P. (the "Partnership"), stockholders (Cowgill and the Partnership each individually referred to as a "Stockholder" and collectively as the "Stockholders") of Studio Plus Hotels, Inc., a Virginia corporation (the "Company"). W I T N E S S E T H: ------------------- Each Stockholder is the owner of shares (with respect to each Stockholder the "Shares") of common stock, par value $.01 per share, of the Company ("Company Common Stock"). As used herein, the term "Shares" shall also include any shares of Company Common Stock that the respective Stockholder shall obtain beneficial ownership of (including sole investment and voting power) during the term of this Agreement. ESA, ESA Merger Sub, Inc., a Delaware corporation ("Merger Sub"), and the Company have entered into an Agreement and Plan of Merger dated January 16, 1997 (the "Merger Agreement") providing for the merger of the Company into Merger Sub (the "Merger"). In order to induce ESA and Merger Sub to enter into the Merger Agreement and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Stockholders desire to grant ESA an option to purchase, and proxy to vote, the Shares. ACCORDINGLY, the parties hereto agree as follows: 1. Option and Proxy. Subject to the terms and conditions of this Agreement, each Stockholder hereby: (a) Grants to ESA an option, exercisable from time to time and in whole or in part under the conditions set forth below in this Paragraph 1(a) and during the term of this Agreement, to purchase up to all of the Shares (the "Option") at a price per Share equal to $25.00 (the "Purchase Price"). ESA may exercise this Option, at any time after the occurrence of a Topping Event (as defined in the Merger Agreement), upon three business days' notice to the Stockholder indicating the Topping Event and the number of Shares to be acquired together with the Purchase Price and the date, time and place of the closing of such purchase (the "Closing"); provided that at the time of any exercise of the Option there exists an Alternative Proposal (as defined in the Merger Agreement). (b) Appoints George D. Johnson, Jr. and Robert A. Brannon, or either of them, with full power of substitution, as proxy holders (the "Proxy Committee") to represent and to vote the Shares with respect to the Merger, or any other merger or other business combination of the Company with any party other than ESA or any Alternative Proposal (as defined in the Merger Agreement), including with respect to any procedural matters related thereto, at any meeting (whether special or annual, and whether or not adjourned) or by written action of stockholders of the Company and, in the discretion of the Proxy Committee, upon any other business as may properly come before such meeting or for written action (provided that such business shall have been the subject of preliminary proxy materials filed by the Company under the Securities Exchange Act of 1934, as amended), such votes to be cast in any manner that the Proxy Committee in its sole discretion shall deem proper except if the vote is on the Merger Agreement, the Shares shall be voted in favor of the Merger Agreement; the authority granted hereunder ("Proxy") shall be irrevocable during the term of this Agreement and deemed to be coupled with an interest; and (c) In the case of Cowgill, agrees to recommend the Merger to other stockholders of the Company and to use his best efforts to bring about the Merger, subject to applicable fiduciary duties as determined in good faith after consultation with, and based upon the advice of, outside counsel. 2. Changes in Shares. For all purposes of this Agreement, the Shares shall include any securities or cash or other property issued or exchanged with respect to such Shares upon any recapitalization, reclassification, merger, consolidation, spin-off, partial or complete liquidation, dividend in cash or stock or other property, split-up or combination of the securities of the Company, or any other change in its capital structure. 3. Closing. 3.1 Delivery of Shares. At the Closing, Stockholder shall deliver to Purchaser certificates representing the Shares, duly endorsed in blank or accompanied by stock powers duly executed in blank, with signatures guaranteed, or otherwise in form acceptable for transfer on the books of the Company. 3.2 Payment for Shares. All payments by the Purchaser of the Purchase Price shall be made on the date of the Closing by wire transfer of immediately available funds to an account designated by Stockholder by written notice to Purchaser. 4. Representations and Warranties of the Stockholders. Each Stockholder represents and warrants to ESA as follows: 4.1 Power to Transfer the Shares. The Stockholder now has, and upon delivery of the Shares at the Closing, the Stockholder will sell, assign, transfer and deliver to ESA, valid and marketable title to the Shares, free and clear of all security interests, liens, claims, pledges, assessments, options, equities, charges and encumbrances whatsoever, and with no proxies or restrictions on the voting rights or other incidents of record or beneficial ownership pertaining thereto (except for the Proxy being granted pursuant to this Agreement) and there are no outstanding options, warrants or rights to purchase or acquire or agreements relating to any of the Shares. The Shares are validly issued and outstanding, fully paid and non-assessable with no personal liability attaching to the ownership thereof. 2 4.2 Valid and Binding Agreement; No Violation. This Agreement constitutes a valid and binding agreement of the Stockholder, enforceable in accordance with its terms. Neither the execution of this Agreement, the exercise of the Option, the Proxy, nor the voting of the Shares by the Proxy Committee, will constitute a violation of, or conflict with, or result in a default under, any contract, commitment, agreement, understanding, arrangement or restriction of any kind to which the Stockholder is a party or by which the Stockholder is bound or to which the Shares are subject. 5. Representations and Warranties of ESA. ESA represents and warrants to the Stockholder as follows: 5.1 Authorization. The execution and delivery of this Agreement by ESA has been duly authorized by all requisite corporate action. 5.2 Valid and Binding Agreement. This Agreement constitutes a valid and binding agreement of ESA, enforceable in accordance with its terms. 6. Covenants of the Stockholder. Each Stockholder hereby covenants and agrees as follows: 6.1 Inquires or Proposals. From the date of execution of this Agreement to termination hereof, the Stockholder shall not solicit or encourage any inquiries or proposals for the acquisition of all or any part of the securities, assets or business of the Company; the Stockholder shall not engage in any negotiations with potential acquirers (other than ESA) or persons acting on their behalf; provided, however, that nothing contained in this Section 6.1 shall prohibit Cowgill from (i) furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited Alternative Proposal, if, and only to the extent that, the Board of Directors of the Company, based upon the advice of outside counsel, determines in good faith that such action is required for the Board of Directors to comply with its fiduciary duties to stockholders imposed by law. 6.2 Sale of Shares. The Stockholder agrees that Stockholder will not sell, transfer, further pledge, encumber or otherwise dispose of the Shares except pursuant to the Merger or this Agreement, between the date hereof and the termination of this Agreement. 7. Miscellaneous. 7.1 Commissions. Each of the parties hereto represents and warrants that to the best of such party's knowledge there are no agreements or claims for brokerage commissions or finders' fees in connection with the transactions contemplated by this Agreement, and the Stockholders and ESA will respectively pay or discharge and will indemnify the other, for brokerage commissions or finders' fees incurred by reason of any action taken by such indemnifying party. 3 7.2 Expenses. All costs and expenses (including legal fees) incurred in connection with this Agreement, and the sale and purchase of the Shares contemplated hereby, shall be paid by the party incurring such expense. 7.3 Survival of Representations. Notwithstanding any provision of this Agreement, all representations, warranties and agreements made by the Stockholders and ESA in this Agreement shall survive until the earlier of (a) the closing of the Merger or (b) the first anniversary of the date of exercise of the Option. 7.4 Further Assurance and Cooperation. From time to time, and without further consideration, each party will execute and deliver to the other such documents and take such action as the other may reasonably request in order to consummate more effectively the terms of this Agreement. 7.5 Parties in Interest. All authority herein conferred or agreed to be conferred by a Stockholder shall survive such Stockholder's death or incapacity. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the Purchaser (if such assigning party is a Stockholder) or Cowgill (if such assigning party is the Purchaser), which consent will not be unreasonably withheld, and except that ESA may assign to any wholly-owned subsidiary of ESA the right to purchase all of any part of the Shares. 7.6 Specific Performance. Each party acknowledges that its obligations hereunder are unique, and agrees that the other shall have the right, in addition to any other rights it may have, to specific performance or equitable relief by way of injunction if it shall fail to perform any of its obligations hereunder. 7.7 Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law doctrine thereof. 7.8 Term of the Agreement. The term of this Agreement shall be until the first to occur of (i) the date 180 days after the termination of the Merger Agreement, or (ii) the closing of the Merger. 4 IN WITNESS WHEREOF, the parties have executed this Stockholder Agreement as of the date first above written. EXTENDED STAY AMERICA, INC. By: /s/ George Dean Johnson, Jr. ----------------------------- Authorized Representative STOCKHOLDERS: /s/ Norwood Cowgill, Jr. -------------------------------- Norwood Cowgill, Jr. COWGILL PARTNERS, L.P. By: Cowgill Management Company, LLC General Partner /s/ Norwood Cowgill, Jr. ------------------------------- Authorized Representative 5 EX-2.4 3 VOTING AGREEMENT January 16, 1997 Studio Plus Hotels, Inc. ATTN: Norwood Cowgill, Jr. 1999 Richmond Road, Suite Four Lexington, KY 40502 Re: Vote Agreement -------------- Gentlemen: Studio Plus Hotels, Inc., a Virginia corporation (the "Company"), Extended Stay America, Inc., a Delaware corporation (the "Purchaser") and ESA Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Purchaser, intend to enter an Agreement and Plan of Merger as of January 16, 1997 (the "Agreement"). In order to induce the Company to enter into the Agreement, the undersigned hereby agrees to vote the shares (the "Shares") of common stock of Purchaser owned by the undersigned in favor of the Merger and the transactions contemplated thereby at any meeting (whether special or annual, and whether or not adjourned) or by written action of stockholders of Purchaser. Further, the undersigned hereby agrees to recommend the Merger to Purchaser stockholders, subject to the exercise of applicable fiduciary duties as determined by the undersigned in good faith after consultation with, and based upon the advice of, outside counsel. Studio Plus Hotels, Inc. January 16, 1997 Page 2 The term of this letter agreement shall be until the first to occur of (i) the termination of the Merger Agreement, (ii) the closing of the Merger, or (iii) August 31, 1997. Very truly yours, /s/George D. Johnson, Jr. George D. Johnson, Jr. ACCEPTED AND AGREED: Studio Plus Hotels, Inc. By: /s/Norwood Cowgill, Jr. ------------------------ Title: C.E.O --------------------- EX-99.1 4 FINANCIAL STATEMENTS OF STUDIO PLUS REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Studio Plus Hotels, Inc. Lexington, Kentucky We have audited the accompanying consolidated balance sheets of Studio Plus Hotels, Inc. and Subsidiary as of December 31, 1994 and 1995 and the related consolidated statements of operations, capital and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Studio Plus Hotels, Inc. and Subsidiary as of December 31, 1994 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Cincinnati, Ohio February 8, 1996 Page 1 STUDIO PLUS HOTELS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1995
1994 1995 ---- ---- ASSETS Current assets: Cash and cash equivalents.................... $ 457,445 $ 2,556,744 Accounts receivable, net of allowance of $61,894 and $70,654 in 1994 and 1995, respectively...................... 254,636 372,771 Refundable income taxes...................... 162,096 Other current assets......................... 24,762 163,887 ----------- ----------- Total current assets...................... 736,843 3,255,498 ----------- ----------- Property and equipment, net................... 34,002,239 59,355,184 Deferred loan costs, net of accumulated amortization of $250,865 and $48,281 in 1994 and 1995, respectively............... 293,811 244,991 Non-compete agreement, net of accumulated amortization of $56,250 and $125,000 in 1994 and 1995, respectively................................. 93,750 25,000 Pre-opening costs, net of accumulated amortization of $274,057 and $390,989 in 1994 and 1995, respectively...... 116,316 209,974 Deferred public offering costs................ 743,124 Other assets.................................. 236,395 285,726 ----------- ----------- $36,222,478 $63,376,373 =========== =========== LIABILITIES AND CAPITAL (DEFICIT) Current liabilities: Accounts payable............................. $ 1,213,670 $ 1,876,622 Accrued expenses: Property taxes............................. 323,548 322,584 Interest................................... 275,712 18,136 Compensation............................... 12,958 245,581 Other...................................... 213,951 364,986 Current portion of long-term debt............ 2,896,789 Current portion of payable for non-compete agreement....................... 75,000 75,000 ----------- ----------- Total current liabilities................. 5,011,628 2,902,909 ----------- ----------- Long-term debt................................ 30,922,848 4,000,000 Notes payable to shareholders and partners..................................... 1,383,500 Payable for non-compete agreement............. 75,000 Deferred income taxes......................... 4,827,410 Commitments Third party investors' interest............... 76,959 ----------- ----------- Total liabilities......................... 37,469,935 11,730,319 ----------- ----------- Capital(deficit): Preferred stock, par value $.01 per share, 10,000,000 shares authorized, none issued or outstanding Common stock, par value $.01 per share, 50,000,000 shares authorized, 5,115,000 shares issued and outstanding..... 210,000 51,150 Additional paid-in capital................... 128,296 50,490,353 Treasury stock............................... (75,000) Retained earnings (deficit).................. (1,209,108) 1,104,551 Partners' deficit............................ (301,645) ----------- ----------- Total capital (deficit)................... (1,247,457) 51,646,054 ----------- ----------- $36,222,478 $63,376,373 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. Page 2 STUDIO PLUS HOTELS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1993 1994 1995 ----------- ------------ ----------- Revenue: Room revenue........................................................... $ 9,984,966 $11,830,374 $15,308,835 Other revenue.......................................................... 324,135 322,159 581,416 ----------- ----------- ----------- Total revenue..................................................... 10,309,101 12,152,533 15,890,251 ----------- ----------- ----------- Costs and expenses: Property operating expenses............................................ 4,457,662 5,256,359 6,374,355 Corporate operating expenses........................................... 792,295 880,511 2,113,731 Depreciation and amortization.......................................... 1,312,968 1,472,358 1,912,132 Interest expense, net of interest income of $161,591 in 1995........... 2,498,125 2,531,990 1,356,082 ----------- ----------- ----------- Total costs and expenses.......................................... 9,061,050 10,141,218 11,756,300 ----------- ----------- ----------- Income before third party investor's interests, income taxes and extraordinary loss........................................ 1,248,051 2,011,315 4,133,951 Third party investors' interest........................................ (197,714) (358,432) (141,612) ----------- ----------- ----------- Income before income taxes and extraordinary loss.............. 1,050,337 1,652,883 3,992,339 Provision for income taxes............................................. -- -- 1,670,459 ----------- Income before extraordinary loss............................... 1,050,337 1,652,883 2,321,880 Extraordinary loss, net of tax benefit................................. (184,618) ----------- Net income..................................................... $ 1,050,337 $ 1,652,883 $ 2,137,262 =========== =========== =========== Pro forma income data: (Note 9) Income before extraordinary loss....................................... $ 1,050,337 $ 1,652,883 $ 2,321,880 Pro forma adjustment for income taxes.................................. (390,725) (614,872) 176,458 ----------- ----------- ----------- Pro forma income before extraordinary loss............................. 659,612 1,038,011 2,498,338 Extraordinary loss..................................................... -- -- (184,618) ----------- Pro forma net income................................................... $ 659,612 $ 1,038,011 $ 2,313,720 =========== =========== =========== Pro forma earnings per share: (Note 9) Pro forma income before extraordinary loss............................. $0.75 Extraordinary loss..................................................... (0.06) ----------- Pro forma net income................................................... $0.69 =========== Weighted average number of common shares outstanding..................... 3,330,069
The accompanying notes are an integral part of the consolidated financial statements. Page 3 STUDIO PLUS HOTELS, INC. CONSOLIDATED STATEMENTS OF CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
SHAREHOLDERS' EQUITY (DEFICIT) ------------------------------ RETAINED COMMON ADDITIONAL TREASURY EARNINGS PARTNERS' STOCK PAID-IN CAPITAL STOCK (DEFICIT) DEFICIT TOTAL ------ --------------- -------- ---------- --------- ----------- Balance, January 1, 1993............ $ 190,000 $ 106,846 $(1,602,455) $(394,265) $(1,699,874) Cash dividends.................... (890,548) (890,548) Partners' draws................... (70,678) (70,678) Net income........................ 885,398 164,939 1,050,337 --------- ----------- -------- ----------- --------- ----------- Balance, December 31, 1993.......... 190,000 106,846 (1,607,605) (300,004) (1,610,763) --------- ----------- -------- ----------- --------- ----------- Issuance of stock................. 20,000 20,000 Cash dividends.................... (1,139,111) (1,139,111) Partners' draws................... (116,916) (116,916) Conversion of note payable to stock......................... 21,450 21,450 Repurchase of treasury stock...... $(75,000) (75,000) Net income........................ 1,537,608 115,275 1,652,883 --------- ----------- -------- ----------- --------- ----------- Balance, December 31, 1994.......... 210,000 128,296 (75,000) (1,209,108) (301,645) (1,247,457) --------- ----------- -------- ----------- --------- ----------- Cash dividends.................... (1,747,956) (1,747,956) Partners' draws................... (547,074) (547,074) Reclassification of shareholders' and partners' interest to paid-in capital in connection with S corporation and partnership termination...................... (210,000) (1,631,115) 75,000 1,250,795 515,320 Purchase of minority shareholders' interest........... 3,955,515 673,558 333,399 4,962,472 Proceeds from initial public offering of stock, net.......... 51,150 48,037,657 48,088,807 Net income........................ 2,137,262 2,137,262 --------- ----------- -------- ----------- --------- ----------- Balance, December 31, 1995.......... $ 51,150 $50,490,353 $ -- $ 1,104,551 $ -- $51,646,054 ========= =========== ======== =========== ========= ===========
The accompanying notes are an integral part of the consolidated financial statements. Page 4 STUDIO PLUS HOTELS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1993 1994 1995 ---- ---- ---- Cash flows from operating activities: Net income................................................................ $ 1,050,337 $ 1,652,883 $ 2,137,262 Adjustments to reconcile net income to net cash provided by operating activities: Third party investors' interest.......................................... 197,714 358,432 141,612 Depreciation............................................................. 1,135,611 1,305,119 1,648,780 Amortization............................................................. 177,357 167,239 263,352 Loss (gain) on sale of assets............................................ 12,812 2,746 (72,393) Bad debt expense......................................................... 140,400 47,892 Deferred income tax expense.............................................. 593,186 Extraordinary loss....................................................... 184,618 Change in: Accounts receivable..................................................... (49,160) (199,039) (166,027) Other current assets.................................................... 12,394 (24,212) (139,125) Other assets............................................................ (42,399) (171,680) (49,597) Accounts payable........................................................ (10,718) (154,897) 167,354 Accrued expenses........................................................ 14,378 82,816 87,065 ----------- ----------- ------------ Net cash provided by operating activities.............................. 2,498,326 3,159,807 4,843,979 ----------- ----------- ------------ Cash flows from investing activities: Purchase of land.......................................................... (409,220) (918,969) (4,902,413) Expenditure for building and improvements................................. (1,398,463) (3,950,654) (8,273,199) Purchase of furniture, fixtures and equipment............................. (921,522) (923,927) (2,493,270) Sale of assets............................................................ 87,500 4,000 132,812 Additions to preopening costs............................................. (49,992) (101,175) (125,826) Purchase of third party investors' interest............................... (1,500,000) ----------- ----------- ------------ Net cash used in investing activities.................................. (2,691,697) (5,890,725) (17,161,896) ----------- ----------- ------------ Cash flows from financing activities: Proceeds from long-term debt.............................................. 5,521,492 4,319,832 6,916,222 Proceeds from notes payable to shareholders and partners.................. 560,000 875,000 1,727,500 Principal payments on long-term debt...................................... (3,831,133) (517,314) (36,810,859) Principal payments on notes payable to shareholders and partners.......... (613,500) (567,675) (3,111,000) Partners' draws........................................................... (70,678) (116,916) Cash dividends............................................................ (890,548) (1,139,111) (2,295,030) Distribution to third party investors..................................... (197,714) (281,473) Proceeds from sale of stock............................................... 20,000 Proceeds from public offering, net of underwriting costs.................. 49,731,750 Additions to deferred loan costs.......................................... (97,821) (27,320) (336,250) Additions to public offering costs........................................ (237,826) (1,405,117) ----------- ----------- ------------ Net cash provided by financing activities.............................. 380,098 2,327,197 14,417,216 ----------- ----------- ------------ Net increase (decrease) in cash........................................ 186,727 (403,721) 2,099,299 Cash at beginning of periods............................................... 674,439 861,166 457,445 ----------- ----------- ------------ Cash at end of periods..................................................... $ 861,166 $ 457,445 $ 2,556,744 ----------- ----------- ------------ Supplemental cash flow disclosures: Interest paid, net of amount capitalized.................................. $ 2,477,164 $ 2,539,213 $ 1,775,249 ----------- ----------- ------------ Income taxes paid......................................................... $ 1,182,200 ------------ Non-cash transactions: Contract payable for non-compete agreement................................ $ 150,000 ----------- Additions to public offering costs included in accounts payable........... $ 505,298 ----------- Conversion of note payable to stock....................................... $ 21,450 ----------- Repurchase of treasury stock for note payable............................. $ 75,000 ----------- Public offering costs netted against offering proceeds.................... $ 1,642,943 ------------ Purchase of minority shareholders' interest for stock and assumption of deficit capital balances................................................. $ 4,962,472 =============
The accompanying notes are an integral part of the consolidated financial statements. Page 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: Business Studio Plus Hotels, Inc. and its wholly owned subsidiary, Studio Plus Properties, Inc. (together, the "Company") own, develop and operate StudioPLUS extended stay hotels and own the rights to the related trade name and service marks for "StudioPLUS." StudioPLUS hotels are designed to combine the convenience of a hotel with many of the comforts of an apartment in order to provide affordable lodging for extended stay guests. At December 31, 1995 the Company had 22 hotels in operation and 7 under construction. The hotels open and under construction are located in eight states in the Midwest and Southeast United States. Corporate Organization and Initial Public Offering The Company was formed on December 19, 1994, to acquire, through merger and exchange of partnership interests all of the assets of Studio Plus, Inc. and the corporations and partnerships (collectively, the "Predecessor Entities") which owned and operated StudioPLUS extended stay hotels. On June 26, 1995, the Company completed an initial public offering of 3,565,000 shares of Common Stock, including shares issued as a result of the exercise of the underwriters' over-allotment option, at $15.00 per share (the "IPO") and received net proceeds of approximately $48 million, net of underwriting discounts and IPO expenses. Just prior to completion of the IPO, the Company acquired through merger and exchange of Common Stock for partnership interest, the assets of the Predecessor Entities which owned and operated all of the StudioPLUS extended stay hotel properties then in operation or under development (the "Corporate Organization"). The Company issued an aggregate of 1,548,500 shares of Common Stock and paid $1.5 million of cash to the partners and shareholders of the Predecessor Entities. The acquisition of the interests of the controlling shareholder or partner and affiliates of the Predecessor Entities, has been accounted for as if it were a pooling of interests with no increase in the carrying value for the interests acquired. The acquisition of the third party investors' interests has been accounted for as a purchase which resulted in an increase to the carrying value of the underlying assets acquired of $10,475,000. Pro forma results of operations have not been presented as the effects of the acquisition of the third party investors' interests were not significant. Principles of Consolidation The December 31, 1995 consolidated financial statements presented herein reflect Studio Plus Hotels, Inc. and its wholly owned subsidiary Studio Plus Properties, Inc. for the period subsequent to June 25, 1995 and combined information of the Predecessor Entities for the period prior to June 26, 1995. Page 6 The December 31, 1994 accompanying financial statements reflect combined financial data for the Predecessor Entities. All significant intercompany balances and transactions have been eliminated in the consolidation and combination. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Property and Equipment Property and equipment is stated at cost, including interest and salaries and related expenses for site design and construction supervision incurred during the construction period. Expenditures for replacements and improvements are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. A summary of the estimated useful lives of the assets are as follows:
Buildings and improvements......................................... 40 years Furniture, fixtures and equipment.................................. 5-10 years
The carrying amounts of major assets sold, retired, or otherwise disposed of, and the related accumulated depreciation amounts are eliminated from the accounts. Any resulting gain or loss is included in income. Deferred Loan Costs The Company has incurred costs in obtaining financing. These costs have been deferred and are being amortized over the life of the loan using the straight-line method. Page 7 Preopening Costs The Company capitalizes compensation, promotional costs and other costs relating to the opening of new properties. Amortization is provided using the straight-line method over a five year period for costs incurred through December 31, 1993. Commencing January 1, 1994 these costs are amortized using the straight-line method over a twelve-month period. Concentration of Credit Risk The Company maintained deposits totaling $239,940 and $619,239 at December 31, 1994 and 1995, respectively with one bank. Deposits in excess of $100,000 are not insured by the Federal Deposit Insurance Corporation. 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
1994 1995 ------------ ------------ Hotel property and equipment: Land.................................. $ 5,696,635 $12,403,803 Building and improvements............. 24,851,450 40,824,006 Furniture, fixtures and equipment..... 5,829,445 8,242,087 Construction in process............... 2,510,876 4,249,605 ----------- ----------- 38,888,406 65,719,501 Less accumulated depreciation...... (5,089,078) (6,678,808) ----------- ----------- 33,799,328 59,040,693 Corporate property and equipment: Furniture, fixtures and equipment..... 353,858 473,067 ----------- ----------- Less accumulated depreciation...... (150,947) (158,576) ----------- ----------- 202,911 314,491 ----------- ----------- Total property and equipment.. $34,002,239 $59,355,184 =========== ===========
Included in December 31, 1994 and 1995 accounts payable are amounts related to purchases of property and equipment totaling approximately $677,000 and $1,609,000, respectively. In addition, interest capitalized and included in the cost of building and improvements for December 31, 1994 and 1995 was $152,679 and $157,592, respectively. 4. LONG-TERM DEBT On May 23, 1995 the Company entered into a $30 million revolving credit agreement (the "Line of Credit") maturing in June 1998 to fund future development and construction of additional hotels and for working capital. Outstanding indebtedness under the credit agreement bears interest at either a rate based upon the London Interbank Offering Rate or the prime interest rate, at the selection of the Company. The interest rate on the outstanding indebtedness adjusts periodically based upon prevailing rates. Interest is payable monthly with the unpaid principal due at maturity. The Line of Credit contains certain financial covenants, including maintenance Page 8 of a minimum debt service coverage ratio and a maximum ratio of debt to tangible net worth and limitations upon the incurrence of additional debt without the consent of the lender. At December 31, 1995, long term debt consisted of two separate loan segments totaling $4,000,000, with a weighted average interest rate of 8.15%. Borrowings under the Line of Credit are collateralized by 17 hotels with a carrying value of $34,359,564 at December 31, 1995 and rents, profits, leases and intangible property at all properties now or hereafter owned by the Company. In February 1996 the Company amended its Line of Credit to increase its borrowing capacity to $50 million. The Company used the net proceeds of the IPO to retire approximately $36.8 million of outstanding mortgage debt, which was guaranteed by the former shareholders and partners of the Predecessor Entities, and approximately $3.1 million of loans from shareholders. In connection with the early extinguishment of mortgage debt, the Company incurred an extraordinary loss of $184,618, net of $123,079 in taxes, relating to the write-off of unamortized loan fees. 5. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax liabilities and assets for the temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities using currently enacted tax rates. Deferred income taxes in the amount of $4,827,410 consists primarily of timing differences relating to depreciation resulting from the increase in carrying value of assets. The increase in the carrying value of assets is due to the acquisition of third party investors' interests in connection with the Corporate Organization. The components of the provision for income taxes reflected in the consolidated statement of operations for the year ended December 31, 1995 are as follows:
Currently payable: Federal........................................................... $ 929,183 State............................................................. 148,000 ---------- 1,077,183 ---------- Deferred taxes: Federal........................................................... 507,615 State............................................................. 85,661 ---------- 593,276 ---------- Provision for income taxes.......................................... $1,670,459 ==========
Prior to the Corporate Organization, the Company's operations were conducted through S corporations and partnerships. Accordingly, the deferred tax provision includes approximately $540,000 relating to recognition of a net deferred tax liability representing temporary differences existing on the date of the Corporate Organization. Prior to the Corporate Organization, income taxes on earnings were paid by the shareholders and partners of the Predecessor Entities. Page 9 A reconciliation of the statutory federal tax rate to the company's effective income tax rate follows:
Statutory federal tax rate.............................................. 34.0% Effect of termination of S corporation and partnership status with the Corporate Organization................................................. 13.5 S corporation and partnership income for which no current income taxes were provided............................................................... (10.0) State income taxes, net of federal benefit................................................................ 2.5 Other................................................................... 1.8 ------ 41.8% ======
6. OPERATING LEASES The Company leases office space under two operating leases expiring in 1996 and 1997. The leases are renewable for various periods. The future minimum rental payments under the operating leases as of December 31, 1995 are as follows:
1996................................................................... $155,164 1997................................................................... 138,964 -------- Total minimum payments required.................................... $294,128 ========
Rent expense on the office lease and other leases expiring during 1995 was $132,864, $135,876 and $149,228 for 1993, 1994 and 1995, respectively. 7. RIGHTS AGREEMENT Under the terms of the Company's Rights Agreement, one right (a "Right") is attached to each share of Common Stock. Initially, each Right will entitle the registered holder to purchase from the Company one one-hundredth of a share (a "Unit") of Class A Cumulative Participating Preferred Stock ("Class A Preferred Stock"), of which 100,000 shares have been reserved for issuance pursuant to the Rights Agreement. Each Unit of Class A Preferred Stock is structured to be the economic equivalent of one share of Common Stock. The exercise price per Right will be $56 subject to adjustment (the "Purchase Price"). The Rights Agreement also provides that if any person becomes an Acquiring Person (as defined below), proper provision shall be made so that each holder of a Right (except as set forth below) will thereafter have the right to receive, upon exercise and payment of the Purchase Price, Class A Preferred Stock or Common Stock at the option of the Company (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to twice the amount of the Purchase Price. The Rights will separate from the Common Stock and a distribution of Rights Certificates will occur (the "Distribution Date") upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") Page 10 has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially becoming an Acquiring Person. Effective February 27, 1996, the Rights Agreement was amended to lower the percentage of beneficial ownership required to be deemed an Acquiring Person from 20% to 15% of the outstanding shares of Common Stock of the Company (the "Ownership Reduction"), and to add a provision which permits a person who becomes an Acquiring Person, solely because of the Ownership Reduction, to reduce its beneficial ownership of Common Stock to less than 15% by the close of business on the tenth business day following notice from the Company that such person's beneficial ownership equals or exceeds 15% of the outstanding shares of Common Stock to avoid classification as an Acquiring Person. In the event that, at any time following the Stock Acquisition Date, (i) the Company is acquired in a merger, statutory share exchange, or other business combination in which the Company is not the surviving corporation, or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right (except as set forth below) shall thereafter have the right to receive, upon exercise and payment of the Purchase Price, common stock of the acquiring company having a value equal to twice the Purchase Price. The events set forth in this paragraph and in the preceding paragraphs are referred to as the "Triggering Events." The Rights are not exercisable until the Distribution Date and will expire at the close of business on June 30, 2000, unless earlier redeemed or exchanged by the Company as described below or unless such expiration date is extended pursuant to the Rights Agreement. The Purchase Price payable, and the number of shares of Class A Preferred Stock, Common Stock or other securities or property issuable upon exercise of the Rights, are subject to adjustment from time to time to prevent dilution. At any time after any person becomes an Acquiring Person, the Company may exchange all or part of the Rights (except as set forth below) for shares of Common Stock (an "Exchange") at an exchange ratio of one share per Right, as appropriately adjusted to reflect any stock split or similar transaction. At any time until ten days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the "Redemption Price"). 8. STOCK OPTIONS The Company has two stock option plans, the 1995 Stock Incentive Plan (the "1995 Plan") and the 1995 Non-Employee Directors' Stock Incentive Plan (the "Directors Plan"). Under the 1995 Plan, an aggregate of 500,000 shares of common stock have been reserved for awards. Grants or awards are issued at the discretion of the Compensation Committee of the Board of Page 11 Directors and may be in the form of stock options, stock appreciation rights, restricted stock awards or performance share awards. Options granted to date under the 1995 Plan expire ten years from the grant date. Any vesting period is at the discretion of the Compensation Committee. At December 31, 1995 options to acquire an aggregate of 474,500 shares of Common Stock had been granted under the 1995 Plan at exercise prices ranging from $15.00 to $23.00 per share. Options to acquire an aggregate of 200,000 shares of Common Stock were exercisable at December 31, 1995. No options under the 1995 Plan were exercised in 1995. Options granted under the Directors' Plan vest over a four year period from the grant date and expire in ten years. The option price per share may not be less than the fair market value of a share on the date the option is granted. Under the Directors' Plan at December 31, 1995, options to acquire 30,000 and 10,000 shares had been granted at exercise prices per share of $15.00 and $21.63, respectively. No options were exercisable under the Directors Plan at year end or were exercised in 1995. 9. EARNINGS PER SHARE Prior to June 26, 1995, the assets of the Company were owned and operated by the Predecessor Entities. The outstanding shares or other equity interests of the Predecessor Entities differ substantially from the shares of Common Stock of the Company outstanding after the IPO. Accordingly, the Company believes that the presentation of historical per share information for the periods prior to the IPO is not meaningful. The pro forma earnings per share for the year ended December 31, 1995 has been calculated by dividing the pro forma net income by the weighted average number of shares of Common Stock deemed to be outstanding. Income before extraordinary loss has been adjusted to pro forma income before extraordinary loss by reflecting the tax that would have been paid by the Company if it had been subject to income tax for the full year, assuming a 37.2% effective tax rate. Prior to June 26, 1995, the Company was not fully subject to income taxes due to the election of S corporation and partnership tax status by the Predecessor Entities. If the Company had been subject to tax, it would have incurred income tax expense of approximately $391,000, $615,000 and $1,371,000 for the years ended December 31, 1993, 1994 and 1995, respectively. The Company has also computed supplemental net income per common share to be $0.82 for the year ended December 31, 1995. Supplemental net income of approximately $3,549,000 has been computed by adjusting historical net income for: (i) the elimination of interest expense on the debt repaid with a portion of the proceeds of the IPO; (ii) the elimination of third party investors' interest in the Predecessor Entities; (iii) the elimination of the extraordinary loss; and (iv) provision for income taxes based on an effective tax rate of 37.2%. Supplemental weighted average number of common shares outstanding (4,309,958 shares) is based on outstanding common shares from the beginning of the period comprised of the following: (i) 1,548,500 shares issued to the controlling shareholder and other minority investors; (ii) 100,000 shares issued to acquire a third party investor's interest; and (iii) 2,661,458 shares issued to fund the retirement of debt. Page 12 10. RELATED PARTY TRANSACTIONS Borrowings from partners and shareholders of the Predecessor Entities were $875,000 and $1,727,500 for 1994 and 1995, respectively. Principal repayments on loans from shareholders and partners of the Predecessor Entities were $567,675 and $3,111,000 for 1994 and 1995, respectively. In addition, the Company incurred interest expense of $73,625 and $156,851 for the same periods, respectively, on shareholder debt. Prior to the IPO, the Company distributed $2,295,030 to the shareholders of the Predecessor Entities in accordance with the merger agreements. 11. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets" which is effective for years beginning after December 15, 1995. The statement requires that long-lived assets and certain intangibles to be held and used by entities be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If during the review the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. The Company believes that the adoption of this standard will not have a material impact on its financial condition or results of operations. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" which is effective for transactions entered into after December 15, 1995. The pronouncement allows the Company to continue its current method of accounting for stock options or use the method prescribed in SFAS No. 123. The Company intends to continue its current accounting method for stock options. Therefore, the impact of adopting the statement will not materially affect the future reported results of operations or the financial condition of the Company. Page 13 Studio Plus Hotels, Inc. INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at September 30, 1996 and December 31, 1995 2 Condensed Consolidated Statements of Operations for the three month periods ended September 30, 1996 and 1995 3 Condensed Consolidated Statements of Operations for the nine month periods ended September 30, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1996 and 1995 5 Notes to Financial Statements 6
Page 1 Studio Plus Hotels, Inc. Condensed Consolidated Balance Sheets (Thousands)
ASSETS September 30, December 31, 1996 1995 ------------ ----------- (Unaudited) Current assets: Cash and cash equivalents $ 31,663 $ 2,557 Investments available-for-sale 18,227 Accounts receivable, net of allowance of $75 and $71, respectively 739 372 Refundable income taxes 162 Other current assets 502 164 ---------- --------- Total current assets 51,131 3,255 ---------- --------- Property and equipment, net 91,426 59,630 Deferred loan costs, net of accumulated amortization of $166 and $48, respectively 383 245 Preopening costs, net of accumulated amortization of $633 and $391, respectively 552 210 Other assets 6 36 ---------- --------- $143,498 $63,376 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 3,544 $ 1,877 Property tax 512 322 Compensation 522 246 Income taxes payable 1,139 Accrued expenses 641 458 ---------- --------- Total current liabilities 6,358 2,903 ---------- --------- Long-term debt 4,000 Deferred income tax 4,846 4,827 Shareholders' equity: Common stock 125 51 Additional paid-in capital 127,207 50,490 Net unrealized gains on investments 29 Retained earnings 4,933 1,105 ---------- --------- Total shareholders' equity 132,294 51,646 ---------- --------- $143,498 $63,376 ========== =========
See accompanying notes to financial statements Page 2 Studio Plus Hotels, Inc. Condensed Consolidated Statements of Operations (Thousands, except earnings per share data) (Unaudited)
Three Month Periods Ended September 30, -------------------------------- 1996 1995 ------------- ------------ Revenue: Room revenue $6,303 $4,353 Other revenue 210 141 ---------- ---------- Total revenue 6,513 4,494 ---------- ---------- Costs and expenses: Property operating expenses 2,477 1,660 Corporate operating expenses 1,010 705 Depreciation and amortization 876 450 Interest income, net (722) (89) ---------- ---------- Total costs and expenses 3,641 2,726 ---------- ---------- Income before income taxes 2,872 1,768 Provision for income taxes 1,120 705 ---------- ---------- Net income $1,752 $1,063 ========== ========== Earnings per common and common equivalent shares, primary and fully diluted (Note 4) $0.14 $0.14 ========== ========== Weighted average number of common and common equivalent shares outstanding (note 4) 12,816,903 7,672,500 See accompanying notes to financial statements Page 3
Studio Plus Hotels, Inc. Condensed Consolidated Statements of Operations (Thousands, except earnings per share data) (Unaudited)
Nine Month Periods Ended September 30, ---------------------------- 1996 1995 ---------- ------------- Revenue: Room revenue $16,087 $11,397 Other revenue 553 434 ------- ------- Total revenue 16,640 11,831 ------- ------- Costs and expenses: Property operating expenses 6,862 4,635 Corporate operating expenses 2,766 1,450 Depreciation and amortization 2,312 1,293 Interest (income) expense, net (1,577) 1,422 ------- ------- Total costs and expenses 10,363 8,800 Income before third party investors' interest and ------- ------- income taxes 6,277 3,031 Third party investors' interest (142) ------- ------- Income before income taxes 6,277 2,889 Provision for income taxes 2,448 1,280 ------- ------- Income before extraordinary loss 3,829 1,609 Extraordinary loss (185) ------- ------- Net income $ 3,829 $ 1,424 ======= ======= Pro forma income data: (Note 4) Income before income taxes $ 1,609 Pro forma provision for income taxes 125 ------- Pro forma income before extraordinary loss 1,734 Extraordinary loss (185) ------- Pro forma net income $ 1,549 ======= Earnings per common and common equivalent shares, primary and fully diluted (Note 4) $ 0.34 ======= Pro forma earnings per share: (Note 4) Income before extraordinary loss $ 0.44 Extraordinary loss (0.05) ------- Net income $ 0.39 ======= Weighted average number of common and common equivalent shares outstanding (Note 4) 11,180,562 3,968,570
See accompanying notes to financial statements Page 4
Studio Plus Hotels, Inc. Condensed Consolidated Statements of Cash Flows (Thousands) (Unaudited) Nine Month Periods Ended September 30, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net Income $ 3,829 $ 1,424 Adjustments to reconcile net income to net cash provided by operating activities: Third party investors' interest 142 Depreciation and amortization 2,312 1,293 Gain on sale of investments and other assets (9) (70) Bad debt expense 61 32 Extraordinary loss 185 Deferred income tax liability 540 Change in: Accounts receivable (428) (162) Other current assets (338) (231) Other assets 6 (200) Accounts payable 94 139 Income taxes 1,301 Accrued expenses 724 408 ---------- ---------- Net cash provided by operating activities 7,552 3,500 ---------- ---------- Cash flows from investing activities: Expenditures for land, buildings, improvements, furniture and fixtures (32,150) (7,994) Sale of assets 156 Purchase of available-for-sale investments (39,171) Proceeds from sale/maturity of available-for-sale investments 21,000 Additions to preopening costs (584) (50) Purchase of third party investors' interest (1,500) ---------- ---------- Net cash used in investing activities (50,905) (9,388) ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt 7,000 3,979 Proceeds from notes payable to shareholders and partners 1,728 Principal payments on long-term debt (11,075) (37,874) Principal payments on notes to shareholders (3,111) Cash dividends (2,295) Proceeds from public offering, net of underwriting costs 77,236 49,732 Proceeds from the exercise of stock options 7 Additions to deferred loan costs (256) (334) Public offering costs (453) (1,365) ---------- ---------- Net cash provided by financing activities 72,459 10,460 ---------- ---------- Net increase in cash and cash equivalents 29,106 4,572 Cash and cash equivalents, at beginning of periods 2,557 457 ---------- ---------- Cash and cash equivalents, at end of periods $ 31,663 $ 5,029 ========== ==========
See accompanying notes to financial statements Page 5 Studio Plus Hotels, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnotes required by generally accepted accounting principles for complete financial statements have been omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of financial position and results of operations have been made. These interim financial statements should be read in conjunction with the Studio Plus Hotels, Inc. 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission. All significant intercompany balances and transactions have been eliminated. (2) Income Taxes Net income for periods prior to the completion of the Company's initial public offering on June 26, 1995 (the "IPO") excludes taxes on income. Prior to the IPO, the Company was organized as S-corporations and partnerships (the "Predecessor Entities"), and therefore, was not subject to income tax. (3) Stock Split On July 9, 1996, a three-for-two split of the Company's Common Stock was effected in the form of a stock dividend of three shares of Common Stock for each two shares of Common Stock outstanding at the close of business on June 20, 1996. Effective with the stock split, Common Stock outstanding increased from 8,351,898 to 12,527,833 shares. Accordingly, all applicable share and per share data have been adjusted for the stock split. (4) Earnings Per Share The weighted average number of common and common equivalent shares used in the computation of earnings per share for the three months ended September 30, 1996, are as follows:
Weighted average common shares issued 12,527,833 Dilutive effect of stock options 289,070 ---------- Weighted average number of common and common equivalent shares 12,816,903
The weighted average number of common and common equivalent shares used in the computation of earnings per share for the nine months ended September 30, 1996, are as follows: Weighted average common shares issued 10,873,823 Dilutive effect of stock options 306,739 ---------- Weighted average number of common and common equivalent shares 11,180,562
The pro forma earnings per share for the three month and nine month periods ended September 30, 1995, have been calculated by dividing pro forma net income by the weighted average number of shares of Common Stock deemed to be outstanding. Net income has been adjusted to pro forma net income by reflecting the tax that would have been paid by the Company if it had been subject to income tax for the full period, assuming a 40.0% effective tax rate. The Company believes that the earnings per share calculations discussed above, required in accordance with Accounting Principles Board Opinion No. 15, are not meaningful for periods prior to the IPO. Rather, if certain adjustments are made to the combined historical operating results for the Predecessor Entities and 7,672,500 shares are assumed outstanding the adjusted net income per share for the nine months ended September 30, 1995 would be $0.32, compared to $0.34 for the nine months ended September 30, 1996. (5) Reclasssifications Certain amounts within the prior year income statement captions have been reclassified to provide consistency with current year presentation. These reclassifications have no effect on net income of the prior year. Page 6 EX-99.2 5 PRO FORMA FINANCIAL STATEMENTS OF THE COMPANY Unaudited Pro Forma Financial Information The accompanying unaudited Pro Forma Condensed Combined Financial Statements are presented as if the Company had completed the Acquisitions, along with the acquisition of Welcome Inn America 89-1, L.P. ("Welcome") which occurred on August 18, 1995, but excluding the acquisition of the assets of AATI (collectively the "Significant Purchase Acquisitions") at January 9, 1995 (the Company's date of inception) and as if the merger of Studio Plus had been completed at January 1, 1993. The acquisition of AATI has been excluded from Significant Purchase Acquisitions because the purchase price and the unaudited results of operations for the periods , when measured in relation to the Company, did not meet certain materiality standards and can be excluded as permitted by the rules and regulations of the Securities and Exchange Commission. This pro forma information is based in part upon the Consolidated Financial Statements of the Company and Studio Plus and Statements of Operations of Welcome and the Acquisitions, excluding AATI. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made. The unaudited Pro Forma Condensed Combined Statements of Income are not necessarily indicative of what the actual results of operations of the Company would have been assuming such transactions had been completed as of the beginning of the periods discussed above, nor do they purport to represent the results of operations for any future periods. Results of operations and the related earnings or loss per share for future periods will be affected by a number of factors, including but not limited to, the number of facilities opened and the operating results therefrom, interest costs incurred on indebtedness (including the amortization of deferred loan costs), corporate operating and property management expenses, site selection costs and the number of future shares issued. Certain data and notes normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accompanying unaudited Pro Forma Condensed Combined Financial Statements and notes should be read in conjunction with the Consolidated Financial Statements of the Company and Studio Plus included in their respective 1995 Form 10-K and Form 10-Q for the quarterly period ended September 30, 1996. EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED BALANCE SHEET as of September 30, 1996 (Unaudited) (in thousands)
Studio ASSETS Company Plus Merger Pro Forma (Historical) (Historical) Adjustments Combined ------------------------------------------ --------- Current assets: Cash and cash equivalents $294,398 $ 31,663 $ $326,061 Securities available for sale 18,227 18,227 Accounts receivable, net 739 (739) Refundable deposits 658 658 Supply inventories 1,239 60(a) 1,299 Prepaid expenses 232 262(a) 494 Other current assets 1,224 502 969(a) 2,695 ------------------------------------------ --------- Total current assets 297,751 51,131 552 349,434 ------------------------------------------ --------- Property and equipment, at cost 189,217 91,426 7,646(a) 288,289 Less accumulated depreciation (1,530) (8,766)(a) (10,296) ------------------------------------------ --------- Property and equipment, net 187,687 91,426 (1,120) 277,993 ------------------------------------------ --------- Site deposits and preacquisition costs 8,430 1,120(a) 9,550 Deferred loan costs 9,005 383 9,388 Preopening costs, net 552 (552)(a) Other assets 652 6 658 ------------------------------------------ --------- Total Assets $503,525 $ 143,498 $ $647,023 ========================================== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,191 $ 3,544 $ 6,520(b) $ 10,985 Accrued salaries and related expenses 851 522 1,373 Due to related parties 85 85 Other accrued expenses 5,960 641 358(a) 6,959 Property taxes 512 (512)(a) Income taxes payable 1,139 1,139 Deferred revenue 186 154(a) 340 ------------------------------------------ --------- Total current liabilities 8,273 6,358 6,250 20,881 Deferred income taxes 966 4,846 5,812 ------------------------------------------ --------- Total liabilities 9,239 11,204 6,250 26,693 ------------------------------------------ --------- Commitments Shareholders' equity: Preferred stock, $.01 value Common stock, $.01 par value 683 125 28(c) 836 Additional paid in capital 492,632 127,207 (28)(c) 619,811 Unrealized gains on securities available for sale, net 29 29 Retained earnings (deficit) 971 4,933 (6,250)(b) (346) ------------------------------------------ --------- Total shareholders' equity 494,286 132,294 (6,250) 620,330 ------------------------------------------ --------- Total Liabilities & Shareholders' ------------------------------------------ --------- Equity $503,525 $ 143,498 $ $647,023 ========================================== =========
See accompanying notes to the unaudited pro forma condensed combined financial statements. EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME for the year ended December 31, 1993 (Unaudited) (in thousands)
Studio Pro Forma Significant Company Plus Merger Combined Purchase Pro Forma (Historical) (Historical) Adjustments (Historical) Acquisitions Combined Revenue: Room revenue $ 9,985 $ 9,985 $ 9,985 324 324 324 Other revenue ---------- ---------- ---------- ---------- ---------- ---------- 10,309 10,309 10,309 Total revenue ---------- ---------- ---------- ---------- ---------- ---------- Cost & expenses: Property operating expenses (4,458) (4,458) (4,458) Corporate operating expenses (792) (792) (792) Depreciation and amortization (1,313) (1,313) (1,313) ---------- ---------- ---------- ---------- ---------- ---------- Total costs and expenses (6,563) (6,563) (6,563) ---------- ---------- ---------- ---------- ---------- ---------- Income from operations 3,746 3,746 3,746 Interest expense (198) (198) (198) ---------- ---------- ---------- ---------- ---------- ---------- Income before third party investors interest 3,548 3,548 3,548 Third party investors interest (2,498) (2,498) (2,498) ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes 1,050 1,050 1,050 Provision for income taxes ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 1,050 $ 1,050 $ 1,050 ========== ========== ========== ========== ========== ========== Pro forma income data: Net income $ 1,050 $ 1,050 $ 1,050 Pro forma adjustment for income taxes (390) (390) (390) ---------- ---------- ---------- Pro forma net income $ 660 $ 660 $ 660 ========== ========== ==========
See accompanying notes to the unaudited pro forma condensed combined financial statements. EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME for the year ended December 31, 1994 (Unaudited) (in thousands)
Studio Pro Forma Significant Company Plus Merger Combined Purchase Pro Forma (Historical) (Historical) Adjustments (Historical) Acquisitions Combined Revenue: Room revenue $11,830 $11,830 $11,830 Other revenue 322 322 322 Total revenue ---------- ------- ---------- ------- --------- ------- 12,152 12,152 12,152 ---------- ------- ---------- ------- --------- ------- Cost & Expenses: Property operating expenses (5,256) (5,256) (5,256) Corporate operating expenses (881) (881) (881) Depreciation and amortization (1,472) (1,472) (1,472) ---------- ------- ---------- ------- --------- ------- Total costs and expenses (7,609) (7,609) (7,609) ---------- ------- ---------- ------- --------- ------- Income from operations 4,543 4,543 4,543 Interest expense (2,532) (2,532) (2,532) ---------- ------- ---------- ------- --------- ------- Income before third party investors interest 2,011 2,011 2,011 Third party investors interest (358) (358) (358) ---------- ------- ---------- ------- --------- ------- Income before income taxes 1,653 1,653 1,653 Provision for income taxes ---------- ------- ---------- ------- --------- ------- Net income $ 1,653 $ 1,653 $ 1,653 ========== ======= ========== ======= ========= ======= Pro forma income data: Net income $ 1,653 $ 1,653 $ 1,653 Pro forma adjustment for income taxes (615) (615) (615) -------- -------- -------- Pro forma net income $ 1,038 $ 1,038 $ 1,038 ======= ======= ======= See accompanying notes to the unaudited pro forma condensed combined financial statements.
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME for the year ended December 31, 1995 (Unaudited) (in thousands except per share amounts)
Studio Pro Forma Significant Company Plus Merger Combined Purchase Pro Forma (Historical) (Historical) Adjustments (Historical) Acquisitions Combined Revenue: Room revenue $ 817 $ 15,309 $ $ 16,126 $ 12,612 (a) $ 28,738 Other revenue 61 581 642 675 (a) 1,317 ---------- ---------- ---------- ---------- ---------- ---------- Total revenue 878 15,890 16,768 13,287 30,055 ---------- ---------- ---------- ---------- ---------- ---------- Cost & expenses: Property operating expenses (332) (6,374) (6,706) (5,555) (a) (12,261) Corporate operating expenses (2,555) (2,114) (4,669) (876) (a) (5,545) Depreciation and amortization (147) (1,912) (2,059) (2,047) (a) (4,106) ---------- ---------- ---------- ---------- ---------- ---------- Total costs and expenses (3,034) (10,400) (13,434) (8,478) (21,912) ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) from operations (2,156) 5,490 3,334 4,809 8,143 Interest income (expense) 849 (1,357) (508) (44) (a) (552) ---------- ---------- ---------- ---------- ---------- ---------- Income before third party investors interest (1,307) 4,133 2,826 4,765 7,591 Third party investors interest (141) (141) (141) ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes (1,307) 3,992 2,685 4,765 7,450 Provision for income taxes (1,670) 523(c) (1,147) (1,906) (a) (3,053) ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) $ (1,307) $ 2,322 $ 523 $ 1,538 $ 2,859 $ 4,397 ========== ========== ========== ========== ========== ========== Net income (loss) per common share $ (0.05) $ (0.05) $ (0.12) ========== ========== ========== Pro forma income data: Net income $ 2,322 $ 1,538 $ 4,397 Pro forma adjustment for income taxes 176 176 176 ---------- ---------- ---------- Pro forma net income $ 2,498 $ 1,714 $ 4,573 ========== ========== ========== Pro forma net income per share: $ 0.50 $ 0.05 $ 0.12 ========== ========== ========== Weighted average number of common and equivalent shares outstanding during the period 25,304 4,995 1,135(b) 31,434 5,216(a) $ 36,650 ========== ========== ========== ========== ========== ==========
See accompanying notes to the unaudited pro forma condensed combined financial statements. EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME for the nine months ended September 30, 1996 (Unaudited) (In thousands except per share amounts)
Studio Pro Forma Significant Company Plus Merger Combined Purchase Pro Forma (Historical) (Historical) Adjustments (Historical) Acquisitions Combined Revenue: Room revenue $ 8,653 $ 16,087 $ 24,740 $ 5,172(a) $ 29,912 Other revenue 260 553 813 41(a) 854 ---------- ---------- ---------- ---------- ---------- ---------- Total revenue 8,913 16,640 25,553 5,213 30,766 ---------- ---------- ---------- ---------- ---------- Cost & expenses: Property operating expenses (3,588) (6,862) (10,450) (416)(a) (10,866) Corporate operating expenses (8,706) (2,766) (11,472) (1,397)(a) (12,869) Depreciation and amortization (1,430) (2,312) (3,742) (783)(a) (4,525) ---------- ---------- ---------- ---------- ---------- ---------- Total costs and expenses (13,724) (11,940) (25,664) (2,596) (28,260) ---------- ---------- ---------- ---------- ---------- Income (loss) from operations (4,811) 4,700 (111) 2,617 2,506 Interest income 8,056 (1,577) 9,633 9,633 ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes 3,245 6,277 9,522 2,617 12,139 Provision for income taxes (966) (2,448) (300)(c) (3,714) (1,020)(a) (4,734) ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 2,279 $ 3,829 $ (300) $ 5,808 $ 1,597 $ 7,405 ========== ========== ========== ========== ========== ========== Net income per commom share $ 0.04 $ 0.34 $ 0.08 $ 0.10 ========== ========== ========== ========== Weighted average number of common and equivalent shares outstanding during the period 55,908 11,181 2,540(b) 69,629 2,515(a) 72,144 ========== ========== ========== ========== ========== ==========
See accompanying notes to the unadited pro forma condensed combined financial statements. Extended Stay America, Inc. and Subsidiaries Notes to Pro Forma Condensed Combined Financial Statements (unaudited) 1. Basis of Presentation Historical The historical Condensed Consolidated Financial Statements of the Company and of Studio Plus include the accounts of the Company and its subsidiaries and of Studio Plus and its subsidiary, respectively. All significant intercompany balances within each company have been eliminated. The Company was formed on January 9, 1995. Studio Plus was formed on December 19, 1994 and on June 26, 1995 acquired through merger and exchange of partnership interests all of the assets of Studio Plus, Inc. and the corporations and partnerships (collectively, the "Predecessor Entities") which owned and operated StudioPLUS hotels. The historical Condensed Consolidated Statements of Income of Studio Plus for the years ended December 31, 1993, 1994 and 1995 reflect combined financial data for the Predecessor Entities, accounted for as if the combination of the Predecessor Entities were a pooling of interests. Income taxes on earnings were paid by shareholders and partners of the Predecessor Entities. Accordingly, income taxes are provided on a pro forma basis for the years ended December 31, 1993, 1994 and 1995. The Merger The Merger has been accounted for in the Pro Forma Condensed Combined Financial Statements using the pooling of interests method of accounting whereby the accounts of Extended Stay America, Inc. and subsidiaries are combined with the accounts of Studio Plus as though both companies operated as one business for the periods presented. The non-recurring costs associated with the Merger, estimated to be $6.25 million, have been excluded from the Pro Forma Condensed Combined Statements of Income to more accurately reflect the actual operation of the companies. These costs will be expensed in the period that the Merger is consummated. Significant Purchase Acquisitions The Pro Forma Condensed Combined Statements of Income reflect the results of the operations for the Significant Purchase Acquisitions for the respective periods as if they were acquired as of January 9, 1995 (the date of inception of the Company). These acquisitions were accounted for using the purchase method of accounting. 2. Earnings Per Share Earnings per share have been calculated by dividing the net income by the outstanding shares of Common Stock, adjusted to reflect the issuance of the additional shares to be issued in the Merger at a ratio of 1.2272 shares per share of Studio Plus Common Stock. Prior to June 26,1995 the assets of Studio Plus were owned and operated by the Predecessor Entities. The outstanding shares and other equity interests of the Predecessor Entities differ substantially from the shares of Common Stock of Studio Plus outstanding after the initial public offering by Studio Plus on June 26, 1995. Accordingly, Studio Plus has not historically presented earnings per share information for the years ended December 31, 1993 and 1994. Extended Stay America, Inc. and Subsidiaries Notes to Pro Forma Condensed Combined Financial Statements - (Continued) (unaudited) The weighted average number of common and equivalent shares outstanding during the period and the related earnings per share data as reflected in the historical Consolidated Statements of Operations for the year ending December 31, 1995 for both the Company and Studio Plus have been adjusted to give effect to the stock splits occurring in 1996. 3. Pro Forma Adjustments Pro Forma Balance Sheet a) To reclassify certain assets and liabilities of Studio Plus to conform with the Company's presentation. b) To reflect the estimated costs associated with the Merger. c) To reflect the issuance of 2,843,818 incremental shares of Common Stock in the Merger and the elimination of a corresponding amount of additional paid in capital. Pro Forma Statements of Income a) To reflect the results of operations of the Significant Purchase Acquisitions for the respective periods as if they were acquired as of January 9, 1995 (the date of inception of the Company). b) To reflect the issuance of the incremental shares of Common Stock of the Company in the Merger based on a ratio of 1.2272 shares per share of Studio Plus Common Stock. c) To reflect the adjustment in the provision for income taxes resulting from the combination on a pro forma basis. -----END PRIVACY-ENHANCED MESSAGE-----