-----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, LN5ZeGuZ//S7dhtcs9EUr9zPL+o6gYu0l2ywENx9iluM+KH+7RKoMNITOgyMJFzl T2G3vPt5+6Ur1aIzJWTHkg== 0000950144-97-002060.txt : 19970305 0000950144-97-002060.hdr.sgml : 19970305 ACCESSION NUMBER: 0000950144-97-002060 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970304 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STUDIO PLUS HOTELS INC CENTRAL INDEX KEY: 0000934599 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 611273532 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25340 FILM NUMBER: 97550487 BUSINESS ADDRESS: STREET 1: 1999 RICHMOND RD STREET 2: STE 4 CITY: LEXINGTON STATE: KY ZIP: 40502 BUSINESS PHONE: 6062691999 MAIL ADDRESS: STREET 1: 1999 RICHMOND RD STREET 2: STE 4 CITY: LEXINGTON STATE: KY ZIP: 40502 FORMER COMPANY: FORMER CONFORMED NAME: STUDIO PLUS OF AMERICA INC DATE OF NAME CHANGE: 19941222 10-K 1 STUDIO PLUS HOTELS, INC. 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NO. 34-0-25340 STUDIO PLUS HOTELS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) VIRGINIA 61-1273532 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1999 RICHMOND ROAD, SUITE 4 LEXINGTON, KENTUCKY 40502 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (606) 269-1999 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ---------------------------- ------------------------ Common Stock, $.01 par value The Nasdaq Stock Market National Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of February 28, 1997, there were outstanding 12,557,320 shares of the registrant's common stock, par value $.01, which is the only class of common or voting stock of the registrant. =============================================================================== 2 PART I ITEM 1. BUSINESS Studio Plus Hotels, Inc. (the "Company") owns, develops and operates StudioPLUS(TM) extended stay hotels and owns the rights to the related trade name and service marks for "StudioPLUS." StudioPLUS hotels are designed to combine the convenience of a hotel with many of the comforts of an apartment in order to provide affordable lodging for extended stay guests. The Company believes that StudioPLUS accommodates an underserved niche of guests in the extended stay sector of the lodging industry. These guests include business travelers, professionals on temporary work assignment, persons relocating or purchasing a home, tourists and others desiring high quality, furnished accommodations with full kitchens. StudioPLUS guests typically prefer weekly rather than daily accommodations. The Company's Predecessor Entities (defined hereafter) were founded in 1985 by Norwood Cowgill, Jr. ("Mr. Cowgill"), Chairman of the Board of Directors and Chief Executive Officer. On December 19, 1994, the Company was formed to acquire, through merger and exchange of partnership interests all of the assets of Studio Plus, Inc. and the corporations and partnerships which owned and operated StudioPLUS extended stay hotels (collectively, the "Predecessor Entities"). In June, 1995, the Company completed an initial public offering of 5,347,500 shares of common stock ("Common Stock") at $10.00 per share and received net cash proceeds of approximately $48.1 million (the "IPO"). In April, 1996, the Company completed a follow-on equity offering of 4,855,347 shares of common stock at $16.83 per share and received net cash proceeds of approximately $76.8 million (the "Offering") . In July, 1996, a three-for-two split of the Company's Common Stock was effected in the form of a stock dividend of three shares of Common Stock for each two shares of Common Stock outstanding at the close of business on June 20, 1996 (the "Stock Split"). For a discussion of the Company's credit facilities, see "Management's Discussions and Analysis of Financial Condition and Results of Operations" in this report. The StudioPLUS concept was developed to meet the demand for high quality extended stay lodging and provide an affordable alternative to the nightly rates of hotels and the long-term commitments of apartment leases. Mr. Cowgill designed the StudioPLUS concept to target this market segment. Currently, a typical StudioPLUS hotel contains 72 suites; however, the Company has developed prototype plans for larger hotels it can construct when it is determined appropriate based on market size and demand. All StudioPLUS hotels have weekly maid service, with an option for daily service, and coin-operated laundry facilities; most of the hotels have an exercise room and a swimming pool. The Company is currently operating, constructing or has sites under contract on which to construct StudioPLUS hotels in 22 states. As of February 28, 1997, the Company owned and 2 3 operated 37 StudioPLUS hotels (the "Existing Hotels"), and had 11 StudioPLUS hotels under construction (the "Construction Properties") and had contracts to purchase 28 additional sites (the "Planned Sites"). The Existing Hotels contain an aggregate of 2,650 suites, average approximately four years in age, and are located in Ohio (8), North Carolina (6), Kentucky (5), Tennessee (5), Indiana (4), Alabama (3), South Carolina (3), Missouri (2) and Mississippi (1). The Company's strategy is to grow by (i) developing and operating additional affordable extended stay hotels, (ii) actively managing its hotels to increase revenues and reduce operating costs and (iii) increasing awareness of StudioPLUS hotels by consistently providing high quality accommodations for its guests. As its primary development strategy, the Company intends to expand into new markets and, to a lesser extent, to develop additional hotels in its existing markets. The Company oversees all phases of development to facilitate on-time, within budget, quality construction. The Company also may consider franchising opportunities and may consider acquiring operating properties for conversion to StudioPLUS hotels if appropriate opportunities are identified. For a discussion of seasonality, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. OPERATING PRACTICES The Company has operated each of the Existing Hotels since its opening. The Company's operating strategy is to encourage decision-making by on-site employees. Each StudioPLUS hotel employs a general manager who is responsible for the operations of the particular hotel. Each general manager typically oversees a staff of five employees, including an assistant manager, housekeeping and maintenance personnel. Hotel level employees are cross- trained to afford greater staffing flexibility in responding to guests' needs, which management believes helps minimize operating costs. StudioPLUS hotels' office typically is open Monday through Saturday from 9:00 a.m. to 6:00 p.m. and on Sunday from 12:00 p.m. to 5:00 p.m. Maid service is provided on a weekly basis, with daily service available at the option of each guest for an additional charge. A manager resides on-site at each hotel, thereby providing after-hour accessability to guests. Each general manager reports to a regional manger, both of whom are supported by the Company's executive officers and headquarters staff. Prior to assuming responsibility for a hotel, general managers and assistant managers undergo a management training program designed to familiarize each trainee with various facets of the Company's management, operation and development programs. The program also emphasizes the Company's guest service policies and provides hands-on operating experience at the hotel level. The Company's management training program also is intended to train assistant managers for promotion to general manager. Each general manager is responsible for local marketing and advertising programs and for promoting StudioPLUS hotels within the local community. The Company's Vice President of Marketing coordinates system wide and regional marketing, and facilitates the Company's sales, promotion and marketing efforts. The Company offers a cash bonus program for each hotel 3 4 employee, based on property performance and profitability at the Existing Hotels. Management of the Company's hotels is coordinated from the Company's headquarters in Lexington, Kentucky. The Company employs approximately 325 persons and performs all marketing, accounting and management functions necessary to operate the Existing Hotels and complete the development of the Construction Properties and Planned Sites. COMPETITION The lodging industry is highly competitive. Competitive factors within the industry include room rates, quality of accommodations, name recognition, supply and availability of alternative lodging, including short-term lease apartments, service levels, name recognition, reputation, reservation systems and convenience of location. Each of the Existing Hotels and Construction Properties is located in a developed area that includes competing lodging facilities. In addition, each of the Planned Sites will be located in an area that includes competing facilities. The Company anticipates that competition within the extended stay lodging market will increase substantially in the foreseeable future. A number of other lodging chains and developers have announced their intent to develop or are attempting to implement rollouts of extended stay lodging hotels which may compete with the Company's hotels. In particular, some of these entities have announced their intent to target the mid-price segment of the extended stay market in which the Company competes. The Company may compete for guests and for new development sites with certain of these established entities which have greater financial resources than the Company and better relationships with lenders and real estate sellers. ENVIRONMENTAL MATTERS Under various federal, state and local laws and regulations, an owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances on such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. Furthermore, a person that arranges for the disposal or transports for disposal or treatment a hazardous substance at a property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely effect the owner's ability to use or sell such real property or borrow using such real property as collateral. In connection with the ownership and operation of its properties, the Company may be potentially liable for any such costs. Phase I environmental site assessments (the "Assessments") have been obtained on all of the Existing Hotels and the Construction Properties. For recently constructed Existing Hotels and all of the Construction Properties, Phase I Assessments were conducted as part of the pre- development review process. The Phase I Assessments were intended to identify potential environmental contamination and regulatory compliance concerns. The Phase I Assessments 4 5 generally include historical reviews of the properties, reviews of certain public records, preliminary investigations of the site and surrounding properties, screening for the presence of hazardous substances, toxic substances, and underground storage tanks, and the preparation and issuance of written reports. The Phase I Assessments did not include invasive procedures, such as soil sampling or ground water analysis. The Company will obtain Phase I Assessments on the Planned Sites prior to purchasing such properties. The Phase I Assessments have not revealed any environmental liability or compliance concern that the Company believes would have a material adverse effect on the Company's business, assets, results of operations or liquidity, nor is the Company aware of any such liability or concern. Nevertheless, it is possible that the Phase I Assessments do not reveal all environmental liabilities or compliance concerns or that there are material environmental liabilities or compliance concerns of which the Company is unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability, or (ii) the current environmental condition of the Existing Hotels or Construction Properties will not be affected by the condition of the properties in the vicinity of the Existing Hotels or Construction Properties (such as the presence of leaking underground storage tanks) or by actions of third parties unrelated to the Company. The Company believes that the Existing Hotels and the Construction Properties are in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. Neither the Company nor, to the knowledge of the Company, any of the current owners of the Planned Sites have been notified by any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matter in connection with the Existing Hotels, the Construction Properties or the Planned Sites. SUBSEQUENT EVENT On January 16, 1997, the Company and Extended Stay America, Inc. ("ESA"), together with ESA Merger Sub, Inc., a wholly-owned subsidiary of ESA ("Merger Sub") a Delaware corporation whose common stock is traded on The Nasdaq Stock Market under the symbol "STAY," entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which the Company will be merged with and into Merger Sub (the "Merger"). The Merger Agreement provides that Merger Sub will be the surviving corporation and that upon consummation of the Merger (i) each share of the Company's common stock, par value $.01 per share (the "Common Stock"), will be converted into the right to receive 1.2272 shares of ESA common stock and (ii) all outstanding options to purchase the Company's Common Stock from the Company will be converted into options to purchase common stock in ESA. As of December 31, 1996, ESA owned and operated 40 extended stay lodging facilities, had 50 of such facilities under construction, and options to purchase 106 additional sites for development. 5 6 Consummation of the Merger is subject to (i) the approval of the Merger Agreement by the stockholders of the Company and the stockholders of ESA, (ii) the ability to account for the Merger as a pooling of interests, (iii) the appointment of Mr. Norwood Cowgill, Jr., the Chairman of the Board and Chief Executive Officer of the Company to ESA's board of directors, and (iv) other customary closing conditions. The Merger Agreement may be terminated prior to its consummation by any of the parties if the Merger is not consummated on or before August 31, 1997. The Merger Agreement also may be terminated prior to its consummation for a number of other reasons, including the following: (i) by mutual written consent of the of the Company and ESA; (ii) by either the Company or ESA if the necessary stockholder approvals are not received; (iii) by the Company if its Board of Directors determines in good faith that their fiduciary duties require them to terminate the Merger Agreement by reason of any proposal or offer with respect to a merger, consolidation, reorganization, exchange, plan of liquidation, or similar transaction involving the Company or its subsidiary, other than the Merger (an "Alternative Proposal"); or (iv) by ESA, if the Board of Directors of the Company shall have (a) withdrawn, or modified in a manner materially adverse to ESA, its approval of the Merger Agreement, (b) recommended an Alternative Proposal, or (c) adopted resolutions to accept or implement an Alternative Proposal. If the Merger Agreement is terminated pursuant to clause (iii) or (iv) above, the Company must pay ESA a fee of $7,500,000. ITEM 2. PROPERTIES The Existing Hotels are located in nine southeastern and midwestern states and contain a total of 2,650 extended stay suites. The exterior of each Studio PLUS hotel is constructed of either brick or synthetic stucco. Each Studio PLUS hotel currently contains two types of suites: designer suite and deluxe suite. The deluxe suite is approximately one-third larger than the designer suite. The newer hotels contain a third type of suite, a double suite that consists of two queen beds. All suites contain a separate dining area and a complete kitchen, including a full-size refrigerator, range with conventional oven, microwave, cooking and eating utensils, and bed, sofa, easy chair, voice mail, a computer data port, a direct-dial telephone and remote control cable or satellite television. Each StudioPLUS hotel also has a coin-operated laundry facility and offers weekly or optional daily maid service. Most properties also have an exercise room and a swimming pool. The following tables set forth certain information with respect to the Existing Hotels and Construction Properties.
Location of Existing Hotels Year Opened Number of Suites (1) --------------------------- ----------- -------------------- 1. Lexington, KY 1986 60 2. Lexington, KY 1987 72 3. Cincinnati, OH 1988 72 4. Louisville, KY 1988 76 5. Louisville, KY 1989 66 6. Cincinnati, OH 1989 72 7. Columbus, OH 1989 72
6 7 8. Dayton, OH 1989 72 9. Columbus, OH 1990 72 10. Knoxville, TN 1990 72 11. Indianapolis, IN 1990 72 12. Memphis, TN 1990 72 13. Nashville, TN 1991 72 14. Indianapolis, IN 1991 72 15. Cincinnati, OH 1992 72 16. St. Louis, MO 1992 72 17. Nashville, TN 1993 72 18. St. Louis, MO 1994 72 19. Greenville, SC 1995 72 20. Charlotte, NC 1995 72 21. Greensboro, NC 1995 72 22. Columbia, SC 1995 72 23. Montgomery, AL 1996 72 24. Charlotte, NC 1996 72 25. Birmingham, AL 1996 72 26. Cary, NC 1996 72 27. Birmingham, AL 1996 72 28. Florence, KY 1996 72 29. Charleston, SC 1996 72 30. Raleigh, NC 1996 72 31. Durham, NC (2) 1996 72 32. Jackson, MS 1996 72 33. Akron, OH 1996 72 34. Fort Wayne, IN 1996 72 35. Memphis, TN 1996 72 36. Dayton, OH 1997 72 37. Evansville, IN 1997 72 ----- Total 2,650 =====
(1) One suite at each StudioPLUS hotel is occupied by a resident manager. (2) The Company leases the real estate for this hotel.
Estimated Number of Location of Construction Properties Opening (1) Suites (2) - ----------------------------------- ----------- ---------- 1. Richmond, VA 1997 92 2. Atlanta, GA 1997 73 3. Tulsa, OK 1997 73 4. Toledo, OH 1997 73 5. Newport News, VA 1997 73 6. Atlanta, GA 1997 92 7. St. Louis, MO 1997 73 8. Dallas, TX 1997 98 9. Dallas, TX 1997 137 10. Cleveland, OH 1997 92 11. Cleveland, OH 1997 73 --- Total 949 ===
7 8 (1) There can be no assurance that the Company will complete the development of the Construction Properties as scheduled. (2) One suite at each StudioPLUS hotel is occupied by a resident manager. The Company's corporate headquarters in Lexington, Kentucky, is occupied pursuant to a lease that expires in 1997 and the Company also owns office condominium space (purchased in 1997) at the same location. Management believes that such offices are sufficient to meet its present needs and does not anticipate any difficulty in securing additional space, as needed, on terms acceptable to the Company. ITEM 3. LEGAL PROCEEDINGS The Company currently is not involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's shareholders during the Company's fourth quarter. 8 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK The Common Stock is listed on The Nasdaq Stock Market under the symbol "SPHI." The price to the public for the Common Stock in the IPO was $10.00 per share (the "IPO Price") and the Common Stock began trading on June 21, 1995. The last reported sale price of the Company's Common Stock on The Nasdaq Stock Market on February 28, 1997 was $23.75. All per share amounts have been adjusted to reflect the July 9, 1996, three-for-two Stock Split. The following table sets forth for the indicated periods the high and low closing sale prices for the Common Stock:
Price Range ----------- Year Ended December 31, 1995 High Low ------ ------ Second Quarter (since June 21, 1995) .................. $11.16 $10.83 Third Quarter ......................................... 18.67 11.16 Fourth Quarter ........................................ 17.75 12.50 Year Ended December 31, 1996 First Quarter ......................................... 21.67 14.33 Second Quarter ........................................ 22.00 16.67 Third Quarter ......................................... 23.88 15.50 Fourth Quarter ........................................ 18.50 14.75
As of February 28, 1997, the Company estimates that there are approximately 72 holders of record and 2,500 beneficial owners, respectively, of the Common Stock. DIVIDEND POLICY The Company, to date, has not paid any cash dividends on its Common Stock. The Board of Directors presently intends to retain all earnings to finance the future growth of the Company's operations and the development of additional StudioPLUS hotels and does not anticipate the payment of cash dividends on the Common Stock in the foreseeable future. Any payment of cash dividends on the Common Stock in the future will be at the sole discretion of the Board of Directors and will depend upon the Company's earnings, capital expenditure requirements, financial condition and such other factors as the Board of Directors deems relevant. ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected financial information and other data consisting of the Predecessor Entities prior to the Company's IPO and for the Company since the date of the IPO. The selected historical financial information and other data for the Company and the Predecessor Entities for each of the five years in the period ended December 31, 1996, have been derived from the historical financial statements and notes of the Company audited by Coopers & Lybrand L.L.P., independent accountants. The following selected financial information should be read in conjunction with the historical financial statements and related notes. 9 10 STUDIO PLUS HOTELS, INC. SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER DATA (IN THOUSANDS, EXCEPT SHARE AND CERTAIN OTHER DATA)
YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Statement of operations: Revenue: Room revenue .................................................... $ 22,201 $ 15,309 $ 11,830 $ 9,985 $ 8,316 Other revenue ................................................... 864 581 322 324 199 ---------- --------- -------- -------- -------- Total revenue .............................................. 23,065 15,890 12,152 10,309 8,515 ---------- --------- -------- -------- -------- Operating expenses ................................................ 13,453 8,488 6,137 5,250 4,100 Depreciation and amortization ..................................... 3,336 1,912 1,472 1,313 1,185 Interest expense, net ............................................. (2,206) 1,356 2,532 2,498 2,542 ---------- --------- -------- -------- -------- Total costs and expenses ................................... 14,583 11,756 10,141 9,061 7,827 ---------- --------- -------- -------- -------- Income before third party investors' interest, income taxes and extraordinary loss .............................. 8,482 4,134 2,011 1,248 688 Third party investors' interest ..................................... (142) (358) (198) (126) ---------- --------- -------- -------- -------- Income before income taxes and extraordinary loss ................... 8,482 3,992 1,653 1,050 562 Provision for income taxes (1) ...................................... 3,308 1,670 -------- -------- Income before extraordinary loss .................................... 5,174 2,322 1,653 1,050 562 Extraordinary loss (2) .............................................. (185) -------- -------- Net income ................................................. $ 5,174 $ 2,137 $ 1,653 $ 1,050 $ 562 ========== ========= ======== ======== ======== Earnings per common and common equivalent shares, primary and fully diluted........................... $ 0.45 ========== Pro forma income data: (3) Income before income taxes ........................................ $ 2,322 Pro forma provision for income taxes .............................. 176 --------- Pro forma income before extraordinary loss ........................ 2,498 Extraordinary loss ................................................ (185) --------- Pro forma net income .............................................. $ 2,313 ========= Pro forma earnings per share: (4) Pro forma income before extraordinary loss ........................ $ 0.50 Extraordinary loss ................................................ (0.04) --------- Pro forma net income .............................................. $ 0.46 ========= Weighted average number of common shares outstanding ................ 11,580,169 4,995,104 OTHER DATA: EBITDA (5) ........................................................ $ 9,612 $ 7,402 $ 6,015 $ 5,059 $ 4,415 Cash flows provided by (used in): Operating activities ............................................ $ 9,720 $ 4,844 $ 3,160 $ 2,498 $ 1,708 Investing activities ............................................ (50,112) (17,162) (5,891) (2,692) (3,583) Financing activities ............................................ 72,514 14,417 2,327 380 1,918 Number of properties open at period end ........................... 35 22 18 17 16 Occupancy ......................................................... 80.8% 83.5% 84.8% 83.0% 82.1% Average weekly rate ............................................... $ 284.13 $ 254.11 $ 222.37 $ 202.32 $ 179.81 Weekly revenue per available room ................................. $ 229.60 $ 212.19 $ 188.64 $ 167.99 $ 147.67 BALANCE SHEET DATA: Total assets ...................................................... $ 146,240 $ 63,376 $ 36,222 $ 30,313 $ 28,541 Long-term debt .................................................... -- 4,000 32,306 28,831 29,018 Shareholders' equity (deficit) .................................... 133,613 51,646 (1,247) (1,611) (1,699)
10 11 (1) Historical financial information prior to the IPO does not include a provision for income taxes because the Predecessor Entities were S corporations or partnerships not subject to income taxes. (2) As a result of repaying approximately $37,049 of mortgage indebtedness, including approximately $226 of accrued interest, with the proceeds of the IPO, the Company wrote off approximately $308 of unamortized deferred loan costs associated with this debt. The charge has been recorded as an extraordinary loss, net of related income tax benefit of approximately $123. (3) Prior to June 26, 1995, the Company was not fully subject to income taxes due to the election of S corporation and partnership tax status by the Predecessor Entities. Income before extraordinary loss has been adjusted to pro forma income before extraordinary loss by reflecting the tax that would have been paid by the Company if it had been subject to income tax for the full year. (4) The pro forma earnings per share for the year ended December 31, 1995, has been calculated by dividing the pro forma net income by the weighted average number of shares of Common Stock deemed to be outstanding. Prior to June 26, 1995, the assets of the Company were owned and operated by the Predecessor Entities. The outstanding shares or other equity interests of the Predecessor Entities differ substantially from the shares of Common Stock of the Company outstanding after the IPO. Accordingly, the Company believes that the presentation of historical per share information for the periods prior to the IPO is not meaningful. (5) EBITDA represents income (loss) before third party investors' interest, income taxes, extraordinary loss, interest expense, net, and depreciation and amortization. EBITDA is used by the Company for the purpose of analyzing operating performance, leverage and liquidity. Such data are not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company owns, develops, and operates StudioPLUS(TM) extended stay hotels and owns the rights to the related trade name and service marks for "StudioPLUS." StudioPLUS hotels are designed to combine the convenience of a hotel with many of the comforts of an apartment in order to provide affordable lodging for extended stay guests. The Company is currently operating or developing hotels in 22 states. As of February 28, 1997, the Company owned and operated 37 StudioPLUS hotels and had 11 StudioPLUS hotels under construction. The Company has developed all of its hotels and intends to continue expanding geographically through the development of additional StudioPLUS hotels. The Company may consider franchising the StudioPLUS concept or acquiring properties for conversion to StudioPLUS hotels if appropriate opportunities arise. On January 16, 1997, the Company signed a definitive agreement to merge with Extended Stay America, Inc. ("ESA"). Under the agreement, ESA will issue 1.2272 shares of its common stock for each share of the Company's Common Stock. The transaction will be accounted for as a pooling of interests and is currently expected to be completed in April, 1997. The following table sets forth historical operating information for the Company and the Predecessor Entities, as a percentage of total revenue, for the periods indicated. 11 12
Year Ended December 31, ----------------------- 1994 1995 1996 ---- ----- ---- STATEMENT OF OPERATIONS DATA: Room Revenue ........................... 97.3% 96.3% 96.3% Other Revenue .......................... 2.7% 3.7% 3.7% ----- ----- ----- Total Revenue ................. 100.0% 100.0% 100.0% ----- ----- ----- Operating expenses ..................... 50.6% 53.5% 58.3% Depreciation and amortization .......... 12.1% 12.0% 14.5% Interest expense, net .................. 20.8% 8.5% (9.6%) ----- ----- ----- Total costs and expenses ...... 83.5% 74.0% 63.2% ===== ===== =====
RESULTS OF OPERATIONS Comparison of year ended December 31, 1996 to year ended December 31, 1995 Total revenue for 1996 was $23,065,000, an increase of approximately $7,175,000, or 45.2% over 1995. Room revenue for the year increased by approximately $6,892,000, of which (i) approximately $993,000 is attributable to the 18 hotels open throughout both periods and (ii) approximately $5,899,000 is attributable to the 17 hotels opened during 1995 and 1996 (the "1996 New Hotels"). The increase in room revenue from the 18 hotels opened throughout both periods resulted from a 7.0% increase in weekly revenue per available room from $207.27 to $221.73, which reflects an 8.7% increase in average weekly rates from $247.32 to $268.93 and a decrease in occupancy from 83.8% to 82.4%. Other revenue during 1996 increased approximately $283,000, or 48.7%, over 1995, due primarily to the other revenue generated from the 1996 New Hotels. Property operating expenses for 1996 were $9,631,000, an increase of approximately $3,257,000, or 51.1%, over 1995, of which (i) approximately $728,000 is attributable to the 18 hotels open throughout both periods and (ii) approximately $2,529,000 is attributable to the 1996 New Hotels. The increase in property operating expenses for the 18 hotels open throughout both periods resulted primarily from higher housekeeping and labor expenses. Corporate operating expenses increased by approximately $1,708,000 as a result of (i) operating the entire year as a public company and (ii) expanding the Company's corporate infrastructure to support its national expansion program. Depreciation and amortization expense increased approximately $1,424,000, or 74.5%, primarily as a result of operating the 1996 New Hotels and the associated amortization of their preopening costs. The increase of approximately $3,562,000 in net interest income during 1996 over 1995 can primarily be attributed to the investment of the net cash proceeds from the Company's follow-on offering completed April 2, 1996. The provision for income taxes for 1996 was approximately $3,308,000, for an effective tax rate of 39.0%. Prior to the Company's IPO, the 12 13 Predecessor Entities were not subject to income taxes. Comparison of year ended December 31, 1995 to year ended December 31, 1994 Total revenue for 1995 was $15,890,000, an increase of approximately $3,738,000 or 30.8%, over 1994. Room revenue for 1995 increased by approximately $3,479,000 of which (i) approximately $807,000 is attributable to the 17 hotels open throughout both periods and (ii) approximately $2,672,000 is attributable to the five new hotels opened during 1994 and 1995 (the "1995 New Hotels"). The increase in room revenue from the 17 hotels open throughout both periods resulted from an increase in weekly revenue per available room from $189.58 to $202.55, which reflects a 9.0% increase in average weekly rates from $222.21 to $242.12 that offset a decline in occupancy from 85.3% to 83.7%. Other revenue during 1995 increased $259,000, which resulted primarily from an increase in telephone commissions and gains from disposition of assets. Property operating expenses for 1995 were $6,374,000, or an increase of approximately $1,118,000, or 21.3%, over 1994, of which (i) approximately $133,000 is attributable to the 17 hotels open throughout both periods and (ii) approximately $985,000 is attributable to the 1995 New Hotels. Corporate operating expenses increased approximately $1,233,000 as a result of (i) corporate infrastructure expansion and (ii) various expenses associated with operating as a public company during the second half of 1995. Depreciation and amortization expense increased approximately $440,000, or 29.9%, principally as a result of operating the 1995 New Hotels, as well as an increase in the carrying value of assets acquired at the time of the IPO. Interest expense decreased approximately $1,176,000, or 46.4%, from $2,532,000 to $1,356,000 as a result of debt being repaid with proceeds of the IPO. LIQUIDITY AND CAPITAL RESOURCES During 1996, the Company generated $9,720,000 in cash provided by operating activities, an increase of $4,876,000 over 1995. This 100.7% increase can be attributed primarily to an improvement in net income resulting from operating the 1996 New Hotels. In February, 1996, the Company amended its existing line of credit with Bank One, Kentucky, NA to increase its borrowing capacity from $30 million to $50 million (the "$50 Million Facility"). In December, 1996, the Company received a commitment from a group of banks (the "Commitment") for a "$200 million, revolving credit facility (the "$200 Million Line of Credit") which expired February 28, 1997. The Commitment for the $200 Million Line of Credit included financial covenants and terms and conditions which the Company believed to be customary for loans of this type. Under the terms of the $200 Million Line of Credit, a merger, such as the one presently anticipated with ESA, would have restricted future borrowings. Therefore, the Company has concluded that it is in its best interest to re-evaluate the available alternatives with regard to revolving credit facilities and negotiate for a facility that would provide for the Company's short term construction commitment requirements, while substantially reducing the amount of commitment fees that would need to be paid prior to consummation of the merger. In the event the Company does not close on the $200 Million Line of Credit the related unamortized loan cost of approximately $278,000 as of February 28, 1996 would be charged off. 13 14 The Company expects to open the Construction Properties by the end of 1997, and estimates that these 11 StudioPLUS hotels should have a total development cost of approximately $48.7 million, of which approximately $14.9 million has already been incurred. The Company currently intends to fund the development of these hotels with available cash, borrowings under the $50 Million Facility and cash flow from operations. However, there can be no assurance that the Company will complete the development of such additional StudioPLUS hotels in a timely manner or within budget. The Company in the future may seek to increase the amount of its credit facilities, negotiate additional credit facilities, or issue corporate debt instruments. Any debt incurred or issued by the Company may be secured or unsecured at fixed or variable interest rates and may be subject to such terms as the Board of Directors of the Company deems prudent. INFLATION The rate of inflation as measured by changes in the average consumer price index has not had a material effect on the revenue or operating results of the Company during the three most recent fiscal years. SEASONALITIES AND OTHER FACTORS AFFECTING QUARTERLY EARNINGS The lodging industry is seasonal in nature. During 1996, approximately 53.0% of the Company's revenue occurred during the second and third quarters. Because many of the Company's expenses do not fluctuate with revenue, this seasonality in revenue may cause even greater quarterly fluctuations to the Company's earnings. Quarterly earnings may be adversely effected by risks beyond the Company's control, including poor weather conditions, economic factors and competition. In addition, quarterly earnings may be effected by the timing of development and the opening of new hotels. 14 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page Report of Independent Accountants 16 Financial Statements Consolidated Balance Sheets for the years ended December 31, 1996 and 17 1995 Consolidated Statements of Operations for the years ended December 31, 18 1996, 1995, and 1994 Consolidated Statements of Shareholders' Equity for the years ended 19 December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 20 1996, 1995 and 1994 Notes to Consolidated Financial Statements 21
15 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Studio Plus Hotels, Inc. Lexington, Kentucky We have audited the accompanying consolidated balance sheets of Studio Plus Hotels, Inc. and Subsidiary as of December 31, 1996 and 1995 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Studio Plus Hotels, Inc. and Subsidiary as of December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. - -------------------------------- Coopers & Lybrand L.L.P. Cincinnati, Ohio February 4, 1997 16 17 STUDIO PLUS HOTELS, INC. CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 ASSETS
1996 1995 ------------ ------------ Current assets: Cash and cash equivalents $ 34,678,343 $ 2,556,744 Accounts receivable, net of allowance of $102,126 and $70,654 as of 1996 and 1995, respectively 638,012 372,771 Pre-opening costs, net of accumulated amortization of $822,550 and $390,989 as of 1996 and 1995, respectively 725,911 209,974 Other current assets 335,569 325,983 ------------ ------------ Total current assets 36,377,835 3,465,472 ------------ ------------ Property and equipment, net 107,566,933 59,355,184 Site deposits and preacquisition costs 1,924,820 275,000 Deferred loan costs, net of accumulated amortization of $211,227 and $48,281 as of 1996 and 1995, respectively 360,978 244,991 Non-compete agreement, net of accumulated amortization of $125,000 as of 1995 25,000 Other assets 9,300 10,726 ------------ ------------ $146,239,866 $ 63,376,373 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,057,245 $ 1,876,622 Accrued expenses: Property tax 467,888 322,584 Compensation 537,612 245,581 Income taxes 238,969 Other accrued expenses 737,583 458,122 ------------ ------------ Total current liabilities 7,039,297 2,902,909 ------------ ------------ Long-term debt 4,000,000 Deferred income taxes 5,587,758 4,827,410 Commitments Shareholders' equity: Preferred stock, par value $.01 per share, 10,000,000 shares authorized, none issued or outstanding Common stock, par value $.01 per share, 50,000,000 shares authorized, 12,528,845 shares issued and outstanding 125,288 51,150 Additional paid-in capital 127,209,452 50,490,353 Retained earnings 6,278,071 1,104,551 ------------ ------------ Total shareholders' equity 133,612,811 51,646,054 ------------ ------------ $146,239,866 $ 63,376,373 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 17 18 STUDIO PLUS HOTELS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------ ------------ ----------- Revenue: Room revenue $ 22,200,495 $ 15,308,835 $11,830,374 Other revenue 864,010 581,416 322,159 ------------ ------------ ----------- Total revenue 23,064,505 15,890,251 12,152,533 Costs and expenses: ------------ ------------ ----------- Property operating expenses 9,631,338 6,374,355 5,256,359 Corporate operating expenses 3,821,369 2,113,731 880,511 Depreciation and amortization 3,336,121 1,912,132 1,472,358 Interest expense, net of interest income (2,205,539) 1,356,082 2,531,990 ------------ ------------ ----------- Total costs and expenses 14,583,289 11,756,300 10,141,218 ------------ ------------ ----------- Income before third party investors' interest, income taxes and extraordinary loss 8,481,216 4,133,951 2,011,315 Third party investors' interest (141,612) (358,432) ------------ ------------ ----------- Income before income taxes and extraordinary loss 8,481,216 3,992,339 1,652,883 Provision for income taxes 3,307,696 1,670,459 ------------ ------------ ----------- Income before extraordinary loss 5,173,520 2,321,880 1,652,883 Extraordinary loss, net of tax benefit (184,618) ------------ ------------ ----------- Net income $ 5,173,520 $ 2,137,262 $ 1,652,883 ============ ============ =========== Earnings per common and common equivalent shares, primary and fully diluted (Note 9) $ 0.45 = =========== Pro forma income data: (Note 9) Income before extraordinary loss $ 2,321,880 $1,652,883 Pro forma adjustment for income taxes 176,458 (614,872) ----------- ---------- Pro forma income before extraordinary loss 2,498,338 1,038,011 Extraordinary loss (184,618) ----------- ---------- Pro forma net income $ 2,313,720 $1,038,011 =========== ========== Pro forma earnings per share: (Note 9) Pro forma income before loss $ 0.50 Extraordinary loss (0.04) ----------- Pro forma net income $ 0.46 ----------- Weighted average number of common shares outstanding 11,580,169 4,995,104
The accompanying notes are an integral part of the consolidated financial statements 18 19 STUDIO PLUS HOTELS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended December 31, 1996, 1995 and 1994
Shareholders' Equity (Deficit) -------------------------------------------------- Retained Common Additional Treasury Earnings Partners' Stock Paid-in capital Stock (Deficit) (Deficit Total -------- --------------- ------- --------- -------- --------- Balance, January 1, 1994 $190,000 $106,846 $(1,607,605) (300,004) $(1,610,763) Issuance of stock 20,000 20,000 Cash dividends (1,139,111) (1,139,111) Partners' draws (116,916) (116,916) Conversion of note payable to stock 21,450 21,450 Repurchase of treasury stock $(75,000) (75,000) Net income 1,537,608 115,275 1,652,883 -------- ------------ -------- ---------- -------- ------------ Balance, December 31, 1994 210,000 128,296 (75,000) (1,209,108) (301,645) (1,247,457) -------- ------------ -------- ---------- -------- ------------ Cash dividends (1,747,956) (1,747,956) Partners' draws (547,074) (547,074) Reclassification of shareholders' and partners' interest to paid-in capital in connection with S corporation and partnership termination (210,000) (1,631,115) 75,000 1,250,795 515,320 Purchase of minority shareholders' interest 3,955,515 673,558 333,399 4,962,472 Proceeds from initial public offering of stock, net 51,150 48,037,657 48,088,807 Net income 2,137,262 2,137,262 -------- ------------ -------- ---------- -------- ------------ Balance, December 31, 1995 51,150 50,490,353 -- 1,104,551 -- 51,646,054 -------- ------------ -------- ---------- -------- ------------ Proceeds from follow-on offering 32,369 76,750,748 76,783,117 Proceeds from exercise of stock options 10 10,110 10,120 Effect of three-for-two stock split 41,759 (41,759) Net income 5,173,520 5,173,520 -------- ------------ -------- ---------- -------- ------------ Balance, December 31, 1996 $125,288 $127,209,452 -- $6,278,071 -- $133,612,811 ======== ============ ======== ========== ======== ============
The accompanying notes are an integral part of the consolidated financial statements. 19 20 STUDIO PLUS HOTELS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income $5,173,520 $2,137,262 $1,652,883 Adjustments to reconcile net income to net cash provided by operating activities: Third party investors' interest 141,612 358,432 Depreciation and amortization 3,336,121 1,912,132 1,472,358 Discount accretion on investment securities (378,953) Gain on sale of investment securities (89,960) Loss (gain) on sale of assets (72,393) 2,746 Bad debt expense 96,858 47,892 140,400 Deferred income tax expense 650,891 593,186 Extraordinary loss 184,618 Change in: Accounts receivable (362,099) (166,027) (199,039) Other current assets (62,225) (139,125) (24,212) Other assets 1,426 (49,597) (171,680) Accounts payable 236,346 167,354 (154,897) Income taxes payable 401,065 (162,096) Accrued expenses 716,796 249,161 82,816 ---------- ---------- ---------- Net cash provided by operating activities 9,719,786 4,843,979 3,159,807 ---------- ---------- ---------- Cash flows from investing activities: Expenditures for land, buildings and furnishings (46,962,647) (14,806,613) (5,558,901) Payment for site deposits and preacquisition costs (2,671,259) (862,269) (234,649) Proceeds from sale of land and furnishings 132,812 4,000 Purchase of investments available-for-sale (38,829,263) Proceeds from sale/maturity of investments available-for-sale 39,298,176 Additions to preopening costs (947,498) (125,826) (101,175) Purchase of third party investors' interest (1,500,000) ----------- ---------- ---------- Net cash used in investing activities (50,112,491) (17,161,896) (5,890,725) ----------- ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt 27,000,000 6,916,222 4,319,832 Proceeds from notes payable to shareholders and partners 1,727,500 875,000 Principal payments on long-term debt (31,000,000) (36,810,859) (517,314) Principal payments on notes payable to shareholders and partners (3,111,000) (567,675) Partners' draws (116,916) Cash dividends (2,295,030) (1,139,111) Distribution to third party investors (281,473) Proceeds from sale of stock 20,000 Proceeds from public offering, net of underwriting costs 77,236,432 49,731,750 Proceeds from exercise of stock options 10,120 Additions to deferred loan costs (278,933) (336,250) (27,320) Additions to public offering costs (453,315) (1,405,117) (237,826) ----------- ---------- ---------- Net cash provided by financing activities 72,514,304 14,417,216 2,327,197 ----------- ---------- ---------- Net increase (decrease) in cash 32,121,599 2,099,299 (403,721) Cash and cash equivalents at beginning of periods 2,556,744 457,445 861,166 ----------- ---------- ---------- Cash and cash equivalents at end of periods $34,678,343 $2,556,744 $ 457,445 =========== ========== ========== Supplemental cash flow disclosures: Interest paid, net of amount capitalized $ 2,808 $1,775,249 $2,539,213 =========== ========== ========== Income taxes paid $ 2,266,837 $1,182,200 =========== ========== Non-cash transactions: Contract payable for non-compete agreement $ 150,000 ========== Additions to public offering costs included in accounts payable $ 505,298 ========== Conversion of note payable to stock $ 21,450 ========== Repurchase of treasury stock for note payable $ 75,000 ========== Public offering costs netted against offering proceeds $1,642,943 ========== Purchase of minority shareholders' interest for stock and assumption of deficit capital balances $4,962,472 ==========
The accompanying notes are an integral part of the consolidated financial statements. 20 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Business Studio Plus Hotels, Inc. and its wholly owned subsidiary, Studio Plus Properties, Inc. (together, the "Company") own, develop and operate StudioPLUS(TM) extended stay hotels and own the rights to the related trade name and service marks for "StudioPLUS." StudioPLUS hotels are designed to combine the convenience of a hotel with many of the comforts of an apartment in order to provide affordable lodging for extended stay guests. At December 31, 1996, the Company had 35 StudioPLUS hotels in operation and 11 StudioPLUS hotels under construction. These 46 hotels are located in 13 states in the Midwest and Southeast United States. Corporate Organization and Initial Public Offering The Company was formed on December 19, 1994, to acquire, through merger and exchange of partnership interests all of the assets of Studio Plus, Inc. and the corporations and partnerships (collectively, the "Predecessor Entities") which owned and operated StudioPLUS extended stay hotels. On June 26, 1995, the Company completed an initial public offering of 5,347,500 shares of common stock, $0.01 par value (the "Common Stock") including shares issued as a result of the exercise of the underwriters' over-allotment option, at $10.00 per share and received net cash proceeds of approximately $48.1 million ( the "IPO"). Just prior to completion of the IPO, the Company acquired through merger and exchange of Common Stock for partnership interests the assets of the Predecessor Entities which owned and operated all of the StudioPLUS extended stay hotel properties then in operation or under development ( the "Corporate Organization"). The Company issued an aggregate of 2,322,750 shares of common stock and paid $1.5 million of cash to the partners and shareholders of the Predecessor Entities. The acquisition of the interests of the controlling shareholder or partner and affiliates of the Predecessor Entities has been accounted for as if it were a pooling of interests, with no increase in the carrying value for the interests acquired. The acquisition of the third party investors' interests has been accounted for as a purchase which resulted in an increase to the carrying value of the underlying assets acquired of $10,475,000. Follow-on Offering and Stock Split In April, 1996, the Company completed a follow-on equity offering of 5,175,000 shares of Common Stock, including 675,000 shares issued as a result of the exercise of the underwriters' over-allotment option, and 319,653 shares sold by selling shareholders at $16.83 per share. Net cash proceeds to the Company were approximately $76.8 million, which excluded any proceeds from the selling shareholders. On July 9, 1996, a three-for-two split of the Company's Common Stock was effected in the form of a stock dividend of three shares of Common Stock for each two shares of Common Stock outstanding at the close of business on June 20, 1996 (the "Stock Split"). Accordingly, all applicable share and per share data have been adjusted for the Stock Split. 21 22 Principles of Consolidation The consolidated financial statements include the accounts of Studio Plus Hotels, Inc. and its wholly owned subsidiary Studio Plus Properties, Inc. All significant intercompany items and transactions have been eliminated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Property and Equipment Property and equipment is stated at cost, including interest, salaries and related expenses from site design and construction supervision incurred during the construction period. Expenditures for replacements and improvements are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. A summary of the estimated useful lives of the assets is as follows: Building and improvements................................ 40 years Furniture, fixtures and equipment........................3-10 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. Preacquisition Costs The Company incurs costs related to the acquisition of hotel sites. These costs are capitalized when it is probable that a site will be acquired. These costs are reclassified to property and equipment upon acquisition. In the event the acquisition is not consummated, the costs are expensed. All other site selection costs are expensed as incurred. Deferred Loan Costs The Company has incurred costs in obtaining financing. These costs have been deferred and are being amortized over the life of the loan using the straight-line method. 22 23 Preopening Costs The Company capitalizes compensation and other costs relating to the opening of new properties. Amortization is provided using the straight-line method over a twelve-month period. Concentration of Credit Risk The Company maintained deposits totaling $7,498,927 and $619,239 at December 31, 1996 and 1995, respectively with one bank. Deposits in excess of $100,000 are not insured by the Federal Deposit Insurance Corporation. Stock Options The Company accounts for stock options issued to employees in accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Under APB No. 25 the Company recognizes expense based on the intrinsic value of the options. Pro forma disclosure of income and earnings per share, based on the fair market value of the options, have been provided in Note 8 as required by The Financial Accounting Standards Board (SFAS) No. 123, "Accounting for Stock-Based Compensation". 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
1996 1995 ---- ---- Hotel, property and equipment: Land $ 23,428,908 $ 12,403,803 Building and improvements 67,603,333 40,824,006 Furniture, fixtures and equipment 16,892,961 8,242,087 Construction in process 8,247,616 4,249,605 ------------- ------------- 116,172,818 65,719,501 Less accumulated depreciation (9,261,988) (6,678,808) ------------- ------------- 106,910,830 59,040,693 ------------- ------------- Corporate property and equipment: Furniture, fixtures and equipment 942,674 473,067 ------------- ------------- Less accumulated depreciation (286,571) (158,576) ------------- ------------- 656,103 314,491 ------------- ------------- Total property and equipment $ 107,566,933 $ 59,355,184 ============= =============
Included in December 31, 1996 and 1995 accounts payable are amounts related to the purchase of property and equipment totaling approximately $4,635,000 and $1,609,000, respectively. In addition, interest capitalized and included in the cost of building and improvements for December 31, 1996, 1995 and 1994 was $329,432, $157,592 and $152,679, respectively. The Company incurred total interest expense of $332,240, $1,675,265 and $2,684,669 for the years ended December 31, 1996, 1995 and 1994, respectively. 23 24 4. LINE OF CREDIT On February 28, 1996, the Company increased its $30 million revolving line of credit to $50 million (the "Line of Credit"), maturing June 22, 1998, to fund future development and construction of additional hotels and for working capital. Outstanding indebtedness under the Line of Credit bears interest at either a rate based upon the London Interbank Offering Rate or the prime interest rate, at the selection of the Company. The interest rate on the outstanding indebtedness adjusts periodically based upon prevailing rates. Interest is payable monthly with the unpaid principal due at maturity. The Line of Credit contains certain financial covenants, including maintenance of a minimum debt service coverage ratio and a maximum ratio of debt to tangible net worth and limitations upon the incurrence of additional debt without the consent of the lender. Borrowings under the Line of Credit are collateralized by certain property and equipment. At December 31, 1996 there were no outstanding borrowings under the Line of Credit. The Company used the net proceeds of the IPO to retire approximately $36.8 million of outstanding mortgage debt, which was guaranteed by the former shareholders and partners of the Predecessor Entities, and approximately $3.1 million of loans from shareholders. In connection with the early extinguishment of mortgage debt in 1995, the Company incurred an extraordinary loss of $184,618, net of $123,079 in taxes, relating to the write-off of unamortized loan fees. 5. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax liabilities and assets for the temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities using currently enacted tax rates. The components of the provision for income taxes reflected in the consolidated statements of operations for the years ended December 31, 1996 and 1995 are as follows:
1996 1995 ---- ---- Currently payable: Federal $ 2,136,700 $ 929,183 State and local 520,105 148,000 ------------- ------------- 2,656,805 1,077,183 ------------- ------------- Deferred taxes: Federal 413,444 507,615 State 237,447 785,661 ------------- ------------- 650,891 593,276 ------------- ------------- Provision for income taxes $ 3,307,696 $ 1,670,459 ============= =============
24 25 Prior to the Corporate Organization, the Company's operations were conducted through S corporations and partnerships. Accordingly, the deferred tax provision for the year ended December 31, 1995, includes approximately $540,000 relating to recognition of a net deferred tax liability representing temporary differences existing on the date of the Corporate Organization. Prior to the Corporate Organization, income taxes on earnings were paid by the shareholders and partners of the Predecessor Entities. The differences between the statutory federal income tax rate and the effective tax rate expressed as a percentage of income before income taxes were as follows:
1996 1995 ---- ---- Statutory federal tax rate 34.0% 34.0% Effect of termination of S corporation and partnership status with the Corporate Organization -- 13.5 S corporation and partnership income for which no current income taxes were provided -- (10.0) State income taxes, net of federal benefit 4.6 2.5 Other 0.4 1.8 ---- ---- 39.0% 41.8% ==== ====
Components of the Company's net deferred asset and liability included in the consolidated balance sheets were as follows:
1996 1995 ---- ---- Deferred tax assets: Compensation and benefits $ 55,143 $ -- Bad debt and other allowances 69,555 $ 59,270 Other 18,407 -- ------------ ----------- 143,105 59,270 ------------ ----------- Deferred tax liabilities: Property and equipment (5,621,406) (4,886,680) ------------ ----------- Net deferred tax liability $(5,478,301) $(4,827,410) =========== ===========
6. OPERATING LEASES The Company leases office space under an operating lease expiring in 1997. The lease is renewable for two five-year periods. In addition the Company leases the land on which one hotel is built. The land lease is for a term of 20 years with four five-year renewal options with an option to purchase under certain conditions. The future minimum rental payments under the operating leases as of December 31, 1996, are as follows: 25 26 1997 $ 171,964 1998 33,990 1999 35,010 2000 36,060 2001 37,142 Thereafter 711,521 ----------- Total $ 1,025,687 ===========
The Company incurred rent expense of $166,096, $149,228 and $135,876 for the years ended December 31, 1996, 1995 and 1994, respectively. 7. RIGHTS AGREEMENT Under the terms of the Company's Rights Agreement, one right (a "Right") is attached to each share of Common Stock. Initially, each Right will entitle the registered holder to purchase from the Company one one-hundredth of a share (a "Unit") of Class A Cumulative Participating Preferred Stock ("Class A Preferred Stock"), of which 100,000 shares have been reserved for issuance pursuant to the Rights Agreement. Each Unit of Class A Preferred Stock is structured to be the economic equivalent of one share of Common Stock. The exercise price per Right will be $56.00 subject to adjustment (the "Purchase Price"). The Rights Agreement also provides that if any person becomes an Acquiring Person (as defined below), proper provision shall be made so that each holder of a Right (except as set forth below) will thereafter have the right to receive, upon exercise and payment of the Purchase Price, Class A Preferred Stock or Common Stock at the option of the Company (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to twice the amount of the Purchase Price. The Rights will separate from the Common Stock and a distribution of Rights Certificates will occur (the "Distribution Date") upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially becoming an Acquiring Person. Effective February 27, 1996, the Rights Agreement was amended to lower the percentage of beneficial ownership required to be deemed an Acquiring Person from 20% to 15% of the outstanding shares of Common Stock of the Company (the "Ownership Reduction"), and to add a provision which permits a person who becomes an Acquiring Person, solely because of the Ownership Reduction, to reduce its beneficial ownership of Common Stock to less than 15% by the close of business on the tenth business day following notice from the Company that such person's beneficial ownership equals or exceeds 15% of the outstanding shares of Common Stock to avoid classification as an Acquiring Person. In the event that, at any time following the Stock Acquisition Date, (i) the Company is acquired in a merger, statutory share exchange, or other business combination in which the Company is not the surviving corporation, or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right (except as set forth below) shall thereafter have the right to 26 27 receive, upon exercise and payment of the Purchase Price, common stock of the acquiring company having a value equal to twice the Purchase Price. The events set forth in this paragraph and in the preceding paragraphs are referred to as the "Triggering Events." The Rights are not exercisable until the Distribution Date and will expire at the close of business on June 30, 2000, unless earlier redeemed or exchanged by the Company as described below or unless such expiration date is extended pursuant to the Rights Agreement. The Purchase Price payable, and the number of shares of Class A Preferred Stock, Common Stock or other securities or property issuable upon exercise of the Rights, are subject to adjustment from time to time to prevent dilution. At any time after any person becomes an Acquiring Person, the Company may exchange all or part of the Rights (except as set forth below) for shares of Common Stock (an "Exchange") at an exchange ratio of one share per Right, as appropriately adjusted to reflect any stock split or similar transaction. At any time until ten days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the "Redemption Price"). The Rights Agreement may be amended by authorization of the Board of Directors, in the event of a merger or acquisition of the Company, whereby the acquiring company would not be deemed an "Acquiring Person" within the meaning of the Rights Agreement as defined above. Refer to Note 11 regarding subsequent amendment to the Rights Agreement. 8. STOCK OPTIONS The Company has two stock option plans, the 1995 Stock Incentive Plan (the "1995 Plan") and the 1995 Non-Employee Directors' Stock Incentive Plan (the "Directors Plan"). Under the 1995 Plan, an aggregate of 1,251,488 shares of common stock have been reserved for awards. Grants or awards are issued at the discretion of the Compensation Committee of the Board of Directors and may be in the form of stock options, stock appreciation rights, restricted stock awards or performance share awards. Options granted to date under the 1995 Plan have an exercise price equal to the market price of the Company's stock on the date of grant and an option's maximum term is 10 years. Any vesting period is at the discretion of the Compensation Committee; however, the majority of the options vest over a four year period. Options granted under the Directors' Plan vest over a four year period from the grant date and expire in ten years. The option price per share may not be less than the fair market value of a share on the date the option is granted. Under the Directors' Plan at December 31, 1996, options to acquire 45,000 and 15,000 shares had been granted at exercise prices per share of $10.00 and $14.42, respectively. Options to acquire an aggregate of 11,250 shares of Common Stock were exercisable at December 31, 1996, with an exercise price of $10.00 per share. All options under the Directors Plan were issued in 1995 with none having been exercised to date. The following is a summary of stock option activity and number of shares reserved for outstanding options under the 1995 Plan: 27 28
Weighted Average Option Price Number per Share of Shares --------- --------- Balance at January 1, 1996 $11.02 711,750 Granted $17.63 396,502 Exercised $10.00 (1,012) Forfeited $13.05 (95,726) --------- Balance at December 31, 1996 $13.43 1,011,514 =========
All options included in the January 1, 1996, balance were issued during 1995 with none being forfeited or exercised. The following is a summary of stock options outstanding at December 31, 1996, under the 1995 Plan:
Options Outstanding Options Exercisable ------------------------------------------------------- ------------------------------ Weighted- Number Average Weighted- Number Weighted- Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price --------------- ----------- ---------------- -------------- ----------- -------------- $10.00 to $13.67 596,512 8.75 $10.61 395,361 $10.36 $15.33 to $20.83 415,002 9.50 $17.44 7,126 $15.33 --------- ------- $10.00 to $20.83 1,011,514 9.00 $13.43 402,487 $10.45 ========= =======
The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock-based compensation plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1996 1995 ---- ---- Net income As reported $5,173,520 $2,313,720 Pro forma $4,484,576 $1,398,979 Primary and fully diluted earnings per share As reported $ 0.45 $ 0.46 Pro forma $ 0.39 $ 0.28
Options granted during the year had a weighted-average fair value of $7.66 per share. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option- pricing model with the following assumptions for grants made during 1995 and 1996: expected volatility of 31.7 percent, risk-free interest rate of 6.0 percent, zero dividend yield, and an expected life of 6 years. 28 29 9. EARNINGS PER SHARE Prior to June 26, 1995, the assets of the Company were owned and operated by the Predecessor Entities. The outstanding shares or other equity interests of the Predecessor Entities differ substantially from the shares of Common Stock of the Company outstanding after the IPO. Accordingly, the Company believes that the presentation of historical per share information for the periods prior to the IPO is not meaningful. The pro forma earnings per share for the year ended December 31, 1995, has been calculated by dividing the pro forma net income by the weighted average number of shares of Common Stock deemed to be outstanding. Income before extraordinary loss has been adjusted to pro forma income before extraordinary loss by reflecting the tax that would have been paid by the Company if it had been subject to income tax for the full year, assuming a 37.2% effective tax rate. Prior to June 26, 1995, the Company was not fully subject to income taxes due to the election of S corporation and partnership tax status by the Predecessor Entities. If the Company had been subject to tax, it would have incurred income tax expense of approximately $1,371,000 and $615,000 for the years ended December 31, 1995 and 1994, respectively. Included in the weighted average number of common shares outstanding at December 31, 1996 and 1995 is an average of 292,590 and 92,940 common stock equivalents for each year, respectively. 10. RELATED PARTY TRANSACTIONS Borrowings from partners and shareholders of the Predecessor Entities were $1,727,500 and $875,000 for 1995 and 1994, respectively. Principal repayments on loans from shareholders and partners of the Predecessor Entities were $3,111,000 and $567,675 for 1995 and 1994, respectively. In addition, the Company incurred interest expense of $156,851 and $73,625 for the same periods, respectively, on shareholder debt. Prior to the IPO, the Company distributed $2,295,030 to the shareholders of the Predecessor Entities in accordance with the merger agreements. 11. SUBSEQUENT EVENT On January 16, 1997, the Company entered into a merger agreement (the "Merger Agreement") with Extended Stay America, Inc. ("ESA") whereby each share of the Company's Common Stock would be exchanged for 1.2272 shares of ESA common stock (the "Merger"). The Merger is expected to be accounted for as a "pooling of interests" in accordance with APB Opinion No. 16, "Business Combinations." Pending shareholder approval, the approval of the Merger by certain regulatory bodies, and barring the occurrence of certain events as detailed in the Merger Agreement, the merger is expected to be completed in April, 1997. The Company and Fifth Third Bank, as rights agent (the "Rights Agent"), entered into an Amended and Restated Rights Agreement, dated as of June 6, 1995, and amended as of February 27, 1996 (the "Rights Agreement"), between the Company and the Rights Agent. On January 16, 1997, the Company and the Rights Agent entered into Amendment No. 2 to the Rights Agreement (the "Rights Amendment"). Pursuant to the Rights Amendment, neither ESA, Merger Sub, Inc., or any affiliate or associate of ESA or Merger Sub, Inc. shall be deemed to be an "Acquiring Person" by 29 30 virtue of the Merger Agreement or any of the transactions contemplated by the Merger Agreement, and immediately prior to the consummation of the Merger all Rights (as defined in the Rights Agreement) shall expire. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 30 31 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Board of Directors presently consists of seven members and is divided into three classes. Certain information regarding the directors and executive officers (the "Named Executive Officers") of the Company is set forth below.
Term Name Age Position Class Expires - ---- --- -------- ----- ------- Norwood Cowgill, Jr. 53 Chairman of the Board & III 1998 Chief Executive Officer Michael J. Moriarty 50 Director, President & III 1998 Chief Operating Officer William E. Anderson 53 Director, Executive Vice President, II 1997 Secretary and General Counsel Warren W. Rosenthal 73 Director I 1999 Daniel W. Daniele 42 Director I 1999 Richard W. Furst 58 Director II 1997 Thomas P. Dupree 66 Director III 1998 Michael L. Tetterton 36 Vice President of Operations Creighton R. Schneck 51 Vice President of Development James C. Baughman, Jr. 34 Chief Financial Officer & Treasurer
DIRECTORS AND EXECUTIVE OFFICERS Norwood Cowgill, Jr. is the Chairman of the Board of Directors and Chief Executive Officer of the Company, and founded the Company's Predecessor Entities in 1985. Prior to 1985, Mr. Cowgill was a real estate developer in Lexington, Kentucky, who was active in various aspects of real estate, including subdivision of land, construction of single family housing, conversion of apartments to condominiums, and construction, ownership, management and renovation of multi-housing communities. Mr. Cowgill has been a director of the Company since 1994. Michael J. Moriarty has been employed by the Company since August, 1996, and is the President, Chief Operating Officer as well as a Director. Prior to joining the Company, Mr. Moriarty was the Brand Vice President for Fairfield Inn by Marriott, where he worked for approximately fifteen years. Other positions he held at Marriott include Vice President Operations and Vice President Finance and Development for Residence Inn by Marriott. William E. Anderson II has been employed by the Company since January, 1995, and is the Company's Executive Vice President, Secretary and General Counsel as well as a Director. Before joining the Company, Mr. Anderson served as Senior Vice President, Secretary and General Counsel of Long John Silver's Restaurants, Inc. and its predecessor, Jerrico, Inc., positions he held from October, 1984, until January, 1995. Mr. Anderson has been a director of the Company since 1995. Warren W. Rosenthal is a private investor. From 1963 to 1985, Mr. Rosenthal served as Chairman of the Board of Directors, President and Chief Executive Officer of Jerrico, Inc. and, from 1985 to 1989, served as Chairman of the Board of Directors of Jerrico, Inc., which owned or 31 32 franchised approximately 1,500 restaurants. Mr. Rosenthal presently serves on the Board of Directors of Immunomedics, Inc. where he serves as a member of the Compensation, Finance and Nomination Committees. Mr. Rosenthal has been a director of the Company since 1994. Daniel W. Daniele serves as Executive Vice President of Motels of America, Inc. a position has held since September 1994. From March, 1991, to September, 1994, Mr. Daniele was National Hospitality Director and Principal for the consulting practice of Ernst & Young, L.L.P. Mr. Daniele has been a director of the Company since 1995. Richard W. Furst, Ph.D. has served as the Dean and Professor of Finance of the Carol Martin Gatton College of Business and Economics at the University of Kentucky since 1981. Dr. Furst serves on the Board of Trustees of Armada Funds. He also serves as a consultant to several private companies and non-profit organizations. Dr. Furst has been a director of the Company since 1994. Thomas P. Dupree is President of Dupree and Company, Inc., an investment advisory firm, a position he has held since 1970. Since 1979, Mr. Dupree has also been President and a trustee of Dupree Mutual Funds, managing a portfolio of municipal and government bonds. Mr. Dupree has been a director of the Company since 1994. Michael L. Tetterton has been Vice President of Operations of the Company since January, 1994. Before joining the Company, Mr. Tetterton was a Southeast regional manager for Residence Inn by Marriott, overseeing the operation of various Marriott-managed properties in North Carolina, South Carolina, Alabama and Mississippi from 1990 to 1993. From 1988 to 1990, he was a district manager for Residence Inn by Marriott for North Carolina, South Carolina, Florida and Georgia. Creighton R. Schneck has been Vice President of Development since September, 1996. Since 1995 and prior to joining the Company, Mr. Schneck was Director of Development for Tishman Speyer Properties and was responsible for development of residential and commercial real estate projects. From 1990 to 1994 Mr. Schneck was a Principal of Palisades Realty and Development which was engaged in the development of retail office space. Since 1993, Mr. Schneck has served as a director of Mid-Atlantic Medical Services, Inc. James C. Baughman, Jr. has been associated with the Company since September, 1994 and is Chief Financial Officer and Treasurer of the Company. Before joining the Company, Mr. Baughman served as Senior Trust Officer for The Vine Street Trust Company from 1993 to 1994, and as a Trust Officer for Bank One, Lexington, NA from 1988 to 1993. Mr. Baughman also served as an adjunct instructor in the Department of Business and Economics of Transylvania University from 1992 to 1994. Mr. Baughman is Mr. Cowgill's son-in-law. There is no arrangement or understanding between any officer and any other person regarding any executive officer being selected as an officer. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Exchange Act requires executive officers and directors of the Company and persons who beneficially own more than 10 percent of the Company's Common Stock to file with the Commission certain reports, and to furnish copies thereof to the Company, with respect to each such person's beneficial ownership of the Company's equity securities. Based solely 32 33 upon a review of the form copies of such persons, the Company's executive officers and directors have complied with the applicable reporting requirements except that Messrs. Cowgill and Baughman filed one Form 4 late. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation paid to the Company's executive officers (the "Named Executive Officers") whose salary and bonus compensation exceeded $100,000 for the years ended December 31, 1996, 1995 or 1994.
Other Annual Compensation Name and Principal Position Year Salary($) Bonus($) ($)(1)(2) - --------------------------- ---- ---------- --------- ----------- Norwood Cowgill, Jr. 1996 150,000 -- -- Chairman of the Board 1995 73,797 -- -- and Chief Executive Officer 1994 100,000 -- -- Michael J. Moriarty 1996 66,923 50,000 -- President and Chief Operating Officer William E. Anderson, II 1996 125,000 25,000 -- Executive Vice President, 1995 113,450 25,000 -- Secretary and General Counsel Michael L. Tetterton 1996 100,000 50,000 -- Vice President of Operations 1995 98,961 50,000 -- 1994 78,500 70,000 -- James C. Baughman, Jr. 1996 100,000 50,000 -- Chief Financial Officer and Treasurer 1995 37,693 25,000 --
(1) The aggregate amount of perquisites and personal benefits for Messrs. Cowgill, Moriarty, Anderson, Tetterton and Baughman for the years ended December 31, 1996, 1995 and 1994 did not exceed the lesser of (a) $50,000 or (b) 10% of their respective annual salary and bonus for the fiscal years presented. (2) All other compensation for Messrs. Cowgill, Moriarty, Anderson, Tetterton and Baughman consists of an auto allowance. OPTION GRANTS The following table sets forth information regarding grants of stock options to the Named Executive Officers during 1996 pursuant to the 1995 Plan. Options to acquire 396,502 shares of Common Stock were granted under the 1995 Plan during 1996. No separate stock appreciation rights ("SARs") were granted during 1996. 33 34
INDIVIDUAL GRANTS ----------------- Number of % of Total Potential Realizable Value Securities Options at Assumed Annual Rates Underlying Granted to Exercise of Stock Price Options Employees in Price Expiration Apreciation for Name Granted Fiscal Year (1) Per Share (6) Date Option Term (2) - ---- ------- --------------- ------------ ---- --------------------------- 5% 10% Michael J. Moriarty 150,000 (3) 37.8% $15.75 8/22/06 $1,486,500 $ 3,765,000 Creighton R. Schneck 75,000 (4) 18.9% $15.25 11/11/06 $ 719,250 $ 1,822,500 James C. Baughman, Jr. 75,000 (5) 18.9% $20.83 5/28/06 $ 982,500 $ 2,490,000
(1) Includes options to acquire an aggregate of 96,502 shares granted to 11 other employees of the Company during 1996. (2) Represents potential realizable value at assumed annual rates of appreciation over the exercise price of the options for the option term. (3) Thirty-three percent of such options became exercisable on August 22, 1996, grant date. An additional one-third of such options will become exercisable on August 22 of each of the two years thereafter. The options are exercisable for ten years from the grant date. (4) Twenty-five percent of such options become exercisable on November 11, 1997, and an additional twenty-five percent of such options will become exercisable on November 11 of each of the three years thereafter. The options are exercisable for ten years from the grant date. (5) Twenty-five percent of such options become exercisable on May 28, 1997, and an additional twenty- five percent of such options will become exercisable on May 28 of each of the three years thereafter. The options are exercisable for ten years from the grant date. (6) The exercise price equals the closing market price on the date of grant. 1995 YEAR-END OPTION VALUE TABLE The following table sets forth certain information with respect to the value of unexercised "in-the-money" options held by the Named Executive Officers of the Company at December 31, 1996. No options were exercised by the Named Executive Officers of the Company during 1996.
Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options at Name Options at 12/31/96 12/31/96 Exercisable Unexercisable Exercisable Unexercisable # # $ $ ------------ ------------- ------------ ------------- Norwood Cowgill, Jr. 300,000 -- 1,725,000 -- Michael J. Moriarty 50,000 100,000 -- -- William E. Anderson II 28,125 84,375 161,719 485,156 Michael L. Tetterton 28,125 84,375 122,719 368,157 Creighton R. Schneck -- 75,000 37,500 James C. Baughman, Jr. 9,376 103,124 23,926 71,775
(1) The value of unexercised "in-the-money" options is based on the difference between the December 31, 1996, closing price of the Company's Common Stock of $15.75 as reported by The Nasdaq Stock Market, on which the Company's Common Stock trades, and the exercise price of the options. COMPENSATION OF DIRECTORS Each non-employee director serving at the time of the Company's IPO was awarded 750 shares of Common Stock and each non-employee director was granted options to purchase 15,000 shares of Common Stock at an exercise price equal to the closing price of a share of the Company's Common Stock on the date of their election to the Board of Directors, or for the directors serving at the time of the IPO, the price of a share of common stock in the IPO. Each non-employee director 34 35 also is paid a $10,000 annual retainer paid quarterly, plus $500 for each Board of Directors meeting attended, $250 for each committee meeting attended and $250 for each telephonic Board of Directors or committee meeting attended. In addition, the Company reimburses all directors for their out-of-pocket expenses incurred in connection with their service on the Board of Directors. Messrs. Cowgill, Moriarty and Anderson receive no compensation as directors, other than reimbursement for out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors. EMPLOYMENT AGREEMENTS, UNDERSTANDINGS, NON-COMPETE AGREEMENTS AND EMPLOYEE COMPENSATION In June, 1995, Mr. Cowgill entered into an employment agreement (the "Cowgill Employment Agreement") with the Company. Pursuant to the Cowgill Employment Agreement, Mr. Cowgill serves as Chairman of the Board of Directors and Chief Executive Officer of the Company. The Cowgill Employment Agreement provides for initial annual base compensation of approximately $150,000, subject to any increase in base compensation approved by the Compensation Committee of the Board of Directors. The Cowgill Employment Agreement provides for a term of approximately two years from the closing of the IPO, subject to earlier termination in the event of death, disability or other termination. The Cowgill Employment Agreement also provides that Mr. Cowgill may voluntarily terminate his employment with the Company upon 90 days written notice but would remain subject to the non-compete provisions of the Cowgill Employment Agreement. The Cowgill Employment Agreement provides for certain severance payments in the event of death or disability or upon termination of employment by the Company without cause and, after a Change in Control of the Company (as defined in the Cowgill Employment Agreement). In addition, the Cowgill Employment Agreement contains certain non-compete covenants which prohibit Mr. Cowgill from managing or developing any extended stay hotels during the term of employment with the Company and for a period of two years thereafter. In July, 1996, Mr. Moriarty who is a director, President and Chief Operating Officer of the Company, entered into an employment agreement (the "Moriarty Employment Agreement") with the Company. The Moriarty Employment Agreement provides for an annual salary of approximately $200,000, subject to any increase in base salary approved by the Compensation Committee of the Board of Directors. The Moriarty Employment Agreement provides for a term of approximately two and one-half years, expiring December 31, 1998, subject to earlier termination in the event of death, disability or other termination. The Moriarty Employment Agreement also provides that Mr. Moriarty may voluntarily terminate his employment with the Company upon 90 days written notice but would remain subject to the non-compete provisions of the Moriarty Employment Agreement. The Moriarty Employment Agreement provides for certain severance payments in the event of death or disability or upon termination of employment by the Company without Cause, as defined in the agreement. In addition, Mr. Moriarty is entitled to a lump-sum payment of $300,000 in the event his employment with the Company continues through August 21, 2001, or he is terminated by the Company without Cause prior to August 31, 2001; earlier Voluntary Termination will entitle Mr. Moriarty to a pro-rated payment between $15,000 and $60,000. The Moriarty Employment Agreement contains certain non-compete covenants which prohibit Mr. Moriarty from managing or developing any extended stay hotels during the term of employment with the Company and for a period of two years thereafter. Messrs. Anderson, Tetterton, Schneck and Baughman have entered into non-compete agreements with the Company, which provide that if each such executive officer voluntarily terminates his employment, such executive officer shall not for a period of two years thereafter serve 35 36 as an officer, director, owner or in any other capacity in an extended stay hotel within 300 miles of a StudioPLUS hotel. If such executive officer's employment is terminated by the Company, the Company may elect to put in effect the non-compete provision described above for any period of time between 6 months and 24 months by so advising such executive officer within 14 days of his termination date and paying that executive officer during such period an amount equal to the higher of his rate of weekly salary in effect when the agreement was entered into or his weekly salary at the time of termination of his employment. Salaries for the other Named Executive Officers of the Company are Mr. Anderson - $125,000, Mr. Tetterton - $100,000, and Mr. Schneck - $150,000, Mr. Baughman - $125,000 subject to any increase approved by the Compensation Committee of the Board of Directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consists of Warren W. Rosenthal, Chairman, Richard W. Furst, Thomas P. Dupree and Daniel W. Daniele. All Compensation Committee members are non-employee directors and none has any direct or indirect material interest in or a relationship with the Company, other than as less than one percent (1%) shareholders and as related to his position as a director. During 1996, none of the executive officers of the Company served on the board of directors or compensation committee of any other entity, whose executive officers served on the Compensation Committee or Board of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of shares of Common Stock as of February 28, 1997, for (i) directors of the Company, (ii) the Chief Executive Officer and each of the Named Executive Officers, (iii) the directors and officers of the Company as a group, and (iv) each person who is a shareholder of the Company holding more than a 5% interest in the Company. Unless otherwise indicated in the footnotes, all such interests are owned directly, and the indicated person or entity has sole voting and disposition power. The number of shares represents (a) the number of shares of Common Stock the person beneficially owns plus (b) the number of shares issuable upon exercise of currently exercisable options. Amount and Nature of Beneficial Ownership
Number of Beneficial Owners(1) Shares Percent of Class - --------------------- ------ ---------------- Norwood Cowgill, Jr.(2) 1,755,927 13.50% 1999 Richmond Road, Suite 4 Lexington, Kentucky 40502 Cohen & Steers Capital 1,641,100 12.61% Management, Inc. 757 Third Avenue New York, New York 10017
36 37 Putnam Investments, Inc. 1,522,104 11.70% One Post Office Square Boston, Massachusetts 02109 T. Rowe Price Associates, Inc 802,900 6.20% 100 E. Pratt Street Baltimore, Maryland 21202 William E. Anderson II(3) 93,750 * Michael L. Tetterton(4) 79,830 * Michael J. Moriarty(5) 50,000 * James C. Baughman, Jr.(6) 74,215 * Warren W. Rosenthal(7) 23,250 * Thomas P. Dupree(7) 12,750 * Richard W. Furst(7) 9,750 * Daniel W. Daniele(8) 3,750 * Creighton R. Schneck 1,000 * --------- ----- Total for all directors and executive officers as a group (ten persons)(2)(3)(4)(5) (6)(7)(8) 6,070,326 46.65% ========= =====
* Represents less than 1% of the outstanding shares of Common Stock (1) Unless otherwise indicated, the address of such person is c/o Studio Plus Hotels, Inc., 1999 Richmond Road, Suite 4, Lexington, Kentucky 40502. (2) Includes 300,000 shares subject to options granted to Mr. Cowgill under the 1995 Plan exercisable at $10.00 per share. All such options are currently exercisable. Also includes 470,000 shares owned by Cowgill Partners, L.P., a limited Partnership controlled by Mr. Cowgill and certain of his family members. (3) Includes 56,250 shares issuable to Mr. Anderson upon the exercise of options which are currently exercisable at an exercise price of $10.00 per share. (4) Includes 37,500 shares issuable to Mr. Tetterton upon the exercise of options of which 18,750 are exercisable at $10.00 per share and an additional 18,750 are exercisable at $13.67 per share. (5) Includes 50,000 shares issuable to Mr. Moriarty upon the exercise options which are currently exercisable at an exercise price of $15.75 per share. (6) Includes 13,125 shares issuable to Mr. Baughman upon the exercise of options of which 7,500 are exercisable at $10.00 per share and 5,624 are exercisable at $15.33 per share. Mr. Baugman's balance also includes 29,590 shares owned by Mrs. Baughman, as to which he disclaims beneficial ownership. Mr Baughman's balance also includes 30,000 shares held in a Cowgill family trust of which he is co-trustee. (7) Includes 7,500 shares issuable to each to Messrs. Rosenthal, Dupree and Furst upon the exercise of options which are currently exercisable at an exercise price of $10.00 per share. (8) Includes 3,750 shares issuable to Mr. Daniele upon the exercise of options which are currently exercisable at an exercise price of $14.42 per share. In connection with the Merger of the Company with ESA as discussed in Item 7 of this report on Form 10-K, Mr. Cowgill has entered into a stockholder agreement (the "Stockholder Agreement") with ESA. The terms of the Stockholder Agreement provide that Mr. Cowgill may not sell, transfer, pledge, encumber or otherwise dispose of his shares of Studio Plus Hotels, Inc. Common Stock (the "Cowgill Shares"). In addition, ESA is granted an option to 37 38 purchase all of the Cowgill Shares at a purchase price of $25.00 per share. The Stockholder Agreement also permits certain executive officers of ESA to represent and to vote the Cowgill Shares with respect to the merger. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the year ended December 31, 1996, the Company's executive officers, directors and nominees for director did not have significant business relations with the Company. 38 39 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K (A) INDEX TO FINANCIAL STATEMENTS 1. Financial Statements: The financial statements filed as part of this report are listed on the Index to Financial Statements on page 15. 2. Financial Statement Schedules: -27- Financial Data Schedule (for SEC use only). (B) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of 1995. (C) EXHIBITS EXHIBIT NUMBER - ------- 2.1 Agreement and Plan of Merger dated as of January 16, 1997, by and among Studio Plus Hotels, Inc. and Extended Stay America, Inc. (previously filed as Exhibit 2 to the Company's Current Report on Form 8-K dated January 16, 1997, and incorporated by reference hereto). 3.1 Amended and Restated Articles of Incorporation of the Registrant (previously filed as Exhibit 3.1(b) to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 3.2 First Amended and Restated By-Laws of the Registrant (previously filed as Exhibit 3.2(b) to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 4.1 Form of Rights Agreement Between Studio Plus Hotels, Inc. and Bank One, Indianapolis, NA. (previously filed as Exhibit 4.2 to Registration Statement on Form S- 1 (Registration No. 33-87836) and incorporated by reference hereto). 4.2 Form of Amendment and Substitution Agreement to Rights Agreement among Studio Plus Hotels, Inc., Bank One, Indianapolis N.A. and Fifth Third Bank (previously filed as Exhibit 4.3 to Registration Statement on Form S-1 (Registration No. 333-1864) and incorporated by reference hereto). *4.3 Form of Amendment No. 2 to Rights Agreement among Studio Plus Hotels, Inc., and Fifth Third Bank. 39 40 *10.1 Employment Agreement and Offer Letter between the Company and Michael J. Moriarty. *10.2 Confidentiality and Non-Compete Agreement between the Company and Creighton R. Schneck. 10.3 Trademark Assignment Agreement between Studio Plus, Inc. and Studio Plus of America, Inc. (previously filed as Exhibit 10.29 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.4 Indemnification Agreement among Studio Plus of America, Inc., Studio Plus Properties, Inc. and Norwood Cowgill, Jr. (previously filed as Exhibit 10.29 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.5 Studio Plus Hotels, Inc. 1995 Stock Incentive Plan (previously filed as Exhibit 10.29 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.6 Studio Plus Hotels, Inc. Non-Employee Directors' Stock Incentive Plan (previously filed as Exhibit 10.29 to Registration Statement on Form S-1 (Registration No. 33- 87836) and incorporated by reference hereto). 10.7 Revolving Credit Loan Agreement between Studio Plus Hotels, Inc., Studio Plus Properties, Inc. and Bank One, Lexington, NA dated as of May 23, 1995 (previously filed as Exhibit 10.33 to Registration Statement on Form S-1 (Registration No. 333- 1864) and incorporated by reference hereto). 10.8 First Amendment to Revolving Credit Loan Agreement between Studio Plus Hotels, Inc., Studio Plus Properties, Inc. and Bank One, Lexington, NA dated as of May 23, 1995 (previously filed as Exhibit 10.33(a) to Registration Statement on Form S-1 (Registration No. 333-1864) and incorporated by reference hereto). 10.9 Second Amendment to Revolving Credit Loan Agreement between Studio Plus Hotels, Inc., Studio Plus Properties, Inc. and Bank One, Lexington, NA dated as of February 28, 1996 (previously filed as Exhibit 10.33(b) to Registration Statement on Form S-1 (Registration No. 333-1864) and incorporated by reference hereto). 10.10 Form of Indemnification Agreement between Studio Plus Hotels, Inc. and its directors and officers (previously filed as Exhibit 10.34 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.11 Employment Agreement between Studio Plus, Inc. and Norwood Cowgill, Jr. (previously filed as Exhibit 10.35 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.12 Confidentiality and Non-Compete Agreement between the Company and William E. Anderson, II dated October 26, 1995 (previously filed as Exhibit 10.36 to Registration 40 41 Statement on Form S-1 (Registration No. 333-1864) and incorporated by reference hereto). 10.13 Confidentiality and Non-Compete Agreement between the Company and Benjamin A. Keam dated October 26, 1995 (previously filed as Exhibit 10.37 to Registration Statement on Form S-1 (Registration No. 333-1864) and incorporated by reference hereto). 10.14 Confidentiality and Non-Compete Agreement between the Company and Michael L. Tetterton dated October 26, 1995 (previously filed as Exhibit 10.38 to Registration Statement on Form S-1 (Registration No. 333-1864) and incorporated by reference hereto). 10.15 Confidentiality and Non-Compete Agreement between the Company and James C. Baughman, Jr. dated October 26, 1995 (previously filed as Exhibit 10.39 to Registration Statement on Form S-1 (Registration No. 333-1864) and incorporated by reference hereto). 10.16 Form of Canadian Trademark Assignment Agreement between Studio Plus, Inc. and Studio Plus Hotels, Inc. (previously filed as Exhibit 10.36 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.17 Registration Rights Agreement between Studio Plus Hotels, Inc. and Affiliated Shareholders (previously filed as Exhibit 10.37 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.18 Merger Agreement among Studio Plus at Greensboro, Inc., Studio Plus Hotels, Inc. and Studio Plus Properties, Inc. (previously filed as Exhibit 10.41 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.19 Form of Amendment to Merger Agreement between Subchapter S Predecessor Entities, Studio Plus Properties, Inc. and Studio Plus Hotels, Inc. (previously filed as Exhibit 10.42 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.20 Form of Second Amendment to Merger Agreement between Studio Plus, Inc. and Studio Plus Hotels, Inc. (previously filed as Exhibit 10.43 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.21 Form of First Amendment to Exchange Agreement among Norwood Cowgill, Jr., Walker L. Newton and Studio Plus Hotels, Inc. (previously filed as Exhibit 10.44 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.22 Form of First Amendment to Exchange Agreement among Norwood Cowgill, Jr., Walker L. Newton and Studio Plus Hotels, Inc. (previously filed as Exhibit 10.45 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 41 42 10.23 Form of Amendment to Exchange Agreement among W&W, Inc. Studio Plus North Lindbergh, Inc. and Studio Plus Hotels, Inc. (previously filed as Exhibit 10.46 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). 10.24 Form of Amendment to Exchange Agreement among Myrtle Redevelopment Corporation, Studio Plus at Westport, Inc. and Studio Plus Hotels, Inc (previously filed as Exhibit 10.47 to Registration Statement on Form S-1 (Registration No. 33-87836) and incorporated by reference hereto). *11.1 Computation of Earnings Per Share. 21.1 List of subsidiaries (previously filed as Exhibit 21.1 to the 1995 Current Report on Form 10-K dated March 18, 1996 and incorporated by reference hereto). *23.1 Consent of Coopers & Lybrand L.L.P. *27 Financial Data Schedule (for SEC use only). * Filed herewith 42 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereto duly authorized. STUDIO PLUS HOTELS, INC. a Virginia Corporation (Registrant) By: /s/ NORWOOD COWGILL, JR ---------------------------------- Norwood Cowgill, Jr. Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ NORWOOD COWGILL, JR. Chairman of the Board of March 4, 1997 - -------------------------------- Directors and Chief Executive Norwood Cowgill, Jr. Officer /s/ RICHARD W. FURST Director March 4, 1997 - -------------------------------- Richard W. Furst Director March 4, 1997 - -------------------------------- Thomas P. Dupree Director March 4, 1997 - -------------------------------- Warren W. Rosenthal Director March 4, 1997 - -------------------------------- Daniel W. Daniele /s/ Michael J. Moriarty Director, President and Chief March 4, 1997 - -------------------------------- Operating Officer Michael J. Moriarty
43 44 /s/ WILLIAM E. ANDERSON, JR. Director, Executive Vice March 4, 1997 - -------------------------------- President, Secretary and William E. Anderson, Jr. General Counsel /s/ JAMES C. BAUGHMAN, JR. Chief Financial Officer and March 4, 1997 - --------------------------------- Treasurer (Principal Financial James C. Baughman, Jr. Officer) /s/ DONALD F. VITTITOW Vice President, Controller - --------------------------------- (Principal Accounting Officer) March 4, 1997 Donald F. Vittitow
44 EX-4.3 2 FORM OF AMENDMENT #2 TO RIGHTS AGREEMENT 1 EXHIBIT 4.3 45 2 AMENDMENT NO. 2 TO RIGHTS AGREEMENT THIS AGREEMENT No. 2 (the "Agreement"), dated as of January 16, 1997, is between Studio Plus Hotels, Inc., a Virginia corporation (the "Company"), and FIFTH THIRD BANK, as Rights Agent (the "Rights Agent") Recitals A. The Company and the Rights Agent are parties to an Amended and Restated Rights Agreement dated as of June 6, 1995, as amended on February 27, 1996 (the "Rights Agreement"). B. Extended Stay America, Inc., a Delaware corporation ("Merger Partner"), ESA Merger Sub. Inc., a Delaware corporation and a wholly owned subsidiary of Merger Partner ("Merger Sub"), and the Company propose to enter into an Agreement and Plan of Merger dated as of January 16, 1997 (the "Merger Agreement") pursuant to which the Company will be merged with and into Merger Sub, with the Merger Sub as the surviving corporation (the "Merger") C. Pursuant to section 27 of the Rights Agreement, the Board of Directors of the Company has determined that an amendment to the Rights Agreement as set forth herein is necessary and desirable to reflect the foregoing and certain other matters, and the Company and the Rights Agent desire to evidence such amendment in writing. Accordingly, the parties agree as follows: 1. Amendment of Section 1(a). Section 1(a) of the Rights Agreement is amended by inserting the following at the end of Section 1(a): "In addition, notwithstanding anything in this Rights Agreement to the contrary neither Extended Stay America, Inc., a Delaware corporation ("Merger Partner"), ESA Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Merger Partner ("Merger Sub"), nor any Affiliate or Associate of Merger Partner or Merger Sub, shall be deemed to be an Acquiring Person by virtue of the Agreement and Plan of Merger, to be entered into as of January 16, 1997, between the Company, Merger Partner and Merger Sub, as it may be amended or supplemented from time to time in accordance with its terms (the "Merger Agreement"), or by virtue of any of the transactions contemplated by the Merger Agreement, including without limitation, the publication or other announcement of the Merger in accordance with Section 5.6 of the Merger Agreement." 2. Amendment of Section 1(k). Section 1(k) of the Rights Agreement is amended by deleting the word "or" before the numeral (iii) therein and by adding to the end thereof the following: "or (iv) immediately prior to the Effective Time (as defined in 46 3 the Merger Agreement) of the Merger contemplated by and in accordance with the terms of the Merger Agreement." 3. Amendment of Section 3(a). Section 3(a) of the rights Agreement is amended by adding the following sentence at the end thereof: "Notwithstanding the foregoing or anything in this Rights Agreement to the contrary, a Distribution Date shall not be deemed to have occurred by virtue of the execution, consummation or public announcement of the Merger Agreement or by virtue of any of the transactions contemplated by the Merger Agreement." 4. Amendment of Section 13. Section 13 of the Rights Agreement is hereby amended by inserting the following sentence at the end of such Section: "Notwithstanding the foregoing, this Section 13 shall not apply to the Merger or as a result of the execution and delivery of the Merger Agreement or the transactions contemplated thereby." 5. Effectiveness. This Amendment shall be deemed effective as of January 16, 1997, as if executed on such date. Except as amended hereby, the Rights Agreement shall remain in full force and effect and shall be otherwise unaffected hereby. 6. Miscellaneous. This Amendment shall be deemed to be a contract made under the laws of the Commonwealth of Virginia and for all purposes shall be governed by and construed in accordance with the laws of such Commonwealth applicable to contracts to be made and performed entirely within such Commonwealth. This Amendment may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute bu one and the same instrument. If any term, provision, covenants or restriction of this Amendment is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 47 4 EXECUTED as of the date first set forth above. STUDIO PLUS HOTELS, INC. Attest: a Virginia corporation - ------------------------------ --------------------------------- Name: Name: Title: Title: Attest: FIFTH THIRD BANK, as Rights Agent - ------------------------------ --------------------------------- Name: Name: Title: Title: 48 EX-10.1 3 EMPLOYMENT AGREEMENT-MICHAEL J. MORIARTY 1 Exhibit 10.1 49 2 July 16, 1996 Mr. Michael J. Moriarty 10701 Wynkoop Drive Great Falls, VA 22066 Dear Mike: I am excited to offer you the position of President and Chief Operating Officer of Studio Plus Hotels, Inc. This position will have the following salary, options and benefits: Position: President and Chief Operating Officer Salary: $7692.31 bi-weekly Bonus: $50,000 minimum for each of the first two fiscal years Start Date: Employment date of July 16, 1996 with first workday at corporate headquarters anticipated to be August 19, 1996 Benefits: Medical Insurance - Studio Plus pays 100% of monthly premium Long-term Disability - group coverage of 60% of salary and individual wrap policy of 20% of salary, aggregate of 80% of salary, subject to $11,250 per month maximum Life Insurance - $25,000 coverage Holiday Pay - Six (6) days per year New Years, Memorial Day, July 4th, Labor Day, Thanksgiving, Christmas Day). Studio Plus properties are currently closed on these days. Sick Pay - Six (6) days per year Vacation - Four (4) weeks; Five (5) weeks after 25 years. Employment You will enter into an Employment Agreement: Agreement with the Company for the period through December 31, 1998 on the terms in the separate Employment Agreement enclosed with this letter. Stock Options: a) On July 16, 1996, your first day of employment, you will be granted an option for 150,000 shares of the Company's common stock under the Company's 1995 Stock Incentive Plan, with 50,000 shares to vest on the first day you report for work at the 50 3 Company's headquarters in Lexington, Kentucky, 50,000 shares to vest on the date of your first anniversary of the first day you report for work at the Company's headquarters in Lexington, Kentucky and 50,000 shares to vest on the date of your second anniversary of the first day you report for work at the Company's headquarters in Lexington, Kentucky, with an exercise price equal to the closing price of a share of the Company's common stock on July 16, 1996. If a share of the Company's common stock during the period from your first day of employment through December 31, 1996 decreases by more than ten percent (10%) of the exercise price above, you will have the right, subject to any applicable legal considerations, exercisable once, to substitute a new option for the same number of shares above on the same terms as above but at a lower exercise price equal to the closing price of a share of the Company's common stock on the day you make the decision to substitute. b) On the first anniversary of the day you report for work at the Company's headquarters in Lexington, Kentucky, you will be granted an option to purchase fifty thousand (50,000) shares of the Company's common stock to vest half on December 31, 1997 and half on December 31, 1998, exercisable at the closing price of a share of the Company's common stock on the date of the first anniversary of your grant date under this subparagraph (b) or, if there is no closing price for the Company's common stock on that date, on the last preceding trading day before that date. However, regardless of whether this option is vested or not, it cannot be exercised until after December 31, 1997, and then only if the Company, on December 31, 1997, has at least sixty-seven (67) Studio Plus hotels in operation which it owns or leases and which have been constructed by the Company. Acquisitions of hotels, mergers or development by outside development firms developing for the Company, etc. will not be counted in the 67 hotel number. Full and not substantial compliance is required to satisfy this condition to exercise. c) On the second anniversary of the day you report for work at the Company's headquarters in Lexington, Kentucky, you will be granted an option to purchase fifty thousand (50,000) shares of the Company's common stock to vest half on December 31, 1998 and half on December 31, 1999 at the closing price of a share of the Company's common stock on the date of the second anniversary of your grant date under this subparagraph (c) or, if there is no closing price for the Company's common stock on that date, on the last preceding trading day before that date. However, regardless of whether this option is vested or not, it cannot be exercised until after December 31, 1998, and then only if the Company, on December 31, 1998, has at least one hundred ten (110) Studio Plus hotels in operation which it owns or leases 51 4 and which have been constructed by the Company. Acquisitions of hotels, mergers or development by outside development firms developing for the Company, etc. will not be counted in the 110 hotel number. Full and not substantial compliance is required to satisfy this condition to exercise. (d) All other option terms for each of the above options shall be the same as contained in the Company's standard stock option grant agreement. As many options as possible will be granted as incentive stock options. Lump Sum If you are Terminated Without Cause, as Payment: that term is defined in your Employment Agreement of even date herewith, by the Company on or before August 31, 2001, then, as a severance benefit, the Company agrees to pay you Three Hundred Thousand Dollars ($300,000) in a lump sum on or before September 5, 2001. If you are still employed by the Company on August 31, 2001 as an Executive Officer, then, as a bonus, the Company agrees to pay you, on or before September 5, 2001, Three Hundred Thousand Dollars ($300,000) in a lump sum. If, before August 31, 2001 but after August 31, 1997, you have a Voluntary Termination, as that term is defined in your Employment Agreement of even date herewith, of your employment with the Company (death or Disability, as defined in your Employment Agreement, is not a Voluntary Termination), then the Company agrees to pay you a severance benefit between Fifteen Thousand Dollars ($15,000) and Sixty Thousand Dollars ($60,000), based on the following vesting schedule:
Total Total Voluntary Termination After Vesting Benefit --------------------------- --------------- 8/31/97 - but before 8/31/98 5% $15,000 8/31/98 - but before 8/31/99 10% $30,000 8/31/99 - but before 8/31/2000 15% $45,000 8/31/2000 - but before 8/31/2001 20% $60,000
For example, if you have a Voluntary Termination in July 1999, your total severance benefit payment would be $30,000. If this letter correctly sets forth our understanding, please execute this letter where indicated below and return an executed copy to my attention. Very truly yours, /s/ (Norwood Cowgill, Jr.) Norwood Cowgill, Jr. Chairman of the Board /sam 52 5 The above terms correctly set forth our complete understanding. Date: /s/ Michael J. Moriarty ------------------------ -------------------------------- EMPLOYMENT AGREEMENT BETWEEN STUDIO PLUS HOTELS, INC. AND MICHAEL J. MORIARTY THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as of July 16, 1996, by and between STUDIO PLUS HOTELS, INC., a Virginia corporation (the "Company"), and MICHAEL J. MORIARTY (the "Executive"). WITNESSETH: WHEREAS, the Company is a Virginia corporation which owns, develops and manages extended stay lodging properties, including "Studio Plus" brand hotel properties (the "Properties"); and WHEREAS, the Company desires to employ the Executive to devote his full time efforts and skills to the business of the Company and to serve as the President and Chief Operating Officer of the Company; and WHEREAS, the Executive desires to be so employed on the terms and subject to the conditions hereinafter stated; NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth, the parties agree as follows: 1. Employment. The Company shall employ the Executive and the Executive agrees to be so employed initially in the capacity of President and Chief Operating Officer of the Company to serve for the Term, defined hereinbelow, subject to earlier termination as hereinafter provided. 2. Term. The term of the Executive's employment hereunder (the "Term") shall be for a period commencing on the first day of the Executive's employment, July 16, 1996, and continuing through December 31, 1998, unless terminated earlier as provided herein; provided, however, that this Agreement shall continue after the Term on a year-to-year term (the "Extended Term") unless terminated by either party on at least forty-five (45) days written notice to the other party prior to the end of the then-current Term or Extended Term. 3. Services. The Executive shall devote such amount of his time and attention to the Company's affairs as is necessary to competently perform his duties, consistent with directions from the Company's Chairman of the Board or the Board of Directors ("Board") and as set forth in the Company's By-laws. 53 6 4. Compensation. (a) During each year of the Term, commencing on the first day Executive reports for work at the Company's headquarters in Lexington, Kentucky, the Company shall pay the Executive for his services a base salary at a rate of Seven Thousand Six Hundred Ninety-Two and 31/100 Dollars ($7692.31), bi-weekly, with such base salary being subject to increases as approved by the Compensation Committee of the Board (the "Compensation Committee"). Such base salary as increased from time to time and in effect at the time certain termination events specified herein occur shall thereafter be the base salary for all purposes under this Agreement relating to such termination ("Base Salary"). In the event of any extension or extensions of the Term or Extended Term in accordance with Section 2 hereof, the annual base salary for each Extended Term shall be determined by the Compensation Committee but shall not be less than the annual base salary in effect for the immediately preceding Term or Extended Term, unless consented to in writing by the Executive. (b) In addition to the annual Base Salary described in Section (a) above, the Executive shall be eligible for an annual cash bonus in accordance with such policies, rules and criteria as shall be established by the Compensation Committee, in its sole discretion or for each of the first two (2) years of the Term as may be agreed upon in writing by the Executive and the Company at the time of hire. (c) In addition, the Board or the Compensation Committee may from time to time authorize the payment to the Executive of other incentive compensation, including but not limited to stock options or restricted stock, in accordance with rules and criteria established by the Compensation Committee, in its sole discretion. Such criteria may include, but not be limited to, the growth in net income per share of Common Stock and/or other performance goals. 5. Benefits. The Company agrees to provide the Executive with the following benefits: (a) Vacation. The Executive shall be entitled each year to take four (4) weeks vacation, during which time his compensation shall be paid in full. (b) Employee Benefits. This Agreement shall be in addition to and not be in lieu of any rights, benefits and privileges to which the Executive may be entitled as a management level employee of the Company, including but not limited to any retirement, pension, profit-sharing, life insurance, disability, hospitalization, major medical, dental or other plans which may now be in effect or which may hereafter be authorized by the Compensation Committee or adopted by the Company. During the initial Term, and, if the Term is extended during an Extended Term, the Executive shall have the same rights and privileges to participate in such plans and benefits intended generally for management employees on the same basis as any other management level employee. 6. Expenses. The Company recognizes that the Executive will have to incur certain out-of-pocket expenses, including but not limited to travel expenses, related to his services and the Company's business and the Company agrees to reimburse the Executive for all reasonable expenses incurred by him in the performance of his duties upon presentation of a voucher or documentation, as reasonably specified by the Company, indicating the amount and business 54 7 purposes of any such expenses. If the Company adopts a travel and expense reimbursement policy applicable uniformly to all management employees, the Executive agrees to adhere to the terms of such policy. 7. Definitions. For purposes of this Agreement, the following terms shall have the following definitions: (a) "Disability" means the Executive's inability, by reason of physical or mental impairment, confirmed by a licensed physician designated by the Board, to perform the services described in Section 3 above which inability continues for a period equal to the then current elimination period in the Company's group disability insurance policy, presently ninety (90) days, within any period of three hundred sixty-five (365) days and results in termination of the Executive's employment with the Company. (b) "Voluntary Termination" means the Executive's voluntary termination of his employment hereunder, which may be effected by the Executive giving the Company's Chairman of the Board or Board of Directors notice of the Executive's desire to terminate his employment (ninety (90) days written notice is preferred) or the Executive's failure after written notice from the Company to provide substantially all the services described in Section 3 hereof for a period greater than four (4) consecutive weeks by reason of the Executive's voluntary refusal to perform such services. Notwithstanding the foregoing, if the Executive gives notice of Voluntary Termination and, prior to the expiration of any notice period, the Executive voluntarily refuses or fails to provide substantially all the services described in Section 3 hereof for a period of five (5) or more business days after notice from the Company, the Voluntary Termination shall be deemed to be effective as of the date on which the Executive so ceases to carry out his duties. For purposes of this Section 7, voluntary refusal to perform services shall not include taking vacation otherwise permitted in accordance with Section 5(a) hereof, the Executive's failure to perform services on account of his illness or death or the illness of a member of his immediate family, provided such illnesses or death is adequately substantiated at the reasonable request of the Company, or any other absence from service with the written consent of the Company's Chairman of the Board or the Board. For purposes of this Section 7(b), immediate family shall constitute the Executive's parents, spouse and children, if any. (c) "Termination With Cause" means the termination by the Company of the Executive's employment for any of the following reasons: (i) the Executive's conviction of a crime involving some act of dishonesty or moral turpitude (specifically excepting simple misdemeanors not involving acts of dishonesty and all minor traffic violations; (ii) the Executive's conviction of theft, embezzlement or misappropriation of the Company's property or a final judgment against the Executive for the intentional and malicious infliction of damage to the Company's business, property or business opportunity; (iii) the Executive's material breach of the confidentiality and 55 8 noncompetition covenants in Section 10 hereof; (iv) the Executive's continuous neglect of his service and duties with the Company under Section 3 hereof or his continuous failure or refusal to follow any reasonable, unambiguous, duly adopted written directive of the Board of Directors or any duly constituted committee thereof, after written notice from the Company of such neglect, failure or refusal; and (v) the Executive's sustained abuse of alcohol or use of illegal drugs, or the abuse of other controlled substances, or his engaging in other extreme personal activities in a manner that, in the reasonable judgment of the Board of Directors, adversely affects the reputation, goodwill or business position or prospects of the Company. (d) "Termination Without Cause" means the termination of the Executive's employment by the Company for any reason other than Voluntary Termination or Termination With Cause or termination because of death or Disability. 8. Voluntary Termination; Termination With Cause. During the Term or an Extended Term, if the Executive shall cease being an employee of the Company on account of a Voluntary Termination or shall suffer a Termination With Cause, then the Executive shall not be entitled to any compensation or other benefits after the effective date of such Voluntary Termination or Termination With Cause (except compensation earned but unpaid on the date of such event, accrued but not taken vacation and stock options which the Executive may have a vested right to exercise or benefits required by law). In the event of such Voluntary Termination or Termination With Cause, the Executive shall continue to be subject to the noncompetition and confidentiality covenants contained in Section 10 hereof. 9. Termination Without Cause. In the event of the Executive's Termination Without Cause during the Term, the Executive shall be entitled to receive, in addition to the Base Salary earned and expenses incurred but not paid through the date of the Executive's termination, accrued but not taken vacation, and stock options which the Executive may have a vested right to exercise on the date of termination, bi-weekly payments equal to the Executive's Base Salary in effect at the time of termination for twenty-four (24) months. In the event of the Executive's Termination Without Cause during an Extended Term, the Executive shall be entitled to receive, in addition to the Base Salary earned and expenses incurred but not paid through the date of the Executive's termination, accrued but not taken vacation, and stock options which the Executive may have a vested right to exercise on the date of termination, bi-weekly payments equal to the Executive's Base Salary in effect at the time of termination for the balance of the Extended Term then in effect. Such payments shall be made on the Company's normal payroll dates and shall be in the amount of the Executive's bi-weekly Base Salary for that payroll period as if he were still working. In the event of such Termination Without Cause, the Executive shall continue to be subject to the noncompetition and confidentiality covenants contained in Section 10 hereof. 10.Confidentiality; Noncompetition. 56 9 (a) The Executive acknowledges that he has access to proprietary information developed by the Company with respect to the development, construction, operation and marketing of the Company's extended stay lodging business and properties (the "Confidential Information") and the Executive hereby acknowledges that the Confidential Information represents a valuable, special and unique asset of the Company' business. The Executive agrees that he will not either during or after the Term, or any Extended Term, disclose the Confidential Information, or any portion thereof, to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, except with respect to performance of his duties hereunder or as may be required by applicable federal or state regulations or law and then only after written notice to the Company. Executive's duty to keep the Confidential Information confidential shall continue for two (2) years after termination of employment unless the Confidential Information becomes public knowledge sooner through no fault of Executive. (b) During the Term and Extended Term of this Agreement and for a period of two (2) years following the termination of this Agreement, the Executive shall not serve as an officer, director, trustee, member, consultant, advisor, employee, agent or in any other capacity or as an owner, shareholder or partner, in any corporation, partnership, sole proprietorship, joint venture, trust, limited liability company or any other entity engaged in managing, developing, constructing, operating or owning any interest in, any extended stay hotel, provided this restriction shall not prohibit being a shareholder owning less than five percent (5%) of the outstanding stock in any class of a public corporation. An extended stay hotel for the purposes of this Section 10 shall mean a hotel composed of hotel suite rooms rented predominantly by the week at an average weekly rate of Three Hundred Sixty Dollars ($360.00) per week or less, each room having a kitchen with at least a refrigerator, a range top burner and a microwave oven. (c) The Executive agrees that damages at law for violation of the restrictive covenants contained in this Section 10 would not be an adequate or prior remedy to the Company, and that should the Executive violate or threaten to violate any of the provisions of such covenant, the Company, its successors or assigns, shall be entitled to obtain a temporary or permanent injunction against the Executive in any court having personal and subject matter jurisdiction, prohibiting any further violation of any such covenants. The injunctive relief provided herein shall be in addition to any award of damages, compensatory, exemplary or otherwise, payable by reason of such violation. The running of the term of the noncompetition period shall be extended day for day for any period during which the Executive is in breach of the covenants and agreements contained herein for any reason whatsoever. The Executive further agrees that the Company need not post any bond in connection with seeking to obtain injunctive relief under this Section 10. (d) The Executive acknowledges that this Agreement has been negotiated at arm's length by the parties, neither being under any compulsion to enter into this Agreement, and that the foregoing restrictive covenant does not in any respect inhibit his ability to earn a livelihood in his chosen profession without violating the restrictive covenant contained herein. The Company by these presents has attempted to limit the Executive's right to compete only to the extent necessary to protect the Company from unfair competition. The Company recognizes, however, that reasonable people may differ in making such a determination. Consequently, the Company agrees that if the scope or enforceability of the noncompetition covenant contained herein is in any way disputed at any time, a court or other trier of fact may modify and enforce 57 10 the covenant to the extent that it believes to be reasonable under the circumstances existing at the time. 11. Notices. All notices or deliveries authorized or required pursuant to this Agreement shall be deemed to have been given when in writing and personally delivered, one day after being deposited prepaid with a national overnight delivery service for next day delivery, or three days after being deposited in the U.S. mail, certified, return receipt requested, postage prepaid, addressed to the parties at the following addresses or to such other addresses as either may designate in writing to the other party: To the Company: Studio Plus Hotels, Inc. 1999 Richmond Road, Suite Four Lexington, Kentucky 40502 Attn: Board of Directors To the Executive: Michael J. Moriarty c/o Studio Plus Hotels, Inc. 1999 Richmond Road, Suite Four Lexington, Kentucky 40502 12. Entire Agreement. This Agreement contains the entire understanding between the parties with respect to the subject matter hereof and shall not be modified, waived or discharged, in any manner except by an instrument in writing signed, by or on behalf of, the Executive and an officer authorized by the Board. Waiver by any party of any breach of or failure to comply with any provision of this Agreement by the other party shall be not construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement; provided, however, that any amendment or termination of the covenants of noncompetition and confidentiality in Section 10 must be approved by a majority of the Company's directors who are not officers or employees of the Company. This Agreement shall be binding upon and inure to the benefit of the heirs, successors, legal representations and assigns of the parties hereto. 13. Applicable Law. This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Kentucky. Should any provision of this Agreement be declared and determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this Agreement. Should any provision of this Agreement be declared and determined by any Court to be unenforceable as written, the Court shall interpret the unenforceable provision in a manner so it will be enforceable to the maximum extent possible to require the least change in the meaning of the language being interpreted. 14. Assignment. The Executive acknowledges that his services are unique and personal. Accordingly, the Executive may not assign his rights or delegate his duties or obligations under this Agreement. The Company shall assign its rights and obligations under this Agreement in connection with a merger, business combination or sale of substantially all of the assets of the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all 58 11 of the business and/or assets of the Company to agree to assume all of the obligations of the Company under this Agreement upon or prior to such succession taking place. A copy of such assumption and agreement shall be delivered to the Executive promptly after its execution by the successor. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which is required to execute and deliver the agreement provided for in this Section 14 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 15. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 16. Tax Withholding. The Company may withhold from any amounts payable to the Executive hereunder all federal, state, city or other taxes that the Company may reasonably determine are required to be withheld pursuant to any applicable law or regulation. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original. 18. Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. STUDIO PLUS HOTELS, INC. BY: /s/ Norwood Cowgill, Jr. -------------------------------------- Name: NORWOOD COWGILL, JR. Title: Chairman of the Board EXECUTIVE: /s/ Michael J. Moriarty -------------------------------------- Name: Michael J. Moriarty 59 EX-10.2 4 NON-COMPETE AGREEMENT BETWEEN COMPANY & SCHNECK 1 EXHIBIT 10.2 60 2 CONFIDENTIALITY AND NON-COMPETE AGREEMENT AGREEMENT is made this 11th day of November, 1996, between STUDIO PLUS HOTELS, INC., a Virginia corporation with its principal office at 1999 Richmond Road, Suite 4, Lexington, Kentucky, on behalf of itself and its predecessors, affiliates and subsidiaries (including Studio Plus Properties, Inc.) previously, now or hereafter existing (collectively referred to herein as the "Company") and CREIGHTON SCHNECK (the "Employee") of the Company. WHEREAS, the Employee has access to and uses in his employment with the Company valuable proprietary information of the Company, which the Company desires to continue to protect; and WHEREAS, the Company wants to protect its proprietary information, competitive advantage and the investment it has made in Employee; IN CONSIDERATION of Company granting Employee a Stock Option for Company's common stock on the terms in the Stock Option Agreement dated the date hereof, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, IT IS AGREED: 1. The Employee acknowledges that he has access to proprietary information developed by the Company with respect to the development, construction, operation, marketing and administration of the Company's extended stay lodging business and properties, information that the Company has furnished and is furnishing to Employee, as well as all information generated by Employee that contains, reflects or is derived from the furnished information, including, but not limited to, the items in paragraph 6 hereof (the "Confidential Information") 61 3 and the Employee hereby acknowledges that the Confidential Information represents a valuable, special and unique asset of the Company's business. The Employee agrees that he will not, either during or after the term of his employment with the Company (the "Term"), disclose the Confidential Information, or any portion thereof, whether furnished before or after the date of this Agreement, whether tangible or intangible, and in whatever form or medium provided, to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, except with respect to performance of his duties as an employee of the Company or as may be required by applicable law and then only after ten (10) days written notice to the Company. Employee's duty to keep the Confidential Information confidential shall continue for two (2) years after termination of his employment for any reason unless the Confidential Information becomes public knowledge sooner through no fault of Employee. 2. During the Employee's employment and for a period of twelve (12) months following the Employee's resignation or termination of his employment, the Employee shall not serve as an officer, director, trustee, member, consultant, advisor, employee, agent or in any other capacity or as an owner, shareholder or partner, in any corporation, partnership, sole proprietorship, joint venture, trust, limited liability company or any other entity engaged in managing, developing, constructing, operating or owning any interest in, any extended stay hotel located within a Metropolitan Statistical Area (MSA) in which a Studio Plus hotel is operating, under construction or a contract or lease has been executed to acquire land on which to develop a Studio Plus hotel as of the day on which Employee's employment terminates. An extended stay hotel for the purposes of this Agreement shall mean a hotel composed of a hotel suite room rented predominantly by the week or for stays of more than three (3) days, with each suite containing a kitchen with at least a refrigerator, a range top burner unit and a microwave or radiant heat oven and rented at a price per night within a range fifteen percent (15%) above and fifteen percent (15%) below the average weekly rate of the Studio Plus hotel 62 4 chain at that time. An MSA shall be determined by the latest edition of "County & City Extra" published by Bernan Press, Lanham, Maryland in existence at the time of Employee's termination. 3. The Employee agrees that damages at law for violation of the restrictive covenants contained in this Agreement would not be an adequate or prior remedy to the Company, and that should the Employee violate or threaten to violate any of the provisions of such covenants, the Company, its successors or assigns, shall be entitled to obtain a temporary or permanent injunction against the Employee in any court having personal and subject matter jurisdiction, prohibiting any violation of such covenants. The injunctive relief provided herein shall be in addition to any award of damages, compensatory, exemplary or otherwise, payable by reason of such violation. The running of the term of the noncompetition period shall be extended day for day for any period during which the Employee is in breach of the covenants and agreements contained herein for any reason whatsoever. The Employee further agrees that the Company need not post any bond or prove actual damage in connection with seeking to obtain injunctive relief. 4. The Employee acknowledges that this Agreement has been negotiated at arm's length by the parties, neither being under any compulsion to enter into this Agreement, and that the foregoing restrictive covenant does not in any respect inhibit his ability to earn a livelihood in his chosen profession without violating the restrictive covenants contained herein. The Company, by these presents, has attempted to limit the Employee's right to compete only to the extent necessary to protect the Company from unfair competition. The Company recognizes, however, that reasonable people may differ in making such a determination. Consequently, the parties agree that if a court of competent jurisdiction will not enforce the noncompetition covenant in Paragraph 2 hereof as written, then the court or other trier of fact may modify the covenant to the least extent where it will be enforceable and to enforce the covenant as 63 5 modified to the maximum extent that it believes to be reasonable under the circumstances existing at the time. 5. All inventions, discoveries, improvements, whether patentable or unpatentable, made, devised, or discovered by the Employee, whether by Employee singly or jointly with others, from the time of entering the Company's employ until termination of his employment, relating or pertaining in any way to his employment or the business of the Company, shall be promptly disclosed in writing to the President of the Company (or such other officer as the President may designate) and are to accrue to the benefit of the Company and become and remain its sole and exclusive property. Any original or derivative works of authorship, whether copyrightable or uncopyrightable, including, without limitation, plans, specifications, booklets, manuals, procedures, computer programs, and the like, created by the Employee within the scope of his employment with the Company shall be and remain the Company's sole and exclusive property. The Employee agrees, at the Company's request and cost, to execute any assignments to the Company or its nominee, of his entire right, title, and interest in and to any such inventions, discoveries, improvements and works of authorship and to execute any other instruments and documents requisite or desirable in applying for and obtaining patents or copyrights with respect thereto in the United States and in all foreign countries. The Employee further agrees, whether or not in the employ of the Company, to cooperate to the extent and in the manner requested by the Company in the prosecution or defense of any patent and/or copyright claims or any litigation or other proceeding involving any inventions, trade secrets, processes, discoveries, methods or works covered by this Agreement, but all expense thereof shall be paid by the Company. 6. All records, files, software, memoranda, reports, price lists, customer lists, manuals, drawings, plans, sketches, procedures, documents, equipment, and the like, relating to the business of the Company which the Employee shall use or prepare or come into contact with 64 6 during his employment with the Company, shall be and remain the sole property of the Company and the Employee shall promptly deliver to the Company at the termination of his employment, or at any time on the Company's request, without retaining copies, any or all of such items which have been loaned or disclosed to, or otherwise obtained by, Employee. 7. This Agreement may not be changed or terminated orally, and no change, termination, or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by both the Employee and the Chairman of the Board and Chief Executive Officer of the Company or the President of the Company. The Employee's compensation, position or capacity may be changed at any time by the Company, or his employment terminated at any time, without in any way affecting any of the terms and conditions of this Agreement, which in all respects shall remain in full force and effect, and without incurring any liability to the Employee. 8. This Agreement shall be governed by the laws of the Commonwealth of Kentucky. The invalidity of any provision hereof shall not invalidate any other provision hereof. 9. This Agreement shall be binding on and shall inure to the heirs, successors and assigns of the parties hereto. 10. All of the terms and words used in this Agreement, regardless of the gender used, shall be deemed and construed to include any other gender (masculine, feminine or neuter) as the context or sense of the Agreement or any paragraph or clause hereof may require, or as required by the sex of the Employee executing the Agreement, the same as if such words had been fully and properly written in the appropriate gender. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. 65 7 ATTEST: STUDIO PLUS HOTELS, INC. /s/ William Anderson By: /s/ Norwood Cowgill, Jr. - ---------------------- ------------------------------- Title: Chief Executive Officer WITNESS: /s/ William Anderson /s/ Creighton Schneck - ----------------------- --------------------------------- Creighton Schneck 66 EX-11.1 5 COMPUTATIONS OF EARNINGS 1 EXHIBIT 11.1 67 2 COMPUTATION OF EARNINGS PER SHARE (ALL MONEY AMOUNTS STATED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
1996 Shares Amount Weighted average number of shares and net income applicable to common stock ...... 11,287,579 $ 5,174.00 Stock Options, in equivalent shares under the treasury stock method, primary ..... 292,590 ---------- ---------- 11,580,169 5,174.00 ---------- ---------- Per share, primary ............................................................... $ 0.45 Stock options, in equivalent shares under the treasury stock method, fully diluted 18,618 ---------- 11,598,787 $ 5,174.00 ========== ========== Per share, fully diluted ......................................................... $ 0.45 ==========
68 EX-23.1 6 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.1 69 2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Studio Plus Hotels, Inc. on Form S-8 (File No. 333-09907 and 333-09923) of our report dated February 4, 1997, on our audits of the consolidated financial statements of Studio Plus Hotels, Inc. as of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994, which report is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. - -------------------------------- Coopers & Lybrand L.L.P. Cincinnati, Ohio March 4, 1997 70 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF STUDIO PLUS HOTELS, INC. FOR THE YEAR ENDED DECEMBER 31, 1996 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 34,678 0 740 102 0 36,378 119,040 9,549 146,240 7,039 0 0 0 125 133,488 146,240 0 25,271 0 9,534 7,157 99 0 8,481 3,307 5,174 0 0 0 5,174 .45 .45
-----END PRIVACY-ENHANCED MESSAGE-----