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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 for the fiscal year ended December 31, 1997
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________
to _______________
COMMISSION FILE NUMBER 000-22843
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BridgeStreet Accommodations, Inc.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DE 04-3327773
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
30670 Bainbridge Road, Solon, OH 44139
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (440) 248-3005
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(Title of class)
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(Title of class)
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 (ss.229.405 of this chapter) 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. [X]
As of March 24, 1998, 7,642,464 shares of Common Stock were outstanding, of
which 4,151,215 shares were held of record by non-affiliates. The aggregate
market value of shares held by non-affiliates was approximately $45,144,460,
based on the last sale price per share of the Common Stock on such date as
reported by the Nasdaq National Market.
Documents Incorporated by Reference
Portions of BridgeStreet's definitive Proxy Statement for its annual meeting of
stockholders which BridgeStreet intends to file within 120 days after the end of
BridgeStreet's fiscal year ended December 31, 1997 are incorporated by reference
into Part III hereof as provided therein.
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PART I
ITEM 1. BUSINESS
OVERVIEW
BridgeStreet is a leading provider of flexible accommodation services in
metropolitan markets located domestically in the Midwest, Mid-Atlantic and
Southwest regions of the United States, and internationally in London, England
and Toronto, Canada. The Company offers high-quality, fully-furnished
apartments, townhouses, condominiums and, to a lesser extent, houses
(collectively, "accommodations"), primarily for individuals traveling on
business and company executives relocating to new communities who require
lodging for one week to several months.
As a provider of flexible accommodation services, BridgeStreet leases
substantially all of its accommodations on a short-term basis from property
managers, and then rents them to its clients. This enables the Company to (i)
adjust the quantity, mix and location of its accommodations as client needs
dictate and local economic conditions warrant, (ii) expand and enter new markets
without the costs and lead times associated with investing in "bricks and
mortar" and (iii) avoid the fixed costs associated with ownership or long-term
leasing of real estate. The Company also leases the furniture for its
accommodations on a short-term basis from furniture rental companies. These
furniture leasing arrangements enable BridgeStreet to maintain well appointed,
modern and attractive accommodations, upgrade and replace furniture as needed,
and satisfy specific furnishing requests. BridgeStreet's leasing strategy
distinguishes it from fixed-location lodging providers, such as all-suite or
extended-stay hotels, that own their lodging facilities and furnishings or lease
them on a long-term basis.
Traditionally, travelers on extended trips have stayed in hotels and
motels. The Company believes that business travelers on extended trips
increasingly desire alternatives to conventional hotel and motel rooms, which
typically lack the spaciousness and amenities of home. The Company believes that
this has been an important factor in the recent growth in the extended-stay
segment of the lodging industry. Participants in this segment include flexible
accommodation service providers, all-suite hotels and extended-stay hotels.
By providing flexible accommodation services, the Company can satisfy
client requests for accommodations in a variety of locations and neighborhoods,
as well as requests for accommodations of specific types and sizes. The
substantial majority of the Company's accommodations are located within
high-quality property complexes that typically feature, among other things,
in-unit washers and dryers, dedicated parking and access to fitness facilities
(including, in many cases, pools, saunas and tennis courts). In addition, at a
guest's request, BridgeStreet can upgrade an accommodation by providing
specialized amenities such as office furniture, fax machines and computers. The
Company's accommodations generally are priced competitively with all-suite and
upscale extended-stay hotel rooms even though, on average, the Company believes
its accommodations are substantially larger.
BridgeStreet was founded in August 1996, combined by merger in the first
quarter of 1997 (the "Combination") five regional providers of flexible
accommodation services (collectively, the "Founding Companies") and subsequently
acquired during the next 12 months nine additional providers.
GROWTH STRATEGY
The Company plans to achieve its goal of becoming a leading national
provider of flexible accommodation services by implementing an aggressive
acquisition program and a national operating strategy designed to increase
internal revenue growth, cost efficiencies and profitability. Key elements of
the Company's business strategy include:
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Growth Through Acquisitions. The Company believes that the flexible
accommodation services industry is highly fragmented, with over 400
geographically dispersed companies in the United States, few of which have more
than a regional presence. BridgeStreet plans to take advantage of the fragmented
nature of the industry by acquiring flexible accommodation service companies in
major metropolitan areas frequented by business travelers. BridgeStreet intends
to implement its business model at each acquired company as soon as practicable
after the acquisition is completed. BridgeStreet's acquisition strategy is to:
o Enter New Geographic Markets and Establish Nationwide Coverage. In
each new market, the Company intends to target for acquisition one
local or regional flexible accommodation services provider having the
size and quality of operations suitable for serving as the Company's
base for expansion in the market. Acquisitions in new markets will
enable BridgeStreet to (i) gain local or regional market share
rapidly, (ii) increase sales to existing clients by meeting their
needs for accommodations in other regions, (iii) increase sales to the
acquired company's clients by providing them with access to
BridgeStreet's growing national network and (iv) establish the
BridgeStreet brand name in new regions and enhance its nationwide
recognition. The Company also may expand into new markets by
establishing new operations. Since the Combination, the Company has
entered 10 new markets, consisting of: Dallas, Fort Worth, Austin and
Houston, Texas; Phoenix, Arizona; Denver, Colorado; Raleigh-Durham and
Charlotte, North Carolina; Toronto, Canada; and London, England.
o Expand Within Existing Markets. Once the Company has established
operations in a new region, it may seek to expand its market share by
acquiring other flexible accommodation service providers within that
region. The Company believes that it can achieve operating
efficiencies by incorporating the businesses of smaller acquired
companies into the Company's operations without any significant
increase in infrastructure. On June 30, 1997, the Company acquired in
such a "tuck-in" acquisition the assets of a flexible accommodation
services provider in Memphis, Tennessee with 135 units under lease.
National Operating Strategy. The Company has begun to implement a national
operating strategy with the following components:
o Maximize Sales to Existing and New Clients. The Company plans to
maximize sales to existing corporate clients and to obtain new clients
through a national sales and marketing program which highlights the
Company's expanding national network. Many of the Company's clients
are Fortune 1000 companies with significant, national employee lodging
requirements. These corporate clients generally have numerous key
decision makers (such as human resource directors, relocation managers
or training directors) who both establish and administer company
travel and accommodation policies. The Company plans to obtain a
greater share of each client's lodging requirements by establishing
relationships with additional key decision makers and emphasizing the
Company's expanding national presence.
o Achieve Cost Efficiencies. The Company believes it should be able to
reduce total operating expenses of acquired companies by consolidating
certain functions (including sales, marketing and purchasing
operations) performed separately by such companies. In addition, the
Company believes that as a large, national flexible accommodation
services company, it should be able to achieve lower costs (as a
percentage of revenues) compared to those of acquired companies in
such areas as leasing accommodations and furniture, purchasing certain
hard and soft goods, and obtaining financing arrangements, employee
benefits and insurance.
o Adopt Best Practices. The Company will continue reviewing its
operations at the local and regional operating levels in order to
identify "best practices" that can be implemented throughout
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its operations. Areas where "best practices" may be utilized include
accommodation pricing, occupancy management and cash flow management.
BridgeStreet believes the implementation of these practices will
enable the Company to provide superior customer service and maximize
sales opportunities.
o Implement Management Information System. BridgeStreet intends to
develop and implement a centrally-controlled, computerized management
information system that will integrate the Company's customer contact,
sales, marketing, finance, telephone, property management, internet
access, lease management and reservation functions. BridgeStreet
believes that the proposed system will enable it to deliver superior
customer service, more efficiently manage its operations and achieve
cost savings.
ACQUISITION AND EXPANSION STRATEGY
Given the highly fragmented nature of the flexible accommodation services
industry, the Company believes that there are numerous potential acquisition
targets both within markets currently served by the Company and in other major
metropolitan areas. The Company has implemented an aggressive acquisition
program aimed primarily at expanding into major metropolitan markets not
currently served by the Company, and also at acquiring other flexible
accommodation service providers in its existing markets to enhance its market
position.
In new markets, the Company generally has targeted and will continue to
target for acquisition one or more leading local or regional flexible
accommodation service providers. Generally, these companies will be run by
successful entrepreneurs, whom BridgeStreet will endeavor to retain after the
acquisitions, and will be of sufficient size to provide the basis for the
Company's future expansion within the new markets. Each of the Company's
acquisition candidates will be expected to demonstrate potential for increased
revenues and profitability. The Company also will evaluate certain qualitative
characteristics of acquisition candidates, including their reputations in their
respective geographic regions, the size and strength of their customer bases,
the quality and experience levels of their operational management, and their
operating histories.
In existing markets, the Company will seek to acquire flexible
accommodation service providers that meet the Company's criteria with respect to
reputation, customer base, management and operating history. Some of the
companies acquired within existing markets will be large enough to retain much
of their own operating and management infrastructures. Other, generally smaller
acquired companies will be combined with BridgeStreet's existing operations to
eliminate redundant functions and improve profitability. Acquisitions in
existing markets should improve revenues and profitability by enhancing regional
brand name recognition and leveraging the economies of scale associated with a
larger business enterprise.
The Company believes that acquisition by BridgeStreet is attractive to many
smaller independent operators because of (i) the Company's strategy to create a
large, professionally-managed company with national brand name recognition and a
reputation for quality service and customer satisfaction, (ii) the experience of
its officers with industry consolidations, (iii) the Company's decentralized
operating strategy, (iv) the Company's increased visibility and access to
financial resources as a public company, (v) the potential for increased
profitability due to centralized administrative functions, enhanced systems
capabilities and access to increased marketing resources, (vi) the ability of
the acquired companies to participate in the Company's growth and expansion, and
(vii) the strong desire of the owners of many privately-held companies for
liquidity and a return on their investments in their companies.
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As consideration for future acquisitions, the Company intends to use
various combinations of cash, notes and Common Stock. The consideration paid for
each future acquisition will depend on such factors as the acquired company's
historical operating results and future prospects and the ability of the
acquired company's business to complement the services offered by the Company.
The timing, size and success of the Company's acquisition efforts and the
associated capital commitments cannot be readily predicted.
ACCOMMODATIONS AND SERVICES
Accommodations
BridgeStreet offers high-quality, fully-furnished one-, two- and
three-bedroom accommodations that, together with the specialized amenities
offered by the Company, are intended to provide guests with a "home away from
home." BridgeStreet selects its accommodations based on location, general
condition and basic amenities, with the goal of providing accommodations that
meet each guest's particular needs. As a flexible accommodation services
provider, the Company can satisfy client requests for accommodations in a
variety of locations and neighborhoods, including requests for proximity to an
office, school or area attraction, as well as requests for accommodations of
specific types and sizes. The substantial majority of the Company's
accommodations are located within high-quality property complexes that typically
feature in-unit washers and dryers, dedicated parking, and access to fitness
facilities (including, in many cases, pools, saunas and tennis courts). Standard
furnishings typically include, among other things, cable televisions, answering
machines and clock radios. BridgeStreet also is able to customize its
accommodations at a guest's request with items such as office furniture, fax
machines and computers.
The Company's accommodations generally are priced competitively with
all-suite or upscale extended-stay hotel rooms even though, on average, the
Company believes its accommodations are substantially larger. The Company
believes it generally is able to price its accommodations competitively due to
(i) the high quality of its accommodations, (ii) its relatively low operating
cost structure and (iii) its ability to lease accommodations in accordance with
demand and leave unfavorable markets relatively quickly. The length of a guest's
stay can range from a few nights to a few years, with the typical stay ranging
from 30 to 45 days.
Corporate Client Services
The Company believes that it provides valuable, cost-effective services to
its corporate clients, many of which have human resource directors, relocation
managers or training directors with significant, national employee lodging
requirements. In particular, the Company aims to relieve its clients of the
administrative burden often associated with relocating employees and/or
providing them with temporary housing. In addition to providing clients with a
diverse range of accommodation types and sizes in a variety of locations, the
Company believes it satisfies its clients' needs for (i) a high degree of local
market knowledge, (ii) special accommodation requests (such as last-minute
location switches), (iii) accurate, customized billing options and (iv) other
ancillary services such as assistance in locating permanent housing and school
systems. The Company believes that existing and potential clients will
increasingly turn to outside providers such as BridgeStreet to satisfy their
employee lodging requirements as their awareness of BridgeStreet and the
flexible accommodation services industry increases.
Guest Services
The Company strives to provide the highest quality of customer service by
coordinating in advance all aspects of a guest's lodging experience. Prior to a
guest's arrival, BridgeStreet arranges to have keys and directions sent to the
guest, along with other information relating to the guest's interests (as
discerned through prior
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communications), such as literature on local golf courses or other forms of
entertainment. The Company makes at least one follow-up telephone call to the
guest before the guest moves in to ensure that the guest will feel comfortable
in his or her new accommodation from the moment of arrival. Immediately prior to
the guest's arrival, BridgeStreet's professional housekeeping staff cleans and
inventories the accommodation to ensure that it is prepared for the guest.
During a guest's stay, BridgeStreet keeps in touch with the guest to
confirm that he or she is satisfied, and to encourage the guest to call whenever
the Company can be of assistance. In addition, the Company maintains a
representative in each city in which it operates to be responsive to guests'
needs. The Company's guest services department offers guests comprehensive
information services before and during their stays to help guests acclimate
themselves to their new surroundings. A guest can obtain information concerning,
among other things, local schools, day care providers and area playgrounds, by
placing a single telephone call. Similarly, the guest services department can
identify local entertainment and cultural events, and help coordinate automobile
rentals, grocery shopping and other miscellaneous activities.
BridgeStreet also oversees the moving-out process. The guest is asked
either to mail the keys to the Company in a self-addressed, stamped envelope or
simply to leave the keys in the accommodation. The guest also is asked to
complete a form evaluating his or her stay, and is encouraged to contact the
Company whenever the guest needs accommodations in other locations where
BridgeStreet provides services. The guest's evaluation form is thoroughly
reviewed, and (if applicable) a copy is sent to the corporate client.
CLIENT BASE
BridgeStreet has a diverse client base composed primarily of domestic
Fortune 2000 corporations, professional firms, business professionals and
travel-wise individuals. No client accounted for more than 5% of the Company's
1997 revenues.
SALES AND MARKETING
BridgeStreet focuses primarily on business-to-business selling. At the
local level, each of the Company's operating subsidiaries has corporate account
specialists that call on local companies (including local branches of regional
or national companies) to solicit business. The account specialist focuses his
or her efforts on the key decision makers at each company responsible for
establishing and administering travel and accommodation policies, typically
human resource directors, relocation managers or training directors. By
aggressively pursuing relationships with potential clients and expanding
services to existing clients, BridgeStreet seeks to become each client's primary
or sole provider of flexible accommodation services nationwide. Since operations
have expanded, BridgeStreet has opened a global sales office to begin to market
its international capabilities to its local corporate clients.
The Company tailors its marketing strategy to the needs of particular
clients. For example, BridgeStreet markets itself to a corporation with
relocating employees by focusing on its ability to situate large families in
houses and apartments with three or more bedrooms, its access to accommodations
in both metropolitan and suburban settings, and its access to accommodations
that allow pets. In contrast, when marketing to a potential corporate client
having consultants in need of short-term housing, the Company emphasizes its
flexible lease terms and its ability to customize an accommodation with
amenities such as office equipment (including computers), additional telephone
lines and other work-related items.
The Company intends to implement an advertising program designed to enhance
the "BridgeStreet" name both inside and outside the flexible accommodation
services industry and broaden its client base. In addition, the Company intends
to promote its brand name by advertising in trade publications, Chamber of
Commerce listings, local visitor magazines and telephone directories, on the
radio and the Internet, and through periodic direct mail campaigns.
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LEASING ARRANGEMENTS
BridgeStreet leases substantially all of its accommodations (with the
exception of 19 condominium units which are owned) through flexible, short-term
leasing arrangements in order to match its supply of accommodations with client
demand. The Company has no current plans to purchase or own any additional
properties. The Company believes that its flexible leasing strategy allows it to
react to changes in market demand for particular geographic locations and types
of accommodations. The Company's strategy also provides it flexibility to
address cyclicality in particular markets. During the 12 months ended December
31, 1997, BridgeStreet's average occupancy rate was approximately 89%. The
Company seeks to maintain high occupancy rates by staggering its lease
expiration dates within a geographic area, allowing it to adjust its inventory
of accommodations in a given market to reflect fluctuations in overall demand
and demand for particular types of accommodations. As of December 31, 1997, the
Company had approximately 3,000 accommodations under lease, with approximately
90% of such leases being for one year or less. The terms of these leases
generally range from one to 18 months.
The Company strives to develop strong relationships with property managers
to ensure that it has a reliable supply of high-quality, conveniently-located
accommodations. The Company believes that it can provide property managers with
numerous direct benefits, including (i) higher overall occupancy levels, (ii)
simplified lease agreements (with one lease often covering numerous individual
units), (iii) convenient, timely payment (with one check for all units under
lease in a complex) and (iv) maintenance by BridgeStreet of the accommodations
it leases.
BridgeStreet leases the furniture for its accommodations on a short-term
basis ordinarily from major furniture rental companies. Furniture leases range
from three to 18 months, but may be terminated by the Company prior to
expiration. Through its short-term furniture leasing approach, the Company is
able to maintain well-appointed, modern and attractive accommodations, upgrade
and replace furniture as needed and satisfy specific furnishing requests.
BridgeStreet's average daily lease rate during 1997 (including costs of
accommodations, furnishings, utilities and housekeeping) was approximately $45,
while its average daily rental rate charged to clients during the same period
was approximately $64.
COMPETITION
Flexible accommodation service providers compete primarily on the basis of
location, availability, price and quality of accommodations, quality and scope
of service and brand name recognition. The Company believes that, while it
currently competes against all lodging providers, in the future its primary
competition will come from other flexible accommodation service providers and,
to a lesser extent, all-suite hotels and upscale extended-stay hotels. The
Company intends to compete by maintaining a loyal customer base and offering a
client-oriented approach with convenient locations, large and high-quality
customized accommodations, and personalized customer service.
The Company expects its business to become more competitive as existing
competitors expand and additional companies enter the flexible accommodation
services industry. The Company believes that the largest providers of flexible
accommodation services currently are Oakwood, Gables Corporate Accommodations,
Accommodations America, Inc., ExecuStay Corporation and Globe Business
Resources, Inc., some of which are larger (in terms of number of available
accommodations) than BridgeStreet. Certain of the Company's existing competitors
have, and any new competitors that enter the industry may have, access to
significantly greater resources than the Company. In particular, Oakwood is
affiliated with R&B Realty Group, the nation's tenth largest apartment
management
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company. This affiliation gives Oakwood access to apartment communities and
capital that may be unavailable to the Company.
REGULATION AND TAX
The Company is subject to employment laws, including minimum wage,
overtime, working condition and work permit requirements. The Company believes
that it is in compliance with all applicable employment laws, and intends to
continue to comply with such laws.
In addition, the Company is subject to the Americans with Disabilities Act
(the "ADA") as a private entity providing public accommodations. All public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that all of the
units it leases are substantially in compliance with these requirements, a
determination that such units are not in compliance with the ADA could result in
the imposition of fines or an award of damages to private litigants.
As a lessee of its accommodations, BridgeStreet believes that it and its
employees are either outside the purview of, exempted from or in compliance with
laws in the jurisdictions in which the Company operates requiring real estate
brokers to hold licenses. However, there can be no assurance that the Company's
position in any jurisdiction where it believes itself to be excepted or exempted
would be upheld if challenged or that any such jurisdiction will not amend its
laws to require the Company and/or one or more of its employees to be licensed
brokers. Moreover, there can be no assurance that the Company will not operate
in the future in additional jurisdictions requiring such licensing.
In some of the jurisdictions in which the Company operates, the Company
believes that it is not required to charge certain guests the sales and "bed"
taxes that are applicable to establishments furnishing rooms to transient
guests. There can be no assurance, however, that the tax laws in particular
jurisdictions will not change or that a tax collection agency will not
successfully challenge the Company's position regarding the applicability of
such taxes. The Company believes that it properly charges and remits such taxes
in all jurisdictions where it is required to do so.
INSURANCE
The Company purchases general liability, comprehensive property damage,
automobile, workers' compensation and other insurance coverages that management
considers adequate for the protection of the Company's assets and operations,
although there can be no assurance that the coverage limits of such policies
will be adequate. A successful claim against the Company beyond the scope of its
insurance coverage or in excess of its limits could have a material adverse
effect on the Company's business, financial condition and results of operations.
Claims against the Company, regardless of their merit or outcome, also may have
an adverse effect on the Company's reputation and business.
INTELLECTUAL PROPERTY
The Company has filed an application with the United States Patent and
Trademark Office to register the service mark "BridgeStreet."
EMPLOYEES
As of December 31, 1997 the Company had approximately 350 employees, of
which approximately 325 are full-time. The Company's employees are not subject
to any collective bargaining agreements, and management believes that its
relationship with its employees is good.
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ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Solon, Ohio and are
occupied pursuant to leases that expire in July 2000 and May 2007. The Company
has the option to extend each lease for an additional three years following
expiration. In addition, the Company currently leases administrative offices in
the majority of its markets. The Company believes that its corporate and
administrative facilities are adequate to serve its current level of operations.
If additional facilities are required, the Company believes that suitable
additional or alternative space will be available as needed on commercially
reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time a party to litigation arising in the
ordinary course of business. There can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities arising out of such
litigation. Management believes that any liability that the Company might incur
upon the resolution of any existing litigation will not have a material adverse
effect upon the Company's business, financial condition and results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended December 31, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
William N. Hulett, III, age 54, has been President, Chief Executive Officer
and a director of the Company since January 1997. He also is Chief Executive
Officer and sole director of each of the Company's wholly-owned subsidiaries.
Prior to the commencement in June 1997 of his employment with the Company under
his employment agreement, Mr. Hulett served from January 1997 through May 1997
as a consultant to the Company. Mr. Hulett's career in the hotel industry has
spanned 33 years, from 1960 to 1993. During 21 years with Westin Hotels
("Westin") (from 1960 to 1981), Mr. Hulett managed some of the best known hotels
in America, including the St. Francis in San Francisco and The Mayflower in
Washington, D.C., served as the Managing Director for all Westin Hotels in
Hawaii, and also served as Vice President for Operations and Development, during
which time Westin built the Westin in Cincinnati and the Westin O'Hare in
Chicago. In 1981, Mr. Hulett joined the Nestle Corporation as President of the
Stouffer Hotel Company ("Stouffer"). During his 12 years as President of
Stouffer, Stouffer managed, built, acquired or joint ventured 42 hotels. In
1993, when Stouffer was sold, he devoted his time to fund raising and building
the Rock and Roll Hall of Fame and Museum, which opened in Cleveland, Ohio in
1995. He served as Chairman and Chief Executive Officer of that facility until
joining BridgeStreet in 1997. In 1996, Mr. Hulett was named Business Executive
of the Year by the Cleveland Sales and Marketing Executives Association. Mr.
Hulett is a director of the Travel Industry Association of America and of
Developers Diversified Realty Corporation, and has served the American Hotel and
Motel Association in various capacities, including Vice Chairman of its
Educational Institute. Mr. Hulett currently serves as Chairman of the Cleveland
Chapter of the American Red Cross.
Rocco A. Di Lillo, age 46, has been Vice President, Chief Operating Officer
and a director of the Company, and President and Chief Operating Officer of one
of the Company's operating subsidiaries, since January 1997. Mr. Di Lillo also
is President of City Visitor Publications, Inc., a leading publisher of travel
and visitor guides in the Midwest. Until January 1997, Mr. Di Lillo was
President of Corporate Lodgings, Inc., an Ohio corporation which he founded in
March 1987, and four affiliates (collectively, "Corporate Lodgings"). Prior to
the Combination, Corporate Lodgings expanded into 10 Midwest cities in six
states. Mr. Di Lillo was named 1997 Ohio Entrepreneur of the Year for service
companies by Ernst & Young LLP.
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Mark D. Gagne, CPA, age 37, has been Chief Financial Officer and Treasurer
of the Company since January 1997. From January 1996 until January 1997, Mr.
Gagne was a consultant to American Business Partners LLC, a business development
company. Previously, from February 1992 to December 1995, Mr. Gagne was Chief
Financial Officer and Treasurer of CMG Information Services Inc. and
subsidiaries, a publicly-traded information technology company. From April 1988
to January 1992, Mr. Gagne was Vice President and Chief Financial Officer of the
Trodella Companies, three privately-held construction services companies. From
1982 to 1988, Mr. Gagne served in a number of positions as a Certified Public
Accountant for Kennedy & Lehan, P.C. and Arthur Andersen LLP.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on The Nasdaq National Market under the symbol
"BEDS." The following table sets forth for each period indicated the high and
low sale prices for the Common Stock as reported by The Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
September 25, 1997 through September 30, 1997................. $12 5/8 $10 3/4
October 1, 1997 through November 10, 1997..................... 14 1/8 9 5/8
January 1, 1998 through March 11, 1998 .................. 13 10
</TABLE>
As of March 11, 1998, there were 77 holders of record of Common Stock.
DIVIDEND POLICY
The Company intends to retain all earnings to finance the growth and
development of its business and does not anticipate paying cash dividends on the
Common Stock in the foreseeable future. Any future determination as to the
payment of dividends on the Common Stock will be at the discretion of the Board
of Directors and will depend upon, among other things, the Company's future
earnings, if any, the operating and financial condition of the Company, its
capital requirements, general business conditions and other factors the Board of
Directors of the Company may consider. The Company's revolving credit facility
currently prohibits dividend payments.
(b) (i) The Company's Registration Statement on Form S-1 (File No. 333-26647)
relating to the Company's initial public offering of Common Stock (the "IPO")
was declared effective by the Securities and Exchange Commission on September
24, 1997. Of the net proceeds of $14.8 million received by the Company in the
IPO, the Company previously detailed the use of approximately $3.8 million of
such net proceeds in its Quarterly Report on Form 10-Q for its quarter ended
September 30, 1997. Of the remaining net proceeds of $10.8 million, the Company
used approximately $3.7 million during the fourth quarter of 1997 to fund two
acquisitions in Dallas, Texas and Phoenix, Arizona (and to pay expenses
associated with such acquisitions, including the repayment of debt assumed from
one of the companies whose assets were acquired). The remaining $7.3 million in
net proceeds were used during the first quarter of 1998 to fund acquisitions in
Charlotte and Raleigh, North Carolina, Denver, Colorado, Austin, Texas, London,
England and Toronto, Canada.
(ii) On March 31, 1997, the Company issued 475,000 shares of Common Stock
to Sandra Brown as consideration for the merger of Home Again, Inc. and two
affiliates with and into a subsidiary of the Company. In connection with the
transaction, the Company relied on the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder.
9
<PAGE> 11
ITEM 6.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND FOOTNOTE DATA)
For financial reporting purposes, TCH is presented as the acquirer of
all of the other companies acquired by BridgeStreet in the Combination.
Consequently, the Company's historical combined financial statements for periods
ended on or before December 31, 1996, are the historical combined financial
statements of TCH. The historical financial statements as of December 31, 1997,
and for the year then ended are of the Company and include the accounts of each
of the Founding Companies and all other acquisitions from their respective dates
of acquisition. The following selected historical financial data of the Company
and for the year ended December 31, 1997 and of TCH as of December 31, 1995 and
1996 and for each year in the three-year period ended December 31, 1996, have
been derived from the applicable audited financial statements of the Company and
TCH. The remaining selected historical financial data of TCH has been derived
from unaudited financial statements of TCH, which have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
reflect all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of that data.
<TABLE>
<CAPTION>
Historical (TCH only)
--------------------------------------------------------------------- BridgeStreet
Year Ended December 31, Year Ended
--------------------------------------------------------------------- December 31,
1992 1993 1994 1995(1) 1996(1) 1997
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues ..................... $ 5,627 $ 6,803 $ 8,309 $ 9,696 $ 12,400 $ 50,750
Cost of services ............. 4,520 5,312 6,475 7,344 9,052 37,737
Selling, general and
administrative expense ..... 1,328 1,373 1,628 2,064 2,327 9,887
Officers' stock
compensation ............... -- -- -- -- -- 1,210(2)
Goodwill amortization ........ -- -- -- -- -- 489
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) ...... (221) 118 206 288 1,021 1,427
Interest and other income
(expense), net ............. 11 5 21 101 155 398
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
provision for income
taxes ...................... (210) 123 227 389 1,176 1,825
Provision (benefit) for
income taxes ............... (84) 49 114 178 512 1,371
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ............ $ (126) $ 74 $ 113 $ 211 $ 664 $ 454
========== ========== ========== ========== ========== ==========
Net income per
share, basic and dilutive(3) $ (0.08) $ 0.05 $ 0.07 $ 0.13 $ 0.42 $ 0.08
========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding - basic(3) ..... 1,596,350 1,596,350 1,596,350 1,596,350 1,596,350 5,904,484
Weighted average shares
outstanding - dilutive(3) .. 1,596,350 1,596,350 1,596,350 1,596,350 1,596,350 5,930,248
</TABLE>
<TABLE>
<CAPTION>
Historical (TCH only)
--------------------------------------------------------
December 31, BridgeStreet
-------------------------------------------------------- December 31,
1992 1993 1994 1995 1996 1997
---- ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital .............................. $499 $ 592 $ 496 $ 563 $ 986 $ 9,172
Total assets ................................. 901 1,209 1,672 2,510 2,013 42,563
Long-term debt, less current maturities ...... 16 10 67 -- -- --
Total stockholders' equity ................... 471 545 658 869 1,184 37,578
</TABLE>
(1) Certain amounts have been reclassified to conform to the 1997 presentation.
(2) Consists of non-recurring, non-cash compensation expense recorded in
connection with the accelerated vesting of restricted stock. This represents
a reduction of $0.20 per share in 1997.
(3) The weighted average number of common shares outstanding in 1992 through
1996 is the number of shares issued by the Company on January 2, 1997, in
exchange for all the issued and outstanding capital stock of TCH.
10
<PAGE> 12
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BridgeStreet was incorporated in August 1996 with the goal of becoming
a leading national provider of flexible accommodation services. The Company
plans to achieve this goal by implementing an aggressive acquisition program and
a national operating strategy designed to increase internal revenue growth, cost
efficiencies and profitability. In the first quarter of 1997, BridgeStreet
acquired, by merger, five flexible accommodation service providers (the
"Founding Companies"). During the second quarter, the Company acquired the
assets of another flexible accommodation services company, and in the fourth
quarter, two additional providers were acquired.
The Company's revenues are derived primarily from renting
accommodations to guests for extended periods. Revenues depend on the number of
accommodations the Company has available under lease, the occupancy rate and the
rate charged. The rate charged is a function of, among other factors, (i) the
type, size and location of the accommodation being rented, (ii) the rental
period and (iii) any additional amenities made available to the guest during his
or her stay. Cost of services consists primarily of lease payments for
accommodations and their furnishings, and expenses associated with cleaning,
maintaining and providing utilities to accommodations. Selling, general and
administrative expense consists primarily of compensation and related benefits
for management and key employees, administrative salaries and benefits, office
rents and utilities, professional fees and advertising.
As discussed in Note 1 to the financial statements, in the first
quarter of 1997, the Company merged with the five Founding Companies in stock
for stock tax-free mergers. For financial reporting purposes, Temporary
Corporate Housing Columbus, Inc. (together with its three affiliates, "TCH") is
presented as the accounting acquirer of the other Founding Companies, which have
been designated "acquired companies". Consequently, the Company's historical
financial statements for periods ended on or before December 31, 1996, are the
historical financial statements of TCH. The mergers have been accounted for
using the purchase method of accounting. The results of operations of the
"acquired companies" have been included in the accompanying consolidated
financial statements from their respective dates of acquisition. The purchase
price and allocation of the purchase price of the four "acquired companies,"
including the value of stock issued to the founders of BridgeStreet as a
transaction fee, was approximately $17.7 million based on an independent
appraisal of the net assets acquired. The aggregate cost of the acquisitions
exceeded the estimated fair value of assets and liabilities of the acquired
companies by $17.5 million which is being amortized as goodwill over 35 years.
BridgeStreet currently is in the process of integrating certain
operational, sales and administrative functions of the Founding Companies and
other companies acquired to date. This integration process presents
opportunities to (i) enhance revenues through geographic cross-sales synergies
and (ii) reduce costs through, among other things, the elimination of
duplicative functions and the economies of scale that may be generated through
volume purchasing. However, integration necessitates additional costs and
expenditures related to corporate management and administration, public company
operations, systems integration and facilities expansion. As a result of these
possible cost savings and various additional costs, historical operating results
may not be comparable to, or indicative of, future performance. There can be no
assurance that the Company's integration efforts will be successful.
11
<PAGE> 13
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
BridgeStreet's Consolidated Statement of Operations for the year ended
December 31, 1997, includes the accounts of TCH, Corporate Lodgings, Inc.
(together with four affiliates, "CLI"), Exclusive Interim Properties, Ltd.
(together with an affiliate, "EIP") and Temporary Housing Experts, Inc.
("THEI"), all of which were acquired on January 2, 1997. The operating results
for the year ended December 31, 1997 also include the accounts of the following
wholly-owned operating subsidiaries from the indicated dates on which they
acquired (by merger with or purchase of substantially all of the assets of)
flexible accommodation service providers: HAI Acquisition Corp. ("HA") (March
31, 1997); BridgeStreet Texas, L.P. (December 1, 1997); and BridgeStreet
Arizona, Inc. (December 1, 1997). The Statement of Operations of BridgeStreet
for the year ended December 31, 1996 consists of the accounts of only TCH, the
designated accounting acquirer. Consequently, the 1996 and 1997 periods are not
comparable, and the comparison of the periods below is not indicative of future
results of operations. The Company's Consolidated Balance Sheet as of December
31, 1997 reflects the accounts of TCH, CLI, EIP, THEI, HA, BridgeStreet Texas,
L.P. and BridgeStreet Arizona, Inc.
Revenues. Revenues increased $38.4 million, or 309%, from $12.4 million
for the year ended December 31, 1996 to $50.8 million for the year ended
December 31, 1997. The increase in revenues primarily was the result of an
increase in the number of accommodations rented during the year due to the
acquisitions of flexible accommodation service providers and growth in existing
markets.
Cost of Services. Cost of services increased $28.7 million, or 317%,
from $9.1 million for the year ended December 31, 1996 to $37.8 million for the
year ended December 31, 1997. Cost of services as a percentage of revenues
increased from 73.0% for the year ended December 31, 1996 to 74.4% for the year
ended December 31, 1997. The dollar increase in cost of services primarily was
related to the acquisitions of the Founding Companies and the other flexible
accommodation service providers. Cost of services increased as a percentage of
revenues primarily as a result of lower occupancy rates experienced during the
Company's fourth quarter.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $7.6 million, or 325%, from $2.3 million for
the year ended December 31, 1996 to $9.9 million for the year ended December 31,
1997. Selling, general and administrative expense as a percentage of revenues
increased from 18.8% for the year ended December 31, 1996 to 19.5% for the year
ended December 31, 1997. The dollar increase in selling, general and
administrative expense primarily was a result of the acquisitions of the
flexible accommodation service providers, hiring of a corporate management team
and other costs associated with creating a public company infrastructure. The
increase in such expense as a percentage of revenues resulted from hiring
corporate personnel and acquiring certain companies that had higher selling,
general and administrative expenses as a percentage of revenues. The Statement
of Operations for the year ended December 31, 1997 includes $1.2 million of
non-recurring, non-cash compensation expense relating to the accelerated vesting
of restricted stock held by executive officers. The compensation charge
represented the difference between the value of the stock issued to officers and
the amount paid.
Other Income, Net. Other income, net increased approximately $242,000,
or 156.2%, from approximately $156,000 for the year ended December 31, 1996, to
approximately $398,000 for the year ended December 31, 1997. The increase in
other income is due to increased interest income as a result of the investment
of the cash proceeds from the Company's initial public
12
<PAGE> 14
offering and an increase in referral income. Offsetting these increases was an
increase in interest expense resulting from borrowings under the Company's
revolving line of credit for working capital purposes.
Income Tax Provision. For the year ended December 31, 1997, the Company
recorded a tax provision of $1.4 million on a pre-tax income of $1.8 million,
compared to a tax provision of approximately $513,000 on pre-tax income of $1.2
million for the year ended December 31, 1996. The tax provision for the year
ended December 31, 1997 is based on the Company's consolidated effective tax
rate for the 1997 fiscal year after considering nondeductible goodwill and
nondeductible officers' stock compensation expense.
RESULTS OF OPERATIONS--TCH
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Revenues increased $2.7 million, or 27.8%, from $9.7 million
in 1995 to $12.4 million in 1996. This increase was a result of an increase in
the number of accommodations rented during the year, an improvement in the
occupancy rate and an increase in the rates realized by TCH.
Cost of Services. Cost of services increased $1.7 million, or 23.3%,
from $7.4 million in 1995 to $9.1 million in 1996, primarily as a result of an
increase in the number of accommodations leased and the cost of furnishing such
accommodations during the year. Cost of services as a percentage of revenues
decreased from 75.7% in 1995 to 73.0% in 1996, primarily as a result of an
improved occupancy rate and an increase in the rates realized by TCH.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased approximately $262,000, or 12.7%, from $2.1
million in 1995 to $2.3 million in 1996, primarily as a result of increased
compensation to the stockholders, administrative payroll and sales commissions.
Selling, general and administrative expense as a percentage of revenues
decreased from 21.3% in 1995 to 18.8% in 1996, primarily as a result of
spreading the fixed costs of the company's operations over a larger revenue
base.
Other Income, Net. Other income, net increased approximately $54,000,
or 53.0%, from approximately $102,000 in 1995 to approximately $156,000 in 1996.
The increase in other income, net primarily was a result of increased interest
income as a result of stronger cash flows, an increase in referral income and
lower interest expense.
LIQUIDITY AND CAPITAL RESOURCES - BRIDGESTREET
For the year ended December 31, 1997, net cash provided by operating
activities totaled $1.3 million. Net cash used in investing activities during
the year ended December 31, 1997, was $5.9 million, primarily for acquisitions
(as described below) and the purchase of operating stock and equipment required
in the Company's business. Net cash provided by financing activities during the
year ended December 31, 1997 was $12.9 million, primarily due to proceeds, net
of expenses, from the Company's initial public offering, offset by repayments of
amounts due stockholders and long-term debt. Cash and cash equivalents increased
by $8.3 million during the year and totaled $8.9 million at December 31, 1997.
In September 1997, the Company completed its initial public offering of
3,007,250 shares of Common Stock, of which 2,092,250 shares were issued by the
Company and 915,000 shares were sold by certain stockholders of the Company at a
public offering price of $9.00 per share (the "Offering"). The net proceeds to
the Company (after deducting underwriting discounts and commissions and expenses
incurred in connection with the Offering) of approximately $14.8 million were
used to repay $1.0 million of certain indebtedness of the Founding Companies
assumed in connection with the Combination, $2.8 million (of which $1.0 million
related to acquisitions) of
13
<PAGE> 15
indebtedness outstanding under the Company's revolving credit facility, $28,000
of the outstanding amount due under a loan made to the Company by the spouse of
one of the Company's directors, and approximately $3.6 million to fund
acquisitions and expenses associated with acquisitions. The remaining net
proceeds were invested in short-term, interest bearing, investment grade
securities at December 31, 1997, and subsequently were used for acquisitions.
The Company has a $25.0 million revolving credit facility. The facility
provides the Company with a revolving line of credit of up to $25.0 million,
secured by guarantees by certain material subsidiaries of the Company and a
pledge of the capital stock of all of the Company's wholly-owned operating
subsidiaries. The credit facility may be used for refinancing of the Company's
subsidiaries' indebtedness, acquisitions and working capital. Loans made under
the credit facility bear interest, at the Company's option, at the bank's prime
lending rate, or 1.50% above the Eurodollar or LIBOR rates. The credit facility
will terminate on March 31, 2002, or sooner at the discretion of the Company,
and all amounts outstanding thereunder (if any) will be due upon such
termination. The credit facility (i) prohibits the payment of dividends and
other distributions by the Company, (ii) generally will not permit the Company
to incur or assume other indebtedness and (iii) requires the Company to comply
with certain financial covenants. The Company had no amounts outstanding under
the facility at December 31, 1997.
On March 31, 1997, the Company acquired Home Again, Inc. and two
affiliates ("Home Again") in a stock-for-stock merger and issued 475,000 shares
of Common Stock as merger consideration. The acquisition has been accounted for
using the purchase method of accounting. The Company has recorded approximately
$2.3 million of goodwill related to the transaction that will be amortized over
a period of 35 years. Home Again had combined revenues of approximately $4.0
million for the year ended December 31, 1996 and approximately $1.2 million for
the three months ended March 31, 1997.
Subsequent to March 31, 1997, the Company made three additional
acquisitions during 1997. The acquisitions have been accounted for using the
purchase method of accounting. The aggregate cost of these acquisitions was
$6.75 million, consisting of $4.4 million of cash and $2.35 million of stock.
The preliminary purchase price allocation of these acquisitions resulted in
goodwill of approximately $7.25 million that will be amortized over 35 years.
Details of these acquisitions are noted below.
On June 30, 1997, the Company acquired for cash all the assets of
Corporate Housing Services, Inc. ("CHS"), a provider of flexible accommodation
services in the Memphis, Tennessee metropolitan area. CHS had revenues of
approximately $2.5 million for the year ended December 31, 1996. The cost of the
acquisition was funded through borrowings from the Company's credit facility.
CHS's assets and operations were merged into BridgeStreet's Memphis subsidiary,
THEI.
On December 1, 1997, the Company acquired substantially all the assets
of Accommodations by Apple, Inc. ("ABA of Dallas"), a Texas flexible
accommodation company servicing Dallas and surrounding cities. The purchase
consideration included cash, funded from the proceeds of the Offering, and the
issuance of approximately 151,000 shares of Common Stock. ABA of Dallas had
revenues of approximately $3.5 million in 1996.
On December 1, 1997, the Company acquired certain assets
of Accommodations by Apple, Inc. ("ABA of Phoenix"), an Arizona flexible
accommodation company servicing several markets including Phoenix, Tucson and
Scottsdale. The purchase consideration included cash, funded from the proceeds
of the Offering, and the
14
<PAGE> 16
issuance approximately of 71,000 shares of Common Stock. ABA of Phoenix had
revenues of $3.8 million in 1996.
Subsequent to December 31, 1997, the Company has acquired six
companies. The acquisitions have been accounted for using the purchase method of
accounting. The total cost of these acquisitions was approximately $14.6
million, consisting of cash and notes of $10.4 million and $4.2 million in
Common Stock or securities exchangeable for Common Stock. The preliminary
purchase price allocation of these acquisitions resulted in goodwill of
approximately $15.0 million that will be amortized over 35 years. Details
regarding these acquisitions are noted below.
On January 2, 1998, the Company acquired the assets of Home on the
Road, Inc. of Charlotte, a North Carolina flexible accommodation company
servicing Charlotte and surrounding cities. The purchase consideration consisted
of cash, funded from the proceeds of the Offering, and a promissory note. Home
on the Road, Inc. had revenues of $2.2 million in 1997.
On January 2, 1998, the Company acquired all the outstanding stock of
Home on the Road-Raleigh, a North Carolina flexible accommodation company
servicing several markets including Raleigh, Durham, Research Triangle Park,
Winston-Salem and Greensboro. The purchase consideration consisted of the
issuance of approximately 75,000 shares of Common Stock. Home on the
Road-Raleigh had revenues of $1.3 million in 1997.
On January 2, 1998, the Company acquired for cash certain assets of
Accommodations by Apple-Denver and Accommodations by Apple-Austin, two flexible
accommodation companies servicing several markets in the Denver metropolitan
area including Colorado Springs, Boulder and Fort Collins, and in the Austin,
Texas metropolitan area. The purchase consideration of the two acquisitions was
cash, funded from the proceeds of the Offering, and notes. The acquisitions had
revenues of approximately $2.6 million in 1997.
On February 19, 1998, the Company acquired all the issued and
outstanding stock of London Life Apartments Limited ("London Life"), a flexible
accommodation company servicing London, England. The purchase consideration
consisted of cash, funded from the proceeds of the Offering, and the issuance of
approximately 165,000 shares of Common Stock. London Life had revenues of
approximately $10.0 million in 1997.
On March 2, 1998, the Company acquired all the issued and outstanding
stock of Global Travel Apartments, Inc. ("GTA"), one of Canada's largest
providers of flexible accommodation services. GTA services the Toronto,
Montreal, Ottawa, Edmonton, Regina, Vancouver and Victoria markets. The purchase
consideration consisted of cash, funded from the proceeds of the Offering and
the credit facility, and the issuance of approximately 140,000 shares of the
stock of a Canadian subsidiary that is exchangeable for an equal number of
shares of Common Stock. GTA had revenues of approximately $7.7 million for the
eleven months ended January 31, 1998.
The Company will continue to pursue growth through the acquisition of
flexible accommodation service providers. The Company's primary sources of
funding to date have been cash flow from operations, proceeds from the Offering
and its credit facility. The Company anticipates that cash flow from operations
and funds from its credit facility will be its principal future sources of
funding. The Company's
15
<PAGE> 17
principal future uses of cash, in addition to cash used in operating
activities, include funding of acquisitions and investment in the Company's
management information systems. The Company does not plan to make any material
capital expenditures for leasehold improvements. Capital expenditure
requirements in 1998 are anticipated to be approximately $2.3 million, compared
to $1.6 million, approximately $100,000 and approximately $100,000 in 1997, 1996
and 1995, respectively. While there can be no assurance, management believes
that cash flow from operations and funds from the credit facility will be
adequate to meet the Company's capital requirements for the next 12 months,
depending on the size and methods of financing potential acquisitions.
INFLATION
Due to the relatively low levels of inflation experienced in 1995, 1996
and 1997, inflation did not have a significant effect on the results of the
Company or TCH during these periods.
SEASONALITY
Quarterly earnings may be affected by the timing of certain holidays,
business and vacation patterns, weather conditions, economic factors and other
considerations affecting travel. Corporate relocation activity peaks in the
summer months and declines significantly during the fourth quarter and the first
part of the first quarter. Long-term consulting activity tends to follow a
similar pattern, but not to the same extent. The Company expects to realize
lower revenues, operating income and net income during the first and fourth
quarters.
MANAGEMENT INFORMATION SYSTEMS
The Company was formed in August 1996 and during the first quarter of
1997, acquired five companies. Subsequent to the first quarter, the Company
acquired three additional companies in 1997, and six additional companies in the
first quarter of 1998. The acquired companies each have their own unique
operating systems. As a result of these acquisitions, the Company has undertaken
a complete review of its computer software programs and operating systems. The
Company plans to replace all current accounting and property management systems
with a single integrated system. Year 2000 compliance is a requirement for all
new systems the Company will acquire or internally develop. The total cost to
replace existing software, hardware and the cost of implementation is estimated
to be $2.5 million, which will be capitalized as incurred. New system
implementation is expected to be complete by July 1, 1999.
The Company is working with its processing banks to ensure their
systems are Year 2000 compliant. All of these costs will be borne by the
processing banks. In the event some of the processing banks are unable to
convert their systems, the Company will switch to banks that are able to perform
the processing requirements of the Company.
FACTORS TO BE CONSIDERED
The information set forth above contains forward-looking statements,
which involve risks and uncertainties. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements.
Readers should refer to discussion under "Risk Factors" contained in the
Company's Registration Statement on Form S-4 (No. 333-39187) filed with the
Securities and Exchange Commission, which is incorporated herein by reference,
concerning certain factors which could cause the Company's actual results to
differ materially from the results anticipated in the forward-looking statements
contained herein.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and information required by Item 8
are listed in the Index, presented as Item 14, and included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item will be contained in the Company's
Proxy Statement, which the Company intends to file within 120 days following the
end of its fiscal year ended December 31, 1997, and such information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item will be contained in the Company's
Proxy Statement, which the Company intends to file within 120 days following the
end of its fiscal year ended December 31, 1997, and such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item will be contained in the Company's
Proxy Statement, which the Company intends to file within 120 days following the
end of its fiscal year ended December 31, 1997, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item will be contained in the Company's
Proxy Statement, which the Company intends to file within 120 days following the
end of its fiscal year ended December 31, 1997, and such information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Company and its
subsidiaries are included pursuant to Item 8.
Item Page No.
- ---- --------
Report of Independent Public Accountants............................... 22
Consolidated Balance Sheets as of December 31, 1996 and 1997........... 23
17
<PAGE> 19
Consolidated Statements of Operations for the years ended December 31, 1995,
1996 and 1997............................................................... 24
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997............................................ 25
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997............................................................... 26
Notes to Consolidated Financial Statements.................................. 27
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts............................. 39
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C>
*3.1 Certificate of Incorporation of the Company.......................................
*3.2 By-laws of the Company............................................................
*4 Form of Specimen Stock Certificate................................................
*10.1 Agreement and Plan of Merger dated as of December 30, 1996 by and
among BridgeStreet International Inc., EIP Acquisition Corp., Exclusive
Interim Properties, Ltd. and Melanie R. Sabelhaus.................................
*10.2 Agreement and Plan of Merger dated as of December 30, 1996 by and
among BridgeStreet International Inc., THEI Acquisition Corp., Temporary
Housing Experts, Inc., Connie F. O'Briant and Thomas W. O'Briant..................
*10.3 Agreement and Plan of Merger dated as of December 30, 1996 by and
among BridgeStreet International Inc., TCHI Acquisition Corp., Temporary
Corporate Housing Columbus, Inc., Temporary Corporate Housing
Cleveland, Inc., Temporary Corporate Housing Cincinnati, Inc., Temporary
Corporate Housing Pittsburgh, Inc., SLD Partnership, Lynda Clutchey,
David Clutchey III, Beth Holzer and David Holzer..................................
*10.4 Agreement and Plan of Merger dated as of December 30, 1996 by and
among BridgeStreet International Inc., CL Acquisition Corp., Corporate
Lodgings, Inc., Corporate Lodgings of Kentucky, Inc., Corporate Lodgings
of Minnesota, Inc., Corporate Lodgings of Pennsylvania, Inc., Corporate
Lodgings of Wisconsin, Inc. and Rocco A. DiLillo..................................
*10.5 Agreement and Plan of Merger dated as of March 31, 1997 by and among
BridgeStreet International Inc., HAI Acquisition Corp., Home Again, Inc.,
Home Again Amenities, Inc., Home Again Corporate Housing, Inc. and
Sandra A. Brown...................................................................
10.6 Purchase Agreement dated February 19, 1998 among BridgeStreet
Accommodations, Inc. and London Life Apartments Limited (Incorporated by
reference to the Company's Current Report on Form 8-K dated March 4,
1998).............................................................................
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C>
*10.7 1997 Equity Incentive Plan........................................................
*10.8 Stock Plan for Non-Employee Directors.............................................
*10.9 Employment Agreement dated December 30, 1996, between CL Acquisition
Corp. and Rocco A. DiLillo........................................................
*10.10 Employment Agreement dated December 30, 1996, between EIP Acquisition
Corp. and Melanie R. Sabelhaus....................................................
*10.11 Employment Agreement dated December 30, 1996 between THEI Acquisition
Corp. and Connie F. O'Briant......................................................
*10.12 Employment Agreement dated December 30, 1996, between TCHI
Acquisition Corp. and Lynda Clutchey..............................................
*10.13 Employment Agreement dated as of January 2, 1997, between BridgeStreet
International Inc. and Mark D. Gagne..............................................
*10.14 Employment Agreement dated as of March 31, 1997, between BridgeStreet
International Inc. and William N. Hulett, III.....................................
*10.15 Revolving Credit Agreement dated as of March 31, 1997 between
BridgeStreet International Inc., as Borrower, and Fleet National Bank and the
Other Lending Institutions listed on Schedule 1 thereto and Fleet National
Bank as Agent.....................................................................
*10.16 Revolving Credit Note for the principal balance of $10,000,000, dated
March 31, 1997....................................................................
*10.17 Rental Agreement between Saturn Enterprises Inc. and Temporary Corporate
Housing Inc. dated December 28, 1995..............................................
*10.18 Exclusive Lease Agreement between Integrity Furniture, Inc. and Temporary
Corporate Housing Pittsburgh, Inc. dated September 12, 1995.......................
10.19 Stock Purchase Agreement dated as of March 2, 1998 by and among
BridgeStreet Accommodations, Inc., BridgeStreet Canada, Inc., Global
Hospitality, Inc., Thomas Vincent and the Vincent Family Trust
(Incorporated by reference to the Company's Current Report on Form 8-K
dated March 17, 1998).............................................................
+10.20 Amendment Nos. 1 and 2 to Revolving Credit Agreement..............................
+21 Subsidiaries of the Registrant....................................................
+23 Consent of Arthur Andersen LLP....................................................
+27 Financial Data Schedule...........................................................
</TABLE>
- ------------------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-26647).
+ Filed herewith.
(b) The Company filed no reports on Form 8-K during the last quarter of its
fiscal year ended December 31, 1997.
19
<PAGE> 21
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, thereunto duly authorized.
BRIDGESTREET ACCOMMODATIONS, INC.
Date: March 30, 1998 By: /s/ William N. Hulett, III
----------------------------------------
William N. Hulett, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ William N. Hulett, III
- --------------------------- PRESIDENT, CHIEF EXECUTIVE OFFICER MARCH 30, 1998
WILLIAM N. HULETT, III AND DIRECTOR
/s/ Mark D. Gagne
- --------------------------- CHIEF FINANCIAL OFFICER AND MARCH 30, 1998
MARK D. GAGNE PRINCIPAL ACCOUNTING OFFICER
/s/ Paul M. Verrochi
- --------------------------- CHAIRMAN OF THE BOARD MARCH 30, 1998
PAUL M. VERROCHI
/s/ Rocco A. Di Lillo
- --------------------------- DIRECTOR MARCH 30, 1998
ROCCO A. DI LILLO
/s/ Lynda D. Clutchey
- --------------------------- DIRECTOR MARCH 30, 1998
LYNDA D. CLUTCHEY
/s/ Connie F. O'Briant
- --------------------------- DIRECTOR MARCH 30, 1998
CONNIE F. O'BRIANT
20
<PAGE> 22
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Melanie R. Sabelhaus
- --------------------------- DIRECTOR MARCH 30, 1998
MELANIE R. SABELHAUS
/s/ James M. Biggar
- --------------------------- DIRECTOR MARCH 30, 1998
JAMES M. BIGGAR
/s/ Robert R. Mesel
- --------------------------- DIRECTOR MARCH 30, 1998
ROBERT R. MESEL
/s/ Jerry Sue Thornton
- --------------------------- DIRECTOR MARCH 30, 1998
JERRY SUE THORNTON
21
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of BridgeStreet Accommodations, Inc.:
We have audited the accompanying consolidated balance sheets of BridgeStreet
Accommodations, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1996 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BridgeStreet Accommodations, Inc. and subsidiaries as of December 31, 1996 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14(a)(2) of Form 10-K
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. The schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
As discussed in Note 1, the accompanying consolidated financial statements
reflect the Company on a historical basis with Temporary Corporate Housing
Columbus, Inc. as the accounting acquirer.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 20, 1998 (except with respect to the
matter discussed in Note 16, as to which the
date is March 20, 1998).
22
<PAGE> 24
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
TCH BridgeStreet
December 31, December 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 597,939 $ 8,922,215
Investments in short-term marketable securities 152,253 --
Trade accounts receivable, less allowance for doubtful
accounts of $45,000 in 1996 and $167,000 in 1997 794,445 2,217,930
Security deposits held by landlords 264,541
Deferred income taxes 129,200 524,156
Prepaid rent -- 817,769
Other current assets 33,927 709,254
---------- -----------
Total current assets 1,707,764 13,455,865
Operating stock, net of accumulated amortization 268,086 1,682,579
Property and equipment, net of accumulated depreciation 26,961 2,535,094
Other assets -- 208,930
Due from stockholders/affiliates 10,568 348,000
Goodwill, net of amortization -- 24,332,484
---------- -----------
Total assets $2,013,379 $42,562,952
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ -- $ 20,121
Due to stockholders and affiliates -- 100,835
Accounts payable 218,407 1,027,307
Accrued payroll and employee benefits 61,201 511,963
Accrued expenses, other 342,413 1,473,486
Accrued income taxes 100,000 --
Deferred revenue -- 690,509
Security deposits due to customers -- 459,251
---------- -----------
Total current liabilities 722,021 4,283,472
Long-term debt, net of current maturities -- 25,803
Deferred income taxes 107,744 675,480
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value; authorized 5,000,000 shares;
no shares issued or outstanding -- --
Common stock, $0.01 par value; authorized 35,000,000 shares;
7,789,345 shares issued and outstanding in 1997;
see note 13 for 1996 31,000 77,893
Additional paid in capital -- 35,889,414
Treasury stock (see note 13) (4,185) --
Retained earnings 1,156,799 1,610,890
---------- -----------
Total stockholders' equity 1,183,614 37,578,197
---------- -----------
Total liabilities and stockholders' equity $2,013,379 $42,562,952
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
TCH TCH BridgeStreet
1995 1996 1997
---------- ----------- ------------
<S> <C> <C> <C>
Revenues $9,696,322 $12,399,750 $50,750,352
Operating Expenses:
Cost of services 7,344,083 9,052,165 37,736,902
Selling, general and administrative expense 2,064,463 2,326,772 9,887,041
Officers' stock compensation -- -- 1,210,261
Goodwill amortization -- -- 489,148
---------- ----------- -----------
Total operating expenses 9,408,546 11,378,937 49,323,352
---------- ----------- -----------
Operating income 287,776 1,020,813 1,427,000
Other Income (Expense):
Interest income 25,592 47,093 196,253
Interest expense (6,914) (107) (120,065)
Other income, net 82,968 108,552 322,249
---------- ----------- -----------
Other income, net 101,646 155,538 398,437
---------- ----------- -----------
Income before provision for income taxes 389,422 1,176,351 1,825,437
Provision for income taxes 178,269 512,627 1,371,346
---------- ----------- -----------
Net income $ 211,153 $ 663,724 $ 454,091
========== =========== ===========
Net income per share-basic and dilutive $ 0.13 $ 0.42 $ 0.08
========== =========== ===========
Weighted average shares outstanding-basic 1,596,350 1,596,350 5,904,484
Weighted average shares outstanding-dilutive 1,596,350 1,596,350 5,930,248
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------------- Treasury Paid-In Retained Stockholders'
Shares Amount Stock Capital Earnings Equity
--------- -------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 2,056 $ 31,000 $(4,185) - $ 631,155 $ 657,970
Net income - - - - 211,153 211,153
--------- -------- ------- ----------- ---------- -----------
Balance at December 31, 1995 2,056 31,000 (4,185) - 842,308 869,123
Net income - - - - 663,724 663,724
Cash dividend - - - - (349,233) (349,233)
--------- -------- ------- ----------- ---------- -----------
Balance at December 31, 1996 2,056 31,000 (4,185) - 1,156,799 1,183,614
Original BridgeStreet equity 1,174,000 11,740 - (9,024) - 2,716
Merger of TCH and BridgeStreet (2,056) (31,000) 4,185 - - (26,815)
Issuance of stock to founders 4,301,000 43,010 - 17,548,922 - 17,591,932
Officers' stock compensation - - - 1,210,261 - 1,210,261
Common stock offering 2,092,250 20,922 - 14,791,476 - 14,812,398
Issuance of stock to acquired
companies 222,095 2,221 - 2,347,779 - 2,350,000
Net income - - - - 454,091 454,091
--------- -------- ------- ----------- ---------- -----------
Balance at December 31, 1997 7,789,345 $ 77,893 - $35,889,414 $1,610,890 $37,578,197
========= ======== ======= =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 27
BRIDGESTREET ACCOMMODATIONS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
TCH TCH BridgeStreet
1995 1996 1997
--------- --------- ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 211,153 $ 663,724 $ 454,091
Adjustments to reconcile net income to net
cash provided by operating activities--
Officers' stock compensation -- -- 1,210,261
Depreciation and amortization 78,684 60,333 990,346
Gain on sale of assets -- (500) --
Changes in operating assets and liabilities
excluding the effect of acquisitions--
Accounts receivable (154,680) (38,796) (420,154)
Security deposits held by landlords -- -- (83,560)
Prepaid expenses and other assets (30,978) 36,883 (1,514,887)
Accounts payable and accrued expenses 591,871 (349,991) 656,731
Accrued income taxes 22,500 (401,520) (191,988)
Deferred income taxes (98,307) 97,334 225,942
Security deposits due to customers -- -- (24,451)
Deferred revenue -- -- 30,749
--------- --------- -----------
Net cash provided by operating activities 620,243 67,467 1,333,080
--------- --------- -----------
Cash Flows From Investing Activities:
Purchases of investments in short-term marketable
securities (194,925) (330,887) (124,997)
Sales of investments in short-term marketable
securities 151,076 397,934 277,250
Acquisitions, net of cash acquired -- -- (4,388,120)
Proceeds from sale of assets -- 4,507 --
Purchases of operating stock (24,591) (77,642) (768,321)
Purchases of property and equipment (57,798) (28,012) (876,936)
--------- --------- -----------
Net cash used for investing activities (126,238) (34,100) (5,881,124)
--------- --------- -----------
Cash Flows From Financing Activities:
Proceeds from initial public offering, net of offering costs -- -- 14,812,398
Borrowings against line of credit -- -- 2,775,000
Repayment against line of credit -- -- (2,775,000)
Addition (repayment) of long-term debt (154,602) 144,034 (1,212,807)
Due to stockholders/affiliates (1,920) (64,844) (727,271)
Cash dividend -- (349,233) --
--------- --------- -----------
Net cash (used) provided by financing activities (156,522) (270,043) 12,872,320
--------- --------- -----------
Net increase(decrease) in cash
and cash equivalents 337,483 (236,676) 8,324,276
Cash and cash equivalents, beginning of period 497,132 834,615 597,939
--------- --------- -----------
Cash and cash equivalents, end of period $ 834,615 $ 597,939 $ 8,922,215
Supplemental Cash Flow Information:
Cash paid for interest $ 6,914 $ 107 $ 158,786
========= ========= ===========
Cash paid for income taxes $ 33,348 $ 828,618 $ 1,327,975
========= ========= ===========
</TABLE>
Non-Cash Transaction:
During the first quarter of 1997, the Company exchanged 4,301,000 shares of
Common Stock of the Company for all of the outstanding stock of the five
Founding Companies. Additionally, during the fourth quarter, the Company
exchanged approximately 222,000 shares of Common Stock of the Company for
the assets of two flexible accommodations providers.
See accompanying notes to consolidated financial statements.
26
<PAGE> 28
BRIDGESTREET ACCOMMODATIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company") was
incorporated on August 19, 1996, to create a leading national provider of
flexible accommodation services through the acquisition and consolidation of the
operations of flexible accommodation service companies. During the first quarter
of 1997, the Company became the holder of all the outstanding stock of the
Founding Companies, five flexible accommodation service providers (the
"Combination"), in exchange for 4,301,000 shares of Common Stock of the Company.
The Company conducted no operations prior to January 2, 1997, except in
connection with the Offering and the Combination. For financial reporting
purposes, the largest founding company, Temporary Corporate Housing Columbus,
Inc. ("TCH") has been designated as the accounting acquirer, and its acquisition
of the remaining four Founding Companies has been accounted for using the
purchase method of accounting.
The consolidated financial statements presented herein have been
prepared by the Company and include the accounts of TCH, Corporate Lodgings,
Inc. and its four affiliates, Exclusive Interim Properties, Ltd. and its
affiliate, and Temporary Housing Experts, Inc. all of which were merged with
and into subsidiaries of the Company on January 2, 1997, as well as the accounts
of the following wholly-owned operating subsidiaries from the indicated dates on
which they acquired (by merger with or purchase of substantially all of the
assets of) flexible accommodation service providers: HAI Acquisition Corp.
(March 31, 1997); BridgeStreet Texas, L.P. (December 1, 1997); and BridgeStreet
Arizona, Inc. (December 1, 1997). All intercompany accounts and transactions
have been eliminated.
The financial position at December 31, 1996, and the results of
operations and cash flows for the years ended December 31, 1996 and 1995,
presented herein are of TCH, the designated accounting acquirer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
in the preparation of these financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Investments in
short-term marketable securities are deemed to be available-for-sale, and
accordingly, are stated at their fair value, which at December 31, 1996
approximated cost. Other financial instruments consisting of trade and other
receivables, and long-term debt, are considered to have a fair value which
approximates carrying value at December 31, 1997 and 1996.
27
<PAGE> 29
Deferred Acquisition Costs
Deferred acquisition costs consist primarily of legal, accounting and
other professional fees incurred in connection with the acquisitions of flexible
accommodations service providers. All the costs associated with the acquisitions
will be included as a component of the purchase price pursuant to the purchase
method of accounting. At December 31, 1997, the Company had deferred acquisition
costs of $56,000 relating to acquisitions which had not closed at December 31,
1997, and are included in other current assets in the accompanying consolidated
balance sheets.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Upon sale or retirement, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss is recorded in
the combined statement of operations. Depreciation is determined using the
straight-line method for financial reporting and income tax reporting purposes
over the estimated useful lives of the respective assets. Estimated useful lives
are as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
-------------------- -----------
<S> <C>
Computer equipment.................................. 3-5 Years
Office furniture and equipment...................... 5-7 Years
Automobiles......................................... 5 Years
Condominiums........................................ 39 Years
Leasehold improvements.............................. Lease life up to 7 Years
</TABLE>
Repairs and maintenance are charged to expense as incurred. General and
administrative costs associated with the opening of new Company offices are
expensed as incurred.
Revenue Recognition
The Company recognizes revenues on the rentals of accommodations to its
clients on a pro rata basis over the length of the client's stay. Amounts
received relating to periods after the balance sheet date are reported as
deferred revenue in the accompanying consolidated balance sheets. Security
deposits received from guests are classified as a current liability, and
security deposits paid to landlords are classified as current assets in the
accompanying consolidated balance sheets.
Concentration of Credit Risk
Concentration of credit risk is limited to accounts receivable. The
Company may require collateral or other security to support their receivables.
The Company conducts periodic reviews of its clients' financial condition and
payment practices to minimize collection risks on accounts receivable.
Operating Stock
Operating stock to furnish new units, including linen, glassware,
silverware, utensils and minor appliances, is capitalized as it is purchased and
amortized over a three year period to a residual value of 50% of the original
cost. Additional purchases of operating stock for units already established are
expensed as incurred.
28
<PAGE> 30
Accommodation and Furniture Leases
The Company leases substantially all of its accommodations on a
short-term basis with lease terms typically ranging from one month to one year.
Furniture for the accommodations is substantially all leased on a monthly basis
from various furniture rental companies.
Goodwill
Goodwill represents the excess purchase price paid over the fair value
of the net assets acquired and all transaction costs incurred in connection with
the acquisitions. The amortization of goodwill is provided on a straight-line
basis over a 35 year period. Goodwill amortization in 1997 was approximately
$489,000. Accumulated amortization of goodwill was approximately $489,000 at
December 31, 1997.
Management regularly evaluates its accounting for goodwill considering
such factors as historical and future profitability, and believes that the asset
is realizable and the amortization period appropriate.
Reclassification
Certain items in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation.
3. INCOME TAXES
The Company records income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. Under SFAS
No. 109, deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory rates to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
PROVISION FOR INCOME TAXES
Current tax expense
Federal $ 66,000 $ 531,000 $1,077,000
State 14,000 113,000 226,000
-------------------------------------------
$ 80,000 $ 644,000 $1,303,000
-------------------------------------------
Deferred tax expense
Federal $ 81,000 $(108,000) $ 58,000
State 17,000 (23,000) 10,000
-------------------------------------------
$ 98,000 $(131,000) $ 68,000
-------------------------------------------
Total provision for income taxes $178,000 $ 513,000 $1,371,000
===========================================
</TABLE>
Total income tax payments, net of refunds, were $1.3 million, $0.8 million and
$33,000 in 1997, 1996 and 1995, respectively.
29
<PAGE> 31
A reconciliation of federal statutory and effective income tax rates for the
year ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Income before income taxes $389,000 $1,176,000 $1,825,000
======== ========== ==========
Pretax book income at statutory rate $132,000 $ 400,000 $ 621,000
State taxes (net of federal benefit) 28,000 85,000 156,000
Goodwill -- -- 161,000
Officers' stock award -- -- 411,000
Other 18,000 28,000 22,000
------------------------------------------
Provision for income taxes $178,000 $ 513,000 $1,371,000
==========================================
Effective income tax rate: 45.8% 43.6% 75.1%
</TABLE>
A detailed summary of the total deferred tax assets and liabilities in the
Company's consolidated balance sheets at December 31 resulting from differences
in the book and tax basis of assets and liabilities follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Accruals not yet deductible for tax purposes $ 129,000 $ 443,000
Accounts receivable -- 97,000
Other -- (16,000)
--------------------------
$ 129,000 $ 524,000
========= =========
DEFERRED TAX LIABILITIES
Operating stock $(108,000) $(673,000)
Other -- (2,000)
--------------------------
$(108,000) $(675,000)
========= =========
Net deferred tax asset (liability) $ 21,000 $(151,000)
========= =========
</TABLE>
4. ACQUISITIONS
As discussed in Note 1, in the first quarter of 1997, the Company
merged with the five Founding Companies in stock-for-stock tax-free mergers. The
mergers have been accounted for using the purchase method of accounting with TCH
designated as the accounting acquirer and the other Founding Companies
designated as "acquired companies." The results of operations of the "acquired
companies" have been included in the accompanying consolidated financial
statements from their respective dates of acquisition. The purchase price and
allocation of the purchase price of the four "acquired companies," including the
value of stock issued to the founders of BridgeStreet as a transaction fee, was
approximately $17.7 million based on an independent appraisal of the net assets
acquired. The aggregate cost of the acquisitions exceeded the estimated fair
value of assets and liabilities of the acquired companies by $17.5 million which
is being amortized as goodwill over 35 years.
Subsequent to March 31, 1997, the Company made three additional
acquisitions during 1997. The acquisitions have been accounted for using the
purchase method of accounting. The aggregate cost of these acquisitions was
$6.75 million, consisting of $4.4 million of cash and $2.35 million of Common
Stock. The preliminary purchase price allocation of these acquisitions resulted
in goodwill of approximately $7.25 million that is being amortized over 35
years. Details of these acquisitions are noted below.
30
<PAGE> 32
On June 30, 1997, the Company acquired for cash all the assets of
Corporate Housing Services, Inc., a provider of flexible accommodation services
in the Memphis, Tennessee metropolitan area. The results of operations of this
company have been included in the accompanying consolidated financial statements
from the date of acquisition. Allocation of purchase price was based on
estimates of the fair value of the net assets acquired. Pro forma data is not
presented as the acquisition was not material to the Company's results of
operations.
On December 1, 1997, the Company acquired substantially all the assets
of Accommodations by Apple, Inc. ("ABA of Dallas"), a Texas flexible
accommodation company servicing Dallas and surrounding cities. The purchase
consideration consisted of cash and the issuance of approximately 151,000 shares
of Common Stock.
On December 1, 1997, the Company acquired certain assets of
Accommodations by Apple, Inc. ("ABA of Phoenix"), an Arizona flexible
accommodation company servicing several markets including Phoenix, Tucson and
Scottsdale. The purchase consideration consisted of cash and the issuance of
approximately 71,000 shares of Common Stock.
The following table presents unaudited selected financial information
for the Company, TCH, the four "acquired companies", and the acquisitions of ABA
of Dallas and ABA of Phoenix on a pro forma basis, assuming the companies had
been combined and the initial public offering had occurred as of the beginning
of 1996.
<TABLE>
<CAPTION>
Year ended Dec. 31,
----------------------
1996 1997
---- ----
<S> <C> <C>
Revenues $44,942,000 $61,383,000
Net income $ 909,000 $ 798,000
Net income per share-basic and dilutive $ 0.12 $ 0.10
</TABLE>
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the acquisitions
been made at the beginning of 1996 and 1997, respectively.
31
<PAGE> 33
5. PROPERTY AND EQUIPMENT; OPERATING STOCK
Property and equipment, and operating stock consist of the following:
December 31
-------------------------
1996 1997
-------- ----------
Land $ -- $ 266,235
Condominiums 169,577 1,069,165
Computer equipment -- 697,724
Furniture, office equipment and leasehold
improvements 80,738 813,981
Automobiles 57,584 228,661
-------- ----------
Total property and equipment 307,899 3,075,766
Less-accumulated depreciation 280,938 540,672
-------- ----------
Property and equipment, net $ 26,961 $2,535,094
======== ==========
Operating stock $476,212 $2,132,173
Less-accumulated amortization 208,126 449,594
-------- ----------
Operating stock, net $268,086 $1,682,579
======== ==========
Depreciation expense was $259,732, $30,526 and $55,284 in 1997, 1996
and 1995, respectively. Amortization expense was $241,468, $29,807 and $23,400
in 1997, 1996 and 1995, respectively.
6. REVOLVING CREDIT AGREEMENT
The Company has a revolving credit agreement to provide up to $10
million of revolving credit. The revolving credit agreement, secured by the
capital stock of the Company's operating subsidiaries, extends to March 31,
2002. Interest is payable at the prime rate, or 1.25% above the Eurodollar or
LIBOR rates. A commitment fee is payable on the average unused credit at a rate
of 0.375%. The revolving credit agreement contains certain restrictive covenants
with which the Company must comply. The credit facility (i) prohibits the
payment of dividends and other distributions by the Company, (ii) generally will
not permit the Company to incur or assume other indebtedness and (iii) requires
the Company to comply with certain financial covenants. The Company had no
amounts outstanding under the facility at December 31, 1997.
7. RELATED PARTY TRANSACTIONS
An operating subsidiary of the Company purchases advertising space from
City Visitor Publications, Inc., ("City Visitor"), an entity which publishes a
travel magazine and is 100% owned by an executive officer of the Company.
Included in the accompanying consolidated statement of operations for the year
ended December 31, 1997 are $16,000 of advertising expenses paid to City
Visitor. In addition, the Company will from time to time pay expenses on behalf
of City Visitor which are subsequently repaid to the Company by City Visitor.
Included in accounts receivable in the accompanying consolidated balance sheet
is $3,300 for the period ended December 31, 1997. In addition, through June
1997, the Company performed certain general and administrative functions, such
as accounting and finance, on behalf of City Visitor. In connection with these
services, the Company billed City Visitor approximately $1,900 for the year
ended December 31, 1997.
During 1995, TCH leased office space from a former owner of TCH and
spouse of one of the general partners of SLD Partnership ("SLD"), an Ohio
general partnership and a beneficial owner of more than 5% of the Company's
Common Stock. Included in the accompanying consolidated statement of operations
for the period ended December 31, 1995, is $10,200 of rent expense related to
this office space.
32
<PAGE> 34
For the period September 12, 1995, through December 12, 1997, TCH had
an exclusive furniture lease agreement with Integrity Furniture, Inc., which is
49% owned by SLD. The agreement provided the lessor with the exclusive right to
furnish all of TCH's leased accommodations in Pittsburgh, Pennsylvania, at
agreed upon prices. In management's opinion, the lease terms and rental amounts
were comparable to other agreements that TCH has entered into with unaffiliated
entities.
In October 1995, TCH loaned to SLD $45,000 at an annual interest rate
of 7%. During 1995, SLD borrowed $110,000 from TCH. Both of these amounts were
repaid in full during 1996.
TCH leases televisions, VCRs and microwave ovens from Saturn
Enterprises, Inc. ("Saturn"), which is owned by the spouse of one of the general
partners of SLD. The original agreement commenced on January 1, 1989, and was
renewed on December 28, 1995, for a three-year period beginning on January 1,
1996. These items are rented at rates that are comparable to those charged by
unaffiliated companies. Included in accounts payable in the accompanying
consolidated balance sheets at December 31, 1996 and 1997, are amounts owed to
Saturn of approximately $17,500 and $22,700, respectively.
For the period June 1992 through November 1996, TCH received consulting
services from two of the general partners of SLD. The cost incurred for the
services was $96,000 during 1995 and 1996. The consulting contracts with the two
general partners of SLD were terminated in November 1996.
An operating subsidiary of the Company leases office space from ABA
Office Corporation, Inc. and furniture from Apple Furniture Leasing, both of
which are 100% owned by a senior manager of the Company. Included in the
accompanying consolidated statement of operations for the period ended December
31, 1997, is $1,900 of rent expense related to the office space and $9,700 of
furniture rental expense. Included in accounts payable in the accompanying
consolidated balance sheet is $9,700 as of December 31, 1997, due to these
companies.
Included in due to stockholders and affiliates in the accompanying
consolidated balance sheet as of December 31, 1997, is $50,000 due to ABA of
Dallas for costs associated with the closing of the acquisition of ABA of
Dallas; $40,000 due to American Business Partners ("ABP"), certain shareholders
of the Company are principals in ABP including the Company's chairman, for
consulting services performed in connection with the acquisition of ABA of
Dallas; and $10,700 due to the former stockholder of Exclusive Interim
Properties, Inc. who is currently a senior manager and director of the Company.
Included in due from stockholders and affiliates in the accompanying
consolidated balance sheet as of December 31, 1997, is $106,800 due from ABA of
Phoenix for costs associated with the closing of the acquisition of ABA of
Phoenix; $91,200 due from ABA of Dallas for costs associated with the closing of
the acquisition of ABA of Dallas; and $150,000 due from the former stockholder
of Exclusive Interim Properties, Inc. who is currently a senior manager and
director of the Company.
8. CAPITAL STOCK
The Company's authorized capital stock consists of 35,000,000 shares of
Common Stock, $.01 par value per share, and since April 10, 1997, 5,000,000
shares of Preferred Stock, $0.01 par value per share.
Common Stock. On September 24, 1997, the Company completed its initial
public offering of 3,007,250 common shares, of which 2,092,250 shares were
issued by the Company and 915,000 shares were sold by certain stockholders of
the Company at a public offering price of $9.00 per share (the "Offering"). The
net proceeds to the Company (after deducting underwriting discounts and
commissions and expenses incurred in connection with the Offering) of
approximately $14.8 million were used to repay $1.0 million of certain
indebtedness of the Founding
33
<PAGE> 35
Companies assumed in connection with the Combination, $2.8 million (of which
$1.0 million related to acquisitions) of indebtedness outstanding under the
Company's revolving credit facility, $28,000 of the outstanding amount due under
a loan made to the Company by the spouse of one of the Company's directors, and
approximately $3.6 million for acquisitions and expenses associated with
acquisitions. The remaining net proceeds were invested in short-term, interest
bearing, investment grade securities at December 31, 1997, and will be used for
acquisitions, working capital and general corporate purposes.
At December 31, 1997, there were 7,789,345 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote for each share
held of record on all matters to be submitted to a vote of the stockholders, and
do not have cumulative voting rights. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, holders of Common Stock
will be entitled to share ratably in the assets of the Company remaining after
payment or provision for payment of all of the Company's debts and obligations
and after liquidation payments to holders of outstanding shares of Preferred
Stock, if any.
Preferred Stock. At December 31, 1997, there were no shares of
Preferred Stock outstanding. Holders of Preferred Stock would have priority over
the holders of Common Stock with respect to dividends, and to other
distributions, including the distribution of assets upon liquidation. The Board
of Directors has the authority, without stockholder authorization, to issue
shares of Preferred Stock in one or more series and to fix terms, limitations,
relative rights and preferences and variations as among series.
9. STOCK OPTION PLANS
The Company adopted the 1997 Equity Incentive Plan (the "Equity
Incentive Plan") which provides for the award of incentive stock options
("ISOs"), non-qualified stock options, stock appreciation rights, performance
shares, restricted stock and stock units to all directors and employees of
(including directors and employees of the Founding Companies) and consultants
and advisors to the Company. The number of shares authorized and reserved for
issuance under the Equity Incentive Plan is 1,000,000. In general, options are
granted at the market price on the date of grant, vest in equal increments over
3 years, and expire 10 years from the date of grant. During 1997, the Company
granted options to purchase 498,967 shares at prices ranging from $9.00 to
$11.37. As of December 31, 1997, the Company had awarded options to purchase
498,967 shares of Common Stock under the Equity Incentive Plan. Of this amount,
options to purchase 300,000 shares were granted pursuant to employment
agreements at a price of $9.00 per share.
The Company has adopted the Stock Plan for Non-Employee Directors (the
"Directors' Plan"). During 1997, each director who was not an employee of the
Company or one of its subsidiaries and neither a holder of five percent or more
of the Company's Common Stock nor a stockholder of the Company prior to the
Company's initial public offering ( a "non-employee director"), and each
director nominee, received options to purchase 12,500 shares of Common Stock
with a per-share exercise price equal to the offering price. Thereafter, each
such non-employee director will be granted, on every third anniversary of the
final Prospectus (provided he or she still is a non-employee director at such
time), an option to acquire an additional 7,500 shares of Common Stock, and each
non-employee director initially elected following the offering also will be
granted an option to purchase 7,500 shares of Common Stock having a per-share
exercise price equal to the fair market value of the Common Stock on the date of
such grant. The number of shares authorized and reserved for issuance under the
Directors' Plan is 100,000. As of December 31, 1997, the Company had awarded
options to purchase 37,500 shares of Common Stock at $9.00 per share, under the
Directors' Plan.
The Company accounts for stock options under APB Opinion No. 25, and,
therefore, does not recognize employee compensation for options granted using
the fair value method set forth in SFAS No. 123 "Accounting for Stock-Based
Compensation." If the Company had followed SFAS No. 123 rather than APB 25, net
income and earnings per share would not have been materially different than the
reported amounts for 1997.
34
<PAGE> 36
10. RESTRICTED STOCK COMPENSATION
In 1996, the CEO and CFO purchased 250,000 shares of restricted Common
Stock for nominal value. The restrictions were originally scheduled to lapse
upon the earlier to occur of five years from the date of purchase or upon the
successful completion of an initial public offering of the Company's Common
Stock or a change in control of the Company, as long as the individuals holding
the stock were the CEO and CFO on the date the restrictions lapsed. As part of
the negotiations involving these officers' employment agreements during the
first quarter of 1997, the Company's Board of Directors removed all restrictions
on the stock as of March 31, 1997, and all of the restricted shares became fully
vested. In connection with this vesting, the Company recognized non-recurring,
non-cash compensation expense of approximately $1,210,000, which was charged to
operations with an offsetting credit to additional paid-in capital in the first
quarter of 1997. The compensation charge of approximately $1,210,000 represented
the difference between the value of the stock issued and the amount paid by the
officers, measured by an independent appraisal as of the date the individuals
were appointed to be the CEO and CFO.
11. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share, which is effective for periods ending after
December 15, 1997. The standard requires the presentation of basic earnings per
share ("EPS") and diluted EPS. Basic EPS replaces the primary EPS calculation
required under APB Opinion No. 15. Basic EPS excludes dilution and is calculated
using the weighted average number of common shares outstanding for the period.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion
No. 15. The share amounts used to calculate 1997, 1996 and 1995 earnings per
share amounts are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Basic common shares (weighted average) 1,596,350 1,596,350 5,904,484
Dilutive stock options -- -- 25,764
--------- --------- ---------
Dilutive common shares 1,596,350 1,596,350 5,930,248
========= ========= =========
</TABLE>
The weighted average number of common shares outstanding in 1996 and
1995 is the number of shares issued by the Company on January 2, 1997, in
exchange for all the issued and outstanding capital stock of TCH.
There are no adjustments to the reported amounts of net income for
purposes of computing diluted EPS.
12. COMMITMENTS AND CONTINGENCIES
Employment Contracts. During the first quarter of 1997, the Company
entered into three-year employment contracts with three officers requiring
minimum base salaries aggregating $450,000 per year. The contracts also provide
severance benefits of up to the longer of 12 months pay or the remaining
contract term for two of the officers.
35
<PAGE> 37
Lease Commitments. The Company leases administrative offices,
accommodations and furniture at several locations through August 31, 2003. Rent
expense for the years ended December 31, 1997 and 1996 was $30,941,000 and
$6,998,000, respectively. Minimum future rental payments on non-cancelable
leases at December 31, 1997, are as follows:
OPERATING LEASES
----------------
1998 $1,566,790
1999 1,579,845
2000 923,636
2001 541,547
2002 238,374
Thereafter 255,177
----------
Total $5,105,369
==========
Litigation. The Company is party to litigation in the ordinary course
of business. The Company does not anticipate an unfavorable result in any such
litigation or believe that an unfavorable result, if it occurred, would have a
material adverse effect on its business, financial condition or results of
operations.
13. STOCKHOLDERS' EQUITY
The 1996 stockholders' equity for TCH includes the following common
stock accounts (no par value for all classes of stock):
<TABLE>
<CAPTION>
Outstanding
Shares Amount
----------- -------
<S> <C> <C>
Temporary Corporate Housing Columbus, Inc. -
Class A Common Stock -
Voting Common Stock authorized - 500 shares .............. 500 $25,000
Class B Common Stock -
Nonvoting Common Stock authorized - 500 shares ........... 56 --
Temporary Corporate Housing Cleveland, Inc. -
Voting Common Stock authorized - 500 shares .............. 500 500
Temporary Corporate Housing Cincinnati, Inc. -
Voting Common Stock authorized - 500 shares .............. 500 5,000
Temporary Corporate Housing Pittsburgh, Inc. -
Voting Common Stock authorized - 500 shares .............. 500 500
----- -------
2,056 $31,000
===== =======
</TABLE>
Treasury stock in the accompanying consolidated balance sheet
represents 40 shares of TCH Class B Common Stock purchased for $4,185.
36
<PAGE> 38
14. ACCRUED EXPENSES, OTHER
Accrued expenses, other includes the following at December 31, 1997 and
1996:
1996 1997
-------- ----------
Accrued sales and use tax $200,000 $ 470,000
Accrued maintenance 78,000 380,000
Accrued legal and accounting -- 125,000
Accrued other 64,000 498,000
-------- ----------
Total $342,000 $1,473,000
======== ==========
15. SELECTED QUARTERLY DATA
The following is a summary of unaudited quarterly results for years
ended December 31, 1997 and 1996. (Amounts in thousands, except per share
amounts.)
Three Months Ended 1997
---------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Total revenue $ 9,065 $12,479 $15,371 $13,835
Operating income (1,203) 1,095 1,371 164
Net income (loss) (1,190) 613 800 231
Earnings per share -
Basic and dilutive $ (0.24) $ 0.11 $ 0.15 $ 0.03
Results for the first quarter of 1997 include $1.2 million of
non-recurring, non-cash compensation expense relating to the accelerated vesting
of restricted stock held by executive officers. The non-deductible charge
reduced earnings in the first quarter and for the year ended December 31, 1997,
by $0.24 and $0.20 per share, respectively.
16. SUBSEQUENT EVENTS
During the first quarter of 1998, the Company increased its revolving
credit agreement from $10.0 million to $25.0 million. The revolving credit
agreement, secured by the capital stock of the Company's operating
subsidiaries, extends to March 31, 2002. Interest is payable, at the option of
the borrower, at the prime rate, or 1.5% above the Eurodollar or LIBOR rates. A
commitment fee is payable on the average unused credit at a rate of 0.20%. The
revolving credit agreement contains certain restrictive covenants with which
the Company must comply.
Subsequent to December 31, 1997, the Company has acquired six
companies. The acquisitions have been accounted for using the purchase method of
accounting. The total cost of these acquisitions was approximately $14.6
million, consisting of cash and notes of $10.4 million and $4.2 million in
stock. The preliminary purchase price allocation of these acquisitions resulted
in goodwill of approximately $15.0 million that will be amortized over 35 years.
Details regarding these acquisitions are noted below.
On January 2, 1998, the Company acquired the assets of Home on the
Road, Inc. of Charlotte, a North Carolina flexible accommodation company
servicing Charlotte and surrounding cities. The purchase consideration consisted
of cash and a promissory note.
On January 2, 1998, the Company acquired all the outstanding stock of
Home on the Road-Raleigh, a North Carolina flexible accommodation company
servicing several markets including Raleigh, Durham, Research Triangle Park,
Winston-Salem and Greensboro. The purchase consideration consisted of the
issuance of approximately 75,000 shares of Common Stock.
37
<PAGE> 39
On January 2, 1998, the Company acquired for cash certain assets of
Accommodations by Apple-Denver and Accommodations by Apple-Austin, two flexible
accommodation companies servicing several markets in the Denver metropolitan
area including Colorado Springs, Boulder and Fort Collins, and in the Austin,
Texas metropolitan area. The purchase consideration of the two acquisitions was
cash and notes.
On February 19, 1998, the Company acquired all the issued and
outstanding stock of London Life Apartments Limited, a flexible accommodation
company servicing London, England. The purchase consideration of the acquisition
consisted of cash and the issuance of approximately 165,000 shares of Common
Stock.
On March 2, 1998, the Company acquired all the issued and outstanding
stock of Global Travel Apartments, Inc. ("GTA"), one of Canada's largest
providers of flexible accommodation services. GTA services the Toronto,
Montreal, Ottawa, Edmonton, Regina, Vancouver and Victoria markets. The
purchase consideration of the acquisition consisted of cash and the issuance of
approximately 140,000 shares of the stock of a Canadian subsidiary that is
exchangeable for an equal numbers of shares of Common Stock.
38
<PAGE> 40
SCHEDULE II
BRIDGESTREET ACCOMMODATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Provision Accounts Balance
Beginning Charged to Accounts Written at End
of Year Expense Recovered Off of Year
---------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for Doubtful Accounts $45,000 $121,762 $ -- $ -- $166,762
Year Ended December 31, 1996
Allowance for Doubtful Accounts $ -- $ 45,000 $ -- $ -- $ 45,000
Year Ended December 31, 1995
Allowance for Doubtful Accounts $ -- $ -- $ -- $ -- $ --
Year Ended December 31, 1994
Allowance for Doubtful Accounts $ -- $ -- $ -- $ -- $ --
</TABLE>
Note: The amounts for the periods ended on or before December 31, 1996,
are the historical combined financial statements of TCH.
39
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C>
*3.1 Certificate of Incorporation of the Company.......................................
*3.2 By-laws of the Company............................................................
*4 Form of Specimen Stock Certificate................................................
*10.1 Agreement and Plan of Merger dated as of December 30, 1996 by and among
BridgeStreet International Inc., EIP Acquisition Corp., Exclusive Interim
Properties, Ltd. and Melanie R. Sabelhaus.........................................
*10.2 Agreement and Plan of Merger dated as of December 30, 1996 by and among
BridgeStreet International Inc., THEI Acquisition Corp., Temporary Housing
Experts, Inc., Connie F. O'Briant and Thomas W. O'Briant..........................
*10.3 Agreement and Plan of Merger dated as of December 30, 1996 by and among
BridgeStreet International Inc., TCHI Acquisition Corp., Temporary
Corporate Housing Columbus, Inc., Temporary Corporate Housing
Cleveland, Inc., Temporary Corporate Housing Cincinnati, Inc., Temporary
Corporate Housing Pittsburgh, Inc., SLD Partnership, Lynda Clutchey, David
Clutchey III, Beth Holzer and David Holzer........................................
*10.4 Agreement and Plan of Merger dated as of December 30, 1996 by and among
BridgeStreet International Inc., CL Acquisition Corp., Corporate Lodgings,
Inc., Corporate Lodgings of Kentucky, Inc., Corporate Lodgings of
Minnesota, Inc., Corporate Lodgings of Pennsylvania, Inc., Corporate
Lodgings of Wisconsin, Inc. and Rocco A. DiLillo..................................
*10.5 Agreement and Plan of Merger dated as of March 31, 1997 by and among
BridgeStreet International Inc., HAI Acquisition Corp., Home Again, Inc.,
Home Again Amenities, Inc., Home Again Corporate Housing, Inc. and
Sandra A. Brown...................................................................
10.6 Purchase Agreement dated February 19, 1998 among BridgeStreet
Accommodations, Inc. and London Life Apartments Limited (Incorporated by
reference to the Company's Current Report on Form 8-K dated March 4,
1998).............................................................................
*10.7 1997 Equity Incentive Plan........................................................
*10.8 Stock Plan for Non-Employee Directors.............................................
*10.9 Employment Agreement dated December 30, 1996, between CL Acquisition
Corp. and Rocco A. DiLillo........................................................
*10.10 Employment Agreement dated December 30, 1996, between EIP Acquisition
Corp. and Melanie R. Sabelhaus....................................................
*10.11 Employment Agreement dated December 30, 1996 between THEI Acquisition
Corp. and Connie F. O'Briant......................................................
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C>
*10.12 Employment Agreement dated December 30, 1996, between TCHI
Acquisition Corp. and Lynda Clutchey..............................................
*10.13 Employment Agreement dated as of January 2, 1997, between BridgeStreet
International Inc. and Mark D. Gagne..............................................
*10.14 Employment Agreement dated as of March 31, 1997, between BridgeStreet
International Inc. and William N. Hulett, III.....................................
*10.15 Revolving Credit Agreement dated as of March 31, 1997 between
BridgeStreet International Inc., as Borrower, and Fleet National Bank and the
Other Lending Institutions listed on Schedule 1 thereto and Fleet National
Bank as Agent.....................................................................
*10.16 Revolving Credit Note for the principal balance of $10,000,000, dated
March 31, 1997....................................................................
*10.17 Rental Agreement between Saturn Enterprises Inc. and Temporary Corporate
Housing Inc. dated December 28, 1995..............................................
*10.18 Exclusive Lease Agreement between Integrity Furniture, Inc. and Temporary
Corporate Housing Pittsburgh, Inc. dated September 12, 1995.......................
10.19 Stock Purchase Agreement dated as of March 2, 1998 by and among
BridgeStreet Accommodations, Inc., BridgeStreet Canada, Inc., Global
Hospitality, Inc., Thomas Vincent and the Vincent Family Trust
(Incorporated by reference to the Company's Current Report on Form 8-K
dated March 17, 1998).............................................................
+10.20 Amendment Nos. 1 and 2 to Revolving Credit Agreement..............................
+21 Subsidiaries of the Registrant....................................................
+23 Consent of Arthur Andersen LLP....................................................
+27 Financial Data Schedule...........................................................
</TABLE>
- ----------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-26647).
+ Filed herewith.
41
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT AGREEMENT is entered into as of this 5th day of May,
1997, by and between BridgeStreet International Inc., a Delaware corporation
("Borrower"), and Fleet National Bank, a national banking association (the
"Bank").
W I T N E S S E T H:
WHEREAS, Borrower previously entered into a Revolving Credit Agreement with
the Bank, dated as of March 31, 1997 (the "Credit Agreement"), pursuant to the
terms of which the Bank has made available to the Borrower a revolving line of
credit of up to $10,000,000, and
WHEREAS, the Borrower has requested that the Bank modify a certain covenant
contained in the Credit Agreement; and
WHEREAS, the Bank has agreed to modify such covenant upon the terms and
conditions hereof, and in reliance on the covenants, representations and
warranties contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Bank hereby
agree as follows:
I. AMENDMENT TO CREDIT AGREEMENT
1. The Credit Agreement is hereby amended by deleting Section 9.2 thereof
in its entirety and replacing it with the following:
"9.2 PROFITABLE OPERATIONS. The Borrower will not permit Consolidated
Net Income for any fiscal quarter to be less than $1.00; provided,
that Consolidated Net Income for the first quarter in fiscal year 1997
may be less than $1.00 due to the incurrence by Borrower of a charge
to earnings for non-cash compensation in an amount not to exceed
$600,000 (the "First Quarter Charge"); provided, further that the
Borrower's Consolidated Net Income for the first quarter of fiscal
year 1997 would have been $1.00 or more without giving effect to such
First Quarter Charge."
2. Each of the Note and Security Documents is hereby amended such that all
references to the Credit Agreement in any of the Note or Security Documents
shall be deemed to refer to the Credit Agreement as amended hereby.
<PAGE> 2
II. REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to
the Bank in connection herewith, upon which the Bank has relied:
A. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the representations and
warranties made by or on behalf of the Borrower to the Bank in any of the Loan
Documents, as amended by and through this Agreement, was true and correct when
made and is true and correct on and as of the date hereof (except for
representations and warranties limited as to time or with respect to a specific
event, which representations and warranties shall continue to be limited as to
such time or event), with the same full force and effect as if each of such
representations and warranties had been made by the Borrower on the date hereof
and in this Agreement.
B. EVENTS OF DEFAULT. No Event of Default exists on the date hereof (after
giving effect to all of the arrangements and transactions contemplated by this
Agreement). No condition exists on the date hereof which would, with notice or
the lapse of time, or both, constitute an Event of Default.
C. BINDING EFFECT OF DOCUMENTS. This Agreement has been duly executed and
delivered to the Bank by the Borrower and is in full force and effect as of the
date hereof and constitutes the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with the terms hereof.
III. PROVISIONS OF GENERAL APPLICATION
A. NO OTHER CHANGES. Except as otherwise expressly provided by this
Agreement, all of the terms, conditions and provisions of the Credit Agreement
and each of the other Loan Documents remain unaltered, valid, binding and in
full force and effect in the form existing immediately prior to the execution
and delivery of this Agreement.
B. GOVERNING LAW. This Agreement is intended to take effect as a sealed
instrument and shall be deemed to be a contract under the internal laws of the
Commonwealth of Massachusetts.
C. BINDING EFFECT; ASSIGMENT. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
D. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute one agreement.
E. RATIFICATION AND CONFIRMATION. Except as otherwise expressly amended and
modified and supplemented herein, the Loan Documents are hereby ratified and
confirmed in all respects.
-2-
<PAGE> 3
F. CAPITALIZED TERMS. All capitalized terms used herein but not otherwise
defined herein shall have the meanings ascribed to them in the Credit Agreement.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this First
Amendment to Credit Agreement to be executed as a sealed instruments by the duly
authorized officers as of the date first above written.
BRIDGESTREET INTERNATIONAL INC.
By: /s/ Mark D. Gagne, CFO and Treasurer
------------------------------------------
Its: Chief Financial Officer and Treasurer
FLEET NATIONAL BANK
By: /s/ Mary M. Barcus
----------------------
Name: Mary M. Barcus
Its: Vice President
4442071.WP6
-3-
<PAGE> 4
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
This Second Amendment Agreement (the "Amendment") is entered into as of the
20th day of March, 1998, by and between BridgeStreet Accommodations, Inc., a
Delaware corporation (the "Borrower"), having its principal place of business at
30670 Bainbridge Rd., Solon, OH 44139, Fleet National Bank, a national banking
association ("Fleet") having an office for the transaction of business at One
Federal Street, Boston, MA 02110 and Bank One, N.A., a national banking
association, having an office for the transaction of business at 50 South Main
Street, Akron, OH 44309 ("Bank One" and collectively with Fleet the "Banks").
W I T N E S S E T H
WHEREAS, the Borrower and Fleet have previously entered into a Revolving
Credit Agreement dated as of March 31, 1997 and amended by a First Amendment to
Revolving Credit Agreement dated as of May 5, 1997 (the "Credit Agreement"),
pursuant to the terms of which Fleet has made available to the Borrower a
revolving credit facility of up to ten million and 00/100 dollars ($10,000,000)
(the "Loan"); and
WHEREAS, Bank One was added as a party to the Credit Agreement by executing
an Assignment and Acceptance Agreement dated as of July 9, 1997, pursuant to
which Fleet Assigned a $5,000,000 interest in the Loan to Bank One representing
at the time 50% of the outstanding Loan; and
WHEREAS, the Loan is further evidenced by two Revolving Credit Notes dated
July 16, 1997, each in the face amount of five million and 00/100 ($5,000,000),
each made by the Borrower, one in favor of Fleet and one in favor of Bank One;
and
WHEREAS, the Borrower has requested that the Banks, among other things,
increase the amount of the Loan to twenty-five million and 00/100 dollars
($25,000,000) and amend the Credit Agreement as hereinafter provided; and
WHEREAS, the Banks have agreed to the requested increase to the Loan and to
the apportionment of the Loan as between them to be twenty million and 00/100
dollars ($20,000,000) to Fleet and five million and 00/100 dollars ($5,000,000)
to Bank One and to the other amendments to the Credit Agreement as hereinafter
provided.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Banks hereby
agree as follows:
I. AMENDMENT TO CREDIT AGREEMENT
A. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit
<PAGE> 5
Agreement shall be amended to change the name of the Borrower from "Bridge
Street International Inc." to "Bridge Street Accommodations, Inc."
B. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete the definition of "Total
Commitment" on page 2 of the Credit Agreement and replace such definition with
the following:
"'TOTAL COMMITMENT'. The sum of the Commitments of the Banks, as in
effect from time to time. The Total Commitment initially is
$25,000,000."
C. Notwithstanding anything contained in the Credit Agreement to the
contrary from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete the reference to ".375% per
annum" in the third line of Section 2.2 on page 11 and to replace such reference
with ".2% per annum."
D. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete the reference to "(1.25%)" in
Section 2.5(b) on page 13 of the Credit Agreement and to replace such
reference with "(1.5%)".
E. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete the term "Consolidated Total
Tangible Net Worth" wherever used and to replace such term with "Consolidated
Total Net Worth".
F. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete Section 9.1 at page 38 of the
Credit Agreement in its entirety and to replace such section with the following;
"9.1. CONSOLIDATED TOTAL NET WORTH. The Borrower will maintain, at all
times, Consolidated Total Net Worth in an amount equal to at least:
(a) $34,500,000, as of December 31, 1997 and thereafter not less than
$34,500,000 PLUS
(b) fifty percent (50%) of Consolidated Net Income for each
successive fiscal quarter. No reduction shall be given in
calculating the Minimum Consolidated Total Tangible Net Worth for
any Consolidated Net Deficit"
G. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete Section 9.2 at page 39 of the
Credit Agreement in its entirety and to replace such section with the
following:
<PAGE> 6
"9.2. PROFITABLE OPERATIONS. The Borrower will not permit Consolidated Net
Income for any 2 consecutive fiscal quarters to be less than one dollar
($1.00)."
H. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete Section 9.3 at page 39 of the
Credit Agreement in its entirety and to replace such section with the
following:
"9.3. LEVERAGE RATIO. The Borrower will not permit, as at the last day of
each fiscal quarter the Leverage Ratio to exceed 3.00:1.00."
I. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete Section 9.4 at page 39 of the
Credit Agreement in its entirety and to replace such section with the following;
"9.4. MINIMUM CONSOLIDATED EBITDA. The Borrower will maintain, as at the
last day of any fiscal quarter, Consolidated EBITDA in an amount at least
equal to the greater of (a) $2,400,000, or (b) ninety percent (90%) of
consolidated EBITDA for the immediately preceding fiscal quarter, all as
determined for the four consecutive fiscal quarters of the Borrower ended
on such date."
J. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall he amended to insert Section 9.5 immediately
following Section 9.4 at page 39 reading as follows:
"9.5 MINIMUM RENTAL OCCUPANCY". Borrower will maintain minimum rental
occupancy rates as follows; 1) as of the last day of the first calendar quarter
of 1998, the number of rental units for which the Company has executed lease
agreements with subtenants shall be equal to or greater than eighty percent
(80%) of the total number of rental units for which the Company is then
committed to pay rent; 2) as of the last day of each subsequent calendar quarter
through March 31, 1999, the number of rental units for which the Company has
executed lease agreements with Subtenants shall be greater than or equal to
eighty five percent (85%) of the total number of units for which the Company is
then committed to pay rent; and 3) as of the last day of each calendar quarter
thereafter through the Revolving Credit Loan Maturity Date the total number of
rental units for which the Borrower has executed rental agreements with
subtenants shall be greater than or equal to ninety percent (90%) of the total
number of units for which the Borrower is then committed to pay rent.
K. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete SCHEDULE I in its entirety and
to replace such schedule with SCHEDULE I hereto.
<PAGE> 7
L. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete Subsection 8.5.1(b)(iii) at page
36 of the Credit Agreement in its entirety and to replace such subsection
with the following:
"(iii) all of the assets material to the operation of the business of
the Person, being acquired or all or substantially all of the assets
being acquired and material to the operation of the business of the
Borrower shall be located in either North America or Europe;"
M. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to remove the form of Revolving Credit
Note delivered to Fleet from EXHIBIT A thereto and replace such form of Note
with the form of Amended and Restated Revolving Credit Note delivered by the
Borrower to Fleet in connection with this Amendment.
N. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended by inserting a new subsection 8.5.1(b)(ix)
at page 36 of the Credit Agreement immediately following subsection
8.5.1(b)(viii) at page 36 of the Credit Agreement reading as follows:
"(ix) The proposed transaction will require a cash expenditure by the
Borrower of no more than $10,000,000."
O. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to delete Section 8.5.2 at page 36 of the
Credit Agreement in its entirety and to replace such section with the
following:
"8.5.2. DISPOSITION OF ASSETS. Except as provided in SCHEDULE 8.5.2,
the Borrower will not, and will not permit its Subsidiaries to become
a party to or agree to or effect any disposition of assets, other than
the disposition of assets in the ordinary course of business,
consistent with past practices."
P. Notwithstanding anything contained in the Credit Agreement to the
contrary, from the date hereof through the Revolving Credit Loan Maturity Date,
the Credit Agreement shall be amended to insert SCHEDULE 8.5.2 hereto as
SCHEDULE 8.5.2.
II. ADDITIONAL AGREEMENTS
A. AGENT'S FEE. The Borrower shall pay to Fleet an Annual Agent's Fee
equal to $5,000, payable upon execution of this Amendment, and on March 31
every year thereafter.
<PAGE> 8
B. FIRST AMENDED AND RESTATED REVOLVING CREDIT NOTE. The Borrower shall
have executed a First Amended and Restated Revolving Credit Note dated as of
even date herewith in the face amount of $20,000,000 in favor of Fleet, which
First Amended and Restated Revolving Credit Note shall amend and restate the
Revolving Credit Note dated as of July 16, 1997, made by the Borrower, as maker,
in favor of Fleet as holder.
C. RETURN OF ORIGINAL NOTES. Fleet shall promptly, after execution and
delivery by the Borrower of the First Amended and Restated Revolving Credit
Note, return the Original Note to the Borrower at its principal place of
business.
III. REPRESENTATIONS AND WARRANTIES
The Borrower hereby make the following representations and warranties to
the Bank in connection herewith, upon which the Banks have relied:
A. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the representations and
warranties made by or on behalf of the Borrower to the Banks in any of the Loan
Documents, was true and correct in all material respects when made and is true
and correct in all material respects on and as of the date hereof (except for
representations and warranties limited as to time or with respect to a specific
event, which representations and warranties shall continue to be limited as to
such time or event) with the same full force and effect as if each of such
representation and warranties have been made by the Borrower on the date hereof
and in this Amendment.
B. EVENTS OF DEFAULT. No Event of Default exists on the date hereof
(after giving effect to all of the arrangements and transactions contemplated
by this Agreement). No condition exists on the date hereof which would, with
notice or the lapse of time, or both, constitute an Event of Default.
C. BINDING EFFECT OF DOCUMENTS.
1. This Amendment has been duly executed and delivered to the Banks by
the Borrower and is in full force and effect as of the date hereof, and this
Amendment constitutes the legal, valid and binding obligation of Borrower,
enforceable against the Borrower in accordance with its terms.
2. The obligations of the Borrower to repay to the Banks all of the
unpaid principal of each of the Revolving Credit Loans made pursuant to the
Credit Agreement, as amended hereby, to pay to the Banks all of the unpaid
interest accrued or to accrue thereon, and to Pay to the Banks all of the other
obligations of the Borrower is and will continue to be entitled to all of the
benefits and to all of the security created by the Loan Documents.
<PAGE> 9
IV. PROVISIONS OF GENERAL APPLICATION
A. EXPENSES. Borrower shall pay to the Banks upon execution of this
Amendment, amounts sufficient to cover the Banks expenses, including its
reasonable attorneys' fees, in connection with this Amendment.
B. NO OTHER CHANGES. Except as otherwise expressly provided by this
Amendment all of the terms, conditions and provisions of the Credit Agreement,
and each of the other Bank Agreements remain unaltered, valid, binding and in
full force and effect in the form existing immediately prior to the execution
and delivery of this Amendment. Except as otherwise expressly provided by this
Agreement, nothing herein is intended or shall be construed so as to limit,
discharge, release, diminish or otherwise modify any indebtedness, obligations,
liabilities or duties of Borrower.
C. GOVERNING LAW. This Amendment and the rights and obligations of each
of the parties hereto shall be governed by and interpreted and determined in
accordance with the internal laws of the Commonwealth of Massachusetts.
D. BINDING EFFECT; ASSIGNMENT. This Amendment shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
E. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute one agreement.
F. RATIFICATION. Except as otherwise expressly amended and modified and
supplemented herein, the Loan Documents are hereby ratified and confirmed in all
respects.
G. DEFINITIONS. All capitalized terms used herein but not defined herein
shall have the meanings ascribed to such terms in the Credit Agreement.
<PAGE> 10
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, each of the undersigned have executed this Second
Amendment by a duly authorized representative as of the 19th day of March
1998.
BORROWER:
BRIDGESTREET ACCOMMODATIONS, INC.
By: /s/ Mark D. Gagne, CFO & Treasurer
-----------------------------------------
Name: Mark D. Gagne
Title: CFO & Treasurer
BANKS:
FLEET NATIONAL BANK,
Individually and as Agent
By: /s/ Susan Mason
-----------------------------------------
Name: Susan Mason
Title: Vice President
BANK ONE, N.A.
By: /s/ Richard C. France, Jr.
-----------------------------------------
Name: Richard C. France, Jr.
Title:
<PAGE> 11
SCHEDULE I
Name and Address of Bank Commitment Amount Commitment %
- ------------------------ ----------------- ------------
1. Fleet National Bank $20,000,000 80%
One Federal Street
Boston, MA 02110
2. Bank One $ 5,000,000 20%
50 South Main Street
Akron, OH 44309
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction
of Trade
Name Organization Names
- ---- ------------ -----
<S> <C> <C>
BridgeStreet Accommodations Limited UK None
BridgeStreet Arizona, Inc. DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
BridgeStreet Colorado, Inc DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
BridgeStreet International Accommodations Limited UK None
BridgeStreet International Suites Limited UK None
BridgeStreet Nevada, Inc. DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
BridgeStreet North Carolina, Inc. DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
BridgeStreet Texas, L.P. DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
Corporate Lodgings, Inc. DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
Exclusive Interim Properties, Ltd. DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
HAI Acquisition Corp. DE Home Again
BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
Temporary Corporate Housing, Inc. DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
Temporary Housing Experts, Inc. DE BridgeStreet Accommodations
BridgeStreet International Suites
BridgeStreet International Accommodations
BridgeStreet Canada, Inc. Ontario None
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
BridgeStreet Accommodations, Inc.
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement (No. 333-37697) on Form S-8.
/s/ Arthur Andersen LLP
- ---------------------------
Cleveland, Ohio,
March 30, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001038078
<NAME> BRIDGESTREET ACCOMODATIONS, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,922,215
<SECURITIES> 0
<RECEIVABLES> 2,217,930
<ALLOWANCES> 167,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,455,865
<PP&E> 3,075,766
<DEPRECIATION> 540,670
<TOTAL-ASSETS> 42,562,952
<CURRENT-LIABILITIES> 4,283,472
<BONDS> 25,803
0
0
<COMMON> 77,893
<OTHER-SE> 37,500,304
<TOTAL-LIABILITY-AND-EQUITY> 42,562,952
<SALES> 50,750,352
<TOTAL-REVENUES> 50,750,352
<CGS> 37,736,902
<TOTAL-COSTS> 37,736,902
<OTHER-EXPENSES> 11,586,450<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120,065
<INCOME-PRETAX> 1,825,437
<INCOME-TAX> 1,371,346
<INCOME-CONTINUING> 454,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454,091
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
<FN>
<F1>Other Expenses include $1,210,261 of Non-Recurring, Non-Cash, Compensation
Expense relating to the Accelerated Vesting of Restricted Stock held by
Executive Officers. The Compensation Charge represents the difference between
the value of stock issued to Officers and the amount paid.
</FN>
</TABLE>
