<PAGE> 1
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, 1998 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
BridgeStreet Accommodations, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DE 04-332773
--------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
30670 BAINBRIDGE ROAD, SOLON, OH 44139
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, (440) 248-3005
including area code) Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, $.01 par value per share American Stock Exchange
- -------------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act:
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.
As of March 17, 1999, 8,005,007 shares of common stock were outstanding, of
which 6,181,816 shares were held of record by non-affiliates. The aggregate
market value of shares held by non-affiliates was approximately $20,100,000
based on the closing price per share of such common stock on such date as
reported by the American Stock Exchange.
Documents Incorporated by Reference
Portions of BridgeStreet Accommodations, Inc.'s definitive Proxy
Statement for its annual meeting of stockholders, which BridgeStreet intends to
file within 120 days after the end of its fiscal year ended December 31, 1998,
are incorporated by reference into Part III hereof as provided therein.
1
<PAGE> 2
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,
Southwest and Western 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 1997 and 1998 ten additional providers.
GROWTH STRATEGY
The Company plans to achieve its goal of becoming a leading national
provider of flexible accommodation services by implementing an 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:
2
<PAGE> 3
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 selectively acquiring flexible accommodation service
companies in 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:
- Enter New Geographic Markets and Establish Nationwide
Coverage. In selected new markets, 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; London, England;
and Santa Clara, California.
- 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.
Growth Through Network Partner Relationships. The Company has developed a
Network Partner relationship with flexible accommodation service providers in
the United States and in 22 countries worldwide. Through Network Partner
agreements, the Company has expanded the number of locations where it can better
serve its clients needs. In certain markets, the Company intends to enter into
Network Partner agreements with a local or regional flexible accommodation
service providers having the size and quality of operations suitable for serving
the Company's client base. Network Partner agreements 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) direct sales from the local network partner to BridgeStreet's
national network, (iv) establish the BridgeStreet brand name in new regions and
enhance its nationwide recognition and (v) earn referral fee income for
providing reservation agent services.
The Company contracts with a Network Partner to provide flexible accommodations
to BridgeStreet clients in the cities served by the Network Partner. The Company
utilizes its Central Reservation Center to book reservations into cities served
by a Network Partner. Network Partner agreements expand the Company's
geographical presence without the investment required for an acquisition or,
start-up costs of a new operation. The Company believes that increasing the
number of cities served through Network Partner agreements is a cost-effective
approach to achieving incremental revenue growth from existing clients.
3
<PAGE> 4
National Operating Strategy. The Company has begun to implement a national
operating strategy with the following components:
- 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 2000 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.
- 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.
- 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 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.
- Implement Management Information System. BridgeStreet is
developing and implementing 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 and
Network Partner targets in major metropolitan areas not currently served by the
Company. The Company has implemented an acquisition and expansion program aimed
primarily at metropolitan markets not currently served by the Company, and also
at acquiring selected 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 or as a Network Partner, one or more leading local or
regional flexible accommodation service providers. Generally, these companies
will be run by successful entrepreneurs 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 and Network Partner candidates will be
expected to demonstrate potential for increased revenues and profitability. The
Company also will evaluate certain qualitative characteristics of acquisition
and Network Partner 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.
4
<PAGE> 5
In selected 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.
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 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.
5
<PAGE> 6
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 communications), such as literature on local golf
courses or other forms of entertainment. The Company typically 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's diverse customer base centers on Fortune 2000 corporations,
professional firms and travel-wise individuals. In 1998 Andersen Consulting
accounted for approximately 11.4%, or $11 million, of the Company's consolidated
revenues. No client accounted for more than 5% of the Company's 1997 revenues.
6
<PAGE> 7
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 nationwide 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 and the
Internet, and through periodic direct mail campaigns.
INTERNET STRATEGY
The Internet has emerged during the past two years as a worldwide medium
for electronic commerce. The Company expanded its Internet site in 1998 to
include: a complete listing of all cities served, expanded list of services and
amenities provided, virtual tours of actual apartment accommodations, the
capability to book reservations on-line and to obtain feedback from visitors to
its web site. In 1999 the Company will invest to improve its current Internet
presence and utilize the Internet to supplement traditional marketing strategies
and to better serve its customers.
LEASING ARRANGEMENTS
BridgeStreet leases substantially all of its accommodations through
flexible, short-term leasing arrangements in order to match its supply of
accommodations with client demand. 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, 1998, 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.
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.
7
<PAGE> 8
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 1998 (including costs of
accommodations, furnishings, utilities and housekeeping) was approximately $43,
while its average daily rental rate charged to clients during the same period
was approximately $65.
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,
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 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.
8
<PAGE> 9
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.
EMPLOYEES
As of December 31, 1998 the Company had approximately 450 employees. The
Company's employees are not subject to any collective bargaining agreements, and
management believes that its relationship with its employees is good.
ITEM 2. PROPERTIES
The Company plans to relocate its corporate headquarters to Twinsburg, Ohio
in April, 1999 pursuant to a lease that expires in May 2009. The Company has the
option to extend the lease for one additional five-year period following
expiration. The Company can terminate the lease, any time after five years, with
a termination fee equal to the unamortized cost of build out improvements and
commissions. 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.
ACCOMMODATIONS
The Company leases all of its accommodations (with the exception of 19
condominium units which are owned). The Company has no plans to purchase or own
any additional properties. The Company's accommodations include one-, two- and
three-bedroom apartments, condominiums, townhouses, and, to a lesser extent,
houses. As of December 31, 1998, the Company had approximately 4,100
accommodations under lease, with approximately 90% of such leases being for one
year or less. The terms of the Company's leases generally range from one to 18
months.
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(a). 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, 1998.
9
<PAGE> 10
ITEM 4(b). EXECUTIVE OFFICERS OF THE REGISTRANT
John E. Danneberg, age 52, has been President, Chief Executive Officer and
a director of the Company since June 1998. He also is Chief Executive Officer
and sole director of each of the Company's wholly-owned subsidiaries. From 1996
to 1997, Mr. Danneberg was Chief Executive Officer of Sonitrol Security, a
division of ADT Security Services, Inc. From 1988 to 1995 Mr. Danneberg was
owner and Chief Executive Officer of Foliage Plant Systems, a large commercial
plant sales and services company. From 1981 to 1988, Mr. Danneberg was President
of the security division of Hawley Group Limited, predecessor of ADT. Prior to
1981, Mr. Danneberg held various management positions with several companies.
Mark D. Gagne, CPA, age 38, 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.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) PRICE RANGE OF COMMON STOCK
Since November 1998, the Common Stock has been quoted on The American Stock
Exchange under the symbol "BDS." Previously, from September 1997 until November
1998, the Common Stock was 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 American Stock Exchange
or the Nasdaq National Market as the case may be.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1997
----
Third Quarter .................. $ 12 5/8 $10 3/4
Fourth Quarter .................. $ 14 1/8 $ 9 5/8
1998
----
First Quarter .................. $ 13 $10
Second Quarter .................. $ 11 5/8 $ 3 11/16
Third Quarter .................. $ 5 1/16 $ 2 9/16
Fourth Quarter .................. $ 3 3/4 $ 2 3/8
</TABLE>
As of March 17, 1999, there were 83 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.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
See below.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company") was
incorporated in August 1996 with the goal of becoming a leading national
provider of flexible accommodation services. The Company has implemented an
acquisition program and a national operating strategy designed to increase
internal revenue growth, cost efficiencies and profitability. In the first
quarter of 1997, BridgeStreet commenced its operations by acquiring, in separate
merger transactions (the "Combination"), five flexible accommodation service
providers (the "Founding Companies"). Since the Combination of the Founding
Companies, the Company has acquired (by merger with or purchase of substantially
all assets) ten additional flexible accommodation service providers, three in
1997 and seven in 1998.
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. As of
December 31, 1998, the Company had approximately 4,100 accommodations under
lease compared to 3,000 and 625 accommodations under lease at December 31, 1997
and 1996, respectively. During 1998, the Company operated at an occupancy rate
of approximately 89% compared to 89% and 86% in 1997 and 1996, respectively.
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 consolidated financial statements, in
the first quarter of 1997, the Company merged with five flexible accommodation
operating companies in stock for stock tax-free mergers. The mergers were
accounted for using the purchase method of accounting with Temporary Corporate
Housing Columbus, Inc. ("TCH") designated as the accounting acquirer and the
other operating 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.
For financial reporting purposes, TCH is presented as the accounting
acquirer of the other Founding Companies. Consequently, the Company's historical
financial statements for periods ended on or before December 31, 1996, are the
historical financial statements of TCH.
12
<PAGE> 13
RESULTS OF OPERATIONS
BridgeStreet's Consolidated Statement of Operations for the year ended December
31, 1998 includes a full year of operating results of TCH, Corporate Lodgings,
Inc. ("CLI"), Exclusive Interim Properties, Ltd. ("EIP"), Temporary Housing
Experts, Inc. ("THEI"), HAI Acquisition Corp. ("HAI"), BridgeStreet Texas, L.P.
and BridgeStreet Arizona, Inc. The operating results for the year ended December
31, 1998 also include the operating results 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: BridgeStreet North Carolina, Inc. (January 2,
1998); BridgeStreet Raleigh, Inc. (January 2, 1998); BridgeStreet Colorado, Inc.
(January 2, 1998); BridgeStreet Texas L.P. ("Austin", January 2, 1998);
BridgeStreet Accommodations Limited (February 19, 1998); BridgeStreet Canada,
Inc. (March 2, 1998), and BridgeStreet California, Inc. (June 1, 1998).
BridgeStreet's Consolidated Statement of Operations for the year ended December
31, 1997, includes the operating results of TCH, CLI, EIP and THEI, all of which
were acquired on January 2, 1997. The operating results for the year ended
December 31, 1997 also include the operations 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 (March 31, 1997); BridgeStreet Texas, L.P.
("Dallas", December 1, 1997); and BridgeStreet Arizona, Inc. ("Arizona",
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 Sheets as of December 31, 1998 and 1997
reflect the accounts of TCH, CLI, EIP, THEI, HAI, Dallas and Arizona. The
Company's Consolidated Balance Sheet as of December 31, 1998 also includes the
accounts of BridgeStreet North Carolina, Inc., BridgeStreet Raleigh, Inc.,
BridgeStreet Colorado, Inc., Austin, BridgeStreet Accommodations Limited,
BridgeStreet Canada, Inc., and BridgeStreet California, Inc.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Revenues increased $45.6 million, or 90%, from $50.8 million
for the year ended December 31, 1997 to $96.4 million for the year ended
December 31, 1998. The increase in revenues was primarily the result of an
increase in the number of accommodations rented during the year due to the
acquisitions of seven flexible accommodation service providers, plus a full year
of revenues for the 1997 acquisitions and growth in existing markets.
Cost of Services. Cost of services increased $33.6 million, or 89%,
from $37.7 million for the year ended December 31, 1997 to $71.3 million for the
year ended December 31, 1998. Cost of services, as a percentage of revenues,
decreased from 74.4% for the year ended December 31, 1997 to 74.0% for the year
ended December 31, 1998. The dollar increase in cost of services was primarily
related to the acquisitions of the flexible accommodation service providers, as
discussed above. As a percentage of revenues, cost of services decreased
slightly from 1997 primarily due to higher gross margins from the Company's
Canadian and U.K. subsidiaries. The Company's occupancy rate during 1998 and
1997 was 89%.
13
<PAGE> 14
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $10.1 million, or 102%, from $9.9 million for
the year ended December 31, 1997 to $20.0 million for the year ended December
31, 1998. Selling, general and administrative expense, as a percentage of
revenues, increased from 19.5% for the year ended December 31, 1997 to 20.8% for
the year ended December 31, 1998. The dollar increase in selling, general and
administrative expense was primarily a result of the acquisitions of flexible
accommodation service providers, as discussed above, and increased corporate
overhead. The increase, as a percentage of revenues, is primarily from increased
corporate overhead. The increase in corporate overhead is a direct result of
incurring a full year of costs in 1998 for a corporate management team and other
costs associated with creating a public company infrastructure. In 1997, these
costs primarily were incurred during the second half of the year.
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 represents the difference between the value of stock issued
to officers and the amount paid. The Statement of Operations for the year ended
December 31, 1998 includes a restructuring charge of $1.3 million on a pretax
basis ($732,000 after tax). This second quarter charge of $1.3 million
represented an accrual of $962,000 for severance and other employee benefits for
five employees and an accrual of $368,000 for lease termination costs, the
write-off of certain software and marketing costs and professional fees
associated with the management realignment. The accounting for the restructuring
charge is in compliance with the Emerging Issues Task Force ("EITF") 94-3,
"Liability Recognition for Costs to Exit an Activity (Including Certain Costs
Incurred in a Restructuring)." During 1998, $664,000 was charged against the
reserve consisting of severance and benefit expenses of $341,000, the write-off
of marketing materials and software of $202,000 and professional fees and other
expenses of $121,000. The Company expects all costs, with the exception of
severance related expenses for two employees, to be incurred by the end of the
second quarter of 1999, and no material incremental costs are expected to be
recognized in future periods. See footnote 10 in the Notes to the Consolidated
Financial Statements for additional information.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
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 was primarily
related to the acquisitions of the 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
represents the difference between the value of stock issued to officers and the
amount paid.
14
<PAGE> 15
OTHER INCOME, NET. The components of other income (expense) are as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Interest income $146,458 $196,253 $ 47,093
Interest expense (451,270) (120,065) (107)
Other, net 386,298 322,249 108,552
--------- -------- --------
Other Income, net $ 81,486 $398,437 $155,538
========= ======== ========
</TABLE>
Interest income increased $149,000 in 1997, as a result of the investment of the
cash proceeds from the Company's initial public offering. The net proceeds,
after repayment of debt, were invested in short-term, interest bearing,
investment grade securities at December 31, 1997, and subsequently were used for
acquisitions during 1998, resulting in a decrease of $50,000 in interest income
in 1998. Interest expense increased by $120,000 in 1997 as a result of
borrowings against the line of credit to fund working capital needs. Interest
expense increased $331,000 in 1998 due to increased borrowings against the line
of credit to fund acquisitions and working capital needs. Other income,
consisting primarily of referral fees, increased $64,000 and $214,000 in 1998
and 1997, respectively.
Included in other income for 1998 is a gain on the sale of assets of $32,000.
INCOME TAX PROVISION. For the year ended December 31, 1998, the Company recorded
a tax provision of $1.3 million on pretax income of $2.7 million, compared to a
tax provision of approximately $1.4 million on pretax income of $1.8 million in
1997. 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. The tax provisions are based on the Company's consolidated
effective tax rate after considering nondeductible expenses, such as
amortization of goodwill, officers' stock compensation in 1997 and foreign taxes
for 1998. The effective tax rates are as follows for the years ended December
31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Effective tax rate 46.5% 75.1% 43.6%
</TABLE>
The increase in the 1997 effective tax rate is attributable to the effect of the
nonrecurring nondeductible officers' stock compensation charge recognized in
1997.
The Company does not provide deferred income taxes on unremitted earnings of
foreign subsidiaries, as such funds are deemed indefinitely reinvested in those
operations. It is not practicable to calculate the deferred taxes associated
with these unremitted earnings.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, net cash provided by operating activities
totaled $561,000. Net cash used in investing activities was $15.5 million,
primarily for acquisitions (as described below), the purchase of operating stock
and equipment required in the Company's business, and costs associated with
implementing a company-wide fully integrated management information system. Net
cash provided by financing activities was $7.7 million, primarily due to
borrowings against the revolving line of credit. Cash and cash equivalents
decreased by $7.3 million during the period and totaled $1.7 million at December
31, 1998.
In September 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 Companies
assumed in connection with the Combination (see Note 1 in the Notes to the
Consolidated Financial Statements), $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 subsequently were used for
acquisitions during 1998.
15
<PAGE> 16
The Company has a revolving credit facility that provides the Company with 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, working capital and to
repurchase up to $1.0 million of the Company's stock. Loans made under the
credit facility bear interest, at the Company's option, at 0.25% to 0.5% above
the bank's prime lending rate, or 1.75% to 2.0% 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, (iii) requires the bank's
approval for certain acquisitions and (iv) requires the Company to comply with
certain financial covenants. The Company had $0 and $7.5 million outstanding
under the facility at December 31, 1997 and December 31, 1998, respectively. At
December 31, 1998, the Company's weighted average interest rate was 6.75%.
Subsequent to the Combination through December 31, 1997, the Company
made three additional acquisitions. The acquisitions were 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 $7.4 million that is being amortized over 35 years.
During 1998, the Company acquired seven companies. The acquisitions have been
accounted for using the purchase method of accounting. The total aggregate cost
of these acquisitions was approximately $16.3 million, consisting of cash and
promissory notes of $12.1 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 $17.0 million that is
being amortized over 35 years. Details regarding these acquisitions are noted
below.
On January 2, 1998, the Company acquired all 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 of the acquisition was
the issuance of 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 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 Austin, Texas, and
surrounding cities. The purchase consideration of the two acquisitions was cash,
funded from the proceeds of the Offering, and promissory 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, Inc. ("London Life"), a flexible accommodation
company servicing London, U.K. The purchase consideration consisted of cash and
the issuance of approximately 165,000 shares of common stock. London Life had
revenues of approximately $10.0 million in 1997.
16
<PAGE> 17
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 and the issuance of approximately 139,000 shares of the stock
of a Canadian subsidiary that is exchangeable for an equal number of shares of
common stock of the Company. GTA had revenues of approximately $7.7 million for
the eleven months ended January 31, 1998.
On June 1, 1998, the Company acquired for cash certain assets of Gracious
Corporate Lodging, a California flexible accommodation company servicing Santa
Clara, Palo Alto and San Jose, California, and Austin, Texas. The purchase
consideration of the acquisition was cash, funded from borrowings against the
Company's revolving line of credit. Gracious Corporate Lodging had revenues of
approximately $6.4 million in 1997.
The Company intends to continue to pursue growth through the acquisition of
selected flexible accommodation service providers as well as increasing the
number of affiliations with its Network Partners throughout the United States,
Canada and Europe. The Company's primary sources of funding to date have been
cash flow from operations, proceeds from the Offering and its revolving credit
facility. The Company anticipates that cash flow from operations and funds from
its revolving credit facility will be its principal future sources of funding.
The Company's 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 1999 are anticipated to be approximately $3.5 million, primarily
related to the Company's management information systems. For the year ended
December 31, 1998, the Company had capital expenditures of $4.1 million. While
there can be no assurance, management believes that cash flow from operations
and funds from the revolving 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.
EFFECTS OF FOREIGN CURRENCY AND INFLATION
With the acquisitions of London Life and GTA in 1998, the Company now
operates internationally and enters into transactions denominated in foreign
currencies. As a result, the Company is subject to the volatility that is
associated with exchange rate movements. The effects of foreign currency on
operating results in the current year were not material to the Company.
Due to the relatively low levels of inflation experienced in 1998, 1997
and 1996, 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.
17
<PAGE> 18
MANAGEMENT INFORMATION SYSTEMS AND YEAR 2000 ISSUES
The Company was formed in August 1996 and during 1997 and 1998 has
acquired fifteen flexible accommodation companies. The acquired companies each
had different computer hardware and software systems. As a result, the Company
has undertaken a complete review and assessment of its information technology
("IT") systems. The Company has determined that all accounting and property
management systems will be replaced with a single integrated system. Year 2000
("Y2K") compliance is a requirement for all new systems the Company has acquired
and will acquire or develop internally. The Company is in the process of
analyzing all other non-information technology systems such as security,
electrical, fire protection, voice and data communication systems, which may
contain embedded technology microprocessors or other similar circuitry, to
adequately address Year 2000 issues. The Company expects to complete this review
by the end of the third quarter of 1999.
STATE OF READINESS. During the fourth quarter of 1997, the Company
evaluated several major accounting software vendors. Key criteria evaluated
included: Y2K compliance; meeting company functional requirements; reporting
capabilities; software flexibility and scalability; vendor stability, growth and
support; ease of use; and cost. In the first quarter of 1998, based on these
criteria and extensive review of the software vendors, the Company selected an
accounting software vendor. During the second and third quarters of 1998, the
Company undertook phase one of its financial systems implementation. Phase one
included: analyzing accounting requirements; purchasing and setting up hardware
and application software; conducting a conference room pilot; and application
documentation and training. In August of 1998, the Company began the roll out
phase in the Company's Cleveland Region. The Company is in the process of
rolling out the accounting software application to each of its regions with
planned completion during the second quarter of 1999. By the end of the first
quarter of 1999, the software was fully implemented in seven regions. All
remaining regions are scheduled to undergo the conversion process in the second
quarter of 1999. The Company also is implementing a wide area network (WAN) to
connect all offices to the central computer system.
During the first quarter of 1998, the Company evaluated several major
property management software vendors. Key criteria evaluated included: Y2K
compliance; meeting company functional requirements; reporting capabilities;
software flexibility and scalability; vendor stability, growth and support; ease
of use; and cost. Based on this review the Company determined that there was no
one software application that entirely met the key needs of the Company. In the
second quarter of 1998, the Company made the decision to internally develop its
property management systems. The system will be developed within the accounting
software package discussed above. This will provide the Company with a fully
integrated accounting and property management system. During 1997 the Company
had developed a prototype property management system which will be the
underlying design framework for the first phase of the property management
system.
During the third quarter of 1998, the Company undertook phase one of
its property management systems implementation. Phase one included: analyzing
property management requirements; purchasing and setting up hardware and
application software; conducting a conference room pilot; and, application
documentation and training. This phase was completed and during the fourth
quarter of 1998 and the Company began programming of the system. The Company
expects to begin the pilot installation of the system at the end of the first
quarter, 1999. Full implementation to all Company offices will begin at the end
of the second quarter with completion during the third quarter of 1999.
The total cost to replace existing software, hardware and the cost of
implementing the new accounting and property management systems is estimated to
be $3.0 million, which will be capitalized as incurred.
18
<PAGE> 19
CONTINGENCY PLANS AND RISKS OF THE COMPANY'S Y2K ISSUES. The Company
believes it has the internal controls and manual systems in place to prevent any
material interruption in its business operations due to Y2K problems. Prior to
the complete implementation of the new accounting and property management
systems, the Company's operating subsidiaries that do not have the new systems
will continue to operate primarily in a manual environment. The Company's
contingency plan is to rely on these manual systems and controls at each
operating subsidiary until each subsidiary has fully implemented the new
systems.
The Company is working with its processing banks to ensure their
systems are Y2K 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. While the Company does not have a
relationship with any particular third-party vendors (property owners, houseware
and furniture companies, utility providers) which is material to its operations,
there can be no assurances that the systems of other companies on which the
Company relies will be Y2K compliant on a timely manner, or that their failure
to achieve Y2K compliance will not have an adverse impact on the Company's
operations. Costs associated with any such failure cannot be reasonably
estimated.
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 the 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.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
----- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,652,028 $ 8,922,215
Trade accounts receivable, less allowance for doubtful
accounts of $270,000 in 1998 and $167,000 in 1997 5,976,054 2,217,930
Security deposits held by landlords 534,815 264,541
Deferred income taxes 691,591 524,156
Prepaid rent 2,066,086 817,769
Other current assets 1,019,983 709,254
----------- ------------
Total current assets 11,940,557 13,455,865
Operating stock, net of accumulated amortization 2,217,562 1,682,579
Property and equipment, net of accumulated depreciation 5,379,024 2,535,094
Other assets 10,150 208,930
Due from stockholders/affiliates -- 348,000
Goodwill, net of accumulated amortization 40,576,629 24,332,484
----------- ------------
Total assets $60,123,922 $ 42,562,952
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 778,715 $ 20,121
Due to stockholders and affiliates 369,949 100,835
Accounts payable 1,136,952 1,027,307
Accrued payroll and employee benefits 1,250,828 511,963
Accrued expenses, other 3,278,080 1,473,486
Deferred revenue 1,163,181 690,509
Security deposits due to customers 612,057 459,251
----------- ------------
Total current liabilities 8,589,762 4,283,472
Long-term debt, net of current maturities 7,608,452 25,803
Deferred income taxes 939,381 675,480
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;
8,169,835 shares issued and outstanding in 1998;
7,789,345 shares issued and outstanding in 1997 81,698 77,893
Additional paid in capital 40,134,726 35,889,414
Retained earnings 3,069,958 1,610,890
Accumulated other comprehensive income (300,055) --
----------- ------------
Total stockholders' equity 42,986,327 37,578,197
----------- ------------
Total liabilities and stockholders' equity $60,123,922 $ 42,562,952
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
BridgeStreet BridgeStreet TCH
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $96,408,923 $50,750,352 $12,399,750
Operating Expenses:
Cost of services 71,310,397 37,736,902 9,052,165
Selling, general and administrative expense 20,025,897 9,887,041 2,326,772
Officers' stock compensation -- 1,210,261 --
Goodwill amortization 1,097,624 489,148 --
Restructuring charge 1,330,000 -- --
----------- ----------- -----------
Total operating expenses 93,763,918 49,323,352 11,378,937
----------- ----------- -----------
Operating income 2,645,005 1,427,000 1,020,813
Other Income (Expense):
Interest income 146,458 196,253 47,093
Interest expense (451,270) (120,065) (107)
Other income, net 386,298 322,249 108,552
----------- ----------- -----------
Other income, net 81,486 398,437 155,538
----------- ----------- -----------
Income before provision for income taxes 2,726,491 1,825,437 1,176,351
Provision for income taxes 1,267,423 1,371,346 512,627
----------- ----------- -----------
Net income $ 1,459,068 $ 454,091 $ 663,724
Other comprehensive income:
Foreign currency translation adjustment 300,055 -- --
----------- ----------- -----------
Comprehensive income $ 1,159,013 $ 454,091 $ 663,724
=========== =========== ===========
Net income per share-basic and diluted $ 0.18 $ 0.08 $ 0.42
=========== =========== ===========
Weighted average shares outstanding-basic 8,123,306 5,904,484 1,596,350
Weighted average shares outstanding-diluted 8,123,306 5,930,248 1,596,350
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Accumulated Other Total
COMMON STOCK Treasury Paid-In Retained Comprehensive Stockholders'
Shares Amount Stock Capital Earnings Income Equity
--------- -------- -------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/95 2,056 $ 31,000 $ (4,185) - $ 842,308 - $ 869,123
Net income - - - - 663,724 - 663,724
Cash dividend - - - - (349,233) - (349,233)
--------- -------- -------- ----------- ---------- ---------- -----------
Balance at 12/31/96 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 12/31/97 7,789,345 $ 77,893 - $35,889,414 $1,610,890 - $37,578,197
Issuance of stock to acquired
companies 379,958 3,800 - 4,240,529 - - 4,244,329
Options exercised 532 5 - 4,783 - - 4,788
Foreign currency translation - - - - - $ (300,055) (300,055)
Net income - - - - 1,459,068 - 1,459,068
--------- -------- -------- ----------- ---------- ---------- -----------
Balance at 12/31/98 8,169,835 $ 81,698 $40,134,726 $3,069,958 $ (300,055) $42,986,327
========= ======== ======== =========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
BRIDGESTREET ACCOMMODATIONS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
BridgeStreet BridgeStreet TCH
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,459,068 $ 454,091 $ 663,724
Adjustments to reconcile net income to net
cash provided by operating activities--
Officers' stock compensation -- 1,210,261 --
Depreciation and amortization 2,522,981 990,346 60,333
Gain on sale of assets (32,487) -- (500)
Deferred income taxes 96,466 225,942 97,334
Changes in operating assets and liabilities
excluding the effect of acquisitions--
Accounts receivable (3,347,939) (420,154) (38,796)
Security deposits held by landlords (132,322) (83,560) --
Prepaid expenses and other assets (170,408) (1,514,887) 36,883
Accounts payable and accrued expenses 175,396 656,731 (349,991)
Accrued income taxes -- (191,988) (401,520)
Security deposits due to customers (396,853) (24,451) --
Deferred revenue 387,226 30,749 --
----------- ----------- -----------
Net cash provided by operating activities 561,128 1,333,080 67,467
----------- ----------- -----------
Cash Flows From Investing Activities:
Purchases of investments in short-term marketable
securities -- (124,997) (330,887)
Sales of investments in short-term marketable
securities -- 277,250 397,934
Acquisitions, net of cash acquired (11,503,537) (4,388,120) --
Proceeds from sale of assets 90,420 -- 4,507
Purchases of operating stock (895,177) (768,321) (77,642)
Purchases of property and equipment (3,204,010) (876,936) (28,012)
----------- ----------- -----------
Net cash used for investing activities (15,512,304) (5,881,124) (34,100)
----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds from initial public offering, net of offering costs -- 14,812,398 --
Proceeds from sale of stock 4,787 -- --
Foreign currency translation adjustment (300,055) -- --
Borrowings against line of credit 7,500,000 2,775,000 --
Repayment against line of credit -- (2,775,000) --
Addition (repayment) of long-term debt 214,478 (1,212,807) 144,034
Due to stockholders/affiliates 261,779 (727,271) (64,844)
Cash dividend -- -- (349,233)
----------- ----------- -----------
Net cash provided by (used for) financing activities 7,680,989 12,872,320 (270,043)
----------- ----------- -----------
Net increase(decrease) in cash
and cash equivalents (7,270,187) 8,324,276 (236,676)
Cash and cash equivalents, beginning of year 8,922,215 597,939 834,615
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,652,028 $8,922,215 $ 597,939
============ =========== ===========
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid for interest $ 416,901 $ 158,786 $ 107
============ ========== ===========
Cash paid for income taxes $ 1,773,512 $1,327,975 $ 828,618
============ ========== ===========
</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 accommodation providers.
In the first quarter of 1998, the Company issued approximately 380,000
shares of Common Stock of the Company or securities convertible into
Common Stock of the Company as consideration for acquisitions.
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
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 acquired all the outstanding stock of five flexible
accommodation service providers (the "Founding Companies"), in exchange for
4,301,000 shares of Common Stock of the Company (the "Combination"). The Company
conducted no operations prior to January 2, 1997, except in connection with its
initial public offering and the Combination. For financial reporting purposes,
the largest Founding Company, Temporary Corporate Housing Columbus, Inc. ("TCH")
was designated as the accounting acquirer, and its acquisition of the remaining
four Founding Companies was 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., Exclusive Interim Properties, Ltd. and Temporary Housing Experts, Inc. all
of which (together with certain affiliated companies) 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. (Dallas, December 1, 1997); BridgeStreet
Arizona, Inc. (December 1, 1997); BridgeStreet North Carolina, Inc. (January 2,
1998); BridgeStreet Raleigh, Inc. (January 2, 1998); BridgeStreet Texas, L.P.
(Austin, January 2, 1998); BridgeStreet Colorado, Inc. (January 2, 1998);
BridgeStreet Accommodations Limited (February 19, 1998); BridgeStreet Canada,
Inc. (March 2, 1998); and BridgeStreet California, Inc. (June 1, 1998). 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 year ended December 31, 1996, 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 and cash equivalents. Investments
in short-term marketable securities are deemed to be available-for-sale, and
accordingly, are stated at their fair value. 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, 1998 and
1997.
25
<PAGE> 26
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.
Deferred Acquisition Costs
Deferred acquisition costs consist primarily of legal, accounting and
other professional fees incurred in connection with the acquisitions of flexible
accommodation 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, 1998 and 1997, the Company had deferred
acquisition costs of $0 and $56,000, respectively, relating to acquisitions
which had not closed at December 31, 1997, and are included in other current
assets in the accompanying consolidated balance sheets.
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.
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 consolidated statements of operations. Depreciation is determined using the
straight-line method for financial reporting purposes over the estimated useful
lives of the respective assets. The double-declining balance method is used for
tax purposes. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
-------------------- -----------
<S> <C>
Computer hardware and software............... 3-7 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.
Goodwill
Goodwill represents the excess purchase price paid over the fair value
of the net assets acquired and all
26
<PAGE> 27
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 totaled $1,098,000 and $489,000 in 1998 and 1997, respectively.
Accumulated amortization of goodwill totaled $1,587,000 and $489,000 at December
31, 1998 and 1997, respectively.
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.
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.
Reclassification
Certain items in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation.
3. COMPREHENSIVE INCOME
Effective January 1, 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" which requires disclosure of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income is defined as changes in stockholders' equity from non-owner sources and
for the Company, includes net income and changes in the foreign currency
translation adjustment. The adoption of this statement had no impact on the
Company's net income or stockholders' equity. Prior year financial statements
have been reclassified to conform to the requirements of this statement.
4. BUSINESS SEGMENTS
In 1998 the Company adopted SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information." This statement requires companies to
identify segments consistent with the manner in which management makes decisions
about allocating resources to segments and measuring their performance. It also
requires disclosure of products and services, geographic areas and major
customers. The following disclosures have been made in accordance with this new
statement.
In 1998, Andersen Consulting accounted for approximately $11 million,
or 11.4% of the Company's consolidated 1998 revenues. No client accounted for
more than 10% of the Company's 1997 revenues.
No single country outside of the United States comprised more than 10%
or more of the Company's revenue from external customers. The Company had
revenues of approximately $16.1 million, or 16.7% of total consolidated revenues
from its Canadian and U.K. subsidiaries. Pre-tax income from these subsidiaries
totaled $2.3 million, or 26.2% of total consolidated pretax income, before
corporate expenses, in 1998. The Company had revenues of approximately $80.3
million, or 83.3% of total consolidated revenues from its United States
operations. Pre-tax income from United States operations before corporate
expenses was $6.5 million, or 73.8% of total consolidated pretax income.
27
<PAGE> 28
Long-term assets located outside the United States are as follows:
Property and equipment $ 574,000
Goodwill 11,339,000
-----------
$11,913,000
===========
All remaining long-term assets are located in the United States.
5. 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.
The components of income before provision for income taxes follow:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic (net of corporate overhead) $ 421,000 $ 1,825,000 $ 1,176,000
Foreign 2,305,000 0 0
----------- ----------- -----------
Total $ 2,726,000 $ 1,825,000 $ 1,176,000
=========== =========== ===========
Provision for income taxes follows:
1998 1997 1996
---- ---- ----
Current tax expense
Federal $ 155,000 $ 1,077,000 $ 531,000
State and local 174,000 226,000 113,000
Foreign 848,000 0 0
----------- ----------- -----------
Total current expense $ 1,177,000 $ 1,303,000 $644,000
----------- ----------- -----------
Deferred tax expense
Federal $ 79,000 $ 58,000 $ (108,000)
State and local 29,000 10,000 ( 23,000)
Foreign (18,000) 0 0
----------- ----------- -----------
Total deferred expense $ 90,000 $ 68,000 $ (131,000)
----------- ----------- -----------
Total provision for income taxes $ 1,267,000 $ 1,371,000 $ 513,000
=========== =========== ===========
</TABLE>
Total income tax payments, net of refunds, were $1.1 million, $1.3 million and
$0.8 million in 1998, 1997 and 1996, respectively.
A reconciliation of the federal statutory income tax rate of 34% and the
effective income tax rate for the year ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income before income taxes $ 2,726,000 $ 1,825,000 $ 1,176,000
=========== =========== ===========
Tax Expense at U.S. statutory rate $ 927,000 621,000 $ 400,000
State taxes, net of federal tax benefit 115,000 156,000 85,000
Foreign tax effect - net 162,000 -- --
Goodwill 255,000 161,000 --
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Officers' stock award -- 411,000 --
Other - net (192,000) 22,000 28,000
----------- ----------- -----------
Provision for income taxes $ 1,267,000 $ 1,371,000 $ 513,000
=========== =========== ===========
Effective income tax rate: 46.5% 75.1% 43.6%
</TABLE>
Deferred tax assets (liabilities) at December 31, 1998 and 1997 follow:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets
Accruals not yet deductible for tax purposes $ 839,000 $ 443,000
Accounts receivable (195,000) 97,000
Deferred income 41,000 --
Other 7,000 (16,000)
---------- ----------
Gross deferred tax assets $ 692,000 $ 524,000
========== ==========
Deferred tax liabilities
Operating stock $ (800,000) $ (673,000)
Fixed assets (114,000) --
Other ( 25,000) (2,000)
---------- ----------
Gross deferred tax liabilities $ (939,000) $ (675,000)
========== ==========
Net deferred tax liability $ (247,000) $ (151,000)
========== ==========
</TABLE>
The company does not provide deferred income taxes on unremitted
earnings of foreign subsidiaries, as such funds are deemed indefinitely
reinvested in those operations. It is not practicable to calculate the deferred
taxes associated with these unremitted earnings.
6. ACQUISITIONS
As discussed in Note 1, in the first quarter of 1997, the Company
merged with five flexible accommodation operating 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
operating 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 cost of these acquisitions was $6.75 million,
consisting of $4.40 million of cash and $2.35 million of stock. The preliminary
purchase price allocation of these acquisitions resulted in goodwill of
approximately $7.4 million.
Subsequent to December 31, 1997, the Company acquired seven companies.
The acquisitions have been accounted for using the purchase method of
accounting. The total aggregate cost of these acquisitions was approximately
$16.3 million, consisting of cash and notes of $12.1 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 $17.0 million that is being amortized over 35 years.
29
<PAGE> 30
The following table presents unaudited selected financial information
for the Company, the five Founding Companies, and the acquisitions of ABA, Inc.
of Dallas, ABA, Inc. of Phoenix, Home on the Road, Inc. of Charlotte, Home on
the Road-Raleigh, London Life, GTA and Gracious Corporate Lodging on a pro forma
basis, assuming the companies had been combined and the initial public offering
had occurred as of the beginning of 1997.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $ 102,642,000 $ 88,261,000
Net income $ 1,617,000 $ 1,398,000
Net income per share-basic and diluted $ 0.20 $ 0.17
</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 1998 and 1997, respectively.
7. PROPERTY AND EQUIPMENT, AND OPERATING STOCK
Property and equipment, and operating stock consist of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
------ ----
<S> <C> <C>
Land $ 266,235 $ 266,235
Condominiums 998,484 1,069,165
Computer hardware and software 2,776,076 697,724
Office furniture and equipment and leasehold
improvements 2,216,008 813,981
Automobiles 491,894 228,661
---------- ----------
Total property and equipment 6,748,697 3,075,766
Less-accumulated depreciation 1,369,673 540,672
---------- ----------
Property and equipment, net $5,379,024 $2,535,094
========== ==========
Operating stock $3,263,510 $2,132,173
Less-accumulated amortization 1,045,948 449,594
---------- ----------
Operating stock, net $2,217,562 $1,682,579
========== ==========
</TABLE>
Depreciation expense was $829,003, $259,730 and $30,526 in 1998, 1997
and 1996, respectively. Operating stock amortization expense was $596,354,
$241,468 and $29,807 in 1998, 1997 and 1996, respectively.
8. ACCRUED EXPENSES, OTHER
Accrued expenses, other includes the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accrued sales and use tax $ 440,000 $ 470,000
Accrued maintenance 529,000 380,000
Accrued legal and accounting 90,000 125,000
Accrued restructuring 666,000 --
Accrued other 1,553,000 498,000
--------- ----------
Total $3,278,000 $1,473,000
========== ==========
</TABLE>
30
<PAGE> 31
9. RELATED PARTY TRANSACTIONS
An operating subsidiary of the Company purchases advertising space from
City Visitor Publications, Inc., ("City Visitor"), an entity that publishes a
travel magazine and is 100% owned by a former executive officer and beneficial
shareholder of the Company. Included in the accompanying consolidated statements
of operations for the years ended December 31, 1998 and 1997 are $22,500 and
$16,000 of advertising expenses paid to City Visitor. In addition, during 1997
the Company from time to time paid 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.
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 Partnership ("SLD"), an Ohio general partnership and a
beneficial owner of more than 5% of the Company's common stock. 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.
TCH leases televisions, VCRs and microwave ovens from Saturn
Enterprises, Inc. ("Saturn"), which is owned by the spouse of one of the
Company's directors. 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, 1998 and 1997, are amounts owed to
Saturn of approximately $18,000 and $17,500, respectively.
An operating subsidiary of the Company leases office space from ABA
Office Corporation, Inc. which is 100% owned by a senior manager of the Company.
Included in the accompanying consolidated statements of operations for the
periods ended December 31, 1998 and 1997, is $24,100 and $1,900 of rent expense
related to the office space, respectively. Included in accounts payable in the
accompanying consolidated balance sheets at December 31, 1998 and 1997 are
amounts due ABA Office Corporation of $0 and $1,900, respectively. In
management's opinion, the lease terms and rental amounts are comparable to
amounts charged by unaffiliated entities.
10. RESTRUCTURING CHARGE
During the second quarter of 1998, the Company announced a realignment
of its senior management, which was primarily responsible for a charge of $1.33
million on a pretax basis ($732,000 after tax). The second quarter charge to
earnings of $1.33 million represents an accrual of $962,000 for severance and
other employee benefits for five employees and an accrual of $368,000 for lease
termination costs, the write-off of certain software and marketing costs and
professional fees associated with the realignment. The accounting for the
restructuring charge is in compliance with the Emerging Issues Task Force
("EITF") 94-3, "Liability Recognition for Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring)." During 1998, $664,000 was charged
against the reserve consisting of severance and benefit expenses of $341,000,
the write-off of marketing materials and software of $202,000 and professional
fees and other expenses of $121,000. The Company expects all costs, with the
exception of severance related expenses for two employees, to be incurred by the
end of the second quarter of 1999, and no material incremental costs are
expected to be recognized in future periods.
31
<PAGE> 32
11. 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. During the second quarter of 1998 the
Company announced a management restructuring and entered into severance
agreements with two of the officers. See footnote 10, above, for additional
information. During 1998, the Company entered into a three year employment
contract with its Chief Executive Officer. The contract expires in June of 2001.
Also subsequent to December 31, 1998, the company amended the employment
contract of its Chief Financial Officer to extend the contract for an additional
year. The contract now expires in May of 2001.
Lease Commitments. The Company leases administrative offices,
accommodations and furniture at several locations through July, 2004. Rent
expense for the years ended December 31, 1998 and 1997 was $56,031,000 and
$30,941,000, respectively. Minimum future rental payments on non-cancelable
leases at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
1999 $4,492,000
2000 1,598,000
2001 846,000
2002 650,000
2003 444,000
Thereafter 72,000
----------
Total $8,102,000
==========
</TABLE>
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.
12. 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 1998, 1997 and 1996 earnings per share amounts
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic common shares (weighted average) 8,123,306 5,904,484 1,596,350
Dilutive stock options -- 25,764 --
--------- --------- ---------
Diluted common shares 8,123,306 5,930,248 1,596,350
========= ========= =========
</TABLE>
The weighted average number of common shares outstanding in 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.
There were no dilutive stock options outstanding at December 31, 1998
as all stock options were anti-dilutive. There are no adjustments to the
reported amounts of net income for purposes of computing diluted EPS.
32
<PAGE> 33
13. REVOLVING CREDIT AGREEMENT AND LONG-TERM DEBT
During the first quarter of 1998 the Company amended its revolving
credit facility agreement increasing the line from $10 million to $25 million.
The revolving credit agreement, secured by the capital stock of the Company's
operating subsidiaries, extends to March 31, 2002. During the first quarter of
1999, the Company amended certain terms of its revolving credit facility
agreement. Interest is payable, at the Company's option, at 0.25 to 0.5% above
the bank's prime lending rate, or 1.75% to 2.0% above the Eurodollar or LIBOR
rates. A commitment fee is payable on the average unused credit at a rate of
0.375% to 0.45%. 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, (iii)
requires the bank's approval for acquisitions meeting certain cash and total
acquisition consideration and (iv) requires the Company to comply with certain
financial covenants. The Company was in compliance with these convenants at
December 31, 1998. The Company had $7.5 million and $0 outstanding under the
facility at December 31, 1998 and 1997. At December 31, 1998, the Company's
weighted average interest rate was 6.75%.
At December 31, 1998, the Company had two non-interest bearing
promissory notes payable totaling $730,000 resulting from two acquisitions. Of
the notes, one note for $100,000 is due and payable on February 1, 1999 and the
other note for $630,000 is payable on June 1, 1999. The Company also has term
notes and capitalized leases, which are secured by fixed assets, totaling
approximately $157,000. These notes and leases are payable in various
installments through May 2002.
14. 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 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 subsequently used for acquisitions, working capital and
general corporate purposes.
At December 31, 1998 and 1997, there were 8,169,835 and 7,789,345
shares of Common Stock outstanding, respectively. 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, 1998 and 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.
33
<PAGE> 34
15. 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.
16. 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 1,500,000. 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 1998, the Company
granted options under the Equity Incentive Plan to purchase 452,600 shares at
prices ranging from $3.50 to $7.50. Of this amount 200,000 options were granted
to the Company's Chief Executive Officer and President, of which 125,000 options
were immediately vested and the remaining 75,000 will vest over a two-year
period. As of December 31, 1998, the Company had outstanding options to purchase
830,784 shares of Common Stock under the Equity Incentive Plan at prices ranging
from $3.50 to $9.00. Of this amount, options to purchase 250,000 shares were
granted and remained outstanding as of December 31, 1998, pursuant to employment
agreements at a price of $9.00 per share.
In 1998, the Company granted additional options to its Chief Executive
Officer and President to purchase 300,000 shares of Common Stock. Although,
these options were not granted pursuant to the Equity Incentive Plan, they are
subject to the same terms and conditions contained in that plan as discussed
above. The options were granted at a price of $7.50 per share. The market value
of the Company's common stock on the date of grant was $5.25. Of these options,
175,000 will vest over a two year period on a pro rata basis. The remaining
125,000 options will vest in full after eight years with accelerated vested
occurring upon certain conditions being met as follows: One-third of the options
will vest if the Company's closing stock price averages $9.75 per share for ten
consecutive trading days. Another one-third will vest if the Company's closing
stock price averages $14.625 per share for ten consecutive trading days. The
final one-third will vest if the Company's closing stock price averages $19.50
per share for ten consecutive trading days. Subsequent to December 31, 1998, the
Company granted options, under the Equity Incentive Plan, to purchase 100,000
shares at a price per share of $4.75 to the Company's Chief Financial Officer.
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
34
<PAGE> 35
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. During 1998, the Company granted options to purchase 15,000 shares at
prices ranging from $3.50 to $4.25. As of December 31, 1998 the Company had
outstanding options to purchase 27,500 shares of Common Stock at prices ranging
from $3.50 to $9.00 per share, under the Directors' Plan.
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" under which no compensation cost for
stock options is recognized for stock option awards granted at or above fair
market value. SFAS No. 123, "Accounting for Stock-Based Compensation"
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. The Company
has elected to remain on its current method of accounting as described above,
and has adopted the disclosure requirements of SFAS No. 123. Had compensation
expense for the Company's stock-based compensation plans been determined based
upon fair values at the grant dates for awards under those plans in accordance
with SFAS No. 123, the Company's net income per share would have been reduced to
the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Income
As reported........ $1,459,068 $454,091
Pro forma.......... 1,063,785 289,964
Earnings per share
As reported........ $ 0.18 $ 0.08
Pro forma......... $ 0.13 $ 0.05
</TABLE>
The weighted average fair value of options granted during 1998 and 1997
estimated on the date of grant using the Black-Scholes option pricing model was
$1.93 and $4.78, respectively. The fair value of 1998 and 1997 options granted
is estimated on the date of grant using the following assumptions: expected
volatility of 30%, risk-free interest rate of 5.0%, an expected life ranging
from 8 to 10 years, annual forfeitures ranging from 0.0% to 10.0%, and an
expected dividend yield of 0.0%.
Summary information about the Company's stock options outstanding at December
31, 1998 is as follows.
<TABLE>
<CAPTION>
Number of Price per
Options Share
--------- --------
<S> <C> <C>
Balance, January 1, 1997 0
Options granted 536,467 $9.00 to $11.37
---------
Balance, January 1, 1998 536,467 $9.00 to $11.37
Options granted 767,600 $3.50 to $7.50
Options exercised (532) $9.00
Options terminated (145,251) $4.00 to $9.00
---------
Balance, December 31, 1998 1,158,284 $3.50 to $9.00
=========
</TABLE>
On August 17, 1998, the Company reset the price of 140,984 stock options to
$4.00.
Detailed information about the Company's stock options outstanding at December
31, 1998 is as follows.
35
<PAGE> 36
<TABLE>
<CAPTION>
Outstanding Weighted Average Exercisable
Exercise Price at 12/31/98 Contractual Period at 12/31/98
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
$3.50 129,250 9.85 0
$4.00 254,034 9.65 8,000
$4.25 7,500 9.50 0
$7.50 200,000 9.50 125,000
$7.50 175,000 9.50 0
$7.50 125,000 7.50 0
$9.00 267,500 8.75 89,167
- ----------------------------------------------------------------------------
$3.50 - 9.00 1,158,284 9.20 222,167
========= =======
</TABLE>
DEFINED CONTRIBUTION PLANS
The Company and its subsidiaries have a defined contribution (401k )
plan for substantially all employees. Employees may contribute up to 15% of
their pay. Currently, the Company contributes, in cash, amounts equal to 30
percent of the employee's contributions up to 5 percent of the employee's pay.
The employee vests in the Company match over a three-year period on a pro rata
basis. The amount expensed for the Company's matching contribution to the plan
was $51,800 and $0 in 1998 and 1997, respectively.
18. SELECTED QUARTERLY DATA
The following is a summary of unaudited quarterly results for years
ended December 31, 1998, and 1997. (Amounts in thousands, except per share
amounts.)
<TABLE>
<CAPTION>
Three Months Ended 1998
------------------------------------------------------
March 31 June 3 September 30 December 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 19,484 $24,516 $ 27,564 $ 24,845
Operating income (loss) 22 (426) 2,093 956
Net income (loss) 70 (241) 1,142 488
Earnings (loss) per share-
Basic and diluted $0.01 $(0.03) $0.14 $0.06
Three Months Ended 1997
------------------------------------------------------
March 31 June 3 September 30 December 31
-------- -------- ------------ -----------
Revenues $ 9,065 $12,479 $ 15,371 $ 13,835
Operating income (loss) (1,203) 1,095 1,371 164
Net income (loss) (1,190) 613 800 231
Earnings (loss) per share-
Basic and diluted $(0.24) $0.11 $0.15 $0.03
</TABLE>
Results for the second quarter of 1998 include expense of $1.33 million
on a pretax basis ($732,000 after tax) for a restructuring charge. The one-time
charge reduced earnings in the second quarter, and for the year, by $0.09 per
share.
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 one-time 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.
36
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
37
<PAGE> 38
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, 1998 and 1997 and
for the years 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 for
the years ended December 31, 1998 and 1997 and of TCH as of December 31, 1996
and 1995, 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>
BridgeStreet
Year Ended HISTORICAL (TCH ONLY)
December 31, Year Ended December 31,
--------------------- ------------------------------------------------
1998 1997(1) 1996(1) 1995(1) 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues........................... $96,409 $50,750 $12,400 $9,696 $8,309 $6,803 $5,627
Cost of services................... 71,310 37,737 9,052 7,344 6,475 5,312 4,520
Selling, general and
administrative expense........... 20,026 9,887 2,327 2,064 1,628 1,373 1,328
Officers' stock
compensation..................... -- 1,210(3) -- -- -- -- --
Restructuring Charge 1,330(2) -- -- -- -- -- --
Goodwill amortization.............. 1,098 489 -- -- -- -- --
------- ------- ------- ------ ------ ------ ------
Operating income (loss)............ 2,645 1,427 1,021 288 206 118 (221)
Interest and other income
(expense), net................... 81 398 155 101 21 5 11
-- ------- ------- ------ ------ ------ --
Income (loss) before
provision for income
taxes............................ 2,726 1,825 1,176 389 227 123 (210)
Provision (benefit) for
income taxes..................... 1,267 1,371 512 178 114 49 (84)
------- ------ ------- ------ ------ ------ ------
Net income (loss).................. $ 1,459 $ 454 $ 664 $ 211 $ 113 $ 74 $ (126)
======= ======= ======= ====== ====== ====== ======
Net income per
share, basic and diluted(4)...... $ 0.18 $ 0.08 $ 0.42 $ 0.13 $ 0.07 $ 0.05 $(0.08)
======= ======= ======= ====== ====== ====== ======
Weighted average shares
outstanding - basic(4)........... 8,123,306 5,904,484 1,596,350 1,596,350 1,596,350 1,596,350 1,596,350
Weighted average shares
outstanding - diluted(4)......... 8,123,306 5,930,248 1,596,350 1,596,350 1,596,350 1,596,350 1,596,350
</TABLE>
<TABLE>
<CAPTION>
BridgeStreet Historical (TCH only)
------------ ---------------------
December 31, December 31,
--------------- -------------------------------------------
1998 1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital................................. $ 3,351 $ 9,172 $ 986 $ 563 $ 496 $ 592 $499
Total assets.................................... 60,124 42,563 2,013 2,510 1,672 1,209 901
Long-term debt, less current maturities ........ 7,608 26 -- -- 67 10 16
Total stockholders' equity ................ 42,986 37,578 1,184 869 658 545 471
</TABLE>
(1)Certain amounts have been reclassified to conform to the 1998 presentation.
(2)Consists of a management restructuring charge. This represents a reduction of
$0.09 per share in 1998.
(3)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.
(4)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.
38
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders 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, 1998 and 1997, and the related consolidated statements of
operations and comprehensive income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, 1998 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, 1998, 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)(1) and
(2) and Item 14(d) of Form 10-K are 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.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 17, 1999
39
<PAGE> 40
SCHEDULE II
BRIDGESTREET ACCOMMODATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Provision Accounts Balance
Beginning Charged to Accounts Written Payments at End
of Year Expense Recovered Off Made of Year
------- ------- --------- --- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for Doubtful Accounts $ 166,762 $ 103,238 $ -- $ -- $ -- $ 270,000
Restructuring reserve $ -- 1,330,000 -- -- $ 664,297 $ 665,703
Year ended December 31, 1997
Allowance for Doubtful Accounts $ 45,000 $ 121,672 $ -- $ -- $ -- $ 166,762
Year ended December 31, 1996
Allowance for Doubtful Accounts $ -- $ -- $ -- $ -- $ -- $ 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.
46
<PAGE> 41
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, 1998, 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, 1998, 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, 1998, 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, 1998, 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.
<TABLE>
<CAPTION>
Item Page No.
- ---- --------
<S> <C>
Report of Independent Public Accountants................................................
Consolidated Balance Sheets as of December 31, 1998 and 1997............................
Consolidated Statements of Operations and Comprehensive Income for the
years ended December 31, 1998, 1997 and 1996............................................
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996........................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996...........................................................................
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts.........................................
</TABLE>
40
<PAGE> 42
(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.......................
*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...........................................
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
------- ----------- --------
<S> <C>
*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 Separation Agreement dated as of January 21, 1999 between BridgeStreet
Accommodations, Inc. and Melanie R. Sabelhaus..................................
+10.21 Separation Agreement dated as of February 10, 1999 between BridgeStreet
Accommodations, Inc. and Rocco DiLillo.........................................
+10.22 Separation Agreement dated as of March 4, 1999 between BridgeStreet
Accommodations, Inc. and Connie F. O'Briant....................................
+10.23 Amendment to Employment Agreement dated as of January 2, 1997, between
BridgeStreet International Inc. and Mark D. Gagne..............................
+10.24 Third Amendment to Revolving Credit Agreement dated as of May 5, 1997, between
BridgeStreet Accommodations, Inc. and Fleet National Bank......................
+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, 1998.
(c) See item 14(a) (3) above
42
<PAGE> 44
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 25, 1999 By:/s/ John E. Danneberg
-------------------------------------
John E. Danneberg
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/S/ JOHN E. DANNEBERG
- ------------------------------ PRESIDENT, CHIEF EXECUTIVE OFFICER MARCH 25, 1999
JOHN E. DANNEBERG AND DIRECTOR
/S/ MARK D. GAGNE
- ------------------------------ CHIEF FINANCIAL OFFICER AND MARCH 25, 1999
MARK D. GAGNE PRINCIPAL ACCOUNTING OFFICER
/S/ PAUL M. VERROCHI
- ------------------------------ CHAIRMAN OF THE BOARD MARCH 25, 1999
PAUL M. VERROCHI
/S/ LYNDA D. CLUTCHEY
- ------------------------------ DIRECTOR MARCH 25, 1999
LYNDA D. CLUTCHEY
/S/ DAVID B. HAMMOND
- ------------------------------
DAVID B. HAMMOND DIRECTOR MARCH 25, 1999
/S/ WILLIAM N. HULETT
- ------------------------------
WILLIAM N. HULETT DIRECTOR MARCH 25, 1999
/S/ STEPHEN J. RUZIKA
- ------------------------------
STEPHEN J. RUZIKA DIRECTOR MARCH 25, 1999
/S/ JERRY SUE THORNTON
- ------------------------------
JERRY SUE THORNTON DIRECTOR MARCH 25, 1999
43
</TABLE>
<PAGE> 1
Exhibit 10.20
January 21, 1999
Melanie R. Sabelhaus
277 Green Spring Valley Drive
Owings Mills, MD 21117
Dear Melanie:
This letter agreement is intended to set forth the arrangements between
you and BridgeStreet Accommodations, Inc. (the "Company") with respect to the
termination of your employment with the Company.
1. Your Employment Agreement dated as of December 30, 1996 between the
Company's subsidiary, EIP Acquisition Corp. and you is terminated effective as
of June 8, 1998 (the "Termination Date") except for the provisions of Sections
7, 8 and 13 which shall remain in full force and effect. Effective as of the
date of this letter agreement, you have resigned as a director and/or officer of
the Company and each of its subsidiaries.
2. (a) The Company will continue to pay to you installments of base
salary at the current rate as of the Termination Date for a period of one year
from the Termination Date at such times as if you had continued to be employed
with the Company throughout such period. The Company shall deduct any applicable
withholding taxes and similar required or authorized deductions. In addition,
promptly following expiration of the seven-day period referred to in Section 13,
the Company will pay you the sum of one hundred twenty thousand ($120,000).
(b) You will be eligible to participate in the Company's medical
insurance plan for a period of one year from the Termination Date, subject to
the terms and conditions of the plan. Such participation shall be on the same
terms and conditions as apply to all executive level employees of the Company.
(c) You shall cease to be an employee of the Company but shall
provide consulting services in the area of acquisitions as an independent
contractor to the Company for a period of one year from the Termination Date
hereof as the Company shall reasonably request. The Company and any officers of
the Company seeking your advice or requesting you to act will, insofar as
reasonably practicable, consider your convenience in the timing of their
requests, and your failure or inability, by reason of temporary illness or other
cause beyond your control or because of absence for reasonable periods, to
respond to such requests during any such temporary period shall not be
<PAGE> 2
deemed to constitute a default on your part in the performance of your
obligation to render such services.
3. You hereby acknowledge that there are no other benefits, compensation
or remuneration of any kind owing to you from the Company, including, without
limitation, any accrued vacation or sick pay, other than your rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985. As an independent
contractor of the Company, you shall not be entitled to participate in, accrue
any benefits under, or receive any payments from any employee welfare benefit or
retirement plans or arrangements that the Company may provide to its employees;
and the fees paid under this Agreement shall not be deemed to be salary or other
compensation to you for purposes of any such plans or arrangements.
4. You agree that all source code, object code, memoranda, notes,
records, charts, reports, letters and other documents and software made,
compiled, received, held or used by you while employed by the Company,
concerning any phase of the business of the Company, are the Company's property
and, together with all reproductions or abstracts thereof and together with all
Company credit cards and keys, have been returned to the Company.
5. You hereby acknowledge and agree that this Agreement is intended to
be a complete and final settlement of any and all causes of action or claims
that you have had, now have or may now have, whether known or unknown against
the Company or any of the persons or entities specified below, including without
limitation, all causes of action or claims in any way related to or arising out
of or in connection with your employment by the Company and/or its termination
or pursuant to any federal, state or local employment laws, regulations,
executive orders or other requirements such as Title VII of the Civil Rights Act
of 1964, the Employee Retirement Income Security Act of 1974, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Older Workers Benefit Protection Act, and the Americans with Disabilities Act of
1990, as they may be amended, or the acquisition by the Company of Exclusive
Interim Properties, Ltd. or any transactions related thereto (collectively,
"Claims"). You hereby release, waive and discharge any and all such Claims
against the Company and its respective affiliates and past, present and future
directors, officers, agents, employees, shareholders, promoters (including
American Business Partners, LLC and its principals), successors and assigns, and
you hereby agree that neither you nor any of your heirs or personal
representatives will ever assert in any forum any such cause of action or claim.
<PAGE> 3
Without limiting in any way the generality of the foregoing release, it
is expressly agreed that you waive, release and forego any chance, rights or
opportunity to seek reemployment or reinstatement to employment with the Company
or any subsidiary of the Company, at any location, now or ever in the future and
that you shall not apply for or seek in any way to be reinstated, reemployed or
hired by any of them in the future.
6. The Company represents and warrants that as of the date hereof, the
Company knows of no claims or causes of action of whatever kind or nature which
the Company has or may have against you which arose on or before the date
hereof, including, but not limited to, any claims for relief, whether
injunctive, declaratory, statutory, monetary or otherwise arising under any
federal, state or local law, ordinance, regulation or order or arising from or
in connection with your employment by the Company whether based on contract,
tort including negligence, or otherwise.
7. You hereby agree not to disclose to any person (except your spouse,
attorney or financial advisor), organization or agency the terms of this
Agreement except as required by law and then only after notice is given by you
or your attorney to the Company such that, where feasible, the Company will have
a reasonable prior opportunity to oppose such disclosure.
8. The Company and you each agree with the other not to discuss with any
person or entity the circumstances surrounding your employment with or
separation from the Company, except to the extent required by law. You agree not
to make any adverse remarks whatsoever concerning the business, operations,
strategies, policies, prospects, affairs and financial condition of the Company.
The Company agrees that it will not make any adverse remarks whatsoever
concerning you and that it will instruct its executive officers not to make any
adverse remarks whatsoever concerning you.
9. It is expressly understood and agreed that by entering into this
Agreement, the Company in no way thereby admits that it unlawfully or wrongfully
discriminated against you due to your age or status or otherwise treated you
unlawfully.
10. All payments to be made to you and benefits to be made available to
you in accordance with the terms of this Agreement, and the performance by the
Company of its other obligations hereunder, shall be conditioned on your
continued compliance with the covenants set forth in this Agreement.
-3-
<PAGE> 4
11. You agree that irreparable damages would occur in the event that any
of the provisions of this Agreement were not performed by you in accordance with
their specific terms or you otherwise acted in breach of any of them. It is
accordingly agreed that the Company will be entitled to an injunction or
injunctions to prevent breaches of this Agreement by you and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
this being in addition to any other remedy to which it is entitled at law or in
equity.
12. If any term or provision of this Agreement or the application thereof
to any person, property or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provision to persons, property or circumstances other than those as to which
it is invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law.
13. For a period of seven days following your execution of this
Agreement, you may revoke this Agreement, and this Agreement shall not become
effective or enforceable until this seven-day revocation period has expired. No
payments provided for by this Agreement will be made until after this seven-day
period has expired without your revoking this Agreement.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio without regard to conflicts of law principles. The
obligations of the Company and you hereunder shall inure to the benefit of and
be binding on the respective heirs, personal representatives, successors and
assigns of the parties. This Agreement embodies the entire agreement and
understanding between you and the Company concerning your employment and the
termination thereof and incorporates and supersedes all other agreements with
regard to your employment and the termination thereof.
15. This Agreement may be amended or modified only upon the written
mutual consent of the parties.
16. You hereby acknowledge and agree that (a) you understand the
provisions of this Agreement, (b) your agreement hereunder is knowing and
voluntary, (c) you have been afforded a full and reasonable opportunity of at
least twenty-one days to consider its terms and to consult with or seek advice
from any attorney or any other persons of your choosing and (d) you have been
advised by the Company to consult with an attorney prior to executing this
Agreement.
-4-
<PAGE> 5
If the foregoing is in accordance with your understanding, please sign
and return the enclosed copy of this letter, whereupon this letter and such copy
will constitute a binding agreement between you and the Company on the basis set
forth above.
Very truly yours,
BRIDGESTREET ACCOMMODATIONS, INC.
By /s/ John E. Danneberg
-----------------------------------
Its President
Acknowledged and Agreed to:
/s/Melanie R. Sabelhaus
- ----------------------------
Melanie R. Sabelhaus
<PAGE> 1
Exhibit 10.21
February 10, 1999
Mr. Rocco A. Di Lillo
2099 Edgeview Drive
Hudson, Ohio 44236
Dear Rocco:
This letter agreement is intended to set forth the arrangements between
you and BridgeStreet Accommodations, Inc. (the "Company") with respect to the
termination of your employment with the Company.
1. Your Employment Agreement dated as of December 30, 1996 between the
Company's subsidiary, Corporate Lodgings, Inc., and you (the "Employment
Agreement") was terminated effective as of June 8, 1998 (the "Termination
Date"), except for the provisions of Sections 7, 8 and 13 of the Employment
Agreement which remain and shall remain in full force and effect. Effective as
of the Termination Date, you resigned as an officer of the Company and as an
officer and/or director of its subsidiaries. Simultaneously with your execution
of this letter agreement you shall resign, and this letter agreement shall
constitute your resignation, as a director of the Company.
2. (a) From the date of this Agreement until December 8, 1999 (the
"Payment Period"), the Company will pay to you installments of your base salary
at the rate in effect as of the Termination Date at such times as though you
were employed with the Company throughout such period. The Company shall deduct
any applicable withholding taxes and similar required or authorized deductions.
In addition, in the Company's first regular payroll cycle commencing after the
expiration of the seven-day period referred to in Section 15, the Company will
pay you the sum of Forty-Three Thousand Seventy-Six Dollars and Ninety-Two Cents
($43,076.92), representing severance pay from October 4, 1998 through January
23, 1999, in addition to the amount of severance pay otherwise due from January
23, 1999 after deducting any applicable withholding taxes and similar required
or authorized deductions. The Company also shall reimburse you in the amount of
$1,276.68 for costs you incurred to maintain medical insurance after October 4,
1998 to date.
(b) During the Payment Period, you will be eligible to participate
in the Company's medical insurance plan, subject to the terms and conditions of
the plan. Such participation shall be on the same terms and conditions as apply
to all executive level employees of the Company.
(c) Although you have ceased to be an employee of the Company, you
shall be available to provide such operations and management consulting services
as an independent contractor to the Company during the Payment Period as the
Company shall reasonably request, not to exceed a reasonable commitment of time
to be determined by you. The Company and any officers of the Company seeking
your advice or requesting you to act will, insofar as reasonably practicable,
consider your convenience in the timing of their requests, and your failure or
inability, by reason of temporary illness or other cause beyond your control or
because of absence for reasonable periods, to respond to such requests during
any such temporary period shall not be deemed to constitute a default on your
part in the
<PAGE> 2
performance of your obligation to render such services. Other than the payments
described in Section 2(a), you shall not be entitled to any other compensation
for any consulting services provided.
3. In the event of the completion prior to July 31, 2001 of a Change in
Control (as defined below) or the completion prior to January 31, 2002 of a
Change in Control which has been publicly announced prior to on or July 31,
2001, the Company shall pay you on a date no later than ten (10) days after the
date of the completion of the Transaction (as defined below) a sum equal to the
greater of (i) One Hundred Fifty Thousand Dollars ($150,000) or (ii) the product
equal to (A) the positive difference of the Price Per Share (as defined below)
less $9.00 (as appropriately adjusted for any stock splits or similar events)
multiplied by (B) fifty thousand (50,000). As used in this Agreement, "Price Per
Share" means the quotient of (i) all things of value received or to be received
by the Company and its wholly-owned subsidiary entities (in the case of the sale
of all or substantially all the assets of the Company) or the stockholders (in
the case of all other Transactions), including but not limited to cash, cash
equivalents, debt securities, equity securities, property of all kinds and
liabilities assumed, discharged or refinanced in connection with the
Transaction; (ii) divided by the number of shares of common stock (giving effect
to any preferential rights accorded to any class thereof) and common stock
equivalents (including options, warrants, convertible notes and preferred stock,
etc.) of the Company outstanding at the time of any such Transaction, provided
that in the event of a tender offer Transaction involving less than all the
common stock of the Company outstanding, the Price Per Share shall be determined
using only the shares involved in the Transaction. As used in this Agreement,
"Change in Control" means (i) a cash or share exchange tender offer or a merger,
consolidation, reorganization or other business combination transaction or
series of transactions with respect to which the Company is not the surviving
entity or with respect to which the beneficial owners of the outstanding shares
of common stock of the Company immediately prior to such transaction do not,
immediately following such transaction, beneficially own more than 50% of the
outstanding shares of Common Stock of the Company resulting from such
transaction; (ii) the sale of all or substantially all the assets of the
Company; or (iii) the liquidation or dissolution of the Company (each, a
"Transaction").
4. You hereby acknowledge that there are no other benefits,
compensation or remuneration of any kind owing to you from the Company,
including, without limitation, any accrued vacation or sick pay, other than your
rights under the Consolidated Omnibus Budget Reconciliation Act of 1985. As an
independent contractor of the Company, you shall not be entitled to participate
in, accrue any benefits under, or receive any payments from any employee welfare
benefit or retirement plans or arrangements that the Company may provide to its
employees; and the fees paid under this Agreement shall not be deemed to be
salary or other compensation to you for purposes of any such plans or
arrangements.
5. Until (but not including) the 1999 annual meeting of the
stockholders of the Company (i) all written materials provided to the directors
of the Company in contemplation of a telephone or other meeting of the full
Board of Directors of the Company or in connection with the distribution of an
action by written consent for the full Board shall be provided to you and (ii)
you, at your election, may attend meetings of the Board of Directors of the
Company. The Company will pay you customary directors' fees for, and reimburse
your expenses in
<PAGE> 3
connection with, any full Board meetings that you attend prior to the 1999
annual stockholders' meeting.
6. You agree that all source code, object code, memoranda, notes,
records, charts, reports, letters and other documents and software made,
compiled, received, held or used by you while employed by the Company,
concerning any phase of the business of the Company, are the Company's property
and, together with all reproductions or abstracts thereof and together with all
Company credit cards and keys, have been returned to the Company.
7. You hereby acknowledge and agree that this Agreement is intended to
be a complete and final settlement of any and all causes of action or claims
that you have had, now have or may now have, whether known or unknown against
the Company or any of the persons or entities specified below, including without
limitation, all causes of action or claims in any way related to or arising out
of or in connection with your employment by the Company and/or its termination
or pursuant to any federal, state or local employment laws, regulations,
executive orders or other requirements such as Title VII of the Civil Rights Act
of 1964, the Employee Retirement Income Security Act of 1974, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Older Workers Benefit Protection Act, and the Americans with Disabilities Act of
1990, as they may be amended, or the acquisition by the Company of Corporate
Lodgings, Inc. or any transactions related thereto (collectively, "Claims"). You
hereby release, waive and discharge any and all such Claims against the Company
and its respective affiliates and past, present and future directors, officers,
agents, employees, shareholders, promoters, successors and assigns, and you
hereby agree that neither you nor any of your heirs or personal representatives
will ever assert in any forum any such cause of action or claim.
Without limiting in any way the generality of the foregoing release, it
is expressly agreed that you waive, release and forego any chance, rights or
opportunity to seek reemployment or reinstatement to employment with the Company
or any subsidiary of the Company, at any location, now or ever in the future and
that you shall not apply for or seek in any way to be reinstated, reemployed or
hired by any of them in the future.
8. The Company hereby releases, waives and discharges you and your
successors and assigns from and against all causes of action or claims that it
ever had, now has or may now have, whether known or unknown, against you, other
than causes of action or claims arising in connection with your intentional
misconduct or fraudulent acts, in connection with that certain Agreement and
Plan of Merger dated as of December 30, 1996 among the Company, you, Corporate
Lodgings, Inc. and certain of its affiliated companies (the "Merger Agreement")
or in connection with your non-competition letter agreement to the Company
<PAGE> 4
dated December 30, 1996 (the "Non-Competition Agreement"). The Company hereby
represents and warrants to you that it currently knows of no claims against you
which are of the type excluded from the foregoing release.
9. You hereby agree not to disclose to any person (except your spouse,
attorney or financial advisor), organization or agency the terms of this
Agreement except as required by law and then only after notice is given by you
or your attorney to the Company such that, where feasible, the Company will have
a reasonable prior opportunity to oppose such disclosure. You also acknowledge
and agree that the restrictions against disclosure and use of confidential
information set forth in Section 8 of the Employment Agreement remain in full
force and effect and shall apply to any Confidential Information (as defined in
the Employment Agreement) of the Company obtained by you during the Payment
Period.
10. The Company and you each agree with the other not to discuss with
any person or entity the circumstances surrounding your employment with or
separation from the Company, except to the extent required by law. You agree not
to make any adverse remarks whatsoever concerning the business, operations,
strategies, policies, prospects, affairs and financial condition of the Company.
The Company agrees that it will not make any adverse remarks whatsoever
concerning you and that it will instruct its executive officers, directors and
other management level employees whom you request in writing to the Company to
be so instructed not to make any adverse remarks whatsoever concerning you. The
Company and you agree that any public disclosure of this Agreement or of the
circumstances of your departure from the Company shall be agreed upon by both
parties prior to its disclosure, other than disclosure required by law,
provided, however, that with regard to disclosure required by applicable
securities laws, only factual disclosures made under such securities laws may be
made without your prior agreement.
11. It is expressly understood and agreed that by entering into this
Agreement, the Company in no way thereby admits that it unlawfully or wrongfully
discriminated against you due to your age or status or otherwise treated you
unlawfully.
12. All payments to be made to you and benefits to be made available to
you in accordance with the terms of this Agreement, and the performance by the
Company of its other obligations hereunder, shall be conditioned on your
continued compliance with the covenants set forth in this Agreement and in the
Non-Competition Agreement.
13. The Company and you agree that irreparable damages would occur in
the event that Sections 6, 9 and 10 of this Agreement were not performed by the
party obligated thereunder in accordance with their specific terms. It is
accordingly agreed that the other party will be entitled to an injunction or
injunctions to prevent breaches of the party obligated thereunder and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
this being in addition to any other remedy to which it is entitled at law or in
equity.
14. If any term or provision of this Agreement or the application
thereof to any person, property or circumstance shall to any extent be invalid
or unenforceable, the remainder of this
<PAGE> 5
Agreement or the application of such term or provision to persons, property or
circumstances other than those as to which it is invalid or unenforceable shall
not be affected thereby, and each term and provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
15. For a period of seven days following your execution of this
Agreement, you may revoke this Agreement, and this Agreement shall not become
effective or enforceable until this seven-day revocation period has expired. No
payments provided for by this Agreement will be made until after this seven-day
period has expired without your revoking this Agreement.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio without regard to conflicts of law
principles. The obligations of the Company and you hereunder shall inure to the
benefit of and be binding on the respective heirs, personal representatives,
successors and assigns of the parties. This Agreement embodies the entire
agreement and understanding between you and the Company concerning your
employment and the termination thereof and incorporates and supersedes all other
agreements with regard to your employment and the termination thereof. This
Agreement shall not affect your option to purchase 25,000 shares of Common Stock
of the Company. Similarly, this Agreement shall not affect the Merger Agreement
or the Non-Competition Agreement. Notwithstanding the foregoing, we agree with
you that (i) your hiring of Sally Bowman shall not constitute violation of
Section 1(iv) the Non-Competition Agreement, it being understood that this
waiver will not constitute of waiver in any future similar occurrences, and (ii)
you shall not violate the first sentence or clauses (i) or (iii) of Section 1 of
the Non-Competition Agreement if you own or become interested, directly or
indirectly, in a bed and breakfast or similar inn, provided that a material
portion of the business of such bed and breakfast or similar inn does not
involve providing extended stay lodging or flexible accommodation services.
17. This Agreement may be amended or modified only upon the written
mutual consent of the parties.
18. You hereby acknowledge and agree that (a) you understand the
provisions of this Agreement, (b) your agreement hereunder is knowing and
voluntary, (c) you have been afforded a full and reasonable opportunity of at
least twenty-one days to consider its terms and to consult with or seek advice
from any attorney or any other persons of your choosing and (d) you have been
advised by the Company to consult with an attorney prior to executing this
Agreement and have, in fact, consulted with an attorney.
<PAGE> 6
If the foregoing is in accordance with your understanding, please sign
and return the enclosed copy of this letter, whereupon this letter and such copy
will constitute a binding agreement between you and the Company on the basis set
forth above.
Very truly yours,
BRIDGESTREET ACCOMMODATIONS, INC.
By /s/ John E. Danneberg
-----------------------------------------
Its President
Acknowledged and Agreed to:
/s/ Rocco A. DiLillo
- ----------------------------
Rocco A. Di Lillo
<PAGE> 1
Exhibit 10.22
March 4, 1999
Ms. Connie F. O'Briant
9125 Forest Wind Drive
Collierville, TN 38017
Dear Connie:
This letter agreement is intended to set forth the arrangements between
you, BridgeStreet Accommodations, Inc. (the "Company") and Temporary Housing
Experts, Inc. ("THEI") with respect to the termination of your employment with
the Company.
1. Your Employment Agreement dated as of December 30, 1996 between the
Company's subsidiary, THEI, and you (the "Employment Agreement") and your
employment by the Company is terminated effective as of March 4, 1999 (the
"Termination Date"), except for the provisions of Sections 7, 8 and 13 of the
Employment Agreement which remain and shall remain in full force and effect.
Effective as of the Termination Date, you resigned as an officer and/or director
of the Company and as an officer and/or director of THEI and the Company's other
subsidiaries, and this letter agreement shall constitute your resignation.
2. (a) From the date of this Agreement until December 31, 1999 (the
"Payment Period"), THEI will pay to you installments of your base salary at the
rate in effect as of the Termination Date at such times as though you were
employed with THEI throughout such period. During the Payment Period, if a
change in control of the Company should occur, all remaining installment
payments of your base salary will be paid to you within ten business days of the
effective date of the change in control. THEI shall deduct any applicable
withholding taxes and similar required or authorized deductions.
(b) During the Payment Period, you will be eligible to participate
in THEI's medical insurance plan, subject to the terms and conditions of the
plan. Such participation shall be on the same terms and conditions as apply to
executive level employees of THEI.
(c) Although you have ceased to be an employee of THEI, you shall be
available to provide such operations and management consulting services as an
independent contractor to the Company and its subsidiaries during the Payment
Period as the Company shall reasonably request, not to exceed a reasonable
commitment of time to be determined by you. The Company and any officers of the
Company seeking your advice or requesting you to act will, insofar as reasonably
practicable, consider your convenience in the timing of their requests, and your
failure or inability, by reason of temporary illness or other cause beyond your
control or because of absence for reasonable periods, to respond to such
requests during any such temporary period shall not be deemed to constitute a
default on your part in the performance of your obligation to render such
services. Other than the payments described in Section 2(a), you shall not be
entitled to any other compensation for any consulting services provided.
<PAGE> 2
Connie F. O'Briant
March 4, 1999
Page 2.
3. You hereby acknowledge that there are no other benefits,
compensation or remuneration of any kind owing to you from THEI and the Company,
including, without limitation, any accrued vacation or sick pay, other than your
rights under the Consolidated Omnibus Budget Reconciliation Act of 1985. As an
independent contractor of the Company, you shall not be entitled to participate
in, accrue any benefits under, or receive any payments from any employee welfare
benefit or retirement plans or arrangements that the Company may provide to its
employees; and the fees paid under this Agreement shall not be deemed to be
salary or other compensation to you for purposes of any such plans or
arrangements.
4. You agree that all source code, object code, memoranda, notes,
records, charts, reports, letters and other documents and software made,
compiled, received, held or used by you while employed by the Company, THEI or
the Company's other sibsidiaries concerning any phase of the business of the
Company, THEI or the Company's other subsidiaries, are the Company's property
and, together with all reproductions or abstracts thereof and together with all
Company credit cards and keys, have been returned to the Company.
5. You hereby acknowledge and agree that this Agreement is intended to
be a complete and final settlement of any and all causes of action or claims
that you have had, now have or may now have, whether known or unknown against
the Company, THEI and the Company's other subsidiaries or any of the persons or
entities specified below, including without limitation, all causes of action or
claims in any way related to or arising out of or in connection with your
employment by THEI and/or its termination or pursuant to any federal, state or
local employment laws, regulations, executive orders or other requirements such
as Title VII of the Civil Rights Act of 1964, the Employee Retirement Income
Security Act of 1974, the Age Discrimination in Employment Act of 1967, the
Rehabilitation Act of 1973, the Older Workers Benefit Protection Act, and the
Americans with Disabilities Act of 1990, as they may be amended, or the
acquisition by the Company of Temporary Housing Experts, Inc. or any
transactions related thereto (collectively, "Claims"). You hereby release, waive
and discharge any and all such Claims against the Company, THEI and the
Company's other subsidiaries and its respective affiliates and past, present and
future directors, officers, agents, employees, shareholders, promoters,
successors and assigns, and you hereby agree that neither you nor any of your
heirs or personal representatives will ever assert in any forum any such cause
of action or claim.
Without limiting in any way the generality of the foregoing release, it
is expressly agreed that you waive, release and forego any chance, rights or
opportunity to seek reemployment or reinstatement to employment with the Company
or any subsidiary of the Company, at any location, now or ever in the future and
that you shall not apply for or seek in any way to be reinstated, reemployed or
hired by any of them in the future.
6. The Company hereby releases, waives and discharges you and your
successors and assigns from and against all causes of action or claims that it
ever had, now has or may now have, whether known or unknown, against you, other
than causes of action or claims arising in connection with your intentional
misconduct or fraudulent acts, in connection with that certain Agreement and
Plan of Merger dated as of December 30, 1996 among the Company, you, Temporary
Housing Experts, Inc. and certain of its affiliated companies (the "Merger
Agreement") or in connection with your non-competition letter agreement to the
Company dated December 30, 1996 (the "Non-Competition Agreement"). The Company
hereby represents and warrants to you that it currently knows of no claims
against you which are of the type excluded from the foregoing release.
<PAGE> 3
Connie O'Briant
March 4, 1999
Page 3.
7. You hereby agree not to disclose to any person (except your spouse,
attorney or financial advisor), organization or agency the terms of this
Agreement except as may be required by law. You also acknowledge and agree that
the restrictions against disclosure and use of confidential information set
forth in Section 7 of the Employment Agreement remain in full force and effect
and shall apply to any Confidential Information (as defined in the Employment
Agreement) of the Company or its subsidiaries obtained by you during the Payment
Period.
8. The Company and you each agree with the other not to discuss with
any person or entity the circumstances surrounding your employment with or
separation from the Company, except to the extent required by law. You agree not
to make any adverse remarks whatsoever concerning the business, operations,
strategies, policies, prospects, affairs and financial condition of the Company.
The Company agrees that it will not make any adverse remarks whatsoever
concerning you and that it will instruct its executive officers, directors and
other management level employees whom you request in writing to the Company to
be so instructed not to make any adverse remarks whatsoever concerning you. The
Company and you agree that any public disclosure of this Agreement or of the
circumstances of your departure from the Company shall be agreed upon by both
parties prior to its disclosure, other than disclosure required by law,
provided, however, that with regard to disclosure required by applicable
securities laws, only factual disclosures made under such securities laws may be
made without your prior agreement.
9. It is expressly understood and agreed that by entering into this
Agreement, the Company and THEI in no way thereby admits that it unlawfully or
wrongfully discriminated against you due to your age or status or otherwise
treated you unlawfully.
10. All payments to be made to you and benefits to be made available to
you in accordance with the terms of this Agreement, and the performance by the
Company and THEI of its other obligations hereunder, shall be conditioned on
your continued compliance with the covenants set forth in this Agreement and in
your non-competition letter agreement dated December 30, 1996 (the
"Non-Competition Agreement").
11. The Company and you agree that irreparable damages would occur in
the event that Sections 2, 4, 7 and 8 of this Agreement were not performed by
the party obligated thereunder in accordance with their specific terms. It is
accordingly agreed that the other parties will be entitled to an injunction or
injunctions to prevent breaches of the party obligated thereunder and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
this being in addition to any other remedy to which it is entitled at law or in
equity.
12. If any term or provision of this Agreement or the application
thereof to any person, property or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
term or provision to persons, property or circumstances other than those as to
which it is invalid or unenforceable shall not be affected thereby, and each
term and provision of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
13. For a period of seven days following your execution of this
Agreement, you may revoke this Agreement, and this Agreement shall not become
effective or enforceable until this seven-day revocation period has expired. No
payments provided for by this Agreement will be made until after this seven-day
period has expired without your revoking this Agreement.
<PAGE> 4
Connie F. O'Briant (March 4, 1999) Page 4.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio without regard to conflicts of law
principles. The obligations of the Company and THEI and you hereunder shall
inure to the benefit of and be binding on the respective heirs, personal
representatives, successors and assigns of the parties. This Agreement embodies
the entire agreement and understanding between you, the Company and THEI
concerning your employment and the termination thereof and incorporates and
supersedes all other agreements with regard to your employment and the
termination thereof. This Agreement shall not affect your obligations under the
Agreement and Plan of Merger dated as of December 30, 1996 among the Company,
THEI and others or the Non-Competition Agreement.
15. This Agreement may be amended or modified only upon the written
mutual consent of the parties.
16. You hereby acknowledge and agree that (a) you understand the
provisions of this Agreement, (b) your agreement hereunder is knowing and
voluntary, (c) you have been afforded a full and reasonable opportunity of at
least twenty-one days to consider its terms and to consult with or seek advice
from any attorney or any other persons of your choosing and (d) you have been
advised by the Company to consult with an attorney prior to executing this
Agreement and have, in fact, consulted with an attorney.
If the foregoing is in accordance with your understanding, please sign
and return the enclosed copy of this letter, whereupon this letter and such copy
will constitute a binding agreement between you, the Company and THEI on the
basis set forth above.
Very truly yours,
BRIDGESTREET ACCOMMODATIONS, INC.
By /s/ John E. Danneberg
------------------------------------
Its President
TEMPORARY HOUSING EXPERTS, INC.
By /s/ John E. Danneberg
-------------------------------------
Its Chief Executive Officer
Acknowledged and Agreed to:
/s/ Connie F. O'Briant
- --------------------------------
Connie F. O'Briant
<PAGE> 1
Exhibit 10.23
AMENDMENT AGREEMENT
Effective February , 1999, BridgeStreet Accommodations, Inc., a
Delaware corporation ("BridgeStreet"), and Mark D. Gagne, of Hudson, Ohio (the
"Executive") hereby act and agree as follows:
1. Reference is made to the Employment Agreement dated as of January 2,
1997 by and between BridgeStreet and the Executive (the "Agreement").
2. The Agreement is hereby amended to replace in Section 2 the words
"May 31, 2000" with the words "May 31, 2001".
3. The Agreement is hereby further amended to add the following Section
4(h):
"Severance. If BridgeStreet does not offer to extend this
Agreement on substantially the same terms and conditions upon
expiration of the term hereof, BridgeStreet shall pay to the Executive
within thirty (30) days following expiration of the term hereof the sum
of seventy-five thousand dollars ($75,000)."
4. The Agreement is hereby further amended to replace Section 6(d)(i)
with the following.
"(i) BridgeStreet shall pay to the Executive within thirty
(30) days following the date of termination the sum of seventy-five
thousand dollars ($75,000) and, in addition, shall continue to pay to
the Executive his Base Salary as of the date of termination for the
term of this Agreement or twelve months, whichever is longer."
5. The Agreement is hereby further amended to replace Section 5(d)(i)
with the following:
"(i) BridgeStreet shall continue to pay to the Executive his
Base Salary as of the date of the Change of Control for twelve months
from the date of termination and shall pay the Executive seventy-five
thousand dollars ($75,000) within thirty (30) days following the
effective date of termination."
6. Except as hereby amended, the Agreement shall continue in full force
and effect.
<PAGE> 2
WITNESS the execution hereof under seal effective as of the day and
year first above written.
BRIDGESTREET ACCOMMODATIONS, INC.
By/s/ John E. Danneberg
--------------------------------------
Its President
/s/ Mark D. Gagne
----------------------------------------
Mark D. Gagne
<PAGE> 1
Exhibit 10.24
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
---------------------------------------------
This Third Amendment to Revolving Credit Agreement ("Third Amendment")
is made as of February __, 1999 by and among Bridgestreet Accommodations, Inc.
f/k/a Bridgestreet International, Inc. ("Borrower"), a Delaware corporation
having its principal place of business at 30670 Bainbridge Road, Solon, OH
44139, Fleet National Bank, a national banking association ("Fleet"), Bank One,
N.A., a national banking association ("Bank One"), and Fleet National Bank, as
agent for itself and Bank One (the "Agent").
RECITALS
--------
WHEREAS, the Borrower, Fleet and Agent have previously entered into
that certain Revolving Credit Agreement, dated as of March 31, 1997 (the
"Original Credit Agreement"), pursuant to which Fleet made available to the
Borrower a revolving credit loan facility having a maximum available borrowing
amount of $10,000,000; and
WHEREAS, the Borrower, Fleet and the Agent previously entered into that
certain First Amendment to Revolving Credit Agreement dated as of May 5, 1997
pursuant to which certain provisions of the Original Credit Agreement were
amended;
WHEREAS, Fleet subsequently assigned a portion of its original
commitment to Bank One;
WHEREAS, the Borrower, Fleet and Bank One previously entered into that
certain Second Amendment to Revolving Credit Agreement dated as of March 20,
1998 pursuant to which the aggregate commitment of Fleet and Bank One was
increased to $25.0 million and certain other provisions of the Original Credit
Agreement were further amended (the Original Credit Agreement, as amended to
date, being referred to herein as the "Credit Agreement");
WHEREAS, the parties hereto now desire to amend the Credit Agreement in
certain respects in order to (i) amend certain pricing provisions, (ii) modify
certain financial covenants, (iii) amend the requirements for permitted
acquisitions, and (iv) make certain other modifications to the provisions of the
Credit Agreement, all as more particularly set forth hereinbelow.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree to modify and amend the Credit Agreement as follows:
Section 1. DEFINITIONS. All capitalized terms used herein without
definition shall have their respective meanings provided therefor in the Credit
Agreement.
<PAGE> 2
Section 2. AMENDMENT OF SPECIFIC PROVISIONS. The following specific
provisions of the Credit Agreement are hereby modified and amended as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended by adding
thereto the definition of "Adjustment Date" as follows:
"ADJUSTMENT DATE. The first day of the calendar month immediately
following the month in which a compliance certificate is to be delivered by the
Borrower pursuant to Section 7.4(c) hereof."
(b) Section 1.1 of the Credit Agreement is hereby amended by adding
thereto the definition of "Applicable Margin" as follows:
"APPLICABLE MARGIN. For each period commencing on an Adjustment
Date through the date immediately preceding the next Adjustment Date (each, a
"Rate Adjustment Period"), the Applicable Margin shall be the applicable margin
set forth below with respect to the Borrower's Leverage Ratio, as determined for
the period ending on the fiscal quarter ended immediately preceding the
applicable Rate Adjustment Period."
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INTEREST RATES FEES
- -------------------------------------------------------------------------------------------------
LEVERAGE RATIO PRIME RATE LOANS EURODOLLAR RATE LOANS COMMITMENT FEE RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
less than or equal to 1.25:1 0.25% 1.75% 0.375%
- -------------------------------------------------------------------------------------------------
greater than 1.25:1 0.50% 2.00% 0.450%
- -------------------------------------------------------------------------------------------------
</TABLE>
In the event the Borrower fails to deliver any compliance certificate
pursuant to Section 7.4(c) hereof, then, for the period commencing on the next
Adjustment Date to occur subsequent to such failure through the date immediately
following the date on which such compliance certificate is delivered, the
Applicable Margin shall be the highest Applicable Margin set forth above. From
February __, 1999 until the receipt by the Agent of the quarterly financial
statements of the Borrower for the fiscal quarter ended March 31,1999, the
Applicable Margin shall be the highest Applicable Margin set forth above."
(c) Section 1.1 of the Credit Agreement is hereby amended by adding
thereto a definition of "Commitment Fee Rate" as follows:
"COMMITMENT FEE RATE. As referred to as such in the table contained
in the definition of "Applicable Margin"."
(d) Section 1.1 of the Credit Agreement is hereby amended by adding the
following sentence to the end of the definition of "Consolidated EBITDA":
<PAGE> 3
"For purposes of calculating Consolidated EBITDA for any
period that includes the second fiscal quarter in the fiscal
year ended December 31, 1998, a one time restructuring charge
of $1,330,000 shall be added back to the calculation of
Consolidated EBITDA for such period."
(e) Section 1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Majority Banks" in its entirety and replacing it with the
following:
"MAJORITY BANKS. As of any date, the Banks holding at least
sixty-six and two-thirds percent (66-2/3%) of the outstanding principal amount
of the Revolving Credit Notes on such date."
(f) Section 2.2 of the Credit Agreement by deleting the words "at the
rate of 0.2% per annum" from the third line thereof and inserting in lieu
thereof the following words: "at a rate per annum equal to the Commitment Fee
Rate".
(g) Section 2.5(a) of the Credit Agreement is hereby amended by adding
the words "PLUS the Applicable Margin" after the words "Prime Rate" in the third
line of Section 2.5(a).
(h) Section 2.5 of the Credit Agreement is hereby further amended by
deleting the words "one and one-quarter of one percent (1.25%)" from the third
and fourth lines of Section 2.5(b) and replacing in lieu thereof the words
"Applicable Rate".
(i) Section 8.5(b) of the Credit Agreement is hereby amended by
deleting the word "and" prior to subclause (viii) and inserting in lieu thereof
a semi-colon and by adding to the end of such subparagraph (b) the following
additional subclauses;
"(ix) the total cash consideration to be paid in the proposed
acquisition is less than $2,500,000; (x) the total cash consideration to be paid
in the proposed acquisition, together with the total cash consideration paid in
previous acquisitions during the immediately preceding twelve (12) months, is
less than $5,000,000; and (xi) the aggregate consideration to be paid in the
proposed acquisition, together with the aggregate consideration paid in all
acquisitions during the immediately preceding twelve months, is less than or
equal to $15,000,000."
(j) Section 9.2 of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:
"9.2 PROFITABLE OPERATIONS. The Borrower will not permit
Consolidated Net Income for any fiscal quarter to be less than One Dollar
($1.00)."
(k) Section 9.3 of the Credit Agreement is hereby amended by deleting
such section in its entirety and replacing it with the following:
<PAGE> 4
"9.3 LEVERAGE RATIO. The Borrower will not permit, as at the last
day of each fiscal quarter, the Leverage Ratio to exceed 2.50:1."
(l) Section 9.4 of the Credit Agreement is hereby amended by deleting
such section in its entirety and replacing it 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) $5,300,000 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."
(m) Section 9.5 of the Credit Agreement is hereby amended by deleting
such section in its entirety and replacing it with the following:
"9.5 MINIMUM RENTAL OCCUPANCY. The Borrower shall maintain minimum
Rental Occupancy rates as follows: (a) the average Rental Occupancy rate during
any month shall be equal to or greater than eighty-five percent (85%), except
that for the month of December the average Rental Occupancy rate shall be equal
to or greater than eighty-percent (80%); and (b) commencing as of June 30, 1999,
the average Rental Occupancy for the immediately preceding twelve months shall
be greater than ninety percent (90%). As used herein, the term "Rental
Occupancy" means the ratio of the number of rental units for which the Borrower
has executed lease agreements with subtenants to the total number of rental
units for which the Borrower is then committed to pay rent."
SECTION 3. WAIVER. The Borrower has requested the Bank to waive
compliance with Section 8.4 of the Credit Agreement for the sole purpose of
permitting the Borrower to repurchase up to 250,000 shares of its Common Stock
listed on the American Stock Exchange at an aggregate repurchase price of up to
$1,000,000 pursuant to the Borrower's stock buy back plan at any time during the
period [commencing on the date hereof and ending December 31, 1999], (the
"BuyBack"). The Bank hereby waives compliance with Section 8.4 of the Credit of
Agreement for the sole purpose of permitting the BuyBack.
SECTION 4. CONFIRMATION OF STOCK PLEDGE AGREEMENT. The parties hereto
agree that all references to the "Credit Agreement" contained in the Stock
Pledge Agreement and all Supplements thereto shall mean or refer to the Credit
Agreement as amended and supplemented by this Third Amendment and as it may be
further amended, supplemented, modified and restated and in effect from time to
time, including without limitation any such amendment, supplement, modification
or restatement which increases the amount of Indebtedness owing by the Borrower
thereunder.
SECTION 5. LOAN DOCUMENTS RATIFIED AND CONFIRMED. The Credit Agreement,
the Notes and each of the other Loan Documents, as specifically supplemented or
amended
<PAGE> 5
by this Third Amendment and the other documents executed in connection herewith,
are and shall continue to be in full force and effect and are hereby in all
respects ratified and confirmed. Without limiting the generality of the
foregoing, the Security Documents and all of the collateral described therein
do, and shall continue to, secure the payment of all obligations under the Loan
Documents, in each case as amended or supplemented pursuant to this Third
Amendment.
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby makes
the following representations and warranties to Fleet, Bank One and the Agent in
connection herewith.
(a) REPRESENTATIONS IN LOAN DOCUMENTS. Each of the representations and
warranties made by or on behalf of the Borrower 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 such 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.
1. This Agreement has been duly executed and delivered by the
Borrower and is in full force and effect as of the date hereof, and the
agreements and obligations of the Borrower contained herein constitute legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
2. The obligations of the Borrower to repay to Fleet and Bank One
all of the unpaid principal of each of the Revolving Loans made pursuant to the
Credit Agreement, as amended hereby, to pay to Fleet and Bank One all of the
unpaid interest accrued or to accrue thereon, and to pay to Fleet and Bank One
all of the other obligations of the Borrower are and will continue to be
entitled to all of the benefits and to all of the security created by the Credit
Agreement, the other Loan Documents and the Security Documents.
SECTION 7. MISCELLANEOUS.
(a) FEES, COSTS AND EXPENSES. Borrower shall pay, upon execution of
this Amendment, the following facility fees:
<PAGE> 6
(i) to Fleet, $20,000;
(ii) to Bank One, $5,000; and
(b) In addition to the foregoing fees, Borrower agrees to pay on demand
all reasonable costs and expenses of the Agent, Fleet and the Bank One,
including without limitation all reasonable fees and expenses of counsel, in
connection with the preparation, execution and delivery of this Third Amendment
and the other documents and instruments to be delivered herewith.
(c) NO OTHER CHANGES. Except as otherwise expressly provided by this
Agreement, all of the terms, conditions and provisions of the Credit Agreement,
the Revolving Credit Notes and each of the other Loan Documents and Security
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.
Except as otherwise expressly provided by this Agreement, nothing herein is
intended or shall be construed so as to: (a) limit, discharge, release, diminish
or otherwise modify any indebtedness, obligations, liabilities or duties of
Borrower, or (b) terminate, release, waive, or otherwise modify any mortgage,
security interest, right, power or remedy of the Agent, Fleet or Bank One. This
Agreement constitutes an instrument supplemental to the Credit Agreement and the
other Loan Documents, which is to be construed together with and as part of the
Loan Documents.
(d) GOVERNING LAW. This Agreement is intended to take effect as a
sealed instrument and shall be deemed to be a contract under the laws of the
Commonwealth of Massachusetts. This Agreement and the rights and obligations of
each of the parties hereto shall be governed by and interpreted and determined
in accordance with the laws of the Commonwealth of Massachusetts.
(e) BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of each of the parties hereto and their respective
successors and assigns.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute one agreement.
It shall not be necessary to produce or account for more than one counterpart
thereof signed by each of the parties hereto in making proof of this Agreement.
Executed facsimile signature pages of this Agreement shall be acceptable to each
of the parties.
(g) CONFLICT WITH OTHER AGREEMENTS. If any of the terms of this
Agreement shall conflict in any respect with any of the terms of any of the Loan
Documents, the terms of this Agreement shall be controlling.
******
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as an instrument under seal as of the date first
above written.
BRIDGESTREET ACCOMMODATIONS, INC.
By:/s/ John E. Danneberg
---------------------------------
Title:
BANK ONE, N.A.
By:
---------------------------------
Title:
FLEET NATIONAL BANK
By:
---------------------------------
Title:
FLEET NATIONAL BANK, as AGENT
By:
---------------------------------
Title:
<PAGE> 1
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
of
Name Organization
- ---- ------------
BridgeStreet Accommodations Limited UK
BridgeStreet Arizona, Inc. DE
BridgeStreet California, Inc. DE
BridgeStreet Colorado, Inc DE
BridgeStreet International Accommodations Limited UK
BridgeStreet International Suites Limited
UK
BridgeStreet Maryland, Inc.
BridgeStreet Nevada, Inc. DE
BridgeStreet Raleigh, Inc. DE
DE
BridgeStreet North Carolina, Inc. DE
BridgeStreet Texas, L.P. DE
Corporate Lodgings, Inc. DE
HAI Acquisition Corp. DE
Temporary Corporate Housing, Inc. DE
Temporary Housing Experts, Inc. DE
BridgeStreet Canada, Inc. Ontario
<PAGE> 1
ARTHUR
ANDERSEN
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 (Nos. 333-37697, 333-53949 and 333-60971) on Form S-8.
/s/ Arthur Andersen LLP
- -------------------------
Cleveland, Ohio,
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,652,028
<SECURITIES> 0
<RECEIVABLES> 5,976,054
<ALLOWANCES> 270,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,940,557
<PP&E> 6,748,697
<DEPRECIATION> 1,369,673
<TOTAL-ASSETS> 60,123,922
<CURRENT-LIABILITIES> 8,589,762
<BONDS> 7,608,452
0
0
<COMMON> 81,698
<OTHER-SE> 42,904,629
<TOTAL-LIABILITY-AND-EQUITY> 60,123,922
<SALES> 96,408,923
<TOTAL-REVENUES> 96,408,923
<CGS> 71,310,397
<TOTAL-COSTS> 71,310,397
<OTHER-EXPENSES> 22,453,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 451,270
<INCOME-PRETAX> 2,726,491
<INCOME-TAX> 1,267,423
<INCOME-CONTINUING> 1,459,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,459,068
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
Other expenses include a $1,330,000 restructuring charge relating to
the Company's realignment of its senior management and the write-off of
certain software and marketing costs and professional fees associated with
the realignment.
</FN>
</TABLE>
