<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EXECUSTAY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
MARYLAND 7021 52-2042280
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
7595 RICKENBACKER DRIVE
GAITHERSBURG, MARYLAND 20879
301-948-4888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY R. ABRAHAMS, CHIEF EXECUTIVE OFFICER
EXECUSTAY CORPORATION
7595 RICKENBACKER DRIVE
GAITHERSBURG, MARYLAND 20879
301-948-4888
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
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<S> <C>
JOHN T. KRAMER, ESQ. PETER B. TARR, ESQ.
ORLANDO A. FLORES, ESQ. BRENT B. SILER, ESQ.
DORSEY & WHITNEY LLP HALE AND DORR LLP
220 SOUTH SIXTH STREET 1455 PENNSYLVANIA AVENUE, N.W.
MINNEAPOLIS, MINNESOTA 55402-1498 WASHINGTON, D.C. 20004-1008
TELEPHONE: (612) 340-2600 TELEPHONE: (202) 942-8400
FACSIMILE: (612) 340-8738 FACSIMILE: (202) 942-8484
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
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Common Stock, .01 par value....... 3,047,500 shares $11.00 $33,522,500 $10,158.34
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</TABLE>
(1) Including 397,500 shares of Common Stock which the Underwriters have the
option to purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 25, 1997
2,650,000 SHARES
[EXECUSTAY LOGO]
COMMON STOCK
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All of the 2,650,000 shares of Common Stock (the "Common Stock") offered
hereby are being sold by ExecuStay Corporation ("ExecuStay" or the "Company").
Prior to this offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $9.00 and $11.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market under the trading symbol "EXEC."
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SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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Per Share....................................... $ $ $
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Total (3)....................................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated offering expenses of $500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 397,500 additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
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The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them and subject to certain
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer or to reject any orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about ,
1997.
A.G. EDWARDS & SONS, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
ExecuStay -- America's interim housing solution.
[Diagram illustrating Demand Characteristics (Extended Work Assignment,
Permanent Relocation, More Mobile and Transitory Population) and Product
Attributes (Flexibility of Location, Personalized Amenities and Decor, Cost
Effective Alternative)]
[Graph showing on the horizontal axis various housing accommodation markets
(Short Stay (1 to 5 days), Extended Stay (5 to 30 days) and Interim Stay (30
days to one year +)) and indicating the categories of lodging facilities that
serve each market (Traditional Hotel (1 to 5 + days), All-Suite Hotel (1 to 15 +
days), Extended Stay Hotel (5 to 60 +/- days) and Interim Housing (30 days to
one year +)]
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF A PENALTY BID.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
ExecuStay(R) is a registered trademark of the Company. This Prospectus also
includes trade names, trademarks and registered trademarks of companies other
than the Company.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Investors
should carefully consider the risk factors related to the purchase of the Common
Stock. See "Risk Factors." Unless otherwise indicated, the information in this
Prospectus (i) gives effect to the June 4, 1997 recapitalization whereby the
Company acquired all of the shares of its operating subsidiaries in exchange for
all of the outstanding shares of the Common Stock of the Company (the
"Recapitalization") and (ii) assumes that the Underwriters' over-allotment
option will not be exercised.
THE COMPANY
ExecuStay is a leading provider of interim housing for corporate clients
and professionals. Through its ten regional offices, ExecuStay provides fully
furnished high-quality apartments for stays of 30 days or more, offering a
choice of locations, types of accommodation and accessories. ExecuStay residents
enjoy home-like accommodations that are furnished according to their needs and
preferences and generally priced comparably or more affordably than traditional
full service hotels or all-suite hotels. The number of apartments occupied by
ExecuStay residents has grown from approximately 190 at January 1, 1995 to
approximately 1,630 at June 1, 1997, with an average rental period in the first
half of 1997 of more than three months. The Company currently leases apartments
in over 40 states and Puerto Rico.
The Company believes that demand for interim housing services has been
driven by continued growth in management and professional employment, the
increasing importance to American business of flexibility and outsourcing and
the impact of a more mobile and transitory population. The Company's customers
include Fortune 500 companies, federal and state governmental agencies, small
businesses and individuals. Corporate clients generally use interim housing to
meet seasonal, temporary or startup needs and to accommodate employees who have
been relocated or are on temporary assignment. Housing occupied by ExecuStay
residents is leased to the Company (as tenant) from unaffiliated property owners
and managers. Because the Company owns no residential housing, it can lease any
available residential unit, providing greater flexibility in accommodating the
preferences of its customers. The Company generally has been able to enter into
leases that match each resident's desired length of stay, which accounted for
the Company's 98% occupancy rate in 1996. Virtually all ExecuStay accommodations
are apartments, although the Company occasionally provides housing at townhomes
or single-family homes.
The Company generally can locate and furnish a residence within 24 hours of
a request and usually can arrange the length of each lease to fit the customer's
needs. The Company furnishes residences to each customer's taste with furniture,
linens, electronics and housewares, along with art work and decorative
accessories. Residential office furniture, fax machines, additional phone lines,
computer equipment, exercise equipment and maid service can also be provided
upon request. ExecuStay can locate accommodations for families with young
children, infants or pets. Amenities vary by location but often include a
swimming pool, hot tub, sauna, fitness center, tennis courts and clubhouse. All
expenses relating to each residence, including rent, local and long-distance
telephone service, cable television, utilities and trash removal, are billed to
and paid by ExecuStay, which then bills each customer monthly in a single
invoice.
ExecuStay has established marketing, sales and service offices in the
Atlanta, Charlotte, Ft. Lauderdale, Los Angeles, Orlando, Philadelphia, Raleigh,
Richmond, San Francisco and Washington metropolitan areas. ExecuStay provides
housewares (non-furniture accessories) both to its residents and to others from
its warehouses in the Los Angeles, Ft. Lauderdale, Charlotte and Washington
locations. The ownership of housewares inventory allows the Company to offer
personalized accessories packages and enables it to monitor and control product
quality and consistency. In addition to housewares rental, the Washington
warehouse also provides furniture for ExecuStay residents in the Mid-Atlantic
area and rents residential and commercial furniture to customers other than
ExecuStay residents. In areas other than the Mid-Atlantic region, the Company
uses unaffiliated furniture rental companies to provide furniture to ExecuStay
residents.
3
<PAGE> 5
EXPANSION STRATEGY
The Company is pursuing an expansion strategy designed to enhance its
national presence and brand name recognition in the interim housing industry.
The Company believes that, as it strengthens its presence in new and existing
markets, the Company's services will become increasingly attractive to national
corporate clients that need employee accommodations throughout the country. The
key components of the Company's expansion strategy are as follows:
Acquisitions. The interim housing industry is highly fragmented and
includes a large number of single-city and regional businesses, which the
Company believes creates significant consolidation opportunities. The primary
focus of the Company's expansion strategy will be the selective acquisition of
smaller local and regional interim housing service providers that operate in
markets where the Company does not yet have a presence or where the Company has
identified significant growth opportunities.
On April 1, 1997, the Company began implementing its acquisition strategy
by purchasing certain assets and all existing customer leases of an Orlando
interim housing business that had 1996 revenue of approximately $1.7 million. On
June 1, 1997, the Company purchased an interim housing business in San
Francisco, which had 1996 revenue of approximately $9.0 million, from a local
property developer and obtained the exclusive right to provide interim housing
services at 15 properties owned by the developer. See "Recent Expansion."
Internal Expansion. The Company intends to open additional regional
offices in strategically identified geographic locations where it currently does
not conduct business and where it has been unable to identify attractive
acquisition candidates. In June 1997, ExecuStay established a regional office in
Atlanta and has hired an office manager with existing relationships with interim
housing customers and suppliers in that market. The Company recently signed an
agreement with a national apartment property owner and manager to operate an
interim housing program at 22 properties in Phoenix. The Company intends to
begin operations in Phoenix within the next few months.
------------------
The Company commenced operations in 1986. ExecuStay Corporation was
incorporated in Maryland on June 4, 1997 to acquire and hold all of the
outstanding shares of its operating subsidiaries. References to the "Company" or
"ExecuStay" in this Prospectus include ExecuStay Corporation and its
subsidiaries. The Company's headquarters are located at 7595 Rickenbacker Drive,
Gaithersburg, Maryland 20879, and its telephone number is 301-948-4888.
THE OFFERING
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<S> <C>
Common Stock offered by the Company.......... 2,650,000 shares
Common Stock to be outstanding after the
offering (1)............................... 6,400,000 shares
Use of proceeds.............................. Payment of S corporation and other distributions to
current stockholders, repayment of debt, funding of
possible future acquisitions and for working capital
and other general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... "EXEC"
</TABLE>
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(1) Excludes 700,000 shares of Common Stock reserved for issuance under the
Company's recently adopted stock option plan, of which options to purchase
187,200 shares will be granted immediately upon the effectiveness of this
offering at an exercise price equal to the initial public offering price per
share. See "Management -- Stock Plan."
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue....................... $7,436 $8,722 $13,773 $17,208 $29,645 $ 5,102 $ 9,645
Total operating costs and
expenses.......................... 6,536 7,810 12,248 15,092 26,679 4,861 8,630
------ ------ ------- ------- ------- --------- ---------
Earnings from operations............ 900 912 1,525 2,116 2,966 241 1,015
Interest expense.................... 113 68 195 240 308 59 81
------ ------ ------- ------- ------- --------- ---------
Net income.......................... $ 787 $ 844 $ 1,330 $ 1,876 $ 2,658 $ 182 $ 934
====== ====== ======= ======= ======= ========== =========
PRO FORMA DATA (1):
Net income.......................... $ 1,595 $ 560
======= =========
Net income per common share......... $ 0.40 $ 0.14
======= =========
Weighted average common shares
outstanding (2)................... 3,960 3,960
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MARCH 31, 1997
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PRO FORMA
ACTUAL AS ADJUSTED (3)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................................................... $ 6 $17,266
Property on or held for lease, net............................................. 3,846 3,846
Total assets................................................................... 10,263 27,523
Total bank debt................................................................ 3,285 --
Total stockholders' equity..................................................... 3,795 24,175
</TABLE>
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(1) For all periods presented, the Company elected to be treated as an S
corporation and was not subject to federal and certain state income taxes.
The Pro Forma Data reflect federal and state income taxes based on
applicable tax rates as if the Company had not elected S corporation status
for the periods indicated. See Note L to the Consolidated Financial
Statements.
(2) The pro forma weighted average common shares outstanding is based on: (i)
the weighted average shares outstanding during the period; and (ii) the
assumed sale of a sufficient number of shares of Common Stock necessary to
provide funds to make a distribution of all undistributed S corporation
earnings at March 31, 1997 in excess of earnings for the twelve-month period
then ended and to make the distribution of $1.1 million declared on June 13,
1997. See "Termination of S Corporation Status and Related Distributions"
and "Dividend Policy."
(3) Gives effect to: (i) a distribution to the Company's current stockholders of
undistributed S corporation earnings, which totaled approximately $2.5
million as of March 31, 1997; (ii) a distribution to current stockholders of
$1.1 million declared on June 13, 1997; (iii) the recording of an
anticipated $165,000 deferred tax liability relating to the termination of
the Company's S corporation status; and (iv) the sale of the 2,650,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $10.00 per share and the application of a portion
of the net proceeds therefrom to repay indebtedness as described under "Use
of Proceeds." The actual amount of the S corporation distribution to be
funded using a portion of the proceeds of this offering will reflect
additional earnings of the Company from April 1, 1997 through the closing of
this offering. See "Termination of S Corporation Status and Related
Distributions," "Dividend Policy" and Note L to the Consolidated Financial
Statements.
5
<PAGE> 7
RISK FACTORS
Prospective investors should consider carefully the following risk factors
relating to the Company and the Common Stock, in addition to the other
information contained in this Prospectus. Certain statements contained in this
Prospectus that are not related to historical results are forward-looking
statements. Actual results may differ materially from those projected or implied
in the forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, the following risk factors.
RISKS ASSOCIATED WITH ACQUISITIONS
A significant element of the Company's growth strategy involves the
acquisition of interim housing businesses in new markets throughout the country.
The Company's ability to expand through acquisitions depends on many factors,
including the availability of capital to purchase other businesses and to
support such growth, the successful identification and acquisition of businesses
and management's ability to effectively integrate and operate the new
businesses. The Company currently has no commitments, understandings or
arrangements with respect to any future acquisitions. There is significant
competition for acquisition opportunities in the industry. Competition may
intensify due to consolidation in the industry, which could increase the costs
of future acquisitions. The Company competes for acquisition opportunities with
other companies, some of which may have significantly greater financial and
management resources than the Company. Further, the anticipated benefits from
any acquisition may not be achieved unless the operations of the acquired
business are successfully combined with those of the Company. The integration of
acquired businesses also requires substantial attention from management. The
diversion of the attention of management and any difficulties encountered in the
transition process could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to identify suitable acquisition candidates,
acquire any such candidates on reasonable terms or integrate acquired businesses
successfully.
Future acquisitions may result in the issuance of additional shares of the
Company's Common Stock or the incurrence of additional indebtedness, may entail
the payment of consideration in excess of book value and could have a dilutive
effect on the Company's net income per share. Many business acquisitions must be
accounted for as a purchase. Most of the businesses that might become attractive
acquisition candidates for the Company are likely to have significant goodwill
and intangible assets, and acquisition of these businesses, if accounted for as
a purchase, would typically result in substantial goodwill amortization charges
to the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources," "Recent
Expansion" and "Business -- Business Strategy."
One or more large acquisitions could exhaust the Company's proceeds from
this offering and create the need to raise additional capital in the near future
to finance new acquisitions. Although the Company currently has a $2.0 million
line of credit, there can be no assurance that sufficient capital will be
available if and when required on terms acceptable to the Company, if at all.
Any additional equity financing may be dilutive to purchasers in this offering,
and any debt financing may involve restrictive covenants. Failure to secure
additional financing if and when needed could adversely affect the Company,
including requiring the Company to delay, scale back or eliminate its expansion
strategy. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Business Strategy."
MANAGEMENT OF EXPANSION
The Company's ability to manage any future expansion effectively will
require it to attract, retain, train, motivate and manage new employees
successfully, to integrate regional offices, new management and employees into
its overall operations and to continue to improve its operational, financial and
management systems and controls. The Company's failure to manage any expansion
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Business
Strategy."
6
<PAGE> 8
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The Company's operating results have fluctuated from quarter to quarter in
the past, and may fluctuate significantly in the future, based on many factors,
including expansion into new markets, seasonal fluctuations in interim housing
demand, the tactics of the Company's competitors and the overall strength of the
economy. In particular, the Company believes that, because of its significant
recent growth, period-to-period comparisons of its financial results should not
be relied upon as an indication of future performance. The Company's business
levels are also tied to the volume of corporate long-term assignments and
relocation activities in its market areas and throughout the country. Corporate
relocations decline from September through January, which includes the holiday
season. Fluctuations caused by variations in quarterly operating results or the
Company's failure to meet securities analysts' projections or public
expectations as to operating results for a particular quarter may adversely
affect the market price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations."
COMPETITION
The interim housing industry is highly competitive. The Company competes
against numerous local, regional and national interim housing service providers,
both for customers and for accommodations. The Company expects competition in
its business to intensify as existing competitors expand and new competitors
enter the industry. The financial barriers to entry in the interim housing
industry are relatively low, making it an attractive industry for potential new
competitors. In particular, entities that maintain a vendor-vendee relationship
with companies in this industry, such as real estate managers or furniture
rental businesses, have entered the industry and more such entities may enter
the industry in the future. Certain of the Company's existing competitors have,
and new competitors that enter the industry may have, access to significantly
greater financial resources and more rental properties than the Company.
Competitive market conditions could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- The Housing Accommodations Industry" and "Business -- Competition."
Providers of interim housing compete with each other and with traditional,
all-suite and extended-stay hotels. A number of lodging chains and developers
have recently announced plans to develop, or are currently developing,
extended-stay hotels that may compete with the interim housing accommodations
provided by the Company. Moreover, several extended-stay lodging companies have
recently raised substantial amounts of capital in public offerings for purposes
of constructing and expanding lodging facilities. There can be no assurance that
new or existing lodging companies, including traditional hotels with nationally
recognized brand names, will not significantly lower rates or offer greater
convenience, services or amenities or significantly expand or improve
facilities, thereby adversely affecting the Company's competitive position. See
"Business -- The Housing Accommodations Industry."
DOWNTURNS IN GENERAL ECONOMIC CONDITIONS
The Company believes that the market for interim housing is significantly
influenced by economic conditions generally and particularly by levels of job
creation, temporary relocation of employees and general business activity.
Significant economic downturns could have a material adverse effect on the
Company.
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's ten largest customers accounted for approximately 26% and 33%
of the Company's revenue during 1996 and the first three months of 1997,
respectively. Although no single customer accounted for more than 10% of the
Company's revenue during these periods, the loss of or a material reduction in
the revenue from one or more of the Company's significant customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
7
<PAGE> 9
DEPENDENCE ON AVAILABILITY OF INTERIM HOUSING ACCOMMODATIONS
The Company is dependent upon the continued availability of an adequate
supply of interim housing units in each of its markets. Local or regional
declines in either vacancy rates or new apartment construction could lead to an
increase in leasing costs or an inability to satisfy client demand, which could
adversely affect the Company's operating margins and have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, although historically the Company has closely matched the length of
its leasing obligations with clients' rental commitments, the Company's ability
to continue to do so will depend upon the willingness of property owners to
agree to flexible lease terms. In particular, as the Company enters into new
markets characterized by a scarcity of available rental housing, such as the San
Francisco market where the Company recently began operations, the Company may be
required to agree to longer lease terms that do not necessarily match its
customers' rental terms, which could result in a decrease in the Company's
occupancy rates. The Company considers the added risks of longer lease terms
when pricing the rental units in such markets. However, there can be no
assurance that market conditions will allow the Company to pass on the cost of
potentially higher vacancies to its customers. See "Business."
DEPENDENCE ON KEY PERSONNEL
The Company depends to a significant degree on its key management
personnel, the loss of any one of whom could have a material adverse effect on
its business, financial condition and results of operations. The Company does
not maintain life insurance on any of its key personnel. See "Management."
CONTROL BY MANAGEMENT
Following the completion of this offering, the Company's four current
stockholders, three of whom are directors and officers of the Company, will
beneficially own a total of approximately 58.6% of the outstanding Common Stock.
If these stockholders vote together as a group, they will have the ability to
elect the Company's entire board of directors and control the affairs of the
Company, including all fundamental corporate transactions such as mergers,
consolidations and the sale of substantially all of the Company's assets. Among
other things, these stockholders could prevent or delay a change in control of
the Company that may be favored by a majority of the remaining stockholders.
Such ability to prevent or delay such a change in control of the Company also
may have an adverse effect on the market price of the Common Stock. See
"Principal Stockholders."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
could have the effect of preventing or discouraging an acquisition of the
Company deemed undesirable by its Board of Directors. These include the
existence of authorized but unissued Common Stock and the existence of
authorized but unissued Preferred Stock, which could be issued by the Company's
Board of Directors without stockholder approval, on such terms as the Board of
Directors may approve. In addition, certain provisions of Maryland law
applicable to the Company could have the effect of delaying, deferring or
preventing a change in control of the Company. See "Description of Capital
Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market in the Common
Stock will develop or be sustained upon completion of this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representative of the
Underwriters and may not be indicative of the market prices that will prevail in
the public market after this offering, which may be highly volatile depending
upon various factors, including the general economy, stock market conditions,
announcements by the Company or its competitors and fluctuations in the
Company's operating results. See "Underwriting."
8
<PAGE> 10
POSSIBLE ADVERSE MARKET EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price of
the Common Stock or the future ability of the Company to raise capital through
an offering of its equity securities. Of the 6,400,000 shares of Common Stock to
be outstanding upon completion of this offering, the 2,650,000 shares offered
hereby will be eligible for immediate sale in the public market without
restriction unless they are held by "affiliates" of the Company within the
meaning of Rule 144 of the Securities Act of 1933, as amended (the "Securities
Act"). Pursuant to Rule 144, the remaining 3,750,000 shares of Common Stock will
become eligible for sale 90 days following the date of this Prospectus. All of
these shares are subject to lock-up agreements pursuant to which their holders
have agreed that they will not sell, directly or indirectly, any Common Stock
without the prior consent of A.G. Edwards & Sons, Inc. for a period of 180 days
starting on the date of this Prospectus. See "Shares Eligible for Future Sale"
and "Underwriting."
9
<PAGE> 11
TERMINATION OF S CORPORATION STATUS AND RELATED DISTRIBUTIONS
Since its inception in 1986, the Company has elected to operate under
Subchapter S of the Internal Revenue Code of 1986 (the "Code") and comparable
provisions of certain state income tax laws. An S corporation generally is not
subject to income tax at the corporate level (with certain exceptions under
state income tax laws). Instead, the S corporation's income, as determined for
income tax purposes, is reportable by the stockholders on their personal income
tax returns. As a result, the Company's earnings have been taxed for federal and
state income tax purposes, with certain exceptions, directly to the existing
stockholders of the Company. Upon the effective date of this offering (the
"Termination Date"), the Company's election as an S corporation will terminate
and it will become taxed for federal and state income tax purposes as a C
corporation.
All undistributed S corporation earnings through the Termination Date will
be distributed to the Company's four current stockholders using a portion of the
net proceeds of this offering. At March 31, 1997, the undistributed S
corporation earnings of the Company were estimated to be $2.5 million. The
Company expects to accumulate additional earnings from April 1, 1997 to the
Termination Date. The Company currently estimates that such additional earnings
will be between $500,000 and $2.0 million, although the actual amount of such
earnings may vary significantly.
On June 13, 1997, in conjunction with the Recapitalization, the Company
declared a distribution to the current stockholders totaling approximately $1.1
million, representing capital previously contributed to two of the Company's
subsidiaries by those stockholders for tax basis purposes. The original amounts
contributed were funded by distributions of previously taxed S corporation
earnings from the Company's other two subsidiaries.
As a result of the termination of the Company's S corporation status, the
Company will record a one-time charge against earnings of approximately $165,000
to reflect a deferred income tax liability arising as a result of cumulative
differences between financial statement and income tax reporting, principally
relating to depreciation.
The Company will enter into an agreement (the "Tax Indemnification
Agreement") with the four current stockholders of the Company providing for,
among other things, the indemnification of the Company by such stockholders for
any federal and state income taxes (including interest) incurred by the Company
if for any reason the Company is deemed to be treated as a C corporation during
any period that it reported its taxable income as an S corporation. The Tax
Indemnification Agreement further provides for the cross-indemnification of the
Company and of each current stockholder for any losses or liabilities with
respect to certain additional taxes (including interest and, in the case of such
stockholders, penalties) resulting from the Company's operations during the
period in which it was an S corporation. Purchasers of Common Stock in this
offering will not be parties to the Tax Indemnification Agreement.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,650,000 shares of
Common Stock offered hereby are estimated to be approximately $24.1 million
($27.8 million if the Underwriters' over-allotment option is exercised in full),
after deducting the estimated underwriting discount and estimated offering
expenses and assuming an initial public offering price of $10.00 per share.
The Company will use a portion of the net proceeds of this offering to (i)
distribute to current stockholders an amount equal to undistributed S
corporation earnings through the Termination Date and (ii) pay current
stockholders the previously declared $1.1 million distribution. The Company
currently estimates that undistributed accumulated earnings as of the estimated
Termination Date will be between $3.0 million and $4.5 million, although the
actual amount of such earnings may vary significantly. The S corporation
distribution will be reduced to the extent any distributions of accumulated
earnings are made by the Company to its current stockholders prior to the
Termination Date. See "Termination of S Corporation Status and Related
Distributions" and "Dividend Policy."
The Company also intends to use a portion of the net proceeds to repay
various bank term loans and any balance outstanding on its line of credit. The
Company's term loans had an aggregate outstanding balance of approximately $5.6
million as of June 15, 1997. This balance includes approximately $2.9 million
borrowed to finance the Company's April 1, 1997 acquisition in Orlando and the
June 1, 1997 acquisition in San Francisco, which loans are due in June 2000 and
bear interest at the bank's Prime Rate plus 0.50%. The remaining term loan
balance is comprised of a $1.5 million note bearing interest at the bank's Prime
Rate plus 0.50% due June 1999, a $1.1 million note bearing interest at 8.70% due
August 1998 and a $104,000 note bearing interest at 8.08% due July 1997, the
borrowings under all of which were used for general working capital purposes.
The Company's line of credit bears interest at the bank's Prime Rate plus 0.50%
and at June 15, 1997 had an outstanding balance of $538,000.
The Company may also use a portion of the net proceeds of the offering to
finance the acquisition of other interim housing businesses. The Company
currently does not have any commitment, understanding or arrangement with
respect to any acquisition.
All proceeds not used as described above will be used for working capital
or other general corporate purposes. Pending utilization of the proceeds of this
offering, the Company plans to invest such net proceeds in short-term money
market investments, including certificates of deposit and interest-bearing bank
accounts.
DIVIDEND POLICY
The Company made distributions to its stockholders related to its S
corporation status of approximately $878,000, $1.3 million and $2.2 million
during the years ended December 31, 1994, 1995 and 1996, respectively, and of
$1.3 million for the period from January 1, 1997 through June 20, 1997. In
addition, on June 13, 1997, the Company declared a distribution of $1.1 million
to current stockholders, which will be funded with a portion of the net proceeds
of this offering.
Other than the anticipated distribution of undistributed S corporation
earnings through the Termination Date, the Company does not anticipate declaring
or paying cash dividends in the foreseeable future. In addition, the Company's
existing credit facility contains net worth covenants that could limit the
payment of cash dividends without the consent of the lender.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at March 31, 1997 on an actual and a pro forma as adjusted basis.
This table should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED (1)
------ ---------------
<S> <C> <C>
(IN THOUSANDS)
<CAPTION>
<S> <C> <C>
Bank line of credit................................................... $1,741 $ --
====== ============
Notes payable to bank................................................. $1,544 $ --
------ ---------------
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized;
none
issued and outstanding......................................... -- --
Common Stock, $.01 par value, 45,000,000 shares authorized;
3,750,000 shares issued and outstanding actual, and 6,400,000
shares issued and outstanding pro forma as adjusted (2)........ 38 64
Additional paid-in capital....................................... 1,135 24,111
Retained earnings................................................ 2,622 --
------ ---------------
Total stockholders' equity.................................. 3,795 24,175
------ ---------------
Total capitalization................................... $5,339 $24,175
====== ============
</TABLE>
- ---------------
(1) Gives effect to: (i) a distribution to the Company's current stockholders of
undistributed S corporation earnings, which totaled approximately $2.5
million as of March 31, 1997; (ii) a distribution to current stockholders of
$1.1 million declared on June 13, 1997; (iii) the recording of an
anticipated $165,000 deferred tax liability relating to the termination of
the Company's S corporation status; and (iv) the sale of the 2,650,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $10.00 per share and the application of a portion
of the net proceeds therefrom to repay indebtedness as described under "Use
of Proceeds." The actual amount of the S corporation distribution to be
funded using a portion of the proceeds of this offering will reflect
additional earnings of the Company from April 1, 1997 through the closing of
this offering. See "Termination of S Corporation Status and Related
Distributions" and "Dividend Policy."
(2) Excludes 700,000 shares of Common Stock reserved for issuance under the
Company's recently adopted stock option plan, of which options to purchase
187,200 shares will be granted immediately upon the effectiveness of this
offering at an exercise price equal to the initial public offering price per
share. See "Management -- Stock Plan."
12
<PAGE> 14
DILUTION
The Company's pro forma net tangible book value as of March 31, 1997 was
$30,000, or approximately $0.01 per share. Pro forma net tangible book value per
share as of March 31, 1997 represents total assets less intangible assets and
total liabilities, after giving effect to the distribution of undistributed S
corporation earnings, which were $2.5 million at March 31, 1997, a distribution
to current stockholders of $1.1 million declared on June 13, 1997 and the
related provision for deferred tax liabilities of $165,000, divided by the
number of shares outstanding. After giving effect to the sale of the 2,650,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $10.00 per share and the receipt of the net proceeds of such sale
(after deducting the estimated underwriting discount and estimated offering
expenses), the pro forma net tangible book value as of March 31, 1997 would have
been $24.2 million, or $3.78 per share. This represents an immediate increase in
pro forma net tangible book value of $3.77 per share to existing stockholders
and an immediate dilution to new investors of $6.22 per share. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $10.00
Pro forma net tangible book value per share at March 31,
1997.......................................................... $ 0.01
Increase per share attributable to new investors............... 3.77
------
Pro forma net tangible book value per share at March 31, 1997 after
the offering...................................................... 3.78
------
Dilution in pro forma net tangible book value per share to new
investors......................................................... $ 6.22
======
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock after this offering
would be $4.10 per share, which would result in dilution to new investors of
$5.90 per share.
The following table sets forth, as of March 31, 1997, the total number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid by existing stockholders and new investors
(assuming the sale of 2,650,000 shares of Common Stock at an initial public
offering price of $10.00 per share and before deducting the estimated
underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 3,750,000 58.6% $ 84,000 0.3% $ 0.01
New investors.............................. 2,650,000 41.4 26,500,000 99.7 $ 10.00
--------- ------- ----------- -------
Total................................. 6,400,000 100.0% $26,584,000 100.0%
======== ====== ========== ======
</TABLE>
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of the Company should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The consolidated statement of
operations data for the years ended December 31, 1994, 1995 and 1996 and the
consolidated balance sheet data at December 31, 1995 and 1996 are derived from,
and are qualified by reference to, the audited consolidated financial statements
included elsewhere in this Prospectus. The consolidated statement of operations
data for the years ended December 31, 1992 and 1993, and the consolidated
balance sheet data at December 31, 1992, 1993 and 1994 are derived from audited
financial statements not included herein. The selected financial data as of and
for the three months ended March 31, 1996 and 1997 have been derived from
unaudited financial statements of the Company which, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the entire year
ending December 31, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Interim housing revenue................ $2,727 $3,651 $ 6,917 $ 9,390 $20,905 $ 3,308 $ 6,911
Furniture and houseware revenue........ 4,709 5,071 6,856 7,818 8,740 1,794 2,734
------ ------- ------- ------- ------- -------- --------
Total revenue...................... 7,436 8,722 13,773 17,208 29,645 5,102 9,645
Operating costs and expenses:
Cost of interim housing revenue........ 2,280 3,024 5,779 7,466 16,640 2,652 5,501
Cost of furniture and houseware
revenue.............................. 1,767 1,729 1,891 2,148 1,832 478 666
Personnel and payroll costs............ 1,769 2,390 3,464 3,876 5,597 1,153 1,674
Occupancy costs and nonrental
depreciation and amortization........ 347 455 626 660 994 204 283
Other operating costs.................. 373 212 488 942 1,616 374 506
------ ------- ------- ------- ------- -------- --------
Total operating costs and
expenses......................... 6,536 7,810 12,248 15,092 26,679 4,861 8,630
------ ------- ------- ------- ------- -------- --------
Earnings from operations................... 900 912 1,525 2,116 2,966 241 1,015
Interest expense........................... 113 68 195 240 308 59 81
------ ------- ------- ------- ------- -------- --------
Net income................................. $ 787 $ 844 $ 1,330 $ 1,876 $ 2,658 $ 182 $ 934
====== ======= ======= ======= ======= ======== ========
PRO FORMA DATA (1):
Net income................................. $ 1,595 $ 560
======= ========
Net income per common share................ $ 0.40 $ 0.14
======= ========
Weighted average common shares outstanding
(2)...................................... 3,960 3,960
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------- ---------
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................. $ 214 $ 19 $ 24 $ 229 $ 503 $ 6
Property on or held for lease, net................ 1,669 1,907 2,660 3,059 4,099 3,846
Total assets...................................... 2,538 3,241 5,932 6,519 9,678 10,263
Bank line of credit............................... -- 612 546 200 800 1,741
Notes payable to bank............................. 1,083 490 453 743 1,882 1,544
Total stockholders' equity........................ 975 1,409 1,862 2,481 2,983 3,795
</TABLE>
- ------------------
(1) For all periods presented, the Company elected to be treated as an S
corporation and was not subject to federal and certain state income taxes.
The Pro Forma Data reflects federal and state income tax based on applicable
tax rates as if the Company had not elected S corporation status for the
periods indicated. See Note L to the Consolidated Financial Statements.
(2) The pro forma weighted average common shares outstanding is based on: (i)
the weighted average shares outstanding during the period; and (ii) the
assumed sale of a sufficient number of shares of Common Stock necessary to
provide funds to make a distribution of all undistributed S corporation
earnings at March 31, 1997 in excess of earnings for the twelve-month period
then ended and to make the distribution of $1.1 million declared on June 13,
1997. See "Termination of S Corporation Status and Related Distributions,"
"Dividend Policy" and Note L to the Consolidated Financial Statements.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ExecuStay is a leading provider of interim housing for corporate clients
and professionals. In addition to providing fully furnished interim housing to
ExecuStay residents, the Company also rents housewares and furniture to
customers other than ExecuStay residents such as owners and managers of
apartment communities who wish to offer fully furnished accommodations directly
to their tenants. While houseware rental services are provided by the Company in
most locations where it has sales offices, the Company provides furniture rental
services to its residents located within approximately 200 miles of its
warehouse in Washington.
The Company has been profitable since it began interim housing operations
in 1988. Prior to 1997, the Company's expansion had been achieved entirely
through internal growth. Before 1995, the Company had offices in three cities
(Washington, Los Angeles and Philadelphia). In early 1995, the Company added a
location in Richmond and, in November 1995, an office was opened in Charlotte.
In January 1996, offices were opened in Raleigh and Ft. Lauderdale. In June
1997, the Company opened an office in Atlanta. The Company recently signed an
agreement with a national apartment property owner and manager to operate an
interim housing program at 22 properties in Phoenix. The Company intends to
begin operations in Phoenix within the next few months.
The Company began implementing its acquisition strategy in 1997. In April
1997, the Company purchased certain assets and all existing customer leases of
an Orlando interim housing business that had 1996 revenues of approximately $1.7
million. On June 1, 1997, the Company purchased an interim housing business in
San Francisco, which had 1996 revenue of approximately $9.0 million, from a
local property developer and obtained the exclusive right to provide interim
housing services at 15 properties owned by the developer. See "Recent
Expansion."
Growth in revenue is derived primarily from increases in the number of
leases signed with ExecuStay residents. As the Company has opened sales offices,
the number of apartments under lease has increased each year at each office. The
four new offices opened in 1995 or 1996 achieved operating profitability within
six to twelve months.
15
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data as
a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Interim housing revenue......................... 50.2% 54.6% 70.5% 64.8% 71.6%
Furniture and houseware revenue................. 49.8 45.4 29.5 35.2 28.4
----- ----- ----- ----- -----
Total revenue.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of interim housing revenue................. 42.0 43.4 56.1 52.0 57.0
Cost of furniture and houseware revenue......... 13.7 12.5 6.2 9.4 6.9
Personnel and payroll costs..................... 25.2 22.5 18.8 22.6 17.4
Occupancy costs and nonrental depreciation and
amortization.................................. 4.5 3.8 3.4 4.0 2.9
Other operating costs........................... 3.5 5.5 5.5 7.3 5.2
----- ----- ----- ----- -----
Total operating costs and expenses......... 88.9 87.7 90.0 95.3 89.4
----- ----- ----- ----- -----
Earnings from operations............................. 11.1 12.3 10.0 4.7 10.6
Interest expense..................................... 1.4 1.4 1.0 1.1 0.9
----- ----- ----- ----- -----
Net income........................................... 9.7% 10.9% 9.0% 3.6% 9.7%
===== ===== ===== ===== =====
</TABLE>
Interim housing revenue consists of all income (primarily apartment rental)
from ExecuStay residents, including furniture, housewares and accessories rental
and utilities income related to apartment units occupied by ExecuStay residents.
Furniture and houseware revenue includes all income from customers other
than ExecuStay residents and also includes revenue from the sale of used
inventory.
Cost of interim housing revenue primarily includes rent paid by the
Company, as lessee, to apartment owners and also includes furniture and
houseware rental expense and utilities paid by the Company related to apartment
units used by ExecuStay residents. Commissions and other compensation paid to
Company office managers and salespersons are not included in the cost of interim
housing revenue.
Cost of furniture and houseware revenue includes depreciation on furniture
and housewares inventory used or held in inventory. Payroll expense directly
related to delivery of furniture and housewares is not included in the cost of
furniture and houseware revenue.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996
The Company's total revenue increased 89% to $9.6 million for the three
months ended March 31, 1997 from $5.1 million for the same period in 1996. This
increase resulted primarily from a $3.6 million increase (109%) in interim
housing revenue, reflecting the Company's primary focus on expanding its interim
housing business. This increase was the result of increased activity at the
three sales offices opened in late 1995 and early 1996 as well as an increase
from the offices open during both periods. Aggregate interim housing revenue
from the four established offices that had been open throughout both periods
(Washington, Los Angeles, Philadelphia and Richmond) increased 52% from $2.9
million in the first three months of 1996 to $4.4 million for the same period in
1997, reflecting the continued development and market penetration of these
offices. The balance of the increase in total revenue resulted from a $941,000
increase (52%) in furniture and houseware revenue from the first three months of
1996 to the same period in 1997, including a sale of approximately $480,000 to
one customer in 1997.
16
<PAGE> 18
The cost of interim housing revenue increased 104% to $5.5 million for the
three months ended March 31, 1997 from $2.7 million for the same period in 1996.
The cost of furniture and houseware revenue increased 39% to $666,000 from
$478,000 during the same periods. The cost increases paralleled the increases in
related revenue. Personnel and payroll costs and occupancy and nonrental
depreciation and amortization increased by $521,000 (45%) and $79,000 (39%),
respectively, during the same periods. These increases were due to the addition
of sales and office personnel as well as increases in office space and related
costs in some offices, which were necessary to create and support the increased
business levels. Other operating costs increased 35% to $506,000 from $374,000
during the same periods primarily as a result of increased advertising and
promotion relating to the recently opened offices.
Interest expense increased by $22,000 in the quarter ended March 31, 1997
due to greater utilization of the Company's bank line of credit as the Company
expanded.
Net income increased to $934,000 for the quarter ended March 31, 1997 from
$182,000 for the quarter ended March 31, 1996.
COMPARISON OF 1996 TO 1995
The Company's total revenue increased 72% to $29.6 million for the year
ended December 31, 1996 from $17.2 million for the year ended December 31, 1995.
Substantially all of this increase resulted from an $11.5 million increase
(122%) in interim housing revenue, which was $20.9 million in 1996 compared to
$9.4 million in 1995. This increase was the result of increased activity at the
three sales offices opened in late 1995 and early 1996 as well as an increase
from the offices open during both periods. Furniture and houseware revenue
increased 12% to $8.7 million in 1996 from $7.8 million in 1995. The growth in
furniture and houseware revenue was less than the growth in interim housing
revenue primarily because of the Company's strategy to focus on expanding its
interim housing business.
The cost of interim housing revenue increased 121% to $16.6 million in 1996
from $7.5 million in 1995. This cost increase paralleled the increase in related
interim housing revenue. The cost of furniture and houseware revenue decreased
14% to $1.8 million in 1996 from $2.1 million in 1995 due to a decrease in
furniture and houseware inventory depreciation expense. Personnel and payroll
costs increased by 44% to $5.6 million in 1996 from $3.9 million in 1995. This
increase primarily resulted from the addition of three offices and increased
staffing in four established offices. Interim housing operations were
responsible for $1.0 million (60%) of this increase. Similarly, occupancy costs
increased by 51% to $994,000 in 1996 from $660,000 in 1995. This increase was
due to the opening of the Charlotte, Raleigh and Fort Lauderdale offices and
related warehouse locations. Other operating costs increased 70% to $1.6 million
in 1996 from $943,000 in 1995. This increase was primarily due to additional
advertising, promotion and other selling expenses incurred in new and existing
interim housing markets.
Interest expense increased to $308,000 in 1996 from $240,000 in 1995 due to
an increase in indebtedness associated with establishing new office and
warehouse locations.
Net income increased 42% to $2.7 million in 1996 from $1.9 million in 1995.
COMPARISON OF 1995 TO 1994
The Company's total revenue increased 25% to $17.2 million for the year
ended December 31, 1995 from $13.8 million for the year ended December 31, 1994.
Most of this increase resulted from a $2.5 million increase (36%) in interim
housing revenue, which was $9.4 million in 1995 compared to $6.9 million in
1994. The Richmond office, which opened in early 1995, accounted for the
majority of this increase and the Charlotte office, which opened in October
1995, also contributed to this increase. Furniture and houseware revenue
increased 13% to $7.8 million in 1995 from $6.9 million in 1994. The growth in
furniture and houseware revenue was less than the growth in interim housing
revenue primarily because of the Company's strategy to focus on expanding its
interim housing business.
The cost of interim housing revenue increased 29% to $7.5 million in 1995
from $5.8 million in 1994 due to the increased volume of leased apartment units.
The cost of furniture and houseware revenue increased by
17
<PAGE> 19
11% to $2.1 million in 1995 from $1.9 million in 1994. Personnel and payroll
costs and occupancy costs increased (11% and 5%, respectively) from 1994 to
1995, although at a lesser rate than related revenue growth. These expenses
increased from $3.5 million and $626,000, respectively, in 1994 to $3.9 million
and $660,000, respectively, in 1995. Other operating costs, although only 5% of
total revenue in 1995, increased 93% to $943,000 in 1995 from $488,000 in 1994.
This increase was primarily due to costs and expenses associated with
establishing two offices and a warehouse in 1995.
Interest expense increased to $240,000 in 1995 from $195,000 in 1994.
Net income increased 46% to $1.9 million in 1995 from $1.3 million in 1994.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain statement of operations data for the
last nine quarters, and such data expressed as a percentage of total revenue for
each quarter. This data has been derived from the Company's unaudited quarterly
financial statements. In management's opinion, these quarterly financial
statements have been prepared on a basis consistent with the audited financial
statements contained elsewhere herein, and include all adjustments, consisting
only of normal recurring adjustments, which the Company considers necessary for
a fair presentation of the information presented, when read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The results of operations for any quarter and any
quarter-to-quarter trends are not necessarily indicative of the results to be
expected for any future periods. The Company's business levels are tied to the
volume of corporate long-term assignments and relocation activities in its
market areas and throughout the country. Corporate relocations typically decline
from September through January, which includes the holiday season. This may
cause fluctuations in the Company's quarterly earnings. See "Risk
Factors -- Fluctuations in Operating Results; Seasonality."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Interim housing revenue...... $1,897 $2,270 $2,441 $2,782 $3,308 $4,655 $6,361 $6,581 $6,911
Furniture and houseware
revenue.................... 1,725 1,967 2,027 2,099 1,794 2,101 2,549 2,296 2,734
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue.............. 3,622 4,237 4,468 4,881 5,102 6,756 8,910 8,877 9,645
Operating costs and expenses:
Cost of interim housing
revenue.................... 1,493 1,773 1,967 2,233 2,652 3,658 4,967 5,363 5,501
Cost of furniture and
houseware revenue.......... 463 673 543 469 478 517 429 408 666
Personnel and payroll
costs...................... 846 947 980 1,103 1,153 1,310 1,543 1,591 1,674
Occupancy costs and nonrental
depreciation and
amortization............... 147 159 172 182 204 223 248 319 283
Other operating costs........ 173 178 220 371 374 370 425 447 506
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating costs and
expenses................. 3,122 3,730 3,882 4,358 4,861 6,078 7,612 8,128 8,630
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings from operations....... 500 507 586 523 241 678 1,298 749 1,015
Interest expense............... 59 63 61 57 59 75 89 85 81
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income..................... $ 441 $ 444 $ 525 $ 466 $ 182 $ 603 $1,209 $ 664 $ 934
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97
------- ------- ------- ------- ------- ------- ------- ------- -------
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Interim housing revenue...... 52.4% 53.6% 54.6% 57.0% 64.8% 68.9% 71.4% 74.1% 71.7%
Furniture and houseware
revenue.................... 47.6 46.4 45.4 43.0 35.2 31.1 28.6 25.9 28.3
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of interim housing
revenue.................... 41.2 41.8 44.0 45.7 52.0 54.1 55.7 60.4 57.0
Cost of furniture and
houseware revenue.......... 12.8 15.9 12.2 9.6 9.4 7.7 4.8 4.6 6.9
Personnel and payroll
costs...................... 23.4 22.3 21.9 22.6 22.6 19.4 17.3 17.9 17.4
Occupancy costs and nonrental
depreciation and
amortization............... 4.1 3.8 3.8 3.7 4.0 3.3 2.8 3.6 2.9
Other operating costs........ 4.8 4.2 4.9 7.6 7.3 5.5 4.8 5.0 5.2
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating costs and
expenses................. 86.2 88.0 86.9 89.3 95.3 90.0 85.4 91.6 89.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings from operations....... 13.8 12.0 13.1 10.7 4.7 10.1 14.6 8.4 10.5
Interest expense............... 1.6 1.5 1.4 1.2 1.1 1.1 1.0 1.0 .8
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income..................... 12.2% 10.5% 11.8% 9.5% 3.6% 8.9% 13.6% 7.5% 9.7%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided (used) by operating activities was $1.1 million for the
year ended December 31, 1996, and ($943,000) for the three months ended March
31, 1997. In addition to the cash generated from operations, the Company has a
line of credit arrangement with a commercial bank that has also provided term
loans with two-year repayment terms at fixed interest rates. The term loans have
been used to repay the line of credit balances on an annual basis. Total bank
loans (including the outstanding balance on the line of credit) were $3.3
million at March 31, 1997, an increase of $603,000 over total bank loans of $2.7
million at December 31, 1996, which was a $1.7 million increase over total bank
loans of $943,000 at December 31, 1995. These increases in bank loans were
partly due to the startup of new offices and warehouses in late 1995 and early
1996. Additionally, the net purchase of inventory on or held for lease was $2.6
million during 1996 compared to $1.5 million during 1995 and $1.8 million during
1994.
The Company's term loans had an aggregate outstanding balance of
approximately $5.6 million as of June 15, 1997. This balance included
approximately $2.9 million borrowed to finance the Company's April 1, 1997
acquisition in Orlando and the June 1, 1997 acquisition in San Francisco, which
loans are due in June 2000 and bear interest at the bank's Prime Rate plus
0.50%. The remaining term loan balance was comprised of a $1.5 million note
bearing interest at the bank's Prime Rate plus 0.50% due June 1999, a $1.1
million note bearing interest at 8.70% due August 1998, and a $104,000 note
bearing interest at 8.08% due July 1997. The Company's line of credit bears
interest at the bank's Prime Rate plus 0.50% and at June 15, 1997 had an
outstanding balance of $538,000.
The Company intends to use a portion of the net proceeds of this offering
to repay its currently outstanding term loans as well as any outstanding balance
under its line of credit. The Company intends to maintain, and may seek to
increase, the bank line of credit arrangement after the offering.
The Company believes that the net proceeds of this offering, together with
cash generated from operations and borrowing under the bank line of credit, will
be sufficient to meet the working capital needs of the Company for at least the
next twelve months.
19
<PAGE> 21
RECENT EXPANSION
Management intends to continue implementing its expansion strategy both
through acquisitions and by opening additional regional offices in new markets.
The Company believes that, as it acquires interim housing businesses and
strengthens its presence in new and existing markets, the Company's services
will become increasingly attractive to national corporate clients. As part of
its expansion strategy, the Company has recently acquired businesses located in
Orlando and San Francisco, has opened a new office in Atlanta and intends to
open an office in Phoenix in the near future.
ACQUISITIONS
Orlando. On April 1, 1997, the Company paid $850,000 in cash to Corporate
Accommodations, Inc. ("Corporate Accommodations") to acquire certain assets and
all existing customers leases related to its interim housing business in
Orlando. In connection with the acquisition, the Company and Corporate
Accommodations' sole shareholder entered into a five-year employment and
non-competition agreement. The Company accounted for the transaction using
purchase accounting and recorded tangible assets of $45,000 and certain
intangible assets including $100,000 relating to a non-compete agreement and
goodwill of $705,000.
San Francisco. On June 1, 1997, the Company acquired for $1,890,000 in
cash the interim housing business of Prom X, Inc. ("Prom X"). In addition to the
purchase of all intangible assets of the Prom X business, the Company has the
right, for a period of 36 months, to provide interim housing services at 17
apartment complexes (the "Properties") owned or managed by affiliates of Prom X
throughout the San Francisco metropolitan area. The Company has the right to be
the exclusive provider of interim housing services at 15 of these Properties. In
connection with the purchase, Prom X has agreed to refrain from engaging in the
interim housing business in Northern California for a period of eight years. The
Company accounted for the transaction using purchase accounting and recorded
intangible assets including $100,000 relating to a non-compete agreement,
$160,000 relating to existing contract rights and to an exclusivity agreement,
and goodwill of $1,630,000.
The Company has the right to lease up to a specified maximum number of
apartment units (approximately 7% of the units) at each Property. The Company's
exclusive rights with respect to a Property are subject to certain conditions,
including the Company's rental of a minimum number of apartment units
(approximately 5% of the units) at such Property for at least nine months in
each of the three twelve-month periods beginning June 1, 1997. Failure to rent
the minimum number of units at a particular Property will result in the loss of
the Company's exclusive rights with respect to such Property.
The San Francisco market is characterized by high occupancy rates and
scarcity of housing accommodations available for rent. The Company believes
that, in order to establish operations in markets such as San Francisco, it must
ensure that a reliable supply of apartment units is available.
The following table summarizes certain unaudited operating data of
Corporate Accommodations and Prom X for the year ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------------
CORPORATE
ACCOMMODATIONS PROM X
-------------- ------
(IN THOUSANDS)
<S> <C> <C>
Interim housing revenue....................................... $1,707 $9,018
Cost of interim housing revenue............................... 1,266 7,692
------- ------
Earnings before personnel, occupancy and other operating
costs....................................................... $ 441 $1,326
============ ======
</TABLE>
20
<PAGE> 22
NEW OFFICES
Atlanta. In June 1997, the Company established a regional office in
Atlanta. The Company has hired an office manager who has worked for various
providers of interim housing and has relationships with interim housing
corporate clients in the local market.
Phoenix. The Company recently signed an agreement with a national
apartment property owner and manager to operate an interim housing program at 22
properties in the Phoenix area. The Company is actively seeking an experienced
office manager and intends to begin operations in Phoenix within the next few
months.
21
<PAGE> 23
BUSINESS
OVERVIEW
ExecuStay is a leading provider of interim housing for corporate clients
and professionals. Through its ten regional offices, ExecuStay provides fully
furnished high-quality apartments for stays of 30 days or more, offering a
choice of locations, types of accommodation and accessories. ExecuStay residents
enjoy home-like accommodations that are furnished according to their needs and
preferences and generally priced comparably or more affordably than traditional
full service hotels or all-suite hotels. The number of apartments occupied by
ExecuStay residents has grown from approximately 190 at January 1, 1995 to
approximately 1,630 at June 1, 1997, with an average rental period in the first
half of 1997 of more than three months. The Company currently leases apartments
in over 40 states and Puerto Rico.
The Company believes that demand for interim housing services has been
driven by continued growth in management and professional employment, the
increasing importance to American business of flexibility and outsourcing and
the impact of a more mobile and transitory population. The Company's customers
include Fortune 500 companies, federal and state governmental agencies, small
businesses and individuals. Corporate clients generally use interim housing to
meet seasonal, temporary or startup needs and to accommodate employees who have
been relocated or are on temporary assignment.
The Company does not own any apartments, thereby avoiding the risks and
capital requirements normally associated with real estate ownership. Instead,
housing occupied by ExecuStay customers is leased to the Company (as tenant)
from unaffiliated property owners and managers. Because the Company owns no
residential housing, it can lease any residential unit available, which provides
greater flexibility in accommodating the preferences of its customers. The
Company generally has been able to enter into leases that match each resident's
desired length of stay, which accounted for the Company's 98% occupancy rate in
1996. As the Company expands into markets with a scarcity of housing
accommodations available for rent, it may enter into longer leases that do not
necessarily match the lease terms of its residents, which could result in a
decrease in the Company's overall occupancy rate.
The Company generally can locate and furnish a residence within 24 hours of
a request and usually can arrange the length of each lease to fit the customer's
needs. The Company furnishes residences to each customer's taste with furniture,
linens, electronics and housewares, along with art work and decorative
accessories. Residential office furniture, fax machines, additional phone lines,
computer equipment, exercise equipment and maid service can also be provided
upon request. ExecuStay can locate accommodations for families with young
children, infants or pets. Amenities vary by location but often include a
swimming pool, hot tub, sauna, fitness center, tennis courts and clubhouse. All
expenses relating to each residence, including rent, local and long-distance
telephone service, cable television, utilities and trash removal, are billed to
and paid by ExecuStay, which then bills each customer monthly in a single
invoice. For corporate employees, the Company often bills the employer. For
non-corporate customers, the Company typically charges the individual's credit
card, which customers provide before commencement of occupancy.
ExecuStay has established marketing, sales and service offices in the
Atlanta, Charlotte, Ft. Lauderdale, Los Angeles, Orlando, Philadelphia, Raleigh,
Richmond, San Francisco and Washington metropolitan areas. ExecuStay provides
housewares (non-furniture accessories) both to its residents and to others from
its warehouses in the Los Angeles, Ft. Lauderdale, Charlotte and Washington
locations. The ownership of housewares inventory allows the Company to offer
personalized accessories packages and enables it to monitor and control product
quality and consistency. In addition to housewares rental, the Washington
warehouse also provides furniture for ExecuStay residents in the Mid-Atlantic
area and rents residential and commercial furniture to customers other than
ExecuStay residents. In areas other than the Mid-Atlantic region, the Company
uses unaffiliated furniture rental companies to provide furniture to ExecuStay
residents.
THE HOUSING ACCOMMODATIONS INDUSTRY
The U.S. lodging industry has experienced significant growth and increased
market segmentation in the 1990s. According to D.K. Shifflet & Associates, the
interim housing segment of the lodging industry, defined
22
<PAGE> 24
as stays of four weeks or longer, has grown faster than the lodging industry as
a whole. Total U.S. paid room nights grew at a 4.8% compound annual growth rate
from 1992 to 1996 while U.S. paid room nights for stays of four weeks or more
grew at a 12.3% compound annual growth rate over the same period. The Company
believes that the growth in the interim housing industry is a result of
favorable economic and business conditions in recent years, continued growth in
management and professional employment, the increasing importance to American
business of flexibility and outsourcing, the heightened awareness of interim
housing as a lodging alternative and the impact of a more mobile and transitory
population.
The following graph generally illustrates what the Company considers to be
the various housing accommodation markets based on length of stay and the
categories of lodging facilities that serve each market.
[Graph showing on the horizontal axis various housing accommodation markets
(Short Stay (1 to 5 days), Extended Stay (5 to 30 days) and Interim Stay (30
days to one year +)) and indicating the categories of lodging facilities that
serve each market (Traditional Hotel (1 to 5 + days), All-Suite Hotel (1 to 15
+ days), Extended Stay Hotel (5 to 60 +/- days) and Interim Housing (30 days to
one year +)]
23
<PAGE> 25
Amenities found in these accommodations vary greatly. The following chart
illustrates typical amenities and characteristics found in each of these types
of accommodations:
<TABLE>
<CAPTION>
TRADITIONAL ALL-SUITE EXTENDED STAY EXECUSTAY INTERIM
HOTEL HOTEL FACILITIES HOUSING
----------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
Average rate....................... $69* $91* $75* $2,000
per night per night per night per month
Kitchen............................ No Efficiency Efficiency/ Full
Full
Dining room........................ No Rarely Rarely Always
Residential feel................... No No Rarely Always
Washer/dryer....................... No No Rarely Usually
Choice of furnishings.............. No No No Wide
Selection
</TABLE>
- ---------------
* Source: D.K. Shifflet & Associates. With respect to extended stay facilities,
the average rate per night is based on data for Residence Inn, Homewood
Suites, Amerisuites and Summerfield facilities.
INTERIM HOUSING RESIDENTS AND PROVIDERS
Because of the length of their stays, interim housing residents seek a
"home away from home." Just like any individual or family seeking a permanent
home, interim housing residents desire accommodations that have a residential
feel and the conveniences typically found only in homes. Interim housing
residents typically have the following needs and preferences:
Flexibility in Locations and Types of Accommodations. Interim housing
residents typically seek housing accommodations conveniently located near their
temporary workplace or in a desired neighborhood or school district. Residents
also have varying needs with respect to the size, style and cost of their
housing accommodations.
Flexibility in Furnishings, Housewares and Amenities. Interim housing
residents like to choose their own furniture and many wish to have fax machines,
computers, home exercise equipment, extra televisions or telephones or other
additional accessories. Many interim housing residents are also accustomed to
amenities found in apartment or condominium complexes, such as swimming pools
and fitness centers.
Flexibility in Length of Stay. Interim housing residents have varying
rental term needs, which are often less than the minimum rental periods
typically available to individual tenants from apartment managers.
Convenience. An interim housing customer generally prefers to avoid the
difficulties and inconvenience of locating and leasing an apartment, arranging
utilities, contracting for furniture, housewares and accessories and preparing
the residence for occupancy.
Interim housing customers traditionally have had to choose between two
alternatives to meet their needs: renting a hotel room or leasing an apartment.
Traditional hotel rooms do not offer the most basic amenities found in
apartments or houses, such as kitchen and dining facilities. Interim housing
customers staying at hotels live as permanent travelers rather than temporary
residents. Although all-suite hotels usually provide larger units than
traditional hotel rooms and often contain efficiency kitchens, most all-suite
hotel rates are priced for short-stay business travelers, which may be too
expensive for the longer stays of interim housing customers. In addition,
traditional hotels and all-suite hotels generally are not located in residential
neighborhoods and may not be located near an interim housing customer's
workplace.
To meet the increasing demand for housing accommodations for stays longer
than five days, a growing number of hotel companies are building chains of
extended-stay hotels, which offer standardized, pre-furnished units. However,
extended-stay facilities are limited in the number of locations, types of
accommodations and choice of amenities that they offer. In addition,
extended-stay hotels do not offer the flexibility in furnishings and housewares
that interim housing customers often desire, nor do they offer the feel of a
residential community.
24
<PAGE> 26
Interim housing providers either own or lease living accommodations from
third parties. These providers then rent the housing accommodations, usually
fully furnished, to customers seeking long-term, but not permanent,
accommodations.
Interim housing providers vary widely in their structure, size and
location. Some are apartment and condominium owners or managers who seek to fill
vacancies or increase rental revenues by making a percentage of their units
available to interim housing customers. These property owners and managers have
an incentive to place customers in the limited number of apartments or
condominiums that they manage. Also, many of these owners and managers
pre-furnish their apartments or condominiums, limiting their customers' choices.
Other competitors include small or medium size local and regional businesses
that locate and furnish housing accommodations and operate much like ExecuStay.
As corporations are increasingly outsourcing non-core functions, many have
turned to service providers for their interim housing needs. These corporate
clients generally prefer to deal with a single source that can provide
customized services on a national basis. Because of this trend, the Company
believes that local and regional providers of interim housing will find it
increasingly difficult to compete for corporate clients. The Company believes
that the general preference of corporate clients to work with a single national
provider already has spurred consolidation within the interim housing services
industry.
BUSINESS STRATEGY
ExecuStay's goal is to strengthen its position as a leading provider of
interim housing. The Company's business strategy encompasses the following
elements:
Expand Nationally. The Company believes that as it expands into new
markets, its growing national presence and brand name recognition will enhance
its ability to attract additional corporate clients and professionals as well as
increase business with existing clients. The primary focus of the Company's
expansion strategy is the acquisition of local and regional interim housing
providers, while continuing to grow internally by selectively opening additional
regional offices.
ExecuStay evaluates potential expansion markets based on local competition,
the availability of rental properties, the overall health and growth trends of
local economies and the presence of corporate and government employers with
significant interim housing needs. ExecuStay then decides whether to enter a new
market through acquisition or by internal expansion.
Acquisitions. In target markets, the Company intends to pursue the
acquisition of existing businesses with profitable operating histories, a
recognized local and regional presence and existing management that fits
well with the Company's entrepreneurial management style. Expanding through
acquisitions allows the Company to quickly gain market share in new or
existing regions. When acquiring an existing business, ExecuStay generally
attempts to retain key marketing and sales personnel, typically by offering
incentive compensation based on the performance of the acquired business.
Internal Expansion. In target markets where ExecuStay has not
identified an attractive acquisition prospect, the Company may open
additional regional offices to support its existing relationships or to
establish new relationships with suppliers of housing accommodations. When
establishing a new office, the Company generally seeks to hire an
individual who has relationships with local interim housing customers as
well as property managers that would give the Company both a supply of
rental units and interim housing referrals. The Company's strategy is to
pursue internal expansion opportunities where it believes it has the
potential to achieve profitability within twelve months.
As part of its expansion strategy, ExecuStay has acquired interim housing
businesses in Orlando and San Francisco, has recently opened an office in
Atlanta and intends to open an office in Phoenix in the near future. See "Recent
Expansion."
Expand Corporate Client Base. The Company strives to broaden its corporate
client base through its growing national presence and name recognition, regional
and national advertising and by increasing and strengthening its corporate
relationships. The Company's customized billing and reporting services and its
25
<PAGE> 27
ability to locate and furnish the desired accommodations of a corporate employee
in as little as 24 hours, are attractive to corporate clients. The Company
believes that its specialized corporate client services, flexibility and
increasing national presence and name recognition will be particularly
attractive to corporate clients seeking a single national provider.
Develop and Enhance Relationships with REITs and Other Apartment Owners and
Managers. A key component of the Company's business strategy is to strengthen
its existing relationships and to build new relationships with REITs and other
property owners and managers throughout the country. These property owners and
managers are not only the primary suppliers of rental units, but also are
important sources of interim housing referrals. Maintaining close relationships
with property owners and managers has helped the Company become established in
new markets and strengthen its presence in existing markets.
The Company believes that apartment owners and managers prefer to do
business with the Company because it provides the property owner and manager
with a single reliable tenant. Further, because ExecuStay does not own any real
estate, it does not compete for tenants with property owners and managers but
instead provides incremental business to them. By leasing to ExecuStay, property
managers avoid the cost of finders' fees as well as tenant credit and reference
checks. Apartment managers have also contracted with ExecuStay to operate their
existing interim housing programs, providing ExecuStay an opportunity for
immediate increases in local market share.
Maintain Housing Flexibility / No Real Estate Ownership. The Company does
not own and does not plan to own any of the accommodations that it rents to
ExecuStay customers. As a result, ExecuStay can expand into new markets more
quickly, avoid competing with property owners and avoid the risks normally
associated with real estate ownership. This approach also reduces the Company's
capital requirements and overhead costs and enables the Company to quickly
adjust the quantity, mix and location of its accommodations as client needs
dictate and local economic conditions warrant. In markets characterized by
rental property shortages, the Company may be required to enter into longer term
leases (six months to one year) with property owners in order to secure the
needed supply of housing units. The Company considers the added risk of longer
lease terms when pricing the rental units in such markets.
Maintain and Enhance Management Information System. ExecuStay intends to
maintain and enhance its proprietary management information system ("MIS"). The
MIS operates through a wide area network that connects all ExecuStay offices
throughout the country. ExecuStay's MIS assists the Company in controlling and
managing customer service, lease and furnishings inventory and accounting and
billing functions. At each ExecuStay regional office, service personnel input
customer needs and preferences into the MIS, which seeks to match each new
customer's occupancy date with the vacate date of an existing ExecuStay
resident, thereby reducing turn-over costs. If a suitable match is not
available, the MIS indicates the need for and facilitates the selection of a new
apartment lease. As a result, ExecuStay is usually able to obtain a customer's
desired housing accommodations within 24 hours of the customer's request. The
MIS capabilities have enabled the Company to establish and access a nationwide
database and will, the Company believes, facilitate the effective integration of
the operations of acquired businesses and newly established offices.
EXECUSTAY SERVICES
The Company provides the following services in markets throughout the
country:
Interim Housing Rental. ExecuStay provides high-quality interim housing
accommodations. Residents specify the desired location, size and type of
accommodations and also choose from an ExecuStay catalog of furniture and
housewares. The Company generally arranges the length of each lease to fit the
resident's needs. All leases are for 30 days or more. After locating the desired
residence, the Company furnishes it with the resident's choice of furniture,
linens, electronics, housewares, art work and decorative accessories. Upon
request, the Company provides office furniture, fax machines, additional phone
lines, computer equipment, exercise equipment and maid service. ExecuStay
arranges all utility services, including cable television and long distance
telephone service. Amenities vary by location but often include a swimming pool,
hot tub, sauna, fitness center, tennis courts and clubhouse.
26
<PAGE> 28
Houseware Rental. Housewares for substantially all of the ExecuStay
accommodations are supplied from the Company's regional warehouses located in
Washington, Los Angeles, Ft. Lauderdale and Charlotte. In markets where the
Company does not have a warehouse that can service its customers, the Company
rents housewares from unaffiliated rental companies. In addition to servicing
ExecuStay's interim housing customers, the Company's warehouses provide
housewares to other interim housing providers and local apartment owners and
managers. As it implements its expansion strategy, the Company plans to continue
to supply most of its customers' houseware needs. ExecuStay's houseware business
generates an attractive return on investment, complements the Company's other
interim housing services and allows the Company to control the quality and
availability of housewares.
Furniture Rental. Except in the Mid-Atlantic area, the Company furnishes
its accommodations with furniture rented from unaffiliated rental companies. In
the Mid-Atlantic area, ExecuStay furnishes its housing accommodations with
furniture from its Washington warehouse. ExecuStay's furniture division rents
both to ExecuStay residents and to other interim housing service providers. In
1995, the Company established a commercial office furniture rental division,
which also utilizes the Washington warehouse.
Convenient Billing. The Company provides one monthly invoice to its
customers. All expenses relating to each residence, including rent, furnishings,
basic and long-distance telephone service, cable television, utilities and trash
removal, are billed to and paid by ExecuStay, which then bills each customer in
one charge on a single monthly invoice. For corporate employees, the Company
bills either the employee or the corporate employer. For other ExecuStay
residents, the Company typically charges the individual's credit card, which is
provided by the customer before commencement of occupancy. ExecuStay also offers
customized billing options and reporting to national corporate clients.
Quality Assurance. ExecuStay monitors the quality of its services both
through regional personnel and by a satisfaction survey that residents are asked
to complete upon expiration of their stays. Because of the short-term nature of
most of ExecuStay's leases, ExecuStay can quickly change suppliers of rental
properties if a landlord is not responsive to the needs of ExecuStay and its
customers. Similarly, in cases where ExecuStay does not provide furniture and
housewares, ExecuStay can easily change the suppliers from whom it rents such
items.
HEADQUARTERS AND REGIONAL OFFICES
ExecuStay's headquarters, Washington regional office and Mid-Atlantic
warehouse are located in Gaithersburg, Maryland. The Company performs all of its
administrative services from this office, including accounting, national
marketing and inventory management. ExecuStay established the following regional
offices in the years indicated:
<TABLE>
<S> <C>
Los Angeles, California July 1988
Washington, D.C.* March 1991
Philadelphia, Pennsylvania April 1993
Richmond, Virginia* March 1995
Charlotte, North Carolina November 1995
Raleigh, North Carolina January 1996
Ft. Lauderdale, Florida January 1996
Orlando, Florida* April 1997
San Francisco, California June 1997
Atlanta, Georgia June 1997
</TABLE>
- ---------------
* The Washington regional office has a satellite sales office in Chantilly,
Virginia. The Richmond office has a satellite sales office in Virginia Beach,
Virginia. The Orlando office has a satellite sales office in Tampa, Florida.
ExecuStay has found that the key elements to successful regional offices
are: (i) providing ExecuStay's high-quality service and attention to customer
needs; (ii) establishing strong relationships with corporate
27
<PAGE> 29
clients and with local apartment owners and managers; and (iii) attracting and
retaining key personnel who have industry experience and relationships with
local interim housing customers and suppliers.
SALES, MARKETING AND ADVERTISING
Each of the regional offices employ office managers who are responsible for
developing and maintaining relationships with corporate clients and property
owners and managers. Because the Company does not own any real estate, it can
establish mutual referral programs with property owners and managers. As a
result of ExecuStay's centralized administration, managers and salespersons can
focus on obtaining new clients and servicing existing ones. To develop client
relationships, ExecuStay's salespersons regularly attend seminars and
conferences attended by human resources professionals.
Through its MIS, the Company offers customized billing and reporting to
corporate clients. In addition, as ExecuStay's operations expand throughout the
country, ExecuStay may offer temporary incentive programs to selected corporate
clients to encourage them to use ExecuStay in new markets.
The Company also obtains customers from advertisements in local rental
property magazines and newspapers. The Company intends to begin a new
advertising campaign in local business and rental property magazines emphasizing
ExecuStay's growing national presence.
REGIONAL WAREHOUSES
ExecuStay maintains warehouses in Washington, Los Angeles, Ft. Lauderdale
and Charlotte. These warehouses provide items such as cutlery, dishes, kitchen
utensils, linens and electronic products, including televisions, VCRs and
stereos. The Washington furniture warehouse provides both residential and office
furniture to ExecuStay's customers in the Mid-Atlantic area. ExecuStay does not
plan to open new furniture warehouses, although the Company currently intends to
expand the furniture warehouse facilities in Washington to better meet actual
and anticipated growth in the region.
ExecuStay leases all of its warehouse properties. ExecuStay anticipates
opening a new warehouse to provide housewares in the San Francisco market.
Additional regional warehouses may be opened in existing markets or to serve new
markets.
COMPETITION
The interim housing industry is highly competitive. The Company competes
against numerous local, regional and national interim housing providers, both
for customers and for accommodations. The Company expects competition in its
business to intensify as existing competitors expand and new competitors enter
the industry. The financial barriers to entry in the interim housing industry
are relatively low, making it an attractive industry for potential new
competitors. In particular, entities that maintain a vendor-vendee relationship
with companies in this industry, such as real estate managers or furniture
rental businesses, have entered the industry and more such entities may decide
to enter the industry in the future.
ExecuStay believes that the larger providers of interim housing are the
Company's primary competitors. At the present time, such competitors include
Oakwood Corporate Housing, Inc. ("Oakwood"), Bridgestreet Accommodations, Inc.,
Globe Furniture Rentals, Inc. and Accommodations America, Inc. Oakwood has
established itself as the largest provider of interim housing accommodations,
currently renting more than 10,000 interim housing units. Other significant
competitors may emerge in the future. Certain of the Company's existing
competitors have, and any new competitors that enter the industry may have,
access to significantly greater financial resources than the Company.
Providers of interim housing services also compete with traditional hotels,
motels and all-suite and extended-stay hotels. A number of lodging chains and
developers have recently announced plans to develop, or are currently
developing, extended-stay hotels that may compete with the interim housing
services provided by the Company. Moreover, several extended-stay lodging
companies have recently raised substantial amounts of capital in public
offerings for purposes of constructing and expanding lodging facilities.
28
<PAGE> 30
Factors that influence an interim housing customer's decision to choose one
service provider over another include location, price and quality of
accommodations, quality and scope of service and brand name recognition.
EMPLOYEES
As of June 1, 1997, the Company employed approximately 215 full-time
employees. The Company's employees are not subject to any collective bargaining
agreements, and management believes that its relationship with its employees is
good.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
29
<PAGE> 31
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- --- --------------------------------------------
<S> <C> <C>
Gary R. Abrahams.............................. 45 Chief Executive Officer and Director
Marc B. Kaplan................................ 48 Chief Financial Officer and Director
Robert W. Zaugg............................... 52 Chief Operating Officer and Director
Benny E. Anderson............................. 34 Executive Vice President-Western Operations
Joseph C. Porpiglia........................... 50 Senior Vice President-Furniture Operations
David S. Santee (1)(2)........................ 38 Director
Stuart C. Siegel (1)(2)....................... 55 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
ExecuStay Corporation was organized on June 4, 1997. Mr. Abrahams, Mr.
Kaplan and Mr. Zaugg co-founded the Company's original subsidiary in 1986 and
have held positions similar to those set forth above with each of the Company's
subsidiaries since their respective inceptions. The following is a brief summary
of the business experience of each of the executive officers and directors of
the Company:
GARY R. ABRAHAMS. Mr. Abrahams is the Company's Chief Executive Officer, a
Director and a co-founder of the Company. He was an executive officer of Horizon
Financial Corporation in Washington, D.C. from 1983 to 1987, was employed by
Standard Federal Savings & Loan in Gaithersburg, Maryland from 1979 to 1983, and
by Ernst & Ernst from 1975 to 1978.
MARC B. KAPLAN. Mr. Kaplan is the Company's Chief Financial Officer, a
Director and a co-founder of the Company. He was president of Horizon Financial
Corporation from 1983 to 1987, was employed by Standard Federal Savings & Loan
from 1976 to 1983, and by Arthur Young & Company from 1972 to 1976.
ROBERT W. ZAUGG. Mr. Zaugg is the Company's Chief Operating Officer, a
Director and a co-founder of the Company. He was an executive officer of Horizon
Financial Corporation from 1983 to 1987, was employed by Standard Federal
Savings & Loan from 1975 to 1983, by Equitable Federal Savings from 1972 to
1974, and by Peat, Marwick, Mitchell & Company from 1968 to 1972.
BENNY E. ANDERSON. Mr. Anderson joined the Company in 1991 and is
currently the Company's Executive Vice President of Western Operations. Before
joining the Company, Mr. Anderson worked at Seychelles, Inc. as a controller
from 1990 to 1991. He also worked as a controller from 1988 to 1990 at
Trendmasters, Inc., a Los Angeles-based toy manufacturer.
JOSEPH C. PORPIGLIA. Mr. Porpiglia has served as Senior Vice President of
Furniture Operations since 1995. From 1989 to 1995, Mr. Porpiglia was a General
Manager of CORT Business Services Corporation, a furniture rental company, where
he most recently managed the furniture rental operations in Los Angeles and
Washington.
DAVID S. SANTEE. Mr. Santee has been a Director of the Company since June
1997. Since 1994, he has served as Division Vice President of Equity Residential
Properties Trust ("Equity Properties"), a publicly traded REIT, where he is
responsible for the operations of over 115 properties. Before joining Equity
Properties in 1994, Mr. Santee was Vice President of Summit Properties, another
publicly traded REIT. From 1983 to 1992, Mr. Santee worked for R&B Realty Group
in various capacities.
STUART C. SIEGEL. Mr. Siegel has been a Director of the Company since June
1997. For the last five years, he has served as Chairman of the Board of
Directors and Chief Executive Officer of S & K Famous Brands, Inc., a menswear
retailer.
30
<PAGE> 32
The term of office of each director of the Company ends at the next annual
meeting of the Company's stockholders or when his or her successor is elected
and qualified. Executive officers of the Company serve at the discretion of the
Board of Directors. There are no family relationships among any of the directors
or executive officers.
COMMITTEES
In June 1997, the Board of Directors established a Compensation Committee
and an Audit Committee. The Compensation Committee, comprised of Mr. Santee and
Mr. Siegel, has the authority to determine the compensation of the Company's
executive officers, including bonuses, and to administer the 1997 Incentive and
Stock Option Plan. The Audit Committee, also comprised of Mr. Santee and Mr.
Siegel, has the authority to make recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the plan and results of the audit engagement, review the independence of the
public accountants, consider the range of audit and nonaudit fees and review the
adequacy of the Company's internal accounting controls.
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive any compensation
for their service as directors. Following this offering, the Company will
reimburse each director who is not an employee of the Company for out-of-pocket
expenses incurred to attend meetings. Upon the effectiveness of this offering,
the two non-employee directors will be granted an option to purchase 10,000
shares of Common Stock under the 1997 Incentive and Stock Option Plan. Any
non-employee director first elected to the Board of Directors following the
offering will likewise be granted an option to purchase 10,000 shares. In
addition, each non-employee director will be granted an additional option to
purchase 10,000 shares at the fourth anniversary of the initial grant if he or
she is then still serving as a director. The exercise price will be the market
price of the Company's Common Stock on the date of the grant, except that the
exercise price of the first grant of options to non-employee directors shall be
equal to the price per share in this initial public offering. Options to non-
employee directors shall vest in 25% increments, starting on the date of grant
and thereafter on each anniversary of such grant.
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for 1996
awarded to or earned by Mr. Abrahams (the Company's Chief Executive Officer) and
Messrs. Kaplan and Zaugg (all of whom are collectively referred to as the "Named
Officers"). No other executive officer of the Company had salary and bonus
earned in 1996 in excess of $100,000. The Company has not granted any options to
the Named Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME AND ------------------
PRINCIPAL POSITION YEAR SALARY (1)
- ---------------------------------------------------------------------------- ---- ----------
<S> <C> <C>
Gary R. Abrahams............................................................ 1996 $ 99,616
Chief Executive Officer
Marc B. Kaplan.............................................................. 1996 99,616
Chief Financial Officer
Robert W. Zaugg............................................................. 1996 99,616
Chief Operating Officer
</TABLE>
- ---------------
(1) The Company anticipates that the annual salary for the Named Officers will
be increased to approximately $125,000 commencing in 1998. Any bonuses paid
to the Named Officers will be determined by the Compensation Committee.
31
<PAGE> 33
STOCK PLAN
The Company has adopted the 1997 Incentive and Stock Option Plan (the "1997
Plan"), under which the Compensation Committee may grant options to purchase up
to 700,000 shares of Common Stock to directors, executive officers, other
employees and consultants of the Company. The 1997 Plan provides for the grant
of incentive stock options ("Incentive Options") within the meaning of Section
422 of the Code and nonqualified stock options that do not qualify for such
treatment ("Non-Qualifying Options"). The Board of Directors has granted,
effective immediately following the effectiveness of this offering, options to
purchase an aggregate of 187,200 shares of Common Stock at an exercise price per
share equal to the initial public offering price in this offering. No other
options have been granted under the 1997 Plan. The 1997 Plan also provides for
awards of other stock-based grants consistent with the terms and purposes of the
1997 Plan.
The 1997 Plan also provides for automatic grants of Non-Qualifying Options
to each non-employee director as described above under "-- Directors'
Compensation."
SAVINGS PLAN
On January 1, 1996, the Company adopted a savings plan (the "401(k) Plan")
covering all eligible employees. Employees must be at least 21 years of age and
have completed one year of service to be eligible to participate in the 401(k)
Plan. Enrollment occurs semiannually on January 1 or July 1 of each year.
Participants may contribute up to 15% of their compensation, and the Company
provides a matching contribution of 15% of the participant's contribution. In
addition to the matching contribution, the Company may make an additional
discretionary contribution annually. Vesting in the employer's contribution is
at a rate of 25% per year beginning with the participant's third year of
service.
INDEMNIFICATION ARRANGEMENTS
Prior to the completion of this offering, the Company will enter into
indemnification agreements pursuant to which it will agree to indemnify certain
of its directors and officers against judgments, claims, damages, losses and
expenses incurred as a result of the fact that such director or officer, in his
capacity as such, is made or threatened to be made a party to any suit or
proceeding. Such persons will be indemnified to the fullest extent now or
hereafter permitted by the Maryland General Corporation Law, as amended (the
"Maryland Law"). The indemnification agreements will provide for the advancement
of certain expenses to such directors and officers in connection with any such
suit or proceeding. The Company's Certificate of Incorporation and Bylaws also
provide for the indemnification of the Company's directors and officers to the
fullest extent permitted by the Maryland Law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors did not have a Compensation Committee prior to June
1997, and the functions of the Compensation Committee have been performed by the
Board of Directors as a whole. For information concerning certain transactions
and relationships between the Company and the current members of the Board of
Directors, see "Certain Transactions."
32
<PAGE> 34
CERTAIN TRANSACTIONS
HEADQUARTERS AND WAREHOUSE LEASE
In August 1993, the Company entered into a 20-year lease with 7595
Rickenbacker LLC, which is owned in equal shares by Messrs. Abrahams, Zaugg and
Kaplan, who are directors, executive officers and principal stockholders of the
Company. Under the terms of the lease, the Company leases approximately 38,000
square feet at 7595 Rickenbacker Drive, Gaithersburg, Maryland 20879, which is
used as the Company's headquarters and primary warehouse facility, at a current
rental rate of approximately $21,000 per month. The rental rate is subject to
annual increases based upon the consumer price index for the Washington
metropolitan area. The Company must bear all maintenance and repair costs and
pay utilities, property taxes and insurance for the premises. The Company
believes that the terms of the lease, including the rental rate, are at least as
favorable to the Company as those which could have been negotiated with an
unaffiliated third party.
COMPANY LOAN GUARANTEE
The Company has guaranteed a loan from a commercial bank to 7595
Rickenbacker LLC, which is owned by Messrs. Abrahams, Zaugg and Kaplan, the
proceeds of which were used to purchase the building that is leased by the
Company and used as its headquarters. The outstanding balance on this loan was
$944,000 at March 31, 1997.
RECAPITALIZATION
ExecuStay Corporation was incorporated in Maryland on June 4, 1997 to
acquire and hold all of the outstanding shares of its operating subsidiaries.
Prior to that time, all of the outstanding shares of the operating subsidiaries
were held by Messrs. Abrahams, Zaugg, Kaplan and Anderson. In anticipation of
the offering contemplated hereby, the four individual stockholders transferred
all of the outstanding shares of common stock of the subsidiaries to the Company
in exchange for an aggregate of 3,750,000 shares of Common Stock of the Company,
which constitute all of the currently outstanding shares.
S CORPORATION DISTRIBUTIONS
A portion of the proceeds of this offering will be used to pay the
distributions of undistributed S corporation earnings through the Termination
Date. See "Termination of S Corporation Status and Related Distributions."
SPECIAL STOCKHOLDERS' DISTRIBUTION
On June 13, 1997, in conjunction with the Recapitalization, the Company
declared a distribution to the current stockholders totaling approximately $1.1
million, representing capital contributed to two of the Company's subsidiaries
by those stockholders for tax basis purposes. The original amounts contributed
were funded by distributions of previously taxed S corporation earnings received
by those stockholders from the Company's other two subsidiaries.
33
<PAGE> 35
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock, as of the date of this Prospectus, before giving
effect to the sale by the Company of the 2,650,000 shares of Common Stock hereby
and as adjusted to reflect such sale, by (i) each person who is known by the
Company to beneficially own more than 5% of the Common Stock, (ii) each of the
Company's directors, (iii) the Named Officers and (iv) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE OWNED (1)
SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME (2) OWNED (1) OFFERING OFFERING
- ---------------------------------------------------------- --------- -------- --------
<S> <C> <C> <C>
Gary R. Abrahams.......................................... 1,187,500 31.7% 18.6%
Marc B. Kaplan............................................ 1,187,500 31.7 18.6
Robert W. Zaugg........................................... 1,187,500 31.7 18.6
Benny E. Anderson......................................... 187,500 5.0 2.9
David S. Santee........................................... 2,500(3) * *
Stuart C. Siegel.......................................... 2,500(3) * *
All executive officers and directors as a group (7
persons)................................................ 3,755,000 100.0% 58.6%
</TABLE>
- ------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and generally include voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days of the date of this Prospectus, are deemed outstanding for computing
the percentage of the person holding such options or warrants but are not
deemed outstanding for computing the percentage of any other person. Except
as indicated by footnote, the Company believes that the persons named in
this table, based on information provided by such persons, have sole voting
and investment power with respect to the shares of Common Stock indicated.
(2) Mr. Santee's address is 4733 Bethesda Ave., Suite 400, Bethesda, Maryland
20814. Mr. Siegel's address is 11100 West Broad Street, Glen Allen, Virginia
23060. The address of all other persons named above is 7595 Rickenbacker
Drive, Gaithersburg, Maryland 20879.
(3) Represents shares issuable upon the exercise of options to be granted upon
the effectiveness of this offering to the extent exercisable within 60 days
thereafter.
34
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the Company's authorized capital stock
will consist of 45,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of Preferred Stock, par value $.01 per share. The following
brief description of the Company's capital stock does not purport to be complete
and is subject in all respects to applicable law and the provisions of the
Company's Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part. Immediately prior to the closing of this offering, the Company will have
3,750,000 shares of Common Stock outstanding, held of record by four
stockholders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that holders
of more than 50% of the shares voted for the election of directors can elect all
of the directors. The holders of Common Stock are entitled to receive dividends
ratably when, as and if declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. The outstanding shares of Common Stock are,
and the shares offered by the Company in this offering will be, when issued and
paid for, fully paid and nonassessable. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
Preferred Stock that the Company may designate and issue in the future.
Upon completion of this offering, the Company's existing stockholders will
beneficially own 58.6% of the outstanding shares of Common Stock (55.2% if the
Underwriters' over-allotment option is exercised in full) and will therefore be
able to elect the entire Board of Directors and control all matters submitted to
stockholders for a vote.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Company's Board of Directors
without stockholder approval. The Board of Directors could issue Preferred Stock
with voting and/or conversion rights and thereby dilute the voting power and
equity of the holders of the Common Stock and adversely affect the market price
of such stock. The issuance of Preferred Stock could also be used as an
anti-takeover measure by the Company without any further action by the
stockholders. The Company has no present plans to issue shares of Preferred
Stock.
CERTAIN PROVISIONS OF MARYLAND LAW
Business Combinations. Under Section 3-601, et seq. of the Maryland Law
(the "Business Combination Statute"), to which the Company is subject, certain
"business combinations" (including mergers or similar transactions subject to a
statutory stockholder vote and additional transactions involving transfers of
assets or securities in specific amounts) between a Maryland corporation subject
to the Business Combination Statute and (i) any person who beneficially owns,
directly or indirectly, 10% or more of the voting power of the corporation's
outstanding voting shares after the date on which the corporation had 100 or
more beneficial owners of its stock, or (ii) any affiliate or associate of the
corporation who, at any time within the preceding two years and after the date
on which the corporation had 100 or more beneficial owners of its stock, was the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the then-outstanding voting stock of the corporation (an "Interested
Stockholder"), or an affiliate thereof, are prohibited for five years after the
most recent date on which the Interested Stockholder became an Interested
Stockholder unless an exemption is available. Thereafter, any such business
combination must be recommended by the board of directors of the corporation and
approved by the affirmative vote of at least: (i) 80% of the votes entitled to
be cast by all holders of outstanding voting shares of the corporation; and (ii)
two-thirds of the votes entitled to
35
<PAGE> 37
be cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom the business combination is
to be effected, unless the corporation's stockholders receive a minimum price
(as described in the Business Combination Statute) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for its shares. The Business Combination Statute does not
apply, however, to business combinations that are (a) exempted in the
corporation's charter prior to the time the corporation became subject to the
Business Combination Statute or (b) approved or exempted by the board of
directors prior to the time that the Interested Stockholder becomes an
Interested Stockholder. After a corporation becomes subject to the Business
Combination Statute, in order to amend the corporation's charter to elect not to
be subject to the foregoing requirements with respect to one or more Interested
Stockholders, the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding shares of voting stock and two-thirds of the
votes entitled to be cast by holders of outstanding shares of voting stock who
are not Interested Stockholders is required.
Control Share Acquisition. Section 3-701, et seq. of the Maryland Law
provides that "control shares" of a Maryland corporation acquired in a "control
share acquisition" have no voting rights except to the extent approved by a vote
of two-thirds of the votes entitled to be cast on the matter, excluding shares
of stock owned by the acquiror or by officers or directors who are employees of
the corporation. "Control shares" are voting shares of stock which, if
aggregated with all other such shares of stock previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct the
exercise of voting power except solely by virtue of a revocable proxy, would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third; (ii) one-third or more but less than a majority or (iii) a majority
of all voting power. Control shares do not include shares the acquiring person
is then entitled to vote as a result of having previously obtained stockholder
approval. A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and
delivery of an "acquiring person statement"), may compel the corporation's board
of directors to call a special meeting of stockholders to be held within 50 days
of demand to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
stockholders' meeting.
Unless the certificate of incorporation or bylaws provide otherwise, if
voting rights are not approved at the meeting or if the acquiring person does
not deliver an acquiring person statement within 10 days following a control
share acquisition then, subject to certain conditions and limitations, the
corporation may redeem any or all of the control shares (except those for which
voting rights have previously been approved) for fair value determined, without
regard to the absence of voting rights for the control shares, as of the date of
the last control share acquisition or of any meeting of stockholders at which
the voting rights of such shares are considered and not approved. Moreover,
unless the certificate of incorporation or bylaws provide otherwise, if voting
rights for control shares are approved at a stockholders' meeting and the
acquiror becomes entitled to exercise or direct the exercise of a majority or
more of all voting power, other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights may
not be less than the highest price per share paid by the acquiror in the control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the certificate of
incorporation or bylaws of the corporation.
The Business Combination Statute and the control share acquisition statute
could have the effect of discouraging takeover proposals and delaying or
preventing a change of control of the Company not approved by its Board of
Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
36
<PAGE> 38
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
6,400,000 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, the 2,650,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act of 1933, unless they are purchased by "affiliates" of
the Company as that term is defined in Rule 144 under the Securities Act of 1933
(which sales would be subject to certain limitations and restrictions described
below). All of the remaining 3,750,000 shares of Common Stock may be sold in the
public market commencing 90 days following the date of this Prospectus, subject
to the volume and other limitations of Rule 144 promulgated under the Securities
Act of 1933. However, the holders of all of these remaining shares have executed
lock-up agreements with A.G. Edwards & Sons, Inc., under which such stockholders
agreed that they will not sell, directly or indirectly, any Common Stock without
the prior consent of A.G. Edwards & Sons, Inc. for a period of 180 days from the
date of this Prospectus. See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year (including the holding
period of any prior owner except an affiliate) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (approximately 64,000 shares immediately
after this offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are subject to the availability
of current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
filing provisions of Rule 144.
After the completion of this offering, the Company intends to file one or
more registration statements on Form S-8 under the Securities Act to register an
aggregate of 700,000 shares of Common Stock issuable pursuant to the Company's
1997 Plan. After the date of such filing, shares purchased pursuant to this plan
generally would be available for resale in the public market. Upon the
effectiveness of this offering, the Company will have outstanding options to
purchase an aggregate of 187,200 shares of Common Stock. See
"Management -- Stock Plans."
37
<PAGE> 39
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the underwriters named
below (the "Underwriters"), for whom A.G. Edwards & Sons, Inc. is acting as
representative (the "Representative"), and each of the Underwriters has
severally agreed to purchase from the Company, the respective number of shares
of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------------------------------------------------------------- ---------
<S> <C>
A.G. Edwards & Sons, Inc. .......................................
---------
Total.................................................. 2,650,000
========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all 2,650,000 shares of
Common Stock offered hereby if any such shares of Common Stock are purchased. In
the event of a default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Representative that the several
Underwriters propose initially to offer such shares of Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may re-allow a
concession not in excess of $ per share to other dealers. After the initial
public offering, the public offering price and such concessions may be changed.
The Company has granted to the Underwriters an option, expiring 30 days
from the date of this Prospectus, to purchase up to an aggregate of 397,500
additional shares of Common Stock at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the sale of shares of Common Stock that the Underwriters
have agreed to purchase. To the extent the Underwriters exercise such option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment.
The Company has agreed that it will not sell, without the consent of A.G.
Edwards & Sons, Inc., any Common Stock or any securities convertible into Common
Stock, during the 180 days following the date of this Prospectus except for the
Common Stock offered in this offering. In addition, each current stockholder of
the Company, including each officer and director, has agreed not to sell,
without the consent of A.G. Edwards & Sons, Inc., any Common Stock for the
180-day period. A.G. Edwards & Sons, Inc. will not consent to any shortening of
such period unless, in its judgment, the timing of the sales and the number of
shares of Common Stock sold as a result of any such consent would not have a
material adverse effect on the market for the Common Stock. In such event, such
sales would not necessarily be preceded by a public announcement by the Company
or A.G. Edwards & Sons, Inc. that such consent has been given.
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price for the shares of Common Stock included
in this offering will be determined by negotiation among the
38
<PAGE> 40
Company and the Representative. Among the factors to be considered in
determining such price will be the history of and prospects for the Company's
business and the industry in which it operates, an assessment of the Company's
management, past and present revenue and earnings of the Company, the prospects
for growth of the Company's revenue and earnings and currently prevailing
conditions in the securities markets.
The Representative has advised the Company that it does not intend to
confirm sales to any account over which it exercises discretionary authority.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 397,500 shares of Common Stock, by
exercising the Underwriters' over-allotment option referred to above. In
addition, A.G. Edwards & Sons, Inc., on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the offering) for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the offering but subsequently purchased for
the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required and, if
undertaken, may be discontinued at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters relating to this offering will be passed upon for the
Company by Dorsey & Whitney LLP, Minneapolis, Minnesota. Certain matters
relating to Maryland law, including the validity of the securities offered
hereby, will be passed upon by Piper & Marbury L.L.P., Washington, D.C. Certain
legal matters relating to the offering will be passed upon for the Underwriters
by Hale and Dorr LLP, Washington, D.C.
EXPERTS
The Consolidated Balance Sheets of the Company as of December 31, 1995 and
1996 and the related Consolidated Statements of Operations, Changes in
Stockholders' Equity and Cash Flows and the Schedule for each of the years in
the three-year period ended December 31, 1996, included in this Prospectus and
Registration Statement have been audited by Grant Thornton LLP, independent
certified public accountants, as stated in their reports, which are included
elsewhere herein, and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
39
<PAGE> 41
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) under the Securities Act of 1933 with respect to the shares
of Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. Certain items are omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to such Registration Statement, including exhibits,
schedules and reports filed as part thereof. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1204, Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, 13th Floor, New York, New York, 10048 and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may be obtained at prescribed rates by mail from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company. The address is http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial information for the first three
quarters of each year.
40
<PAGE> 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and Unaudited
Consolidated Balance Sheet as of March 31, 1997..................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996 and Unaudited Consolidated Statements of Operations for the three months ended
March 31, 1996 and 1997............................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and Unaudited Consolidated Statement of Changes in
Stockholders' Equity for the three months ended March 31, 1997...................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and Unaudited Consolidated Statements of Cash Flows for the three months ended
March 31, 1996 and 1997............................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
ExecuStay Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of ExecuStay
Corporation and Subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ExecuStay
Corporation and Subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Vienna, Virginia
June 4, 1997
F-2
<PAGE> 44
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash.................................................... $ 228,910 $ 503,099 $ 6,150
Accounts receivable, net................................ 911,447 2,266,518 2,826,539
Prepaid rent and other.................................. 94,325 323,521 1,141,877
Property on or held for lease, net...................... 3,058,972 4,098,894 3,846,182
Property and equipment, net............................. 1,998,446 2,076,330 2,044,429
Other assets............................................ 226,914 410,114 397,854
---------- ---------- -----------
Total assets.................................. $6,519,014 $9,678,476 $10,263,031
========= ========= ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Bank line of credit..................................... $ 200,000 $ 800,000 $ 1,741,029
Notes payable to bank................................... 742,913 1,881,527 1,543,500
Capital lease obligation................................ 1,585,618 1,555,860 1,547,183
Accounts payable........................................ 534,854 1,110,592 626,552
Accrued and other liabilities........................... 974,363 1,347,664 1,009,826
---------- ---------- -----------
Total liabilities............................. 4,037,748 6,695,643 6,468,090
Commitments and contingencies (Note I)
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding.......... -- -- --
Common stock, $.01 par value; 45,000,000 shares
authorized, 3,750,000 shares issued and
outstanding...................................... 37,500 37,500 37,500
Additional paid-in capital......................... 1,135,280 1,135,280 1,135,280
Retained earnings.................................. 1,308,486 1,810,053 2,622,161
---------- ---------- -----------
Total stockholders' equity.................... 2,481,266 2,982,833 3,794,941
---------- ---------- -----------
Total liabilities and stockholders'
equity................................. $6,519,014 $9,678,476 $10,263,031
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 45
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Interim housing revenue.... $ 6,917,325 $ 9,390,373 $20,905,463 $3,307,954 $6,910,662
Furniture and houseware
revenue.................. 6,856,486 7,817,677 8,740,394 1,793,748 2,734,642
----------- ----------- ----------- ---------- ----------
Total revenue......... 13,773,811 17,208,050 29,645,857 5,101,702 9,645,304
Operating costs and expenses:
Cost of interim housing
revenue.................. 5,779,021 7,465,791 16,640,619 2,651,657 5,501,490
Cost of furniture and
houseware revenue........ 1,891,295 2,147,602 1,831,633 478,496 665,593
Personnel and payroll
costs.................... 3,463,742 3,875,845 5,596,781 1,153,064 1,674,504
Occupancy costs and
nonrental depreciation
and amortization......... 626,149 660,323 994,107 203,983 282,835
Other operating costs...... 488,374 942,697 1,616,312 373,941 505,983
----------- ----------- ----------- ---------- ----------
Total operating costs
and expenses........ 12,248,581 15,092,258 26,679,452 4,861,141 8,630,405
----------- ----------- ----------- ---------- ----------
Earnings from operations........ 1,525,230 2,115,792 2,966,405 240,561 1,014,899
Interest expense................ 195,074 240,109 307,709 58,568 80,535
----------- ----------- ----------- ---------- ----------
Net income...................... $ 1,330,156 $ 1,875,683 $ 2,658,696 $ 181,993 $ 934,364
========== ========== ========== ========= =========
Pro Forma Data (unaudited) (Note L)
Historical net income........... $ 2,658,696 $ 934,364
Provision for income taxes...... 1,063,000 374,000
----------- ----------
Pro forma net income............ $ 1,595,696 $ 560,364
========== =========
Pro forma net income per
share......................... $ 0.40 $ 0.14
========== =========
Weighted average common shares
outstanding................... 3,960,000 3,960,000
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 46
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994............ $ -- $18,900 $1,126,273 $ 264,201 $ 1,409,374
Net income for 1994................... -- -- -- 1,330,156 1,330,156
Distributions......................... -- -- -- (877,501) (877,501)
------- ------- ---------- ----------- -----------
BALANCE AT DECEMBER 31, 1994.......... -- 18,900 1,126,273 716,856 1,862,029
Net income for 1995................... -- -- -- 1,875,683 1,875,683
Distributions......................... -- -- -- (1,284,053) (1,284,053)
Issuance of stock..................... -- 1,000 26,607 -- 27,607
------- ------- ---------- ----------- -----------
BALANCE AT DECEMBER 31, 1995.......... -- 19,900 1,152,880 1,308,486 2,481,266
Net income for 1996................... -- -- -- 2,658,696 2,658,696
Distributions......................... -- -- -- (2,157,129) (2,157,129)
------- ------- ---------- ----------- -----------
BALANCE AT DECEMBER 31, 1996.......... -- 19,900 1,152,880 1,810,053 2,982,833
Net income (unaudited)................ -- -- -- 934,364 934,364
Distributions (unaudited)............. -- -- -- (122,256) (122,256)
------- ------- ---------- ----------- -----------
BALANCE AT MARCH 31, 1997
(UNAUDITED)......................... $ -- $19,900 $1,152,880 $ 2,622,161 $ 3,794,941
======= ======= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 47
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 1,330,156 $ 1,875,683 $ 2,658,696 $ 181,993 $ 934,364
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and
amortization................. 1,182,502 1,442,779 1,906,904 443,069 538,856
Net purchase of property on or
held for lease............... (1,782,748) (1,549,326) (2,632,460) (586,912) (198,651)
Compensation paid in stock..... -- 27,607 -- -- --
Changes in assets and
liabilities
Decrease (increase) in
accounts receivable...... 15,406 (62,005) (1,354,340) (264,795) (574,047)
Decrease (increase) in
prepaid rent and other... (11,346) (33,572) (229,196) 21,894 (818,356)
Decrease (increase) in
other assets ............ (85,588) (20,025) (183,199) (54,067) 12,260
Increase (decrease) in
accounts payable......... 338,889 (76,738) 575,738 265,000 (485,081)
Increase (decrease) in
accrued and other
liabilities.............. 387,556 193,112 373,301 (8,909) (337,838)
----------- ----------- ----------- --------- -----------
Total adjustments................... 44,671 (78,168) (1,543,252) (184,720) (1,862,857)
----------- ----------- ----------- --------- -----------
Net cash provided by (used in) operating
activities............................ 1,374,827 1,797,515 1,115,444 (2,727) (928,493)
----------- ----------- ----------- --------- -----------
Cash flows from investing activities:
Purchases of property and
equipment......................... (383,384) (252,996) (392,251) (87,176) (55,592)
Net (increase) decrease in due from
unconsolidated affiliates......... (9,022) 18,932 (731) (6,173) 15,067
----------- ----------- ----------- --------- -----------
Net cash used in investing activities... (392,406) (234,064) (392,982) (93,349) (40,525)
----------- ----------- ----------- --------- -----------
Cash flows from financing activities:
Net borrowings on line of credit.... (195,616) (346,000) 600,000 404,526 941,029
Distributions to stockholders....... (877,501) (1,284,053) (2,157,129) (373,026) (122,256)
Borrowings on bank loans............ 130,349 750,000 1,900,000 -- --
Payments on bank loans.............. (26,786) (459,976) (761,386) (155,236) (338,027)
Payments on capital lease
obligations ...................... (7,907) (18,683) (29,758) (5,698) (8,677)
----------- ----------- ----------- --------- -----------
Net cash provided by (used in) financing
activities............................ (977,461) (1,358,712) (448,273) (129,434) 472,069
----------- ----------- ----------- --------- -----------
Net increase in cash.................... 4,960 204,739 274,189 (225,510) (496,949)
Cash at beginning of period............. 19,211 24,171 228,910 228,910 503,099
----------- ----------- ----------- --------- -----------
Cash at end of period................... $ 24,171 $ 228,910 $ 503,099 $ 3,400 $ 6,150
============ ============ ============ ========== ============
Supplemental cash flows information:
Interest paid during the period..... $ 195,074 $ 249,818 $ 313,098 $ 84,372 $ 57,164
============ ============ ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 48
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting principles applied in the
preparation of the consolidated financial statements follows:
FORMATION OF HOLDING COMPANY AND RECAPITALIZATION
ExecuStay Corporation was formed on June 4, 1997, to be a newly created
holding company for its four wholly owned subsidiaries (ExecuStay Corporation
and such subsidiaries being collectively referred to as the "Company"). On June
4, 1997, ExecuStay Corporation issued an aggregate of 1,000,000 shares of a
total of 45,000,000 newly authorized shares of Common Stock in exchange for all
of the outstanding shares of capital stock of the subsidiaries and, in addition,
authorized 5,000,000 preferred shares (the "Recapitalization"). Prior to the
Recapitalization, all subsidiaries were subchapter S corporations. ExecuStay
Corporation intends to qualify itself as an S corporation and all of its
subsidiaries as Qualified Subchapter S Subsidiaries.
On June 13, 1997, the Company effected a 3.75-for-one stock split of its
Common Stock in the form of a stock dividend.
The accompanying financial statements, including stockholders' equity and
per share amounts, give retroactive effect to the Recapitalization and the stock
split for all periods presented.
On June 13, 1997, in conjunction with the Recapitalization, the Company
declared a distribution totaling approximately $1.1 million, representing prior
years' capital contributions made by the current stockholders to two of the
subsidiaries for tax basis purposes. The original contributions were funded from
distributions received by the stockholders from the other two subsidiaries.
NATURE OF OPERATIONS
The Company is in the business of providing furnished interim housing and
short-term rental of furniture and household amenities throughout the United
States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
ExecuStay and its four wholly owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
INTERIM REPORTING
The accompanying condensed financial information as of March 31, 1997, and
for the three months ended March 31, 1996 and 1997, including such information
included in the Notes to Consolidated Financial Statements and disclosures
regarding matters occurring after December 31, 1996, is unaudited. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation have been included.
Operating results for any interim period are not necessarily indicative of the
results for any other interim period or for an entire year.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over estimated useful lives of five to seven years.
Capital leases and leasehold improvements are amortized over the lesser of the
estimated useful lives of the related assets or the lease term.
F-7
<PAGE> 49
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY ON OR HELD FOR LEASE
Furniture and amenities on or held for lease are depreciated over estimated
useful lives ranging from two to seven years for furniture and one to five years
for household amenities. Depreciation is computed on the straight-line method
for financial reporting purposes and on accelerated methods for tax purposes.
The accompanying financial statements for all periods presented have been
retroactively restated for the effects of changing to the straight-line method
of depreciating property on or held for lease. Previously, the Company had used
accelerated tax methods for depreciating such assets. The Company intends to use
the straight-line methods for future financial reporting purposes, believing it
more closely matches costs with revenue.
INCOME TAXES
The Company has elected to be taxed as an S corporation for federal and
state income tax purposes. As a result, no federal or state income taxes were
payable at the corporate level. The stockholders pay tax on their respective
shares of the Company's taxable income, even if such income is not distributed.
Pro forma income taxes reflect a provision for income taxes at the
effective statutory federal and state rates applied to the Company's financial
statement net income.
Upon the effective date of the proposed initial public offering, the
Company will terminate its S corporation status, convert to a C corporation, and
be subject to both federal and state income taxes in future periods. Any income
tax liability arising from terminating the S corporation status will be
reflected in the operating results of the first quarter following the effective
date of the offering.
USING ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS
The Company defines cash and cash equivalents as all cash held by
depository institutions, cash on hand and short-term liquid investments with
initial maturities of three months or less. Cash balances may exceed insurable
amounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and cash equivalents, accounts receivable, accounts payable, line of
credit and other accrued liabilities -- The carrying amounts approximate fair
value because of the short maturity of these instruments.
Installment notes payable to bank -- The carrying amounts are deemed to be
substantially equal to fair value.
F-8
<PAGE> 50
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist primarily of amounts paid for non-compete
agreements in connection with business acquisitions, purchased contract rights
and goodwill. Non-compete agreements and purchased contract rights are amortized
on a straight-line basis over the lives of the respective agreements, ranging
from three to eight years. Goodwill is amortized on a straight-line basis over
20 years. Impairment losses, if any, are measured as the excess of carrying cost
over estimated fair market value, and are recognized in operations if a
permanent decline in value occurs.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages but does not require companies to
record stock-based employee compensation plans at their fair value. The Company
has elected to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for employee stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the grant over
the exercise price an employee must pay to acquire the stock.
NOTE B -- ACQUISITIONS
On April 1, 1997, the Company purchased for cash certain leases and
contracts of an interim housing business in Orlando for $850,000. In conjunction
with the purchase, the Company entered into a five-year non-compete agreement
and a five-year employment agreement which provides for base salary and
incentive compensation. The Company obtained additional financing from its bank
to fund the transaction, as discussed in Note F. The Company accounted for the
transaction using purchase accounting and recorded certain intangible assets
including $100,000 relating to a non-compete agreement and goodwill of $705,000.
On June 1, 1997, the Company purchased an interim housing business in the
San Francisco area for a total purchase price of $1,890,000. The Company
obtained additional financing from its bank to fund the transaction, as
discussed in Note F. The acquisition included certain rental exclusivity and
seller non-compete arrangements, along with the existing customer base. The
Company also entered into employment agreements with certain seller employees.
The Company has accounted for the transaction using purchase accounting and
recorded intangible assets including $100,000 relating to a non-compete
agreement, $160,000 relating to existing contract rights and an exclusivity
agreement and goodwill of $1,630,000.
NOTE C -- ACCOUNTS RECEIVABLE, NET
The Company grants credit to corporate and individual customers. Provisions
have been established for uncollectible amounts and vacancy credits.
F-9
<PAGE> 51
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- ACCOUNTS RECEIVABLE, NET -- (CONTINUED)
Following is a summary of accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable.............................. $1,037,663 $2,490,548 $3,188,789
Due from nonconsolidated affiliates.............. 13,295 14,026 --
Reserve for vacancies and doubtful accounts...... (139,511) (238,056) (362,250)
---------- ---------- ----------
Accounts receivable -- net....................... $ 911,447 $2,266,518 $2,826,539
========= ========= =========
</TABLE>
NOTE D -- PROPERTY ON OR HELD FOR LEASE
The following is a summary of property on or held for lease:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Furniture........................................ $4,468,674 $5,867,089 $5,564,984
Household amenities.............................. 1,337,891 1,890,866 2,129,792
---------- ---------- ----------
5,806,565 7,757,955 7,694,776
Less accumulated depreciation.................... 2,747,593 3,659,061 3,848,594
---------- ---------- ----------
$3,058,972 $4,098,894 $3,846,182
========= ========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
totaled $977,330, $1,149,902 and $1,579,624, respectively. Depreciation expense
for the three months ended March 31, 1997 totaled $451,363.
NOTE E -- PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Vehicles......................................... $ 501,988 $ 544,110 $ 544,110
Leasehold improvements........................... 56,490 125,208 126,298
Computer equipment and software.................. 222,642 399,262 441,020
Furniture and equipment.......................... 298,770 388,061 402,181
Capital lease -- building........................ 1,612,208 1,612,208 1,612,208
---------- ---------- ----------
2,692,098 3,068,849 3,125,817
Less accumulated depreciation and amortization... 693,652 992,519 1,081,388
---------- ---------- ----------
$1,998,446 $2,076,330 $2,044,429
========= ========= =========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1994, 1995 and 1996 totaled $205,172, $292,877 and $327,280, respectively.
Depreciation and amortization for the three months ended March 31, 1997 totaled
$87,493.
NOTE F -- BANK NOTES
The Company has a revolving line of credit and various term loans with a
bank.
F-10
<PAGE> 52
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- BANK NOTES -- (CONTINUED)
Under the terms of the current line-of-credit agreement, which expires June
30, 1997, the Company may borrow up to $2,000,000 at the bank's Prime Rate plus
0.50% (9.25% at December 31, 1995, 8.75% at December 31, 1996 and 9.00% at March
31, 1997). At December 31, 1995 and 1996, the borrowings outstanding on the line
of credit amounted to $200,000 and $800,000, respectively. Outstanding
borrowings under the line of credit at March 31, 1997 amounted to $1,741,029.
The revolving credit agreement is collateralized by a blanket security interest
on all assets of the Company, and is personally guaranteed by the current
stockholders.
Term notes payable to the bank are as follows. They are deemed to be
substantially equal to fair value.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
$1,900,000 note dated July 29, 1996, payable to bank,
interest at 8.70%, with 24 payments of $79,167 plus
interest due monthly through August 1998; collateralized
by a blanket security interest on all assets of the
Company and personally guaranteed by the current
stockholders............................................. $ -- $1,583,333 $1,345,833
$750,000 note dated June 21, 1995, payable to bank,
interest at 8.08%, with 24 payments of $31,250 plus
interest due monthly through July 1997; collateralized by
a blanket security interest on all assets of the Company
and personally guaranteed by the current stockholders.... 619,444 282,909 194,334
Notes payable to bank with interest ranging from 6.75% to
7.75%; principal and interest payments due monthly
through June 1997; secured by vehicles with a cost of
$130,350................................................. 60,969 15,285 3,333
$500,000 note dated February 16, 1994, payable to bank,
interest at 7.38%, with 24 payments of $20,833 plus
interest due monthly through March 1996; collateralized
by a blanket security interest on all assets of the
Company and personally guaranteed by the current
stockholders............................................. 62,500 -- --
-------- ---------- ----------
$742,913 $1,881,527 $1,543,500
======== ========= =========
</TABLE>
Following are aggregate maturities of term notes:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------------------------------------------------------
<S> <C>
1997....................................................... $1,248,194
1998....................................................... 633,333
----------
$1,881,527
=========
</TABLE>
Subsequent to March 31, 1997, the Company borrowed $2.9 million to finance
the Orlando and San Francisco acquisitions discussed in Note B. These term notes
are due June 2000 and bear interest at the bank's Prime Rate plus 0.50%.
F-11
<PAGE> 53
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- BANK NOTES -- (CONTINUED)
In addition, on June 2, 1997, the Company converted $1.5 million of its
line of credit to a two-year term note payable through June 1999 in monthly
principal payments of $62,500 plus interest at the bank's Prime Rate plus 0.50%.
NOTE G -- ACCRUED AND OTHER LIABILITIES
The following is a summary of accrued and other liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Accrued payroll and related expenses............... $264,396 $ 442,118 $ 356,266
Accrued sales tax payable.......................... 20,833 199,764 204,386
Customer deposits held............................. 265,512 295,111 212,316
Other accrued expenses............................. 423,622 410,671 236,858
-------- ---------- ----------
$974,363 $1,347,664 $1,009,826
======== ========= =========
</TABLE>
NOTE H -- RELATED PARTY TRANSACTIONS
UNCONSOLIDATED AFFILIATE
In 1993, the Company entered into a capital lease for a building owned by
7595 Rickenbacker LLC, an entity owned by three of the Company's current
stockholders (see Note I).
NOTE I -- COMMITMENTS AND CONTINGENCIES
CAPITAL LEASE
In 1993, the Company entered into a 20-year noncancelable lease commencing
in May 1994, for its Washington headquarters, warehouse and regional office
building with 7595 Rickenbacker LLC. The building portion of the lease is
classified as a capital lease, and the related asset and liability have been
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The land portion of the lease is classified as an
operating lease, as discussed below. The asset is being amortized over the
related lease term, and amortization of the asset has been included in
depreciation for fiscal years 1994, 1995 and 1996 and for the three months ended
March 31, 1997.
Minimum future payments under the capital lease as of December 31, 1996,
for each of the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------------------------------------------------------
<S> <C>
1997......................................................... $ 186,900
1998......................................................... 186,900
1999......................................................... 186,900
2000......................................................... 186,900
2001......................................................... 186,900
Thereafter................................................... 2,305,100
-----------
Total minimum lease payments................................. 3,239,600
Less amounts representing interest........................... (1,683,740)
-----------
Present value of net minimum lease payments.................. $ 1,555,860
==========
</TABLE>
F-12
<PAGE> 54
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
In addition to the lease arrangement, the Company has guaranteed one of two
notes on the building. The balance on the note guaranteed by the Company at
December 31, 1995 and 1996, amounted to approximately $967,000 and $950,000,
respectively. The balance on the note at March 31, 1997, amounted to
approximately $944,000.
The accompanying financial statements for all periods presented have been
retroactively restated for the effects of accounting for the building lease as a
capital lease, in accordance with SFAS No. 13, "Accounting for Leases."
Previously the Company accounted for the building lease under income tax
principles as an operating lease. The effect on operations for 1994, 1995 and
1996 was not material.
OPERATING LEASES
The Company leases the land associated with its Washington facility as well
as other office and warehouse space, vehicles and equipment under noncancelable
operating leases expiring on various dates through April 2014. Certain leases
include various provisions for annual increases based on the Consumer Price
Index.
Minimum future rental payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------------------------------------------------------
<S> <C>
1997.......................................................... $ 329,000
1998.......................................................... 314,000
1999.......................................................... 211,000
2000.......................................................... 131,000
2001.......................................................... 76,000
Thereafter.................................................... 795,000
----------
$1,856,000
=========
</TABLE>
Rent expense under the operating leases amounted to approximately $206,000,
$162,000 and $279,000 for 1994, 1995 and 1996, respectively.
NOTE J -- BENEFIT PLANS
SAVINGS PLAN
On January 1, 1996, the Company adopted a savings plan (the "401(k) Plan")
covering all eligible employees. Employees must be at least 21 years of age and
have completed one year of service to be eligible to participate in the 401(k)
Plan. Enrollment occurs semiannually on January 1 or July 1 of each year.
Participants may contribute up to 15% of their compensation, and the Company
provides a matching contribution of 15% of the participant's contribution. In
addition to the matching contribution, the Company may make an additional
discretionary contribution annually. Vesting in the employer's contribution is
at a rate of 25% per year beginning with the participant's third year of
service. The Company's contribution expense for the year ended December 31,
1996, was $20,000. Contribution expense for the three months ended March 31,
1997, was $650.
1997 INCENTIVE AND STOCK OPTION PLAN
In June 1997, the Board of Directors and shareholders adopted the 1997
Incentive and Stock Option Plan (the "Plan"). The Plan provides for the granting
of options to employees of the Company to purchase shares of the Company's
Common Stock at a price equal to or in excess of the Fair Market value of the
Common
F-13
<PAGE> 55
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- BENEFIT PLANS -- (CONTINUED)
Stock at the date of grant. A total of 700,000 shares of Common Stock are
reserved for issuance under the Plan. The Plan expires in June 2001.
NOTE K -- PROPOSED PUBLIC OFFERING
The Company's Board of Directors has authorized the filing of a
registration statement in 1997 relating to an initial public offering of shares
of Common Stock.
NOTE L -- PRO FORMA INFORMATION
Pro Forma Statement of Income (Unaudited)
The Company has elected to be taxed as an S corporation and is not subject
to federal and state income taxes. The pro forma presentation in the Statements
of Operations for 1996 and the three months ended March 31, 1997 reflects a
provision for income taxes as if the Company had been subject to such taxes. The
pro forma income tax provision has been prepared in accordance with SFAS No.
109. The effective pro forma tax rate of the Company differs from the federal
rate of 34%, primarily because of the effects of state income taxes.
The pro forma provision for income taxes consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Federal............................................. $824,000 $290,000
State............................................... $239,000 $ 84,000
</TABLE>
Pro Forma Net Income Per Share (Unaudited)
Pro forma net income per share is based on the weighted average number of
common shares outstanding during the period totaling 3,960,000 shares. The
shares outstanding for all periods presented give retroactive effect to the
Recapitalization and stock split described in Note A as well as 210,000 shares
deemed to be outstanding at March 31, 1997, which represent the approximate
number of shares deemed to be sold by the Company (at an assumed initial
offering price of $10.00 per share) to fund: (1) the portion of the S
corporation distribution as of March 31, 1997 in excess of the previous twelve
months' undrawn earnings; and (2) the distribution declared on June 13, 1997.
Pro Forma Balance Sheet Information (Unaudited)
In conjunction with the Recapitalization, the Company declared on June 13,
1997 a distribution totaling approximately $1.1 million, representing prior
years' capital contributions made by the current shareholders to two
subsidiaries for tax basis purposes. The original contributions were funded from
distributions of previously taxed S corporation earnings received by the
stockholders from the other two subsidiaries.
The Company intends to declare a final S corporation distribution to its
current stockholders immediately prior to the effective date of the proposed
public offering, in an amount equal to the undistributed cumulative earnings
reported for tax purposes at that date.
In addition, upon the effective date of the proposed public offering, the
Company will terminate its S corporation status and certain deferred income tax
liabilities will result.
F-14
<PAGE> 56
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- PRO FORMA INFORMATION -- (CONTINUED)
The pro forma balance sheet information of the Company at March 31, 1997,
reflects adjustments for the effects of: (1) the distribution declared in
conjunction with the Recapitalization totaling approximately $1.1 million,
representing prior years' capital contributions made for tax basis purposes; (2)
distribution to the current stockholders of the undistributed taxable earnings
of approximately $2,500,000 as of March 31, 1997; and (3) additional income tax
liabilities of approximately $165,000 which would have resulted if the S
corporation status had been terminated at March 31, 1997.
The following table illustrates the effect of the pro forma balance sheet
adjustment described above:
<TABLE>
<CAPTION>
MARCH 31,
1997
--------------
<S> <C>
Historical stockholders' equity............................................. $ 3,794,941
Effect of pro forma adjustments:
Distribution made in conjunction with recapitalization representing
prior years' capital contributions made for tax basis purposes........ (1,100,000)
S corporation undistributed taxable earnings distribution to
stockholders.......................................................... (2,500,000)
Additional income tax liabilities resulting from termination of
S corporation status................................................. (165,000)
--------------
Pro forma stockholders' equity.............................................. $ 29,941
===========
</TABLE>
F-15
<PAGE> 57
[INSIDE BACK COVER]
[PHOTOGRAPH OF CUSTOMER IN FURNISHED APARTMENT]
<PAGE> 58
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Termination of S Corporation Status and
Related Distributions.................. 10
Use of Proceeds.......................... 11
Dividend Policy.......................... 11
Capitalization........................... 12
Dilution................................. 13
Selected Consolidated Financial Data..... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 15
Recent Expansion......................... 20
Business................................. 22
Management............................... 30
Certain Transactions..................... 33
Principal Stockholders................... 34
Description of Capital Stock............. 35
Shares Eligible for Future Sale.......... 37
Underwriting............................. 38
Legal Matters............................ 39
Experts.................................. 39
Additional Information................... 40
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,650,000 SHARES
[EXECUSTAY LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
A.G. EDWARDS AND SONS, INC.
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following fees and expenses will be paid by the Company in connection
with the issuance and distribution of the securities registered hereby. All such
expenses, except for the SEC, NASD and Nasdaq fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 10,158
NASD filing fee................................................... 3,852
Nasdaq Stock Market listing fee................................... 20,000
Legal fees and expenses........................................... 150,000
Accounting fees and expenses...................................... 150,000
Blue Sky fees and expenses........................................ 10,000
Transfer Agent's and Registrar's fees............................. 5,000
Printing and engraving expenses................................... 125,000
Miscellaneous..................................................... 25,990
--------
Total........................................................ $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the Maryland Law provides that, unless a corporation's
charter includes a provision which restricts or limits the corporation's right
to indemnify its officers and directors, the corporation may indemnify a
director or officer with respect to proceedings instituted against such officer
or director by reason of his or her service in that capacity, unless the act or
omission in question was material and was committed in bad faith or was the
result of active and deliberate dishonesty, or unless the director or officer
received an improper personal benefit or the director or officer had reasonable
cause to believe that the act or omission was unlawful. The Company's Articles
of Incorporation and Bylaws provide that the Company shall indemnify and advance
expenses to its currently acting and its former directors to the fullest extent
permitted by the Maryland Law and that the Company shall indemnify and advance
expenses to its officers to the same extent as its directors and to such further
extent as is consistent with law. In addition, the Company will enter into
indemnification agreements to the same effect. However, nothing in the Articles
of Incorporation or Bylaws of the Company or the indemnification agreements
protects or indemnifies a director, officer, employee or agent against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director has been
successful in defense of a proceeding, the Maryland Law provides that he shall
be indemnified against reasonable expenses incurred in connection therewith.
Under Section 7 of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Company, its directors, certain of
its officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1994, the Company has issued and sold the following
securities that were not registered under the Securities Act of 1933 (as
adjusted to reflect the June 13, 1997 3.75-for-one stock split in the form of a
stock dividend):
On June 4, 1997, the Company issued 3,750,000 shares of Common Stock to
Messrs. Abrahams, Zaugg, Kaplan and Anderson, the former stockholders of the
Company's subsidiaries, in exchange for each stockholder's shares in the
subsidiaries.
II-1
<PAGE> 60
In June 1997, the Company granted, effective as of the effectiveness of
this registration statement, options to purchase an aggregate of 187,200 shares
of Common Stock, at an exercise price equal to the initial public offering price
per share in this offering, under the Company's 1997 Incentive and Stock Option
Plan.
No underwriters were engaged in connection with the foregoing sales and/or
issuances of securities. Such sales were made in reliance upon the exemption
from the registration provisions of the Securities Act of 1933 pursuant to Rule
701 thereunder and/or Section 4(2) thereof as transactions not involving a
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
*1.1 -- Underwriting Agreement.
2.1 -- Agreement and Plan of Reorganization, dated June 4, 1997, by and among the Company
and certain stockholders of the Company.
3.1 -- Articles of Incorporation of the Company.
*3.2 -- Bylaws of the Company.
*4.1 -- Form of Certificate for Common Stock.
*5.1 -- Opinion of Piper & Marbury L.L.P.
*10.1 -- 1997 Incentive and Stock Option Plan; including the form of incentive stock option
agreement and the form of nonqualified stock option agreement.
10.2 -- Asset Purchase Agreement, dated April 1, 1997, by and among Corporate
Accommodations, Inc., Linda Harper and the Company.
10.3 -- Non-Competition Agreement, dated April 1, 1997, by and between Linda Harper and the
Company.
10.4 -- Purchase Agreement, dated June 1, 1997, by and among Prom Management Group, Inc.,
Prom X, Inc. and the Company.
10.5 -- Non-Competition Agreement, dated June 1, 1997, by and among Prom Management Group,
Inc., Prom X, Inc. and the Company.
10.6 -- Lease Agreement, dated August 20, 1993, by and among 7595 Rickenbacker LLC and
Executive Amenities, Inc., as amended on May 12, 1994.
*10.7 -- Form of Indemnification Agreement, to be entered into by the Company and its
Directors and Officers.
*10.8 -- Documents relating to the bank line of credit.
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Grant Thornton LLP.
*23.2 -- Consent of Piper & Marbury L.L.P.
*23.3 -- Consent of Dorsey & Whitney LLP.
24.1 -- Powers of Attorney (included on signature page).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
The following schedule is filed as part of this Registration Statement, but
not included in the Prospectus.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are inapplicable
or the required information is included in the Consolidated Financial Statements
and Notes thereto and, therefore, have been omitted.
II-2
<PAGE> 61
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Gaithersburg, State of Maryland, on June 25, 1997.
EXECUSTAY CORPORATION
By: /s/ GARY R. ABRAHAMS
------------------------------------
GARY R. ABRAHAMS
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary R. Abrahams, as his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
additional Registration Statement pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and any or all amendments (including post-effective
amendments) to this Registration Statement (or Registration Statements, if an
additional Registration Statement is filed pursuant to Rule 462(b)), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities indicated on June 25, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------- ---------------------------------------------
<C> <S> <C>
/s/ GARY R. ABRAHAMS Chief Executive Officer and Director
- --------------------------------------- (principal executive officer)
GARY R. ABRAHAMS
/s/ MARC B. KAPLAN Chief Financial Officer and Director
- --------------------------------------- (principal financial and accounting officer)
MARC B. KAPLAN
/s/ ROBERT W. ZAUGG Chief Operating Officer and Director
- ---------------------------------------
ROBERT W. ZAUGG
/s/ DAVID S. SANTEE Director
- ---------------------------------------
DAVID S. SANTEE
/s/ STUART C. SIEGEL Director
- ---------------------------------------
STUART C. SIEGEL
</TABLE>
II-4
<PAGE> 63
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE II
Board of Directors
ExecuStay Corporation and Subsidiaries
In connection with our audit of the consolidated financial statements of
ExecuStay Corporation and Subsidiaries referred to in our report dated June 4,
1997, which is included in the Prospectus constituting Part I of this
Registration Statement, we have also audited Schedule II for each of the three
years in the period ended December 31, 1996. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
Vienna, Virginia
June 4, 1997
S-1
<PAGE> 64
EXECUSTAY CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION BEGINNING OF PERIOD EXPENSES DEDUCTIONS END OF PERIOD
- ------------------------------------- ------------------- ----------------- ---------- -------------
<S> <C> <C> <C> <C>
Reserve for Vacancies
and Doubtful Accounts
Year ended December 31, 1996......... $ 139,511 $ 929,331 $ 830,786 $ 238,056
Year ended December 31, 1995......... 107,864 922,353 890,706 139,511
Year ended December 31, 1994......... 202,661 1,064,240 1,159,036 107,865
</TABLE>
S-2
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------------- ----
<C> <S> <C>
*1.1 -- Underwriting Agreement.
2.1 -- Agreement and Plan of Reorganization, dated June 4, 1997, by and among the
Company and certain stockholders of the Company.
3.1 -- Articles of Incorporation of the Company.
*3.2 -- Bylaws of the Company.
*4.1 -- Form of Certificate for Common Stock.
*5.1 -- Opinion of Piper & Marbury L.L.P.
*10.1 -- 1997 Incentive and Stock Option Plan; including the form of incentive stock
option agreement and the form of nonqualified stock option agreement.
10.2 -- Asset Purchase Agreement, dated April 1, 1997, by and among Corporate
Accommodations, Inc., Linda Harper and the Company.
10.3 -- Non-Competition Agreement, dated April 1, 1997, by and between Linda Harper
and the Company.
10.4 -- Purchase Agreement, dated June 1, 1997, by and among Prom Management Group,
Inc., Prom X, Inc. and the Company.
10.5 -- Non-Competition Agreement, dated June 1, 1997, by and among Prom Management
Group, Inc., Prom X, Inc. and the Company.
10.6 -- Lease Agreement, dated August 20, 1993, by and among 7595 Rickenbacker LLC
and Executive Amenities, Inc., as amended on May 12, 1994.
*10.7 -- Form of Indemnification Agreement, to be entered into by the Company and its
Directors and Officers.
*10.8 -- Documents relating to the bank line of credit.
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Grant Thornton LLP.
*23.2 -- Consent of Piper & Marbury L.L.P.
*23.3 -- Consent of Dorsey & Whitney LLP.
24.1 -- Powers of Attorney (included on signature page).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization is made as of the 4th day of
June, 1997, by and among ExecuStay Corporation, a Maryland corporation
("ExecuStay"), and the persons listed in Exhibit A hereof ("Shareholders"),
being the owners of record of all the issued and outstanding capital stock of
each of the corporations ("Corporations") in the amount set forth opposite
their respective names on said Exhibit A.
PLAN OF REORGANIZATION
This Plan of Reorganization (the "Plan") shall be a reorganization within
the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended. Pursuant to the Plan, ExecuStay shall acquire all of the issued and
outstanding shares of stock of each of the Corporations in exchange solely for
shares of ExecuStay's voting common stock.
AGREEMENT
In order to effect the Plan and in consideration of the mutual benefits
to be derived therefrom and the mutual agreements contained herein, the parties
approve and adopt this Agreement and Plan of Reorganization and mutually
covenant and agree as follows:
1. EXCHANGE OF STOCK.
a. NUMBER OF SHARES. The Shareholders agree to transfer to
ExecuStay at the Closing the number of shares of common stock in each of the
Corporations set forth opposite their names in Exhibit A attached hereto in
exchange for an aggregate of one million (1,000,000) shares of voting common
stock
<PAGE> 2
of ExecuStay (the "ExecuStay Shares"). The ExecuStay shares shall be issued at
the Closing to the Shareholders in the number set forth opposite their names in
Exhibit A. If between the date hereof and the Closing, the number of issued and
outstanding shares of any of the Corporations and/or ExecuStay shall increase
or decrease or if the value of any of the Corporations and/or ExecuStay shall
increase or decrease, the number of ExecuStay Shares to be issued to the
Shareholders at the Closing shall be equitably adjusted.
b. DELIVERY OF CERTIFICATES BY SHAREHOLDERS. The transfer of the
Corporations' shares by the Shareholders shall be affected by the delivery to
ExecuStay at the Closing of certificates representing the transferred shares
endorsed in blank or accompanied by stock powers executed in blank, with all
appropriate signatures.
2. VALUATION OF THE CORPORATIONS. By signing below, the Shareholders
certify that they have had full access to the books and records of the
Corporations and have conducted due diligence to the extent they deemed
necessary to appraise the value of their respective shares of stock in the
Corporations. The Shareholders agree with the valuation of the Corporations'
shares of stock as contemplated by the terms of this Plan.
3. CLOSING. The Closing contemplated by this Agreement shall be held
at the principal offices of ExecuStay on the 4th day of June, 1997, unless
another place or time is agreed upon in writing by all of the parties hereto.
-2-
<PAGE> 3
4. MEETING OF DIRECTORS; CONSENT. In lieu of a meeting of the
Directors of ExecuStay to authorize this Plan, execution by the Shareholders
below, who constitute all of the Directors of ExecuStay, shall constitute the
unanimous consent of the directors of ExecuStay for the purpose of authorizing
the conveyance, transfer, and delivery of the ExecuStay Shares to the
Shareholders upon the terms and conditions set forth in this Plan; and such
consent shall have the same force and effect as if given at a duly called
meeting of the Directors of ExecuStay. Each of the Corporations shall evidence
their approval of the Plan by signing where indicated below.
5. GOVERNING LAW. This Plan and Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland.
6. ASSIGNMENT; AMENDMENT. This Agreement may not be assigned by any
party hereto without the written consent of all the parties hereto. This
Agreement may be amended or modified only pursuant to a writing signed by all
of the parties hereto.
7. COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts and/or by facsimile signatures, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
8. FURTHER DOCUMENTS. ExecuStay and each of the Shareholders agree to
execute any and all other documents and to take any action or implement such
corporate proceedings as may be necessary or desirable to affect the
transactions contemplated hereby.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement and plan of
Reorganization to be duly executed as of the date and year first above written.
READ & CONSENTED TO:
<TABLE>
<S> <C>
EXECUTIVE AMENITIES, INC. EXECUSTAY CORPORATION
By: By:
-------------------------------- -----------------------------------
Gary R. Abrahams Gary R. Abrahams, President
EXECUTIVE FURNITURE CENTRE, INC.
-----------------------------------
Gary R. Abrahams, Shareholder
By:
-------------------------------- -----------------------------------
Gary R. Abrahams Marc B. Kaplan, Shareholder
EXECUTIVE AMENITIES WEST, INC.
-----------------------------------
Robert W. Zaugg, Shareholder
By:
-------------------------------- -----------------------------------
Gary R. Abrahams Benny E. Anderson, Shareholder
EXECUSTAY CORPORATION OF AMERICA
By:
--------------------------------
Gary R. Abrahams
</TABLE>
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<PAGE> 5
EXHIBIT A
STOCKHOLDERS AND STOCKHOLDINGS
<TABLE>
<CAPTION>
EXECUTIVE EXECUTIVE EXECUTIVE EXECUSTAY CORPORATION EXECUSTAY
STOCKHOLDER AMENITIES, INC. FURNITURE CENTRE, INC. AMENITIES WEST, INC. OF AMERICA CORPORATION
- ----------- --------------- ---------------------- -------------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
GARY R. ABRAHAMS 1,000 1,000 1,000 3,300 316,666.667
BENNY E. ANDERSON -0- -0- 1,000 -0- 50,000.000
MARC B. KAPLAN 1,000 1,000 1,000 3,300 316,666.667
ROBERT W. ZAUGG 1,000 1,000 1,000 3,300 316,666.667
----- ----- ----- ----- -------------
TOTALS: 3,000 3,000 4,000 9,900 1,000,000.000
</TABLE>
-5-
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
EXECUSTAY CORPORATION
The undersigned, David A. Wechsler, Esq., whose business post office
address is 4550 Montgomery Avenue, Suite 900, Bethesda, Maryland, 20814, being
at least eighteen (18) years of age, does hereby act as Incorporator for the
purpose of forming a corporation under and by virtue of the general laws of the
State of Maryland, and does hereby set forth the following provisions:
FIRST: The name of the corporation (which is hereinafter called the
"Corporation") is ExecuStay Corporation.
SECOND: The purposes for which this Corporation is formed are to engage
in any businesses for which it shall be lawful for Corporations of the State of
Maryland to engage in and to do all lawful and appropriate actions and things
with respect thereto.
THIRD: The post office address of the principal office of the
Corporation is 7595 Rickenbacker Drive, Gaithersburg, Maryland 20879.
FOURTH: The name and post office address of the resident agent of the
Corporation in the State of Maryland is CWS&B, Inc., 4550 Montgomery Avenue,
<PAGE> 2
Suite 900, North, Bethesda, Maryland 20814. Said resident agent is a
Corporation chartered in the State of Maryland.
FIFTH: The total number of shares of capital stock which the
Corporation is authorized to issue shall be 50,000,000 shares, consisting of
45,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
and 5,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock").
SIXTH: All shares of Common Stock shall be voting shares and shall be
entitled to one vote per share. Subject to any preferential rights of holders of
Preferred Stock, holders of Common Stock shall be entitled to receive their pro
rata share, based upon the number of shares of Common Stock held by them, of
such dividends or other distributions as may be declared by the board of
directors from time to time and of any distribution of the assets of the
Corporation upon its liquidation, dissolution or winding up, whether voluntary
or involuntary.
SEVENTH: The board of directors of the Corporation is hereby authorized
to provide, by resolution or resolutions adopted by such board, for the issuance
of Preferred Stock from time to time in one or more classes and/or series, to
establish the designation and number of shares of each such class or series, and
to fix the relative rights and preferences of the shares of each such class or
series, all to the full extent permitted by Section 2-105 of the Corporations
and Associations Article of the
-2-
<PAGE> 3
Annotated Code of Maryland (the "Maryland Corporations Article"), or any
successor or amended provision. Without limiting the generality of the
foregoing, the board of directors of the Corporation is authorized to provide
that shares of a class or series of Preferred Stock:
(a) are entitled to cumulative, partially cumulative or
noncumulative dividends or other distributions payable in cash, capital
stock or indebtedness of the Corporation or other property, at such
times and in such amounts as are set forth in the board resolutions
establishing such class or series or as are determined in a manner
specified in such resolutions;
(b) are entitled to a preference with respect to payment of
dividends over one or more other classes and/or series of capital stock
of the Corporation;
(c) are entitled to a preference with respect to any
distribution of assets of the Corporation upon its liquidation,
dissolution or winding up over one or more other classes and/or series
of capital stock of the Corporation in such amount as is set forth in
the board resolutions establishing such class or series or as is
determined in a manner specified in such resolutions;
(d) are redeemable or exchangeable at the option of the
Corporation and/or on a mandatory basis for cash, capital stock or
indebtedness of the Corporation or other property, at such times or
upon the occurrence of such events, and at such prices, as are set
forth in the board resolutions establishing
-3-
<PAGE> 4
such class or series or as are determined in a manner specified in such
resolutions;
(e) are entitled to the benefits of such sinking fund, if any,
as is required to be established by the Corporation for the redemption
and/or purchase of such shares by the board resolutions establishing
such class or series;
(f) are convertible at the option of the holders thereof into
shares of any other class or series of capital stock of the
Corporation, at such times or upon the occurrence of such events, and
upon such terms, as are set forth in the board resolutions establishing
such class or series or as are determined in a manner specified in such
resolutions;
(g) are exchangeable at the option of the holders thereof for
cash, capital stock or indebtedness of the Corporation or other
property, at such times or upon the occurrence of such events, and at
such prices, as are set forth in the board resolutions establishing
such class or series or as are determined in a manner specified in such
resolutions;
(h) are entitled to such voting rights, if any, as are
specified in the board resolutions establishing such class or series
(including, without limiting the generality of the foregoing, the right
to elect one or more directors voting alone as a single class or series
or together with one or more other classes and/or series of Preferred
Stock, if so specified by such board resolutions) at all times or upon
the occurrence of specified events; and
-4-
<PAGE> 5
(i) are subject to restrictions on the issuance of additional
shares of Preferred Stock of such class or series or of any other class
or series, or on the reissuance of shares of Preferred Stock of such
class or series or of any other class or series, or on increases or
decreases in the number of authorized shares of Preferred Stock of such
class or series or of any other class or series.
Without limiting the generality of the foregoing authorizations, any of the
rights and preferences of a class or series of Preferred Stock may be made
dependent upon facts ascertainable outside these Articles of Incorporation or
the board resolutions establishing such class or series, and may incorporate by
reference some or all of the terms of any agreements, contracts or other
arrangements entered into by the Corporation in connection with the issuance of
such class or series, all to the full extent permitted by the Maryland
Corporations Article. Unless otherwise specified in the board resolutions
establishing a class or series of Preferred Stock, holders of a class or series
of Preferred Stock shall not be entitled to cumulate their votes in any election
of directors in which they are entitled to vote and shall not be entitled to any
preemptive rights to acquire shares of any class or series of capital stock of
the Corporation.
EIGHTH: There shall be no cumulative voting by the shareholders of the
Corporation.
NINTH: The shareholders of the Corporation shall not have any
preemptive rights to subscribe for or acquire securities or rights to purchase
securities of any class, kind or series of the Corporation.
-5-
<PAGE> 6
TENTH: Shares of any class or series of the Corporation, including
shares of any class or series which are then outstanding, may be issued to the
holders of shares of another class or series of the Corporation, whether to
effect a share dividend or split, including a reverse share split, or otherwise,
without the authorization, approval or vote of the holders of shares of any
class or series of the Corporation.
ELEVENTH: The number of directors constituting the initial board of
directors of the Corporation shall be three (3), to wit:
Gary R. Abrahams
Marc B. Kaplan
Robert W. Zaugg
who shall serve until the first meeting of the shareholders of the Corporation
and/or their successors shall have been elected and qualified. Thereafter, the
Corporation shall have the number of directors set forth in the By-Laws of the
Corporation.
TWELFTH: An action required or permitted to be taken at a meeting of
the board of directors of the Corporation may be taken by a written action
signed, or counterparts of a written action signed in the aggregate, by all of
the directors.
THIRTEENTH: The Corporation shall, and hereby agrees to, indemnify all
of its directors, officers, employees and agents to the maximum extent permitted
by
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<PAGE> 7
Section 2-418 of the Maryland Corporations Article, as amended or re-
enacted from time to time, the same to be subject to such determinations and
procedures as are set forth in said Section 2-418 from time to time.
FOURTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of Incorporation in the
manner now or hereafter prescribed by the laws of the State of Maryland. All
rights conferred on stockholders, directors and officers herein are granted
subject to this reservation. The directors shall adopt such rules, appoint such
officers, designate responsibilities and do all other things necessary in the
conduct of the business of the Corporation.
FIFTEENTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I do hereby declare and affirm under the penalties of
perjury that the contents of the foregoing Articles of Incorporation are true
and correct to the best of my knowledge, information and belief, and I have
hereunto affixed my signature as my free and voluntary act, all on the 4th day
of June, 1997.
/s/ David A. Wechsler
------------------------------
David A. Wechsler, Esquire
Incorporator
-7-
<PAGE> 1
Exhibit 10.2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made this 1st day of April, 1997 (this
"Agreement") by and between CORPORATE ACCOMMODATIONS, INC., a Florida
corporation ("Seller"), LINDA HARPER, the sole shareholder of Seller, (the
"Shareholder") and EXECUSTAY, INC. ("Purchase");
W I T N E S S E T H:
WHEREAS, Seller is in the business of leasing and subleasing commercial
and residential properties (the "Business");
WHEREAS, Purchaser desires to purchase, and Seller desires to sell,
certain assets of the Seller used in the Business upon the terms and conditions
hereinafter set forth;
WHEREAS, the Shareholder is the owner of all of the issued and
outstanding stock of Seller and therefore has a beneficial interest in said
sale/purchase; and
WHEREAS, as a condition to purchasing the assets of Seller, Purchaser
has requested that, for separate consideration, the Shareholder executes a
Non-Competition Covenant and Agreement, and the Shareholder has agreed to do so;
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. SALE AND PURCHASE OF BUSINESS ASSETS. Upon the terms and conditions
of this Agreement, at Closing (as defined below), Seller shall deliver, transfer
and
<PAGE> 2
convey to Purchaser, and Purchaser shall purchase and pay for, the assets
described in Schedule 1.1 (the "Assets") of Seller and the contracts, leases,
purchase orders and related contract rights and leasehold interests described in
Schedule 1.2 (the "Assumed Contracts"). All items of income and expense
attributable to the Assumed Contracts shall be allocated between Purchaser and
Seller pursuant to the terms of Section 1.3 below.
1.1 ASSIGNMENT OF SERVICE CONTRACTS. With respect to the
Assumed Contracts, Seller shall, at the Closing (or as soon thereafter as
practicable), assign to Purchaser all of the related, underlying contracts for
the rental of apartments, furniture, and housewares and all of the related
underlying contracts for the provision of electric usage, cable television
service, water, sewer, telephone service and so on (all such contracts are
referred to hereafter as the "Service Contracts"). Upon such assignment,
Purchaser shall (a) be entitled to all of Seller's rights (including the right
to the return of all security deposits, if any, paid by Seller), (b) assume all
of Seller's obligations, and (c) make all further payments due under the terms
of the Service Contracts, as though the named party to each Service Contract.
1.2 NON-ASSIGNABLE SERVICE CONTRACTS. The parties hereto
recognize that it may be impossible or impractical for Seller to assign all of
the Service Contracts. A Service Contract that is impossible or impractical to
assign shall be referred to hereafter as a "Non-assignable Service Contract".
With respect to each Non-assignable Service Contract, the following shall apply
as of the date of Closing
-2-
<PAGE> 3
and thereafter: (a) Seller shall assign its economic rights and obligations with
respect to such Contracts; (b) Seller shall remain legally obligated under the
terms of such Contracts; (c) Purchaser shall be entitled to all of Seller's
rights (including the right to the return of security deposits, if any, paid by
Seller), and shall assume all of Seller's financial obligations and make all
further payments due by Seller under the terms of the Non-Assignable Service
Contracts which accrue on or after the date of Closing; and (d) Purchaser shall
indemnify and hold Seller harmless for any claim made against Seller due to the
non-payment or non-performance by Purchaser of any financial or other obligation
assumed by Purchaser hereunder with respect to each such Non-assignable Service
Contract. To the extent not otherwise allocated under Section 1.3 below, Seller
shall remain liable for and shall indemnify and hold Purchaser harmless for any
claim made against Purchaser with respect to the non-performance or non-payment
of any financial or other obligation of Seller with respect to a Non-assignable
Service Contract which accrued prior to Closing.
1.3 ACCRUALS AND ALLOCATIONS. Amounts due or payable on Service
Contracts, Non-assignable Service Contracts and all other Assumed Contracts
shall be allocated between the Purchaser and the Seller on an accrual basis. All
accruals shall be based on the number of calendar days in the term of such
Contracts. The Seller's portion shall be equal to that portion of the number of
days in the term occurring prior to the Closing Date in relation to the total
number of days in the term ("Seller's Term"). The Purchaser's portion shall be
equal to that portion of the number of days in the term occurring after the
Closing Date in relation to the total
-3-
<PAGE> 4
number of days in the term ("Purchaser's Term"). All accruals shall be allocated
between Purchaser and Seller as follows:
(a) All prepaid rents and expenses which are properly
reflected as assets on Seller's records as of the Closing Date and which are
allocated to the Purchaser's Term shall be treated additional Assets to be
acquired by Purchaser and shall result in an increase in the Purchase Price
under Section 3. below.
(b) All accrued but unpaid rents and expenses which are
properly reflected as liabilities on Seller's records as of the Closing Date and
which are allocated to the Seller's Term shall be treated as liabilities to be
assumed by Purchaser under Section 2. (b) below and shall result in a decrease
to the Purchase Price under Section 3. below.
(c) All prepaid rents and expenses which are properly
reflected as liabilities on Seller's records as of the Closing Date and which
are allocated to Purchaser's Term shall be treated as a liability to be assumed
by Purchaser under Section 2.(b) below and shall result in a decrease to the
Purchase Price under Section 3. below.
(d) Any security deposit that Seller has placed with regard to
an Assumed Contract, with respect to each of which Purchaser shall have the
right of return, shall be treated as an additional asset to be acquired by
Purchaser and shall result in an increase in the Purchase Price under Section 3.
below Conversely, any security deposit that Seller has received with regard to
an Assumed Contract and with respect to which the Purchaser has assumed the
liability to refund such deposit
-4-
<PAGE> 5
under Paragraph 2. (b) below shall be treated as a liability assumed by
Purchaser and shall result in a decrease in the Purchase Price under Section 3.
below.
(e) Notwithstanding anything to the contrary in the foregoing,
Purchaser shall pay or reimburse Seller for all installation fees and prepaid
items paid by Seller, including utility installations, "hook-up" costs, etc., on
or after March 20, 1997 with respect to an Assumed Contract executed by Seller
on or after such date. Any amount due to Seller under this Section 1.3 (e) shall
result in an increase to the Purchase Price under Section 3. below.
2. EXCLUDED ASSETS; ASSUMPTION OF LIABILITIES.
(a) Seller is not selling to Purchaser and Purchaser is not
purchasing any of Seller's accounts receivable for amounts due to Seller prior
to the Closing or any of the assets listed on Schedule 2 (the "Excluded
Assets").
(b) Purchaser is assuming only those liabilities of Seller
with respect to the Assumed Contracts which have been allocated to Purchaser
under Section 1.3 above, specifically including Seller's obligation to refund
any security deposits paid to Seller with regard to the Assumed Contracts.
Purchaser shall not assume, and Seller shall remain liable for, all of Seller's
other liabilities incurred in the operation of the Business through the date of
Closing (the "Retained Liabilities").
3. PAYMENT AND ALLOCATION OF PURCHASE PRICE; ADJUSTMENTS.
3.1 PAYMENT. The Purchase Price for the Assets is Eight
Hundred Fifty Thousand and no/100 ($850,000.00) Dollars. The Purchase Price
shall be paid in the following manner:
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<PAGE> 6
(a) One Hundred Thousand and no/100 ($100,000.00) Dollars (the
"Escrowed Amount") shall be paid by Purchaser to Seller at Closing by certified
or cashier's check to be held in an interest bearing joint escrow account by
Seller's and Purchaser's counsel, which such Escrowed Amount shall be paid to
Seller sixty (60) days after Closing so long as there has been no breach of this
Agreement, or any of the covenants, representations or warranties contained
herein, by Seller prior to such date, and after taking into account any
adjustments to the Purchase Price pursuant to Section 3.3 below. Any interest
generated by the Escrowed Amount shall be paid to Seller seven (7) days after
the Final Accounting (as defined in and pursuant to Section 3.3 below).
(b) Seven Hundred Fifty Thousand and no/100 ($750,000.00)
Dollars shall be paid by Purchaser to Seller at Closing by certified or
cashier's check.
3.2 ALLOCATIONS. The Purchase Price shall be allocated as
shown on Schedule 3.2; and Purchaser and Seller agree to file all tax returns,
including Federal Form 8594, in a manner which is consistent with such
allocation.
3.3 ADJUSTMENTS. The Purchase Price shall be increased or
decreased in accordance with the terms of Paragraph 1.3 above and the other
provisions of this Agreement. In order to take account of all such increases or
decreases, the Purchaser and Seller agree to perform the following: (i) an
interim accounting of all increases or decreases in the Purchase Price (an
"Interim Accounting") within thirty (30) days of the date of the Closing; and
(ii) a final accounting of all increases or decreases in
-6-
<PAGE> 7
the Purchase Price (a "Final Accounting") within sixty (60) days of the date of
the Closing.
(a) To the extent that the Interim Accounting indicates that
the Purchase Price has increased, then Purchaser shall, within seven (7) days
thereafter, pay to Seller the amount of the increase. To the Extent that the
Interim Accounting indicates that the Purchase Price has decreased, then Seller
shall, within seven (7) days thereafter, pay to the Purchaser the amount of the
decrease.
(b) To the extent that the Final Accounting indicates that the
Purchase Price has increased, then Purchaser shall, within seven (7) days
thereafter, pay to Seller the amount of the increase. To the extent that the
Final Accounting indicates that Purchase Price has decreased, then the amount of
such decrease shall be paid to the Purchaser from the Escrowed Amount held
pursuant to Paragraph 3.1 (a) above. The portion, if any, of the Escrowed Amount
remaining after making payment to Purchaser shall be paid to Seller.
4. CLOSING; DELIVERIES.
(a) The documents to be transferred and the payments to be
made at Closing shall be transferred and made at the offices of Wechsler, Selzer
& Gurvitch, Chartered at 10:00 a.m. on April 1, 1997, or at such other time and
date as shall be mutually agreed upon by the parties. The term "Closing" shall
mean the close of business on such date.
(b) At Closing, Seller and the Shareholder shall deliver to
Purchaser the following:
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<PAGE> 8
(i) All documents necessary to vest clear and good title to
the Assets;
(ii) All documents necessary to properly assign the Assumed
Contracts to Purchaser; (The parties hereby agree that the execution of this
Agreement at Closing shall be deemed to satisfy requirements "i" and "ii" of
this Section 4(b)).
(iii) All documents required to be delivered pursuant to
Section ?; and
(iv) Any consents required to properly assign the Assumed
Contracts to Purchaser.
(c) At Closing, Purchaser shall deliver to Seller and/or the
Shareholder, the following:
(i) The Purchase Price to the extent required in Section ?.,
hereof;
(ii) The Employment Contract as described in Section 7.7; and
(iii) All documents required to be delivered pursuant to
Section ?.
5. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER AND THE
SHAREHOLDER. Seller and the Shareholder, individually, jointly and severally,
represent, warrant, and covenant as follows, which representations, warranties,
and covenants shall continue in full force and effect to and including Closing,
and shall survive Closing:
-8-
<PAGE> 9
5.1 CORPORATE ORGANIZATION AND GOOD STANDING. Seller is duly
organized, validly existing, and in good standing under the Laws of the State of
Florida. Seller has the power to own all of its properties and Assets and to
carry on the Business as it is now being conducted. Attached hereto as Exhibits
?A and ?B, respectively, are true and correct copies of the Articles of
Incorporation and By-Laws of Seller, and all amendments, if any, thereto.
5.2 AUTHORIZATION, NO CONFLICTS. The Seller and the
Shareholder, as sole shareholder of the Seller, each have the power, capacity
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated herein. The execution, delivery and performance of
this Agreement and any related agreement by Seller have been duly and validly
authorized by the Board of Directors and the Shareholder of Seller and by all
other necessary corporate action on the part of Seller. This Agreement and any
related agreements constitute the legally valid and binding obligations of
Seller and the Shareholder, enforceable against Seller and the Shareholder in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws and equitable principles relating to or limiting creditors rights
generally. The execution, delivery and performance of this Agreement by Seller
and the Shareholder and the execution, delivery and performance of any related
agreements and the consummation of the contemplated transactions by Seller
and the Shareholder will not violate or constitute a breach or default, whether
upon lapse of time and/or the occurrence of any act or event or
-9-
<PAGE> 10
otherwise, under the Articles of Incorporation or By-Laws of Seller or any other
contract, commitment or arrangement of Seller or the Shareholder, or result in
the imposition or encumbrance against any of the Assets or the Assumed Contracts
or violate any law. Except as set forth in Schedule 5.2 attached, the execution
and delivery of this Agreement by Seller and the Shareholder and the performance
of this Agreement and any related agreements or transactions thereunder by
Seller or the Shareholder will not require the consent or approval of any third
party.
5.3 FINANCIAL STATEMENTS.
(a) Seller has delivered to Purchaser:
(i) a listing of assets and liabilities relating to
Seller's Business and operations dated __________, which has been prepared in
accordance with generally accepted accounting principles (the "Listing of
Assets"); and
(ii) financial records relating to Seller's Business
and operations for the past two (2) years ending December 31, 1996 (the
"Financial Records") (the Financial Records and the Listing of Assets are
sometimes hereinafter referred to collectively as the "Financial Statements").
True and correct copies of the Financial Statements are attached hereto
as Exhibit ?. All such Financial Statements are true, correct and accurate in
all respects, have been prepared in accordance with generally accepted
accounting principles consistently applied, and fairly present in all respects
the financial position, results
-10-
<PAGE> 11
of operations, and changes in financial position of Seller at and for the
periods specified therein.
(b) Since December 31, 1996, whether or not in the ordinary
course of business, there has not been, occurred or arisen any change in or
event effecting the Business of Seller or the Assets that has had or may
reasonably be expected to have an adverse effect on the Business of Seller or
the Assets; nor has there been any casualty, loss, damage or destruction,
(whether or not covered by insurance) of any of the Assets or that has involved
or may involve a loss to Seller.
5.4 [INTENTIONALLY LEFT BLANK.]
5.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on
Schedule ? hereto, Seller has no obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due
and whether or not insured), except for (i) liabilities reflected on Seller's
balance sheet as of December 31, 1996, and (ii) liabilities under contracts or
commitments described on Schedule ? hereto which have arisen since December 31,
1996, in the ordinary course of business.
5.6 ASSUMED CONTRACTS.
(a) Schedule ______, contains an accurate and complete list
of all the Assumed Contracts and all agreements or commitments of any kind or
nature (oral or written) to which Seller is a party or bound and/or relating to
its Business. Except as set forth on Schedule ?, Seller is not party to or
bound by any other agreement or commitment of any kind or nature relating to
its Business. Each Assumed Contract
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is valid and in full force and effect; Seller has duly performed all of its
obligations thereunder; and no breach or default, alleged breach or default, or
event which would (with the passage of time, notice or both) constitute a breach
or default thereunder by Seller, as the case may be, or, any other party or
obligor with respect thereto, has occurred or as a result of this Agreement or
performance will occur. Consummation of the transactions contemplated by this
Agreement will not (and will not give any person a right to) terminate or modify
any rights of, or accelerate or augment any obligation of, Seller under any of
such Assumed Contracts.
(b) With respect to any lease which is an Assumed Contract (a
"Lease") and which is not a Non-assignable Service Contract, in addition to the
representations set forth in Section 5.6(a), above, Seller represents itself to
be the absolute owner of each such Lease with the absolute right and title to
assign the Lease and the rents, income and profits due or to become due
thereunder, and all security deposits and prepaid rents held by Seller with
respect thereto. Seller further represents that all Leases are valid and in full
force and have not been modified, amended or terminated, except as stated
herein; that there are no outstanding assignments or pledges thereof or of the
rents, income and profits due or to become due thereunder; that each lessee is
in possession and paying rent and other charges as required under its Lease. Any
rents, income, profits, and expenses payable under a Lease, which have been
prepaid or otherwise paid in advance, by or to Seller, have been disclosed to
Purchaser for allocation pursuant to Section 1.3 above.
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5.7 COLLECTIVE BARGAINING AGREEMENTS. Seller is not a party to
any collective bargaining or other union contracts and its employees are not
represented by any union. There are no currently pending or threatened labor
disputes, disturbances, or elections between Seller and any of its employees, or
between Seller and any union representing or seeking to represent its employees,
nor have there been any such disputes, disturbances, or elections within three
(3) years preceding the date hereof, other than routine grievances of individual
employees, and there is no basis for any such dispute or disturbances.
5.8 TITLE TO ASSETS. Seller has, and will continue to have at
closing, good and marketable and unencumbered title to all the Assets and the
Assumed Contracts, free and clear of mortgages, security interests, liens,
pledges, charges, encumbrances, equities and claims. Except with respect to the
Non-assignable Service Contracts, Seller has the right, power, and authority to
sell, convey, assign, transfer and deliver the Assets and the Assumed Contracts
to Purchaser in accordance with the terms of this Agreement. The Assets, as
applicable, are in a good state of maintenance and repair except for ordinary
wear and tear and are adequate for use in the business of Seller and said Assets
and the uses thereof do not violate any law.
5.9 TRADE NAME. Seller is and will be at Closing the sole and
exclusive owner of the trade name CORPORATE ACCOMMODATIONS, INC. and any and all
other tradenames used in connection with the operation of its business and all
designs, permits, labels, packages, and displays used in connection therewith
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(collectively, the "Trade Name"). Seller and the Shareholder represent and
warrant that no other person or entity including, but not limited to, any
officer, director, shareholder, employee, or consultant of Seller has any right,
title, or interest in and to the Trade Name. There are no asserted claims or
litigation or threatened claims or litigation challenging Seller's right, title,
and interest in and to the Trade Name and Seller has the right, power and
authority to sell, convey and assign to Purchaser the Trade Name. Seller's use
of the Trade Name does not violate any rights of others.
5.10 PERMITS. Schedule _____ sets forth all permits, licenses,
authorizations or certificates of authority or related approvals (collectively,
"the Permits") that are held by Seller, and that are required by any
governmental entity to allow it to conduct the business of Seller, and all such
Permits are valid and in full force and effect and will remain so upon
consummation of the transactions contemplated by this Agreement. All Permits
shall be transferred to Purchaser on or before the Closing Date. No suspension,
cancellation or termination of any of such Permits is threatened or imminent.
5.11 LEGAL MATTERS. There is no suit, action, arbitration,
legal, administrative or other proceeding or governmental investigation pending
or threatened against, or with respect to Seller and its business, operations,
affairs, or its properties, assets or liabilities which might have an adverse
effect on the business, operations, prospects, properties, contracts, or
condition (financial or otherwise) of Seller, or which might effect or restrict
Seller's ability to consummate the
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transactions contemplated at Closing hereby, and, there is no basis for any such
suit, action, arbitration, proceeding, or investigation. There is no judgment,
order, injunction, or award or decree of any court, governmental authority, or
regulatory agency to which Seller is subject, and Seller is not in violation of
any Federal, State, or local law or regulation including, without limitation,
those relating to labor, antitrust, civil rights or equal protection of the law
which effect the operation of the Business of Seller.
5.12 INSURANCE. Schedule 5.12, contains an accurate and
complete list of all insurance policies maintained by the Corporation with
respect to its Assets, properties, and Business. Since December 31, 1996, there
has not been any adverse change in Seller's relationship with insurers or with
the coverage or premiums payable with respect to any of Seller's insurance
policies. Seller has received no notice from its liability insurer that such
insurer may refuse to cover all losses. Seller is insured with reputable
insurers against all risks normally insured against by companies in similar
lines of business, and all the insurance policies and bonds maintained by Seller
with respect to the business of Seller are in full force and effect. Seller is
not in default under any such policy or bond, and there is no such claims
threatened or outstanding against such insurance policies.
5.13 TAXES. Seller has filed or caused to be filed within the
time and within the manner prescribed by law, including extensions, all Federal,
state, local and foreign tax returns which are required to be filed by or with
respect to, any taxes of Seller or its Business. Seller has paid all taxes
reflected in all such returns and
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reports and the information requested in such returns and reports are true and
correct in all material respects. All taxes payable by, or due from, Seller have
been fully paid or adequately provided for in the books and Financial Statements
of Seller. There are not outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of Seller.
There are no known or proposed penalties, interest, or
deficiency assessments in respect to Federal income tax returns or other tax
returns filed by Seller. There are no examinations by the Internal Revenue
Service ("IRS") or other tax authority for any years pending with respect to or
which could effect Seller. Federal and state tax returns of Seller have never
been audited by the respective tax authorities and no deficiencies have been
asserted thereby; Seller has not executed or filed with the Internal Revenue
Service or other authority any agreement, extending the period for assessment
and collection of any Federal or other tax, nor is Seller party to any action or
proceeding by any government authority for assessment or collection of taxes,
nor has any claim for assessment or collection of taxes been asserted against
Seller.
5.14 EMPLOYEE BENEFITS AND CONTRACTS. Except as specified on
Schedule 5.14, Seller does not provide or is not obligated to provide benefits
to any employee or former employee of Seller under an "Employee Benefit Plan"
(as such term is defined in Section 3.3 of the Employee Retirement Income
Security Act of 1974, as amended through the date of this Agreement ("ERISA")).
Purchaser is not
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assuming any obligations with respect to employment matters or employee benefits
of:
(i) Seller;
(ii) or any member of the group, trades or businesses
(whether or not incorporated) of which Seller is or may be a member, and which
are under common control within the meaning of Section 414 of the Internal
Revenue Code of 1986, as amended ("Code").
The entities described in Subsections (i) and (ii) above are
referred to herein as the "Control Group". By way of example and not by way of
limitation, Purchaser is not assuming any obligations of a Control Group with
respect to: (i) any employee benefit plan, as defined in Section 3(3) of ERISA
(whether a welfare plan, pension plan or single employer plan (as such terms are
defined in ERISA), (ii) any collective bargaining agreement, (iii) any severance
or vacation pay plan or arrangement, (iv) any medical or dental plan or
arrangement, (v) any disability plan or arrangement (whether or not self
insured, (vi) any employment agreement (whether written, oral or implied), (vii)
any claim of a right to indemnity by any fiduciary of any employee benefit plan,
(viii) any excise tax imposed under the applicable provisions of the Code, (ix)
any civil penalty under ERISA, (x) any amount payable to the Pension Benefit
Guaranty Corporation, or (xi) withdrawal liability for a multi-employer or
multiple employer plan. Seller agrees to indemnify and hold Purchaser harmless
from any costs or obligation (including reasonable attorneys fees) imposed on
Purchaser or its successors or its affiliates with respect to
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employment matters and employee benefits, including such costs as Purchaser or
its successors or its affiliates may incur in defending a claim or demand with
respect to such employment matters and employee benefits.
5.15 BROKERS. No brokers, finders, or other persons have been
engaged, or brokers' fees, finders' fees, or commissions incurred, by either
Seller or the Shareholder in connection with the transactions contemplated by
this Agreement.
5.16 NEGATIVE COVENANTS. Since December 31, 1996, to the date
hereof, there has not been and prior to Closing there will not be (except with
the prior approval of Purchaser or as specifically permitted or required by this
Agreement):
(a) any material adverse change in the financial condition,
net worth, assets, liabilities, personnel, business, or results of operations of
Seller;
(b) any damage, destruction, or loss, whether or not covered
by insurance, materially and adversely effecting Seller, its Business, the
Assets or the Assumed Contracts;
(c) any loans to or borrowings by Seller or pledge with
respect to Assets or the Assumed Contracts;
(d) any other event or condition of any character pertaining
to or materially and adversely affecting Seller, its Business, the Assets or the
Assumed Contracts;
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(e) any loan, guarantee, gift, bonus, pension, retirement,
insurance, death or other fringe benefit accrued, paid, or granted to any
employee of Seller;
(f) any amendment to the Articles of Incorporation or By-Laws
of Seller or any merger or consolidation of Seller;
(g) any issuance, sale or acquisition of any shares, equity
securities, securities convertible into equity securities, warrants, options or
other securities or rights to acquire securities by Seller, directly or
indirectly, or any declaration or payment of dividends with respect thereto, or
grant or issuance of any options, warrants, calls or commitments of any kind in
respect thereto;
(h) any sale, lease, abandonment, or other disposition by
Seller of any of its Assets, other than in the ordinary course of business;
(i) any waiver by Seller of any claim or right having
substantial value;
(j) any agreement or commitment by Seller to incur any
additional obligation or liability, absolute or contingent, except current
liabilities incurred, or obligations under contracts entered into, in the
ordinary course of business;
(k) any decrease in Seller's assets or net worth, other than
in the ordinary course of business; or
(l) any transaction by Seller other than in the ordinary
course of its business.
5.17 SUPPLEMENTS TO SCHEDULES. From time to time after the
date of this Agreement and prior to Closing, Seller or the Shareholder will
promptly
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inform Purchaser in writing and supplement or amend any Schedules or
Exhibits to this Agreement, if any matter arises which, if existing or occurring
at the date of this Agreement, would have been required to be set forth or
described in any Schedule or Exhibit or it becomes necessary to correct any
information in such Schedule or Exhibit which has become inaccurate; provided,
no Schedule or Exhibit may be supplemented or amended without the written
consent of Purchaser.
5.18 BEST EFFORTS. Seller and the Shareholder from the date of
this Agreement until the closing date will (i) use their best efforts to obtain
any consent, authorization or approval of, or exemption by, any governmental
authority or agency, or third party required to be obtained or made by or in
connection with this Agreement for the taking of any action in the connection
with the consummation thereof, (ii) duly comply with all applicable laws as may
required for the valid and effective sale and transfer of the assets and assumed
contract and for the performance for all of the acts and all things consummated
by this Agreement and (iii) take all action necessary and appropriate to
preserve and protect the value and utility of the acquisition assets and assumed
contracts including, without limitation the maintenance insurance policies.
5.19 NOTIFICATION. Seller and Shareholder shall give prompt
notice to Purchaser of (i) any event or alleged event which would constitute a
default under this Agreement or which would cause any warranty or representation
of Seller or the Shareholder under this Agreement to be untrue or misleading, or
(ii) any notice or other communication from any third party alleging that the
consent from any
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such third party is or may be required with respect to the transactions
contemplated in this Agreement.
5.20 EXCLUSIVITY. Until this Agreement is terminated, if it is
terminated, Seller and Shareholder will not discuss a possible merger, sale or
other distribution of all or any part of the Assets or Assumed Contracts (a
"Sale") with any other person or provide any information to any other person
regarding Seller, other than (i) such information provided to its legal counsel,
investment advisors, accountants and other representatives acting in a fiduciary
capacity or (ii) information which is traditionally provided in the regular
course of its business operations to third parties where Seller and Shareholder
have no reason to believe that such information may be utilized to evaluate a
possible Sale. Seller and the Shareholder represent that Seller is not a party
to or bound by any Agreement with respect to a Sale other than this Agreement.
5.21 STATEMENTS TRUE AND COMPLETE. No representation or
warranty of Seller or the Shareholder in this Agreement, nor any statement or
certificate furnished or to be furnished to Purchaser pursuant thereto, in
connection with the transactions contemplated hereby, contain or will contain
any untrue statement of fact or omits or will omit to state a fact necessary to
make the statements contained herein or therein not misleading. All
representations and warranties of Seller and the Shareholder shall survive the
Closing.
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF PURCHASER. Purchaser
represents, warrants, and covenants as follows, which representations,
warranties,
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and covenants shall continue in full force and effect to and including Closing,
and shall survive Closing:
6.1 CORPORATE ORGANIZATION AND GOOD STANDING. Purchaser is
duly organized, validly existing, and in good standing under the Laws of the
State of Maryland.
6.2 AUTHORITY; APPROVAL OF TRANSACTIONS. Purchaser has full
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the transactions contemplated hereby have been duly authorized by all
necessary corporate action. No other corporate proceeding is necessary to
authorize the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
6.3 NO VIOLATION. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
violate any provision of, or result in the acceleration of any obligation under,
any mortgage, lien, lease, agreement, instrument, order, arbitration award,
judgment, or decree to which Purchaser is a party or by which it is bound. This
Agreement has been duly executed and delivered by Purchaser and constitutes its
valid and binding obligation.
6.4 NO JUDGMENTS, ORDERS, OR INJUNCTIONS. There is no
judgment, order, injunction, or decree of any Court, governmental authority or
regulatory
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agency to which Purchaser is subject, which might adversely affect or restrict
its ability to consummate the transactions contemplated hereby.
6.5 NO THREATENED OR PENDING PROCEEDINGS. There is no suit,
action, arbitration, or legal, administrative or other proceedings or
governmental investigation, pending or, to the best knowledge of Purchaser,
threatened against or related to it which might adversely affect or restrict its
ability to consummate the transactions contemplated hereby.
6.6 BROKERS. No brokers, finders, or other persons have been
engaged, or brokers' fees, finders' fees, or commissions incurred, by Purchaser
in connection with the transactions contemplated by this Agreement.
6.7 STATEMENTS TRUE AND COMPLETE. No representation or
warranty of Purchaser, nor any statement or certificate furnished or to be
furnished to Seller or the Shareholder, pursuant hereto, in connection with the
transactions contemplated hereby, contain or will contain any untrue statement
of a fact or omit or will omit to state a fact necessary to make the statements
contained herein or therein not misleading. All representations and warranties
of Purchaser shall survive closing.
7. CONDITIONS TO PURCHASER'S OBLIGATIONS. Purchaser's obligations
hereunder are subject to the fulfillment prior to or on Closing of each of the
following conditions, the performance of any of which may be waived in writing
by Purchaser.
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7.1 REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of Seller and the Shareholder contained in this
Agreement, including the Exhibits and Schedules (as supplemented) thereto, shall
be true in all respects on Closing as though such representations and warranties
were made as of such time.
7.2 COMPLIANCE. Seller and the Shareholder shall have
performed and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed and complied with by each
of them prior to or on Closing.
7.3 DUE DILIGENCE RESULTS. Nothing shall have come to the
attention of Purchaser or its agents in the course of its due diligence
investigation pursuant to Section ?., below, or otherwise which demonstrates
that any of the representations or warranties of Seller is inaccurate or
incomplete.
7.4 OPINION OF COUNSEL. Seller and the Shareholder shall have
delivered to Purchaser an opinion of counsel, dated as of Closing, in form and
substance reasonably satisfactory to Purchaser and its counsel, to the effect
that:
(i) Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Florida, and has
the corporate power to own its properties and conduct its businesses in the
places where such properties are located and such businesses are conducted.
(ii) This Agreement, and any other agreement executed
in connection herewith have been duly executed and delivered, where necessary,
by Seller and the Shareholder, and constitute their valid, legally binding
obligations in accordance with their respective terms except that such
enforceability may be limited by bankruptcy, insolvency, reorganization,
rehabilitation, moratorium, or similar laws now or hereafter in effect affecting
creditors' rights generally; and specific performance and injunctive and other
forms of equitable relief may be subject to
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equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(iii) The execution and delivery of this Agreement
and any other agreement in connection herewith, and the consummation of the
transactions contemplated hereby or thereby will not result in any breach in the
terms or conditions of, or constitute a default under, any instrument or
obligation to which Seller or the Shareholder, are a party or are bound, or by
which Seller or the Shareholder may be bound, or violate any existing statute,
order, writ, injunction, or decree of any court, administrative agency, or
governmental body.
(iv) The execution and delivery of this Agreement is
sufficient and effective to vest in Purchaser all right, title, and interest of
Seller in and to the Assets and the Assumed Contracts, free and clear of all
mortgages, liens, encumbrances, charges, security interests, or restrictions of
any kind, except to the extent set forth in this Agreement.
(v) To their knowledge, such counsel does not know of
any pending or threatened legal, administrative, arbitration, or other
proceeding or governmental investigation affecting Seller, nor any violation by
Seller of any law, statute, ordinance or regulation, or any federal, state or
local law, including, without limitation, those relating to antitrust, civil
rights, or the equal protection of the law, nor of any notice of violation of
such laws, statutes, ordinances, or regulations having been received by Seller.
7.5 NON-COMPETITION COVENANT AND AGREEMENT OF THE SHAREHOLDER.
The Shareholder shall have executed and delivered to Purchaser the
Non-Competition Covenant and Agreement attached hereto as Exhibit 7.5., the
execution and delivery of such Agreement is a material inducement to the
Purchaser to enter into this Agreement,
7.6 LEASE. Seller shall have caused the lease covering
Seller's Business located at 901 Douglas Avenue, Suite 200, Altamonte Springs,
Florida to have been assigned by Seller to Purchase on terms acceptable to
Purchaser.
7.7 EMPLOYMENT CONTRACT. Purchaser and Shareholder shall have
executed an employment contract for services to be performed by Shareholder for
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Purchaser, commencing on the Closing Date, substantially in the form of Exhibit
7.7 attached hereto.
8. CONDITIONS TO SELLER'S OBLIGATIONS. Seller's obligations hereunder
are subject to the fulfillment prior to or on Closing of each of the following
conditions, the performance of any of which may be waived in writing by Seller.
8.1 REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING.
Purchaser's representations and warranties, contained in this Agreement, shall
be true in all respects on Closing as though such representations and warranties
were made as of such time.
8.2 COMPLIANCE. Purchaser shall have performed and complied in
all material respects with all covenants, agreements and conditions required by
this Agreement to be performed and complied with by Purchaser prior to or on
Closing.
9. INVESTIGATION OF SELLER. Purchaser may at any time prior to Closing,
though its representatives, accountants, or counsel, make such investigation of
Seller as Purchaser deems necessary or advisable, and its representatives shall
have access to both Seller's premises as is mutually agreeable and to such
books! records and documents as Purchaser shall reasonably request. Purchaser
shall be furnished such operating data and other information as it may request.
Such investigation by Purchaser shall not affect the representations, warranties
or covenants or Seller hereunder.
10. TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to Closing: (a) by unanimous consent
of
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Seller and Purchaser; or (b) by Purchaser if, as a result of its investigation
made pursuant to Section 9, above, Purchaser in its sole discretion notifying
the Seller that it has determined not to proceed to Closing on this Agreement.
Except as otherwise provided herein, termination of this Agreement pursuant to
this Section ? shall terminate all obligations of the parties hereunder.
In the event that Purchaser notifies Seller that it is terminating this
Agreement pursuant to this Section 10, Purchaser shall pay or reimburse Seller
for Seller's reasonable legal and accounting fees in accordance with the
provisions of the Agreement executed by the parties which is attached hereto as
Exhibit 10.
11. INDEMNIFICATION.
11.1 INDEMNIFICATION BY SELLER AND THE SHAREHOLDER. In
addition to any other indemnification contained in this Agreement, Seller and
the Shareholder, individually, jointly and severally, covenant and agree with
Purchaser to indemnify Purchaser, its directors, officers, shareholders, and
lenders, their successors and assigns, and hold them harmless from, against, and
in respect of any and all costs, losses, claims, liabilities, fines, penalties,
damages, and expenses (including interest which may be imposed in connection
therewith, court costs, and reasonable fees and disbursements of counsel)
(collectively, "Damages"), incurred by any of them in connection with:
(a) all liabilities or obligations of or claims against
Purchaser of any nature, including in connection with any contracts or
agreements entered into by Seller prior to Closing, whether accrued, absolute,
contingent, or otherwise,
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attributable to any state of facts or event existing or occurring on or before
Closing (whether known or unknown to Seller or the Shareholder) other than any
such liabilities incurred in connection with the Assumed Contracts which have
been specifically assumed by Purchaser.
(b) any misrepresentation, omission, or breach of any of the
representations, warranties, covenants, or agreements made by Seller or the
Shareholder in this Agreement, in the Exhibits or Schedules hereto, or any
agreements delivered in connection with the transactions contemplated hereby;
(c) the Retained Liabilities; or
(d) any action, suit, proceeding, compromise, settlement,
assessment, or judgment arising out of or incident to any of the matters
indemnified against in this Section _____.
11.2 INDEMNIFICATION BY PURCHASER. In addition to any other
indemnification contained in this Agreement, Purchaser covenants and agrees with
Seller to indemnify Seller, its directors, officers, shareholders, and lenders,
their successors and assigns, and hold them harmless from, against, and in
respect of any and all costs, losses, claims, liabilities, fines, penalties,
damages, and expenses (including interest which may be imposed in connection
therewith, court costs, and reasonable fees and disbursements of counsel)
(collectively, "Damages"), incurred by any of them in connection with:
(a) any misrepresentation, omission, or breach of any of the
representations, warranties, covenants, or agreements made by Purchaser in this
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Agreement or in any agreement delivered in connection with the transactions
contemplated hereby; or
(b) the obligation of Purchaser to pay any liabilities
allocated to Purchaser and/or specifically assumed by Purchaser; or
(c) any action, suit, proceeding, compromise, settlement,
assessment, or judgment arising out of or incident to any of the matters
indemnified against in this Section _____.
11.3 RIGHT TO DEFEND, ETC. Within seven (7) days after the
written assertion against an Indemnified Party by a third person of a claim or
liability which would entitle the Indemnified Party to Damages, the Indemnified
Party shall give written notice of the claim to the party obligated to indemnify
it ("Indemnifying Party"). Failure to give such notice, or any delay prejudicial
to the interests of the Indemnifying Party, shall relive the Indemnifying Party
of any obligation of indemnification with respect to such claim or liability.
Upon receipt of timely notice, the Indemnifying Party shall undertake the
responsibility for the defense of such claim, at its own expense. If, within
seven (7) days after delivery of the notice of claim by the Indemnified Party,
the Indemnifying Party fails to advise the Indemnified Party of its agreement to
consent and defend against any such claim, or if the Indemnifying Party does not
participate in such litigation, proceedings, or settlement negotiations, for any
reason, then the Indemnified Party shall have the right, at the Indemnifying
Party's expense, to take such action as it deems appropriate to defend, contest,
settle, or compromise any such claim or liability, and
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the Indemnifying Party agrees to be bound by any and all rulings, judgments,
compromises, and settlements reached by the Indemnified Party in good faith, in
the same manner as if it has participated therein.
11.4 PAYMENT.
(a) Each Indemnifying Party agrees to reimburse each
Indemnified Party within thirty (30) days after presentation of an itemized
statement of Damages incurred by such Indemnified Party.
(b) If payment is not made within such thirty (30) day period,
the Indemnified Party may offset such Damages against any amounts owed by it to
the Indemnifying Party.
11.5 SETTLEMENT. Except as provided in subsection ?, no
Indemnified Party shall be entitled to indemnification under this Section 11 if
such Indemnified Party voluntarily makes any payment in respect of, settles, or
offers to settle, or consents to any compromise or admits liability with respect
to, any third-party claim without the prior consent (which consent shall not be
unreasonably withheld) of the Indemnifying Party.
12. FURTHER ASSURANCES. Seller and the Stockholders shall, at any time
and from time to time on and after the Closing Date, upon request by Purchaser
and without further consideration, take such actions or cause others to do so,
and execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, all transfers, conveyances, powers of attorney and assurances, as may
be required or desirable for the better conveying, transferring, assigning,
delivering,
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assuring and confirming to Purchaser, or its respective successors and assigns,
or for aiding and assisting in collecting or reducing to possession, the Assets,
and any or all of the Stockholder's obligations under this Agreement, and to
assist Purchaser in exercising any rights with respect thereto.
13. RISK OF LOSS. If, prior to Closing, any of the Assets or Assumed
Contracts are destroyed or damaged, such loss shall be borne solely by Seller.
14. SALES TAXES. Seller shall pay or have reduced from the Purchase
Price otherwise payable to Seller all sales, transfer, excise and documentary
taxes, and all recordation and filing fees, if any, payable in connection with
the transactions contemplated hereby.
15. MISCELLANEOUS.
15.1 SURVIVAL. All representations, warranties, covenants and
agreements of the parties herein shall survive the execution of this Agreement
and no representations, warranty or covenant shall be deemed to be merged in any
closing document unless expressly otherwise agreed to in writing.
15.2 GOVERNING LAW; VENUE. All questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement will be governed by the internal
laws, and not the law of conflicts, of the State of Florida. The parties hereto
further agree that any action brought to enforce any right or obligation under
this Agreement shall be subject to the exclusive jurisdiction of the Courts of
the State of Florida.
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<PAGE> 32
15.3 TIME IS OF THE ESSENCE. Time is material and of the
essence with regard to the performance of all obligations and the payment of all
sums pursuant to this Agreement.
15.4 EXPENSES. Each party will pay all of its expenses in
connection with the negotiation of this Agreement, the performance of its
obligations hereunder, and the consummation of the transactions contemplated by
this Agreement.
15.5 HEADINGS. The headings set forth herein are for
convenience only and shall not be used in interpreting the text of the sections
in which they appear.
15.6 INCORPORATION OF EXHIBITS AND SCHEDULES. Each of the
Exhibits and Schedules attached hereto is by this reference incorporated herein
and made a part of this Agreement.
15.7 NOTICES. Any notice or other communication required,
permitted or desirable hereunder, shall be sufficiently given if sent by United
States Mail, postage prepaid, addressed as follows:
SELLER: Linda Harper, President
Corporate Accommodations, Inc.
901 Douglas Avenue
Suite 200
Altamonte Springs, FL 32714
With Copy To: Steven Kane, Esquire
Kane & Koltun
1061 Maitland Center Commons
Suite 106
Maitland, FL 32751
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<PAGE> 33
PURCHASER: Gary R. Abrahams, President
Execustay, Inc.
7595 Rickenbacker Drive
Gaithersburg, MD 20879
With Copy To: Wechsler, Selzer & Gurvitch,
Chartered
4550 Montgomery Avenue
Suite 900N
Bethesda, MD 20814
Attn: David A. Wechsler, Esq.
15.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the parties
hereto.
15.9 ENTIRE AGREEMENT. This Agreement and the Exhibits and
Schedules attached hereto, sets forth the entire agreement and understanding of
the parties, and there are no other prior or contemporaneous written or oral
agreements, undertakings, promises, warranties, or covenants not specifically
referred to, attached hereto or contained herein. This Agreement cannot be
waived, modified or changed except by a writing signed by all of the parties
hereto.
15.10 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and/or by facsimile signature, any one of which need not
contain the signatures of more than one party, but each of which shall
constitute an original and all such counterparts taken together shall constitute
one and the same instrument.
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<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal on the day and year first above written.
PURCHASER: SELLER:
EXECUSTAY, INC. CORPORATE ACCOMMODATIONS,
INC.
By: /s/ Gary R. Abrahams By: /s/ Linda Harper
------------------------- ------------------------------
Gary R. Abrahams, Linda Harper,
President President
THE SHAREHOLDER:
By: /s/ Linda Harper
------------------------------
Linda Harper
Individually
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<PAGE> 1
Exhibit 10.3
NON-COMPETITION AGREEMENT
Pursuant to an Asset Purchase Agreement executed on even date herewith
(the "Asset Purchase Agreement"), Execustay, Inc. ("Execustay"), a Maryland
corporation, agreed to purchase substantially all of the assets of Corporate
Accommodations, Inc. ("Corporate Accommodations"), a Florida corporation, solely
owned by Linda Harper ("Harper"). As a material inducement to Execustay to enter
into the Asset Purchase Agreement, Harper agreed to enter into this
Non-Competition Agreement pursuant to which certain restrictions are to be
placed on Harper's ability to compete with the Business of Execustay (as defined
in Section 6 below). This covenant not to compete is given in partial
consideration of Execustay's purchase of Corporate Accommodations' assets
pursuant to the Asset Purchase Agreement and is independent of any covenant
entered into by Harper under any employment agreement with Execustay.
NOW, THEREFORE, in consideration of the mutual promises of the parties
each to the other made in the Asset Purchase Agreement and for other good and
valuable consideration acknowledged by each party to have been received from the
other, Harper and Execustay agree to certain restrictive covenants as follows:
1. NON-COMPETITION. Harper agrees that she shall not, at any time for a
period of five (5) years after the execution date of this Agreement (the
"Restricted Period"), anywhere in Arizona, California, Colorado, Delaware,
Florida, Georgia, Maryland, North Carolina, Pennsylvania, South Carolina,
Virginia, and Washington, D.C. (all of which areas are currently the locations
in which Execustay
<PAGE> 2
is actively conducting its Business) and, in addition, any other locations in
which Execustay conducts its business during the Restricted Period:
(a) be associated with or engaged in, directly or indirectly, in any
capacity whatsoever, whether as a employee, proprietor, director, stockholder,
investor, partner, consultant, independent contractor, agent, representative,
officer or otherwise, with any business of a similar nature that is competitive
with Execustay's Business or with the business of Execustay's affiliated
entities, Executive Furniture Center, Inc. and Executive Amenities, Inc. (the
"Affiliates"); or
(b) assist or attempt to assist with respect to the providing of
capital needs, borrowing needs or credit needs, in any capacity whatsoever,
whether as a lender, guarantor, accommodation party, financier, investor, or
otherwise, any person(s) or entity(ies) of any nature or description, who or
which shall be engaged in, or intend to be engaged in, a business which is
competitive with Execustay's Business or with the business of the Affiliates of
Execustay.
2. NON-SOLICITATION. Harper agrees that she shall not, during the
Restricted Period (i) solicit, obtain, service, directly or indirectly, or
accept, whether or not solicited by Harper, any business relating to services
provided by Execustay or Affiliates of Execustay from any client, customer, or
account of Execustay or Affiliates; or (ii) assist any other person, firm,
association, partnership, corporation, or other business to solicit, obtain or
service any such business from any client, customer, or account of Execustay or
Affiliates of Execustay.
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<PAGE> 3
3. NON-SOLICITATION OF EMPLOYEES. Harper agrees that she shall not,
during the Restrictive Period, directly or indirectly, alone or as an employee,
proprietor, director, stockholder, investor, partner, consultant, independent
contractor, agent, representative, officer or otherwise, induce, cause,
persuade, or attempt to do any act or thing which would cause or induce any
representative or employee of Execustay or Affiliates to terminate his/her
representation of or employment with Execustay or Affiliates or to violate the
terms of any agreement between said representative or employee and Execustay or
Affiliates.
4. CONFIDENTIAL INFORMATION. Harper recognizes that she may occupy a
position of trust with respect to Business information of a secret or
confidential nature which is the property of Execustay and which has been or
will be used by or imparted to Harper from time to time ("Confidential
Information"). As used herein, "Confidential Information" shall mean information
of any nature and in any form which at the time or times concerned is not
generally known to those persons engaged in businesses similar to that conducted
or contemplated by Execustay or Affiliates and which relates to any one or more
of the aspects of the present or past Business of Execustay or the Affiliates,
including, but not limited to, patents and patent applications, inventions and
improvements, whether patentable or not, business development projects,
products, product designs and materials for products, internal business
policies, processes, techniques, know-how, advertising plans, financial matters,
customer and customer lists, leases, and sub-leases. Harper further acknowledges
that such Confidential Information includes the information
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<PAGE> 4
which Execustay purchased from Corporate Accommodations pursuant to the Asset
Purchase Agreement for which valuable consideration was paid by Execustay.
Harper agrees that she shall not, so long as such Confidential Information
remains secret or confidential, use or disclose, directly or indirectly, to any
person outside of Execustay any of such Confidential Information without the
prior written consent of Execustay.
5. REASONABLENESS OF RESTRICTION. Harper acknowledges that the
covenants and restrictions contained in this Agreement are reasonable as to the
time and geographic scope to which Harper's activities are to be restricted.
Further, Harper understands said restrictions and agrees to be fully bound with
respect thereto. In addition, Harper represents that Corporate Accommodations
and she have and will be adequately compensated for providing such restrictive
covenants, that Execustay has paid additional consideration for such restrictive
covenants pursuant to the Asset Purchase. Agreement, and that such limitations
on Harper's activities for the time and the areas designated shall not prevent
Harper from earning a reasonable livelihood or engaging in any other businesses
during the Restricted Period.
6. EXECUSTAY'S BUSINESS. For purposes of this Agreement, the term
"Execustay's Business" shall mean the business of providing temporary housing to
relocated employees, individuals and their families through leasing and
sub-leasing commercial rental properties and residential rental properties,
appropriately furnishing said properties and providing all amenities with
respect thereto,
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<PAGE> 5
including utilities, household goods, health and entertainment facilities and
the like. Notwithstanding anything to the contrary in this Agreement, Harper
shall be entitled to continue to individually rent out those properties listed
in Schedule "A" attached hereto and to keep all rents, profits and income with
respect thereto; and such rental activities by Harper shall not be deemed a
breach of any of the restrictive covenants set forth in this Agreement.
7. REMEDIES FOR BREACH OF COVENANT. In the event of a breach or
threatened breach by Harper of any of the provisions of this Agreement, it is
agreed that Execustay shall be entitled to (a) injunctive relief, in whole or in
part and from time to time, as more fully described in Section 8, below, (b)
have the Restricted Period extended to allow Execustay an uninterrupted period
equal to the full Restricted Period without violation by Harper, and (c) seek
actual damages.
The parties hereto acknowledge and stipulate that it is impossible to
determine with any reasonable accuracy the amount of prospective damages to
Execustay upon breach of any covenant contained in this Agreement, and that the
remedies set forth herein are reasonable based upon the facts and circumstances
of the parties at the time of entering into this Agreement, and with due regard
to future expectations.
8. INJUNCTIVE RELIEF. Harper acknowledges that remedies at law for any
breach or threatened breach of the provisions of this instrument will be
inadequate and, accordingly, that Execustay shall, in addition to all other
available remedies (including, without limitation, seeking such monetary damages
as can be shown to
-5-
<PAGE> 6
have been sustained by reason of such breach), be entitled to injunctive or
other equitable relief without being required to post bond or other security of
any character, and without having to prove or otherwise establish the inadequacy
of available remedies at law for the breach or threatened breach hereof by
Harper. Harper further agrees that she shall not plead or otherwise defend any
claim of breach or threatened breach hereof on grounds of adequate remedy at law
in an action by Execustay against Harper for injunctive relief or for specific
performance of any of Harper's obligations pursuant to this Agreement. Such
remedies and those remedies set forth in Section 7 shall be cumulative and
nonexclusive and shall be in addition to any other remedy to which Execustay be
entitled.
9. GOVERNING LAW; VENUE. This Agreement shall be construed under and in
accordance with the laws of the State of Florida. The parties hereto further
agree that any action brought to enforce any right or obligation under this
Agreement shall be subject to the exclusive jurisdiction of the courts of the
State of Florida.
10. ATTORNEY'S FEES. In the event either of the parties hereto shall
institute any action or proceeding against the other party relating to this
Agreement, the prevailing party in such action or proceeding shall be entitled
to reimbursement from the other party for its reasonable disbursements incurred
in connection therewith, including its reasonable attorney fees incurred in
connection therewith.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this 1st day of April, 1997.
EXECUSTAY, INC.
By: /s/ Gary Abrahams (seal)
-------------------------
Gary Abrahams, President
/s/ Linda Harper (seal)
-----------------------------
Linda Harper
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<PAGE> 1
Exhibit 10.4
PURCHASE AGREEMENT
This Purchase Agreement is made this 1st day of June, 1997 (this
"Agreement") by and among PROM MANAGEMENT GROUP, INC., a California corporation
doing business as Maxim Property Management, and PROM X, INC., a California
corporation doing business as The Corporate Living Network (collectively
referred to herein as "Seller") and EXECUSTAY, INC., a Maryland corporation
("Purchaser");
W I T N E S S E T H
WHEREAS, Seller is, among other activities, engaged in the business of
providing corporate housing in units located at certain properties in the
Northern California area;
WHEREAS, Purchaser desires to purchase, and Seller desires to sell, an
exclusive right (the "Exclusivity") to lease units in certain properties managed
by the Seller described in Schedule 1.1 hereto, a list of Seller's customers in
connection with this business (the "Customer List") and all of Seller's interest
in the rental contracts and other documents described in Schedule 1.2 hereto
(the "Assumed Contracts") upon the terms and conditions hereinafter set forth
(the Exclusivity, Customer List and Assumed Contracts being hereafter
collectively referred to as the "Business"); and
WHEREAS, as a condition to purchasing the Business, Purchaser has
requested that the Seller execute a Non-Competition Agreement in the form
attached hereto as Exhibit 7.4 (the "Non-Competition Agreement"), and the Seller
has agreed to do so;
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. SALE AND PURCHASE OF BUSINESS. Upon the terms and conditions of this
Agreement, Seller shall deliver, transfer and convey to Purchaser, and Purchaser
shall purchase and pay for, the Business and the Non-Competition Agreement. The
Business is being sold "as is" with all faults and conditions and no
representations and warranties, express or implied, except as set forth in this
Agreement.
1.1 EXCLUSIVITY. Seller shall, subject to the conditions set
forth in this Section 1.1, grant to Purchaser the exclusive right commencing
June 1, 1997 and
<PAGE> 2
ending May 31, 2000 (the "Exclusivity Period") to rent corporate housing units
at the properties described on Schedule 1.1; provided, however, that Corporate
Apartment Rentals (a corporate housing provider unaffiliated with the Seller)
may rent as corporate housing during the Exclusivity Period no more than thirty
(30) units at Park Place.
To maintain its right of exclusivity with respect to a
property, Purchaser shall comply with the following conditions:
A. Subject to the next sentence, Purchaser shall, from
and after the time Seller has made available to
Purchaser sufficient units at a property (but only at
such times as sufficient units are available at a
property), rent a minimum number of units at such
property, which number is set forth in Schedule 1.1
with respect to each property. In order to maintain
its exclusive rights with respect to a property,
Purchaser shall rent at least the minimum number of
units at such property for at least nine months in
each of the following twelve-month periods: June 1,
1997 - May 31, 1998; June 1, 1998 - May 31, 1999;
June 1, 1999 - May 31, 2000. (If a sufficient number
of units are not available to Purchaser at a property
in any month to enable Purchaser to rent the minimum
number of units required at that property, but
Purchaser shall have rented the units available to
it, Purchaser shall be deemed to have rented the
minimum number of units at that property for that
month.) Purchaser shall use reasonable efforts to
stagger lease commitments with respect to the
corporate units on each property. Seller shall use
reasonable efforts to make available to Purchaser a
mix of unit types (e.g., one bedroom, two bedroom,
three bedroom) on each property to enable Purchaser
to conduct its corporate housing business on each
property.
B. Purchaser shall not rent more units at such property
than the maximum number set forth in Schedule 1.1,
unless Seller in its sole and absolute discretion
agrees on a case-by-case basis that Purchaser may
rent a greater number of units at such property.
C. All leases entered into by Purchaser with respect to
the units at such property shall have a minimum term
of six months, unless Seller shall in its sole and
absolute discretion on a case-by-case basis consent
to shorter-term leases.
D. Purchaser shall make timely payments of rent and
other charges. The rental rate for each unit shall be
the market rate in effect at
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<PAGE> 3
the time for units on the property, without
deductions for concessions, specials, etc., unless
such concessions, specials and the like are in effect
for units on the property for four months or longer;
provided, however, that concessions, specials, etc.
that are in effect during an initial lease-up phase
with respect to a property shall not be deducted even
if they run for a period of four months or more.
Purchaser shall pay any late charges, lock-out
charges and other similar charges as set forth in the
applicable lease agreement.
E. Purchaser and Purchaser's vendors shall maintain the
insurance required by Seller, as set forth in the
insurance addendum to Schedule 1.1.
F. Purchaser shall sign the form of lease agreement in
effect for Seller's units on the property. Purchaser
must sign standard lease agreements, addendums and
any other documents in connection with leasing the
units in effect at each property. A copy of the
current standard form is attached as Exhibit C.
Seller may amend, change or replace such lease form
in its sole and absolute discretion at any time but
not to reduce the ability for the Purchaser to
provide corporate apartments. Each such lease must be
signed at the property office and a key will be
delivered at that time. Any material breach of any
such lease agreement(s) at a property which is not
timely cured shall result in loss of exclusivity for
Purchaser at that property.
G. Purchaser shall conduct its business at the
properties at a quality-of-performance service level
customary in the industry (e.g., Purchaser's
employees shall interact with Seller's employees in a
professional and courteous manner). Purchaser shall
abide by all the rules and regulations in effect on
the properties. Seller shall notify Purchaser in
writing of noncompliance with quality of service
standards, and Purchaser shall cure such
noncompliance within thirty (30) days of receipt of
such notice.
Upon Seller's reasonable request therefor, Purchaser shall
provide documentation of compliance with the conditions set forth above.
So long as Purchaser complies with the above conditions with
respect to a property, Seller shall not rent units at such property (other than
at Park Place, as noted above) to any corporate housing provider other than
Purchaser and shall refer to Purchaser all requests to rent such units. In the
event Purchaser fails to comply with the above conditions with respect to a
property, Purchaser shall no longer have
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<PAGE> 4
the right of exclusivity for such property; provided, however, that, so long as
Purchaser does not lose exclusivity for failure to comply with condition D. or
G. above or for failure to maintain the insurance it must maintain, Purchaser
shall continue to have the right to rent units at such property and all terms
and provisions of this Agreement except those pertaining to exclusivity shall
remain operative with respect to such property; and provided further, that
Purchaser shall continue to have the right of exclusivity for all other
properties with respect to which Purchaser is in compliance.
Seller shall develop and implement a policy regarding
Purchaser's right of exclusivity and shall use reasonable efforts to oversee
compliance by Seller's employees with such policy. If Purchaser notifies Seller
in writing of a violation of Seller's exclusivity policy, Seller shall notify in
writing the leasing agent responsible for the violation of non-compliance with
Seller's policy.
IF RECURRING VIOLATIONS (DEFINED BELOW) OF THE EXCLUSIVITY
POLICY OCCUR, PURCHASER AND SELLER AGREE THAT PURCHASER SHALL, AS ITS SOLE AND
EXCLUSIVE REMEDY, BE ENTITLED TO DAMAGES EQUAL TO $250.00 PER MONTH PER LEASE
DURING THE TERM OF THE LEASE OR LEASES ENTERED INTO BY CORPORATE HOUSING
PROVIDERS OR TENANTS IN VIOLATION OF THE EXCLUSIVITY POLICY. "RECURRING
VIOLATIONS" MEANS A SECOND VIOLATION IN ANY CALENDAR YEAR WITH RESPECT TO ANY
PROPERTY DESCRIBED IN SCHEDULE 1.1, OCCURRING AFTER SELLER HAS RECEIVED WRITTEN
NOTICE FROM PURCHASER OF THE FIRST VIOLATION.
Seller shall, during the Exclusivity Period, refer all
requests for corporate rentals (e.g., renting of furniture plus one amenity) or
rentals of furniture only units for less than six months to Purchaser, for no
referral fees. Such referrals shall be provided so long as Purchaser has not
lost its exclusivity due to quality of performance issues (professionalism,
timely service, timely payment and so on.) For all referrals after the
Exclusivity Period, Purchaser shall pay Seller the market rate referral fees.
So long as Purchaser provides a letter of responsibility
acceptable to Seller in its sole and absolute discretion and Seller is satisfied
that Purchaser has the financial ability to perform its obligations under a
lease, Seller shall waive the security deposit for each lease entered into by
Purchaser; provided, however, that if Purchaser fails to make timely payment of
rents and charges, Seller may require Purchaser to provide security deposits.
Notwithstanding the preceding sentence, Purchaser must abide by all property
policies regarding "holding" apartments, which include at present a security
deposit for a forty-eight hour hold; Purchaser
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<PAGE> 5
acknowledges that such policies are subject to change at any time in Seller's
sole and absolute discretion.
Seller's on-site staff shall not be involved in Purchaser's
rental of the corporate units described in Schedule 1.1, except as follows:
- the preparation of the lease and related materials
- provision of property tours upon eight-hours prior
notice (Purchaser shall endeavor to give such notice
by facsimile)
- delivery to Purchaser's occupants of Purchaser's
move-in materials
- allowing entry to Purchaser's vendors as reasonably
needed
Purchaser agrees to indemnify Seller against any Damages (as
defined in paragraph 12.2 hereof) incurred by Seller as a result of Seller's
on-site staff allowing entry to Purchaser's vendors.
Purchaser and Purchaser's occupants must sign all disclosure
statements required by Seller. Seller may amend, change or replace such
disclosure statements in its sole and absolute discretion at any time. Purchaser
shall be responsible for obtaining signatures on disclosure statements for each
occupant of Purchaser. The current disclosure statement for Mansion Grove is
attached as Exhibit D.
Purchaser shall provide to Seller a resident profile for each
of Purchaser's occupants prior to occupancy.
Purchaser shall, if required by law, change the locks for each
new occupant of space leased by Purchaser. Purchaser agrees to provide Seller
with copies of new keys when locks are changed. Purchaser agrees to indemnify
Seller against any Damages incurred by Seller as a result of failure to change a
lock for a new occupant, whether required by law or not.
1.2 SALE OF PROPERTIES BY SELLER. Purchaser and Seller
acknowledge and agree that, in the event Seller transfers properties containing
more than fifty percent (50%) of the units listed on Schedule 1.1 hereto (for
purposes of this paragraph 1.2, the "Units") which Purchaser has the exclusive
right to rent as corporate housing, Purchaser shall be so deprived of
property-driven customer contacts representing the underlying goodwill of the
Business that the value of the Business being purchased by Purchaser will be
significantly affected. Purchaser and Seller therefore agree that if, prior to
June 1, 1999, Seller sells at one time or from
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<PAGE> 6
time to time properties that, on a cumulative basis, contain more than fifty
percent (50%) of the Units which Purchaser has the exclusive right to rent as
corporate housing (the "Sale Threshold"), Seller shall immediately refund to
Purchaser an amount equal to the product of (a) a fraction of the Purchase Price
set forth in Section 3.2 (the "Purchase Price") the numerator of which is the
number of days remaining from and after the date of the sale which results in
the Sale Threshold being met until June 1, 1999 and the denominator of which is
730 multiplied by (b) the percentage of Units sold.
1.3 ADVERTISING RIGHTS. As part of Seller's For Rent Magazine
or Renter's Digest property advertising, or any similar property periodical,
which contains a "by line" advertising The Corporate Living Network, said "by
line" shall, during the period of exclusivity provided for in Section 1.1, read:
"Ask about ExecuStay's fully furnished corporate accessorized apartments, call:
1-800-______"). The telephone number used shall be either the local Northern
California number or the 800 number acquired by Purchaser pursuant to Section
1.3 of this Agreement. Seller will provide such "by line" advertising for a
property so long as such advertising results in no additional cost to Seller and
Purchaser has retained its exclusive rights with respect to such property. If
additional costs arise, Purchaser may elect to pay such additional costs and in
that event, Seller shall maintain the "by line" advertising. Any additional
advertising by Purchaser concerning corporate housing or otherwise, including
without limitation, specific advertisements of corporate housing and yellow
pages advertisements for corporate housing shall be the responsibility of
Purchaser. During the Exclusivity Period, Purchaser shall have the right to
display reasonable items (e.g., displays stating "Corporate Housing Available")
and materials at the rental office on the properties at which the corporate
units described in Schedule 1.1 are located and with respect to which Purchaser
has maintained its exclusivity, subject to Seller's prior written approval of
such materials, which approval shall not unreasonably be withheld.
1.4 TELEPHONE NUMBERS. Purchaser shall have the right in
perpetuity to use the 800 telephone number and telephone numbers relating to the
Northern California offices of The Corporate Living Network and, to the extent
assignable, such numbers will be assigned to Purchaser. The costs of
transferring these numbers and any costs of operating these numbers shall be
borne by Purchaser.
1.5 UNDERSTANDINGS OF THE PARTIES WITH RESPECT TO THE
BUSINESS. It is understood that Alderwood, Park Central, Hilltop and Timberleaf
are syndicated properties and that Kensington and Orchard Glen are joint
ventured properties. In the event that events beyond the control of Seller make
it impossible for Seller to grant the exclusivity described in Section 1.1 for
these properties, Seller shall allow exclusivity, upon the conditions set forth
in Section 1.1, for a replacement number of units ("Replacement Units") in
locations comparable to or better than said
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<PAGE> 7
properties. Replacement Units at a property shall not increase the minimum
number of units which Purchaser must rent at said property in order to maintain
the exclusivity described in Section 1.1.
It is understood that Trellis Square, Canyon Woods and Bay
Landing are properties that are fee managed by Prom Management Group, Inc. All
existing leases at these properties shall be assigned to Purchaser pursuant to
terms to be agreed upon by Purchaser and the property owner; however, it is
understood and agreed that Seller can give no assurance to Purchaser regarding
the conduct of business on these properties in the future.
In the event that Seller sells during the Exclusivity Period
any of the properties indicated in Schedule 1.1 as subject to Purchaser's right
of exclusivity and Seller is thereafter unable to grant (or cause the transferee
thereof to grant) the exclusivity for these properties required by Section 1.1,
Seller shall allow exclusivity, upon the conditions set forth in Section 1.1,
for Replacement Units in locations comparable to or better than said properties;
provided, however, that Replacement Units at a property shall not increase the
minimum number of units which Purchaser must rent at said property in order to
maintain the exclusivity described in Section 1.1; and provided further, that if
Seller sells properties on which more than fifty percent (50%) of the units as
to which Purchaser has a right of exclusivity are located, Purchaser shall have
the rights set forth in Section 1.2.
IF SELLER IS UNABLE TO PROVIDE REPLACEMENT UNITS, PURCHASER
AND SELLER AGREE THAT ANY LOSSES SUFFERED BY PURCHASER WOULD BE DIFFICULT OR
IMPOSSIBLE TO CALCULATE, AND PURCHASER AND SELLER THEREFORE AGREE THAT SELLER
SHALL PAY TO PURCHASER AS LIQUIDATED DAMAGES AND NOT AS A PENALTY $2,500.00 PER
TRANSFERRED UNIT NOT REPLACED WITH A REPLACEMENT UNIT.
It is understood that Seller currently has some leases to
third-party corporate housing providers at the properties set forth on Schedule
1.1. Purchaser and Seller agree that such leases shall not be included in the
Assumed Contracts and shall not be assigned to Purchaser. Seller shall use
reasonable efforts to terminate the leases to third-party corporate housing
providers (except for Corporate Apartment Rentals) upon expiration of such
leases and shall allow extensions of such leases only to accommodate existing
occupants at the units covered by such leases.
It is understood that the rental contract between Seller and
Cort shall be included in the Assumed Contracts and that the term of the Cort
contract shall expire no later than December 31, 1997. Purchaser shall, prior to
January 1, 1998,
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<PAGE> 8
continue to use Cort as a supplier of furniture as long as Cort's service,
quality and price meet Purchaser's standards. If Purchaser determines that Cort
does not meet Purchaser's standards, Purchaser shall provide reasonable evidence
of such failure to Seller. Prior to January 1, 1998, Purchaser shall not
knowingly negatively affect Cort's provision of complimentary furniture to
Seller. Purchaser reserves the right in its sole and absolute discretion to
supply its own housewares (including electronics) or to contract independently
for such housewares.
It is understood that Seller currently operates a
limited-scale corporate housing program in Arizona and the Pacific Northwest.
Purchaser agrees that The Corporate Living Network name and trademark may
continue to be used by Seller outside of northern California.
It is understood that the sale of the Business to Purchaser
pursuant to this Agreement does not involve the sale of real property.
1.6 ASSIGNMENT OF SERVICE CONTRACTS. With respect to the
Assumed Contracts, Seller shall, on the Closing Date set forth in Section 4 of
this Agreement (the "Closing Date"), or as soon thereafter as practicable,
assign to Purchaser all of the related, underlying contracts for the rental of
apartments, furniture, and housewares and all of the unrelated underlying
contracts for the provision of electric usage, cable television service, water,
sewer, telephone service and so on (all such contracts are referred to
hereinafter the "Service Contracts"). Upon such assignment, Purchaser shall (a)
be entitled to all of Seller's rights (including the right to the return of all
security deposits, if any, paid by Seller), (b) assume all of Seller's
obligations, and (c) make all further payments due under the terms of the
Service Contracts, as though the named party to each Service Contract.
1.7 NON-ASSIGNABLE SERVICE CONTRACTS. The parties hereto
recognize that it may be impossible or impractical for Seller to assign all of
the Service Contracts. A Service Contract that is impossible or impractical to
assign shall be referred to hereafter as a "Non-assignable Service Contract".
Seller agrees that Non-assignable Service Contracts shall not be extended beyond
their initial expiration dates. With respect to each Non-assignable Service
Contract, the following shall apply as of the Closing Date and thereafter: (a)
Seller shall assign its economic rights and obligations with respect to such
Contracts; (b) Seller shall remain legally obligated under the terms of such
Contracts; (c) Purchaser shall be entitled to all of Seller's rights (including
the right to the return of security deposits, if any, paid by Seller), and shall
assume all of Seller's financial obligations and make all further payments due
by Seller under the terms of the Non-Assignable Service Contracts which accrue
on or after the Closing Date; and (d) Purchaser shall indemnify and hold Seller
harmless for any claim made against Seller due to the non-payment or
non-performance by Purchaser of any financial or other obligation assumed by
Purchaser hereunder with respect to each such Non-assignable Service Contract.
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Seller shall remain liable for and shall indemnify and hold Purchaser harmless
for any claim made against Purchaser with respect to the non-performance or
non-payment of any financial or other obligation of Seller with respect to a
Non-assignable Service Contract which accrued prior to the Closing Date.
1.8 PRORATIONS. Amounts due or payable or prepaid on Service
Contracts, Non-assignable Service Contracts and all other Assumed Contracts, all
as and when actually collected (whether such collection occurs prior to or after
the Closing Date), and expenses normal to the operation and maintenance of Prom
X, Inc. (together with commissions and bonuses to Prom X Inc. and property
personnel) shall be prorated as of the close of business, May 31, 1997, based on
a 365 day year. Seller is not selling to Purchaser and Purchaser is not
purchasing any of Seller's accounts receivable for amounts due to Seller prior
to the Closing Date. Purchaser shall receive a credit in the amount of security
deposits received by Seller with regard to Assumed Contracts. Said security
deposits are set forth in Exhibit 1.8. Purchaser shall reimburse Seller for the
security deposits paid by Seller set forth in Exhibit 1.8. Any delinquent rents
collected after the Closing Date shall be promptly paid to Seller, and Purchaser
shall use reasonable efforts to collect such delinquent rents.
2. ASSUMPTION OF LIABILITIES. Purchaser shall assume the obligations
and liabilities of Seller with respect to the Business that arise on or after
the Closing Date (the "Assumed Liabilities"), including obligations relating to
security deposits that Seller has received with regard to Assumed Contracts that
must be refunded to the makers of such security deposits. Purchaser shall not
assume, and Seller shall remain liable for, all of Seller's obligations and
liabilities with respect to the Business which have arisen prior to the Closing
Date, nor shall Purchaser be responsible for any expenses incurred by Seller in
the conduct of the Business prior to the Closing Date (the "Retained
Liabilities").
3. DEPOSIT UPON EXECUTION OF AGREEMENT; PAYMENT OF PURCHASE PRICE;
PAYMENTS FOLLOWING CLOSING.
3.1 DEPOSIT OF $100,000.00. Upon execution of this Agreement,
Purchaser shall deposit in an interest-bearing account in favor of Seller the
sum of $100,000.00 (the "Deposit"). The Deposit and interest accrued thereon
shall be credited to the Purchase Price at the Closing described in Section 4 of
this Agreement (the "Closing"). In the event this Agreement terminates prior to
Closing, the Deposit and interest thereon shall be returned to Purchaser.
3.2 PAYMENT OF PURCHASE PRICE. The Purchase Price for the
Business being sold to Purchaser and the Non-Competition Agreement is One
Million Eight Hundred Ninety Thousand Dollars ($1,890,000.00). The Purchase
Price shall be paid in the following manner:
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(a) The Deposit and interest accrued thereon shall be paid
from the account described in Section 3.1 to Seller.
(b) The remainder of the Purchase Price shall be paid by
Purchaser to Seller at Closing by wire transfer.
3.3 PAYMENTS FOLLOWING CLOSING. Following the Closing,
Purchaser and Seller shall each make payments to the other in accordance with
the prorations described in Paragraph 1.8 above and all other relevant
provisions of this Agreement. In order to take account of such required
payments, the Purchaser and Seller agree to perform the following: (i) an
interim accounting of all payments required (an "Interim Accounting")
within thirty (30) days of the Closing Date and (ii) a final accounting of all
payments required (a "Final Accounting") within sixty (60) days of the Closing
Date.
(a) To the extent that the Interim Accounting indicates that
payments are required from Purchaser, Purchaser shall, within fifteen
(15) days thereafter, pay to Seller such required payments. To the
extent that the Interim Accounting indicates that payments are required
from Seller, Seller shall, within fifteen (15) days thereafter, pay to
the Purchaser such required payments.
(b) To the extent that the Final Accounting indicates that
payments are required from Purchaser, Purchaser shall, within fifteen
(15) days thereafter, pay to Seller such required payments. To the
extent that the Final Accounting indicates that payments are required
from Seller, Seller shall, within fifteen (15) days thereafter, pay to
the Purchaser such required payments.
In the event and to the extent that Purchaser or Seller
becomes aware following the Final Accounting of additional payments that need to
be made, such party shall promptly notify the other of such payments, and
Purchaser and Seller agree that any amount needing to be paid from one to the
other shall be promptly paid by the responsible party to the other.
4. CLOSING DATE; CLOSING; DELIVERIES.
(a) The sale and purchase of the Business and Non-Competition
Agreement shall occur on June 1, 1997, which is the Closing Date. Amounts due
and payable on Assumed Contracts shall be prorated between Purchaser and Seller
as of the close of business, May 31, 1997.
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(b) The documents to be transferred and the payments to be
made in connection with the transactions contemplated by this Agreement, which
is the Closing, shall be transferred and made at the offices of Morrison and
Foerster, LLP in Palo Alto, California, or at such other location as may be
agreed to by the parties, at 10:00 a.m. on June 2, 1997, or at such other time
and date as shall be mutually agreed upon by the parties.
(c) At the Closing, Seller shall deliver to Purchaser the
following:
(i) An executed Assignment and Assumption Agreement
in the form attached hereto as Exhibit 4 ("Assignment and Assumption
Agreement") assigning the Assumed Contracts to Purchaser;
(ii) The Non-Competition Agreement; and
(iii) Any consents required to properly assign the
Assumed Contracts to Purchaser, to the extent obtainable.
(d) At the Closing, Purchaser shall deliver to Seller the
Purchase Price to the extent required in Section 3 hereof and an executed
Assignment and Assumption Agreement.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
represents and warrants, as follows:
5.1 AUTHORIZATION, NO CONFLICTS. The Seller has the power,
capacity and authority to execute and deliver this Agreement and to consummate
the transactions contemplated herein. The execution, delivery and performance of
this Agreement and any related agreement by Seller have been duly and validly
authorized by the Board of Directors of Seller and by all other necessary
corporate action on the part of Seller. This Agreement and any related
agreements constitute the legally valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms. The
execution, delivery and performance of this Agreement by Seller and the
execution, delivery and performance of any related agreements and the
consummation of the contemplated transactions by Seller will not violate or
constitute a breach or default, whether upon lapse of time and/or the occurrence
of any act or event or otherwise, under the Articles of Incorporation or By-Laws
of Seller or any other contract, commitment or arrangement of Seller, or result
in the imposition of any encumbrance against any of the Assumed Contracts or, to
the best of Seller's knowledge, violate any applicable law.
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5.2 ASSUMED CONTRACTS.
(a) Schedule 1.2 contains an accurate and complete list of all
the Assumed Contracts. To the best of Seller's knowledge, (i) each Assumed
Contract is valid and in full force and effect; (ii) Seller has duly performed
all of its obligations thereunder; and (iii) no breach or default, alleged
breach or default, or event which would (with the passage of time, notice or
both) constitute a breach or default thereunder by Seller, as the case may be,
or, any other party or obligor with respect thereto, has occurred or as a result
of this Agreement or consummation of the transactions contemplated by this
Agreement will occur. Consummation of the transactions contemplated by this
Agreement will not (and will not give any person a right to) terminate or modify
any rights of, or accelerate or augment any obligation of, Seller under any of
such Assumed Contracts.
(b) With respect to any lease which is an Assumed Contract (a
"Lease") and which is not a Non-assignable Service Contract, in addition to the
representations set forth in Section 5.2(a), above, Seller represents itself to
be the absolute owner of each such Lease with the absolute right and title to
assign Lease and the rents, income and profits due or to become due thereunder,
and all security deposits and prepaid rents held by Seller with respect thereto.
To the best of Seller's knowledge, (i) all Leases are valid and in full force
and have not been modified, amended or terminated, except as stated herein; (ii)
there are no outstanding assignments or pledges by Seller thereof or of the
rents, income and profits due or to become due thereunder; and (iii) each lessee
is in possession and paying rent and other charges as required under its Lease.
5.3 TITLE TO ASSETS. Seller has, and will continue to have at
the Closing Date, good and marketable title to all the Assumed Contracts;
provided, however, that leases of units are subject to mortgages or deeds of
trust on the properties at which the units are located. Except with respect to
the Non-assignable Service Contracts, Seller has the right, power, and authority
to sell, convey, assign, transfer and deliver the Assumed Contracts to Purchaser
in accordance with the terms of this Agreement.
5.4 LEGAL MATTERS. There is no suit, action, arbitration,
legal, administrative or other proceeding or governmental investigation
instituted against or, to the best of Seller's knowledge, pending or threatened
against Seller, its assets or liabilities which might have a material adverse
effect on the Business, or which might affect or restrict Seller's ability to
consummate the transactions contemplated hereby at Closing. There is no
judgment, order, injunction, or award or decree of any court, governmental
authority, or regulatory agency to which Seller is subject that will have a
material adverse effect on the Business, and Seller has not received written
notice that it is in violation of any Federal, State, or local law or regulation
including, without limitation, those relating to labor, antitrust, civil
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rights or equal protection of the law which would have a material adverse effect
on the Business.
5.5 BROKERS. No brokers, finders, or other persons (other than
Seller or existing employees of Seller) have been engaged, or brokers' fees,
finders' fees, or commissions been incurred, by Seller in connection with the
transactions contemplated by this Agreement.
5.6 PERIOD PRECEDING EXECUTION OF AGREEMENT. Since April 30,
1997, to the date hereof, there has not been to the best of Seller's knowledge:
(a) any damage, destruction, or loss, whether or not covered
by insurance, materially and adversely affecting Seller or the
Business;
(b) any pledge by Seller of the Assumed Contracts;
(c) any notice received by Seller that a corporate client is
unable to pay rent where such failure would have a material and adverse
effect on the Business.
5.7 SUPPLEMENTS TO SCHEDULES. From time to time after the date
of this Agreement and prior to Closing, Seller shall promptly inform Purchaser
in writing and supplement or amend any Schedules or Exhibits to this Agreement,
if any matter arises which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in any Schedule
or Exhibit or if it becomes necessary to correct any information in such
Schedule or Exhibit which has become inaccurate in any material respect.
5.8 REASONABLE EFFORTS. Seller from the date of this Agreement
until the closing date will (i) use reasonable efforts to obtain any consent,
authorization or approval of, or exemption by, any governmental authority or
agency, or third party required to be obtained by it in connection with this
Agreement or the taking of any action in connection with the consummation
hereof, (ii) duly comply with all applicable laws as may required for the valid
and effective sale and transfer of the Assumed Contracts and for the performance
for all of the acts and all things contemplated by this Agreement and (iii) take
all reasonable actions necessary and appropriate to preserve and protect the
value of the Assumed Contracts.
5.9 NOTIFICATION. Prior to the Closing Date, Seller shall give
prompt notice to Purchaser of (i) any event or alleged event which would
constitute a default under this Agreement or which would cause any warranty or
representation of Seller under this Agreement to be untrue or misleading, or
(ii) any notice or other communication from any third party alleging that the
consent from any such
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third party is or may be required with respect to the transactions contemplated
in this Agreement.
5.10 NO NEGOTIATIONS OUTSIDE AGREEMENT. Until this Agreement
is terminated, if it is terminated, Seller will not discuss a possible merger,
sale or other distribution of all or any part of the Business (a "Sale") with
any other person or provide any information to any other person regarding
Seller, other than (i) such information provided to its legal counsel,
investment advisors, accountants and other representatives acting in a fiduciary
capacity or (ii) information which is traditionally provided in the regular
course of its business operations to third parties where Seller has no reason to
believe that such information may be utilized to evaluate a possible Sale.
Seller represents that Seller is not a party to or bound by any Agreement with
respect to a Sale other than this Agreement.
5.11 LIMITATIONS REGARDING REPRESENTATIONS AND WARRANTIES. As
used in this Agreement or in any other agreement, document, certificate or
instrument delivered by Seller to Purchaser, the phrase "to the best of Seller's
actual knowledge", "to the best of Seller's knowledge" or any similar phrase
shall mean the actual, not constructive or imputed, knowledge of Vicki Mullins,
who is the Executive Vice President and Chief Financial Officer of Prom
Management Group, Inc., which is the property manager for the properties subject
to this Agreement, without any obligation on her part to make any independent
investigation of the matters being represented and warranted, or to make any
inquiry of any other persons, or to search or examine any files, records, books,
correspondence and the like. Purchaser agrees to inform Seller promptly in
writing if it discovers that any representation or warranty of Seller is
inaccurate in any material respect, or if it believes that Seller has failed to
deliver to Purchaser any document or material which it is obligated to deliver
hereunder. Seller agrees that all representations and warranties of Seller shall
survive for six months following the Closing. If Purchaser has actual knowledge
that any representation or warranty of Seller is not true and correct as of the
Closing Date and elects to purchase the Business notwithstanding such fact,
Purchaser shall be deemed to have waived such specific breach of representation
and warranty and to have released Seller from all liability or responsibility in
connection therewith, and neither Purchaser nor Purchaser's permitted assignees
or successors shall be entitled to commence any action or to recover damages
from Seller based upon such specific breach of a representation or warranty. If
Purchaser has actual knowledge that any representation or warranty of Seller is
not true and correct as of the Closing Date and elects not to purchase the
Business, then this Agreement shall terminate, Purchaser shall, as its sole and
exclusive remedy, receive back the Deposit and neither party shall have any
further liability to the other except with respect to any such liability that
expressly survives a termination of this Agreement.
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<PAGE> 15
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF PURCHASER. Purchaser
represents, warrants, and covenants as follows:
6.1 AUTHORITY; APPROVAL OF TRANSACTIONS. Purchaser has the
power, capacity and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and any related agreement by Purchaser have been
duly and validly authorized by the Board of Directors of Purchaser and by all
other necessary corporate action on the part of Purchaser. This Agreement and
any related agreements constitute the legally valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with their respective
terms. The execution, delivery and performance of this Agreement by Purchaser
and the execution, delivery and performance of any related agreements and the
consummation of the contemplated transactions by Purchaser will not violate or
constitute a breach or default, whether upon lapse of time and/or the occurrence
of any act or event or otherwise, under the Articles of Incorporation or By-Laws
of Purchaser or any other contract, commitment or arrangement of Purchaser, or
violate any law.
6.2 LEGAL MATTERS. There is no suit, action, arbitration,
legal, administrative or other proceeding or governmental investigation pending
or, to the best knowledge of Purchaser, threatened against or related to it
which might adversely affect or restrict its ability to consummate the
transactions contemplated hereby.
6.3 BROKERS. No brokers, finders, or other persons have been
engaged, or brokers' fees, finders' fees, or commissions incurred, by Purchaser
in connection with the transactions contemplated by this Agreement.
6.4 REASONABLE EFFORTS. Purchaser from the date of this
Agreement until the Closing will (i) use reasonable efforts to obtain any
consent, authorization or approval of, or exemption by, any governmental
authority or agency, or third party required to be obtained by it in connection
with this Agreement for the taking of any action in connection with the
consummation hereof and (ii) duly comply with all applicable laws as may be
required for the performance of all acts and all things contemplated by this
Agreement.
6.5 LIMITATIONS REGARDING REPRESENTATIONS AND WARRANTIES. As
used in this Agreement, or in any other agreement, document, certificate or
instrument delivered by Purchaser to Seller, the phrase "to the best of
Purchaser's actual knowledge", "to the best of Purchaser's knowledge" or any
similar phrase shall mean the actual, not constructive or imputed, knowledge of
Gary Abrahams, who is the President of the Purchaser, without any obligation on
his part to make any independent investigation of the matters being represented
and warranted, or to
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<PAGE> 16
make any inquiry of any other persons, or to search or examine any files,
records, books, correspondence and the like. Seller agrees to inform Purchaser
promptly in writing if it discovers that any representation or warranty of
Purchaser is inaccurate in any material respect, or it believes that Purchaser
has failed to deliver to Seller any document or material which it is obligated
to deliver hereunder. Purchaser agrees that all representations and warranties
of Purchaser shall survive for six months following the Closing. If Seller has
actual knowledge that any representation or warranty of Purchaser is not true
and correct as of the Closing Date and shall elect to sell the Business
notwithstanding such fact, Seller shall be deemed to have waived such specific
breach of representation and warranty and to have released Purchaser from all
liability or responsibility in connection therewith, and neither Seller nor
Seller's permitted assignees or successors shall be entitled to commence any
action or to recover damages from Purchaser based upon such specific breach of a
representation or warranty. If Seller has actual knowledge that any
representation or warranty of Purchaser is not true and correct as of the
Closing Date and shall elect not to sell the Business, then this Agreement shall
terminate, Purchaser shall receive back the Deposit and neither party shall have
any further liability to the other except with respect to any such liability
that expressly survives a termination of this Agreement.
7. CONDITIONS TO PURCHASER'S OBLIGATIONS. Purchaser's obligations
hereunder are subject to the fulfillment prior to or on Closing of each of the
following conditions, the performance of any of which may be waived in writing
by Purchaser.
7.1 REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of Seller contained in this Agreement, including
the Exhibits and Schedules (as supplemented) thereto, shall be true in all
material respects on Closing as though such representations and warranties were
made as of such time.
7.2 COMPLIANCE. Seller shall have performed and complied in
all material respects with all covenants, agreements and conditions required by
this Agreement to be performed and complied with by it prior to or on Closing.
7.3 DUE DILIGENCE RESULTS. Nothing shall have come to the
attention of Purchaser or its agents in the course of its due diligence
investigation pursuant to Section 9, or otherwise which demonstrates that any of
the representations or warranties of Seller is inaccurate or incomplete.
7.4 NON-COMPETITION AGREEMENT OF THE SELLER. Seller shall have
executed and delivered to Purchaser the Non-Competition Agreement, the execution
and delivery of such Agreement being a material inducement to the Purchaser to
enter into this Agreement.
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<PAGE> 17
7.5 EMPLOYMENT AGREEMENTS. Purchaser shall have entered into
employment agreements satisfactory to Purchaser in its sole and absolute
discretion with Antoinette Barrett and Joanne Christman.
8. CONDITIONS TO SELLER'S OBLIGATIONS. Seller's obligations hereunder
are subject to the fulfillment prior to or on Closing of each of the following
conditions, the performance of any of which may be waived in writing by Seller.
8.1 REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING.
Purchaser's representations and warranties, contained in this Agreement, shall
be true in all material respects on Closing as though such representations and
warranties were made as of such time.
8.2 COMPLIANCE. Purchaser shall have performed and complied in
all material respects with all covenants, agreements and conditions required by
this Agreement to be performed and complied with by Purchaser prior to or on
Closing.
9. INVESTIGATION OF SELLER'S RECORDS. Purchaser may at any time prior
to Closing, through its representatives, accountants, or counsel, make such
investigation of Seller's records relating to the Business as Purchaser deems
reasonably necessary or advisable, and its representatives shall have access to
both Seller's premises as is mutually agreeable and to such books, records and
documents as Purchaser shall reasonably request. Purchaser shall be furnished
such operating data and other information as it may reasonably request. Such
investigation shall be at Purchaser's expense.
10. CONFIDENTIALITY. Seller and Purchaser agree that this Agreement and
the transactions contemplated by this Agreement, as well as any other agreements
between the Seller and the Purchaser with respect to the transactions
contemplated by this Agreement, and any information provided to Purchaser by
Seller regarding the properties subject to this Agreement or regarding the
transactions contemplated by this Agreement, shall be held in strict confidence
by each party hereto prior to the Closing; provided, however that Seller and
Purchaser agree that the confidentiality required by this Section 10 shall not
be breached as a result of any filings made prior to the Closing by Purchaser
with the Securities and Exchange Commission.
11. TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to Closing: (a) by unanimous consent
of Seller and Purchaser; or (b) by Purchaser if, as a result of its
investigation made pursuant to Section 9, Purchaser in its sole discretion
determines not to proceed to Closing on this Agreement. Except as otherwise
provided herein, termination of this Agreement pursuant to this Section 11 shall
terminate all obligations of the parties hereunder.
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<PAGE> 18
12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY SELLER. In addition to any other
indemnification contained in this Agreement, Seller covenants and agrees with
Purchaser to indemnify Purchaser, its directors, officers, shareholders, and
lenders, their successors and assigns, and hold them harmless from, against, and
in respect of any and all costs, losses, claims, liabilities, fines, penalties,
damages, and expenses (including interest which may be imposed in connection
therewith, court costs, and reasonable fees and disbursements of counsel)
(collectively, "Damages"), incurred by any of them in connection with:
(a) any misrepresentation, omission, or breach of any of the
representations, warranties, covenants, or agreements made by Seller in
this Agreement, in the Exhibits or Schedules hereto, or any agreements
delivered in connection with the transactions contemplated hereby;
(b) the Retained Liabilities; or
(c) any personal injury or property damage occurring on the
properties set forth on Schedule 1.1 hereof arising solely from the
negligence or willful misconduct of Seller, its employees, agents or
vendors.
12.2 INDEMNIFICATION BY PURCHASER. In addition to any other
indemnification contained in this Agreement, Purchaser covenants and agrees with
Seller to indemnify Seller, its directors, officers, shareholders, and lenders,
their successors and assigns, and hold them harmless from, against, and in
respect of any and all costs, losses, claims, liabilities, fines, penalties,
damages, and expenses (including interest which may be imposed in connection
therewith, court costs, and reasonable fees and disbursements of counsel)
(collectively, "Damages"), incurred by any of them in connection with:
(a) any misrepresentation, omission, or breach of any of the
representations, warranties, covenants, or agreements made by Purchaser
in this Agreement or in any agreement delivered in connection with the
transactions contemplated hereby;
(b) the Assumed Liabilities; or
(c) any personal injury or property damage occurring on the
properties set forth on Schedule 1.1 hereof arising solely out of the
negligence or willful misconduct of Purchaser, its employees, agents or
vendors.
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12.3 RIGHT TO DEFEND, ETC. Within seven (7) days after the
written assertion against an Indemnified Party by a third person of a claim or
liability which would entitle the Indemnified Party to Damages, the Indemnified
Party shall give written notice of the claim to the party obligated to indemnify
it ("Indemnifying Party"). Failure to give such notice, or any delay prejudicial
to the interests of the Indemnifying Party, shall relieve the Indemnifying Party
of any obligation of indemnification with respect to such claim or liability to
the extent the Indemnifying Party is in fact prejudiced by such failure or
delay. Upon receipt of timely notice, the Indemnifying Party shall undertake the
responsibility for the defense of such claim, at its own expense. If, within
seven (7) days after delivery of the notice of claim by the Indemnified Party,
the Indemnifying Party fails to advise the Indemnified Party of its agreement to
contest and defend against any such claim, or if the Indemnifying Party does not
participate in such litigation, proceedings, or settlement negotiations, for any
reason, then the Indemnified Party shall have the right, at the Indemnifying
Party's expense, to take such action as it deems appropriate to defend, contest,
settle, or compromise any such claim or liability, and the Indemnifying Party
agrees to be bound by any and all rulings, judgments, compromises, and
settlements reached by the Indemnified Party in good faith, in the same manner
as if it has participated therein.
12.4 PAYMENT.
(a) Each Indemnifying Party agrees to reimburse each
Indemnified Party within thirty (30) days after presentation of an itemized
statement of Damages incurred by such Indemnified Party.
(b) If payment is not made within such thirty (30) day period,
the Indemnified Party may offset such Damages against any amounts owed by it to
the Indemnifying Party.
12.5 SETTLEMENT. Except as otherwise provided in this
Agreement, no Indemnified Party shall be entitled to indemnification under this
Section 12 if such Indemnified Party voluntarily makes any payment in respect
of, settles, or offers to settle, or consents to any compromise or admits
liability with respect to, any third-party claim without the prior consent
(which consent shall not be unreasonably withheld) of the Indemnifying Party.
13. REMEDIES FOR BREACH OF CONTRACT. In the event of a threatened
breach by Purchaser or Seller of any of the provisions of this Agreement, the
party not threatening to breach shall be entitled to injunctive relief, in whole
or in part and from time to time, as more fully described below. Except as
otherwise expressly set forth in this Agreement, in the event of one or more
breaches by Purchaser or Seller of any of the provisions of this Agreement or
the Assignment and Assumption Agreement, the non-breaching party shall be
entitled to (a) injunctive relief, in
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whole or in part and from time to time, as more fully described below, and (b)
actual damages, in an aggregate amount not to exceed the Purchase Price. The
parties acknowledge that remedies at law for any breach by Purchaser or Seller
of the provisions of this Agreement will be inadequate and, accordingly, that
the non-breaching party shall, in addition to all other available remedies
(including, without limitation, seeking such monetary damages as can be shown to
have been sustained by reason of such breach, subject to the limitation set
forth in the preceding sentence), be entitled to injunctive or other equitable
relief without being required to post bond or other security of any character,
and without having to prove or otherwise establish the inadequacy of available
remedies at law for the breach hereof by the breaching party; and the Purchaser
and Seller further agree that neither shall plead or otherwise defend any claim
of breach or threatened breach on grounds of adequate remedy at law in an action
by the non-breaching party for injunctive relief. Injunctive relief and the
right to seek actual damages (subject to the limitation set forth above) shall
be cumulative and nonexclusive remedies and shall be in addition to any other
remedy to which a non-breaching party hereunder is entitled, subject to the
aforesaid limitation on the amount of damages.
14. FINANCIAL STATEMENTS.
Seller has delivered to Purchaser true and correct copies of:
(i) a balance sheet relating to the business of
Seller as at December 31, 1996 and statements of income and expenditures for the
fiscal period then ended; and
(ii) a balance sheet relating to the business of
Seller as at April 30, 1997 and statements of income and expenditures for the
period then ended.
Seller shall deliver to Purchaser as soon as practicable after
Closing a balance sheet relating to the Business as at May 31, 1997 and
statements of income and expenditures for the period then ended.
15. RISK OF LOSS. If, prior to Closing, furniture located pursuant to
the rental contract between Seller and Cort in units on the properties subject
to this Agreement is destroyed or damaged, such loss shall be borne, as between
Purchaser and Seller, solely by Seller.
16. SALES TAXES. Seller shall pay or have reduced from the Purchase
Price otherwise payable to Seller all sales, transfer, excise and documentary
taxes, and all recordation and filing fees, if any, payable in connection with
the transactions contemplated hereby.
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<PAGE> 21
17. MISCELLANEOUS.
17.1 GOVERNING LAW; VENUE. All questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement will be governed by the internal
laws, and not the law of conflicts, of the State of California. The parties
hereto further agree that any action brought to enforce any right or obligation
under this Agreement shall be subject to the exclusive jurisdiction of the
Courts of the State of California.
17.2 TIME IS OF THE ESSENCE. Time is material and of the
essence with regard to the performance of all obligations and the payment of all
sums pursuant to this Agreement.
17.3 EXPENSES. Each party will pay all of its expenses in
connection with the negotiation of this Agreement, the performance of its
obligations hereunder, and the consummation of the transactions contemplated by
this Agreement. Expenses incurred in connection with the Deposit shall be paid
fifty percent (50%) by the Purchaser and fifty percent (50%) by the Seller.
17.4 HEADINGS. The headings set forth herein are for
convenience only and shall not be used in interpreting the text of the sections
in which they appear.
17.5 INCORPORATION OF EXHIBITS AND SCHEDULES. Each of the
Exhibits and Schedules attached hereto is by this reference incorporated herein
and made a part of this Agreement.
17.6 NOTICES. Any notice or other communication required,
permitted or desirable hereunder, shall be sufficiently given if sent to a party
by facsimile to the facsimile number shown below for such party and if sent to a
party by certified United States Mail to the address shown below for such party.
SELLER: Vicki Mullins
Prom Management Group, Inc.
350 Bridge Parkway
Redwood, California 94065-1517
Facsimile Number: (415) 596-5377
With Copy To: Phil Levine, Esq.
Morrison and Foerster, LLP
755 Page Mill Road
Palo Alto, California 94304
Facsimile Number: (415) 494-0792
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<PAGE> 22
PURCHASER: Gary R. Abrahams, President
ExecuStay, Inc.
7595 Rickenbacker Drive
Gaithersburg, MD 20879
Facsimile Number: (301) 948-7118
With Copy To: John T. Kramer, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
Facsimile Number: (612) 340-8738
17.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the parties
hereto.
17.8 NO ASSIGNMENT WITHOUT APPROVAL. This Agreement shall not
be assigned by either the Purchaser or the Seller without the prior written
approval of the other.
17.9 ENTIRE AGREEMENT. This Agreement and the Exhibits and
Schedules attached hereto, sets forth the entire agreement and understanding of
the parties, and there are no other prior or contemporaneous written or oral
agreements, undertakings, promises, warranties, or covenants not specifically
referred to, attached hereto or contained herein. This Agreement cannot be
waived, modified or changed except by a writing signed by all of the parties
hereto.
17.10 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and/or by facsimile signature, any one of which need not
contain the signatures of more than one party, but each of which shall
constitute an original and all such counterparts taken together shall constitute
one and the same instrument.
17.11 ATTORNEYS' FEES. In any action brought by either the
Purchaser or Seller in connection with this Agreement and the transactions
contemplated hereby, the prevailing party in such action shall be entitled to
recover from the other party reasonable attorneys' fees, costs and expenses.
17.12 RIGHT TO REVIEW. Purchaser agrees that Seller has the
right to review that portion of the Registration Statement on Form S-1
("Registration Statement") proposed to be filed by Purchaser with the Securities
and Exchange Commission describing this Agreement and the transactions
contemplated hereby prior to the filing of the Registration Statement.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal on the day and year first above written.
PURCHASER SELLER
EXECUSTAY, INC., a Maryland
corporation PROM MANAGEMENT GROUP,
INC., a California corporation dba
Maxim Property Management
By: /s/ Gary R. Abrahams By: /s/ Vicki R. Mullins
-------------------------- ------------------------------
Gary R. Abrahams Vicki R. Mullins
President Executive Vice President and
Chief Financial Officer
PROM X, INC., a California
corporation dba The Corporate
Living Network
By: /s/ Vicki R. Mullins
------------------------------
Vicki R. Mullins
Assistant Secretary
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<PAGE> 1
Exhibit 10.5
NON-COMPETITION AGREEMENT
Pursuant to a Purchase Agreement executed on June 1, 1997 (the
"Purchase Agreement"), ExecuStay, Inc., a Maryland corporation ("Purchaser"),
agreed to purchase the Business (as defined in the Purchase Agreement) of Prom
Management Group, Inc., a California corporation doing business as Maxim
Property Management and Prom X, Inc., a California corporation doing business as
The Corporate Living Network (collectively referred to herein as "Seller")
relating to certain properties managed by Seller in the Northern California
area. As a material inducement to the Purchaser to enter into the Purchase
Agreement, Seller agreed to enter into this Non-Competition Agreement pursuant
to which certain restrictions are to be placed on Seller's ability to compete
with the Business of Purchaser (as defined in Section 6, below). This covenant
not to compete is given in partial consideration of Purchaser's purchase
pursuant to the Purchase Agreement of the Business of Seller.
NOW, THEREFORE, in consideration of the mutual promises of the parties
each to the other made in the Purchase Agreement and for other good and valuable
consideration acknowledged by each party to have been received from the other,
Seller and Purchaser agree to certain restrictive covenants as follows:
1. NON-COMPETITION. Seller agrees that it shall not, at any
time for a period of eight (8) years after the execution date of this
Agreement (the "Restricted Period"), anywhere in Northern California
enter into the Business of Purchaser. Said agreement not to compete
shall not prevent Seller from renting to other corporate housing
providers at properties not shown on Schedule 1.1 to the Purchase
Agreement, at a property as to which Purchaser has lost the right of
exclusivity granted to Purchaser by Seller pursuant to the Purchase
Agreement or at a property fee managed by Seller and not owned by
Seller, or from renting to Corporate Apartment Rentals no more than
thirty (30) units at Park Place.
2. NON-SOLICITATION. Seller agrees that it shall not, during
the Restricted Period (i) solicit, obtain, service, directly or
indirectly, or accept, whether or not solicited by Seller, any business
relating to corporate housing services provided by Purchaser from any
person or entity known to Seller to be a client, customer, or account
of Purchaser or Purchaser's affiliated entities, Executive Furniture
Center, Inc. and Executive Amenities, Inc. (the "Affiliates") or (ii)
knowingly assist any other person, firm, association, partnership,
corporation, or other business to solicit, obtain or service any such
business from any person or entity known to Seller to be a client,
customer, or account of Purchaser or Affiliates. Said agreement not to
solicit shall not prevent Seller from renting to other corporate
housing providers at
<PAGE> 2
properties not shown on Schedule 1.1 to the Purchase Agreement, at a
property as to which Purchaser has lost the right of exclusivity
granted to Purchaser by Seller pursuant to the Purchase Agreement or at
a property fee managed by Seller and not owned by Seller, or from
renting to Corporate Apartment Rentals no more than thirty (30) units
at Park Place.
3. NON-SOLICITATION OF EMPLOYEES. Except for Deanna Seguban,
Seller agrees that it shall not, during the Restrictive Period,
directly or indirectly, induce, cause, persuade, or attempt to do any
act or thing which would cause or induce any representative or employee
of Purchaser or Affiliates known to Seller to be such representative or
employee to terminate his/her representation of or employment with
Purchaser or Affiliates or to violate the terms of any agreement
between said representative or employee and Purchaser or Affiliates.
4. CONFIDENTIAL INFORMATION. Seller recognizes that it may
occupy a position of trust with respect to information regarding the
Business of Purchaser of a secret or confidential nature which is the
property of Purchaser and which has been or will be used by or imparted
to Seller from time to time ("Confidential Information"). As used
herein, "Confidential Information" shall mean information of any nature
and in any form which at the time or times concerned is not generally
known to those persons engaged in businesses similar to that conducted
or contemplated by Purchaser or Affiliates and which relates to any one
or more of the aspects of the present or past Business of Purchaser or
Affiliates, including, but not limited to, patents and patent
applications, inventions and improvements, whether patentable or not,
business development projects, products, product designs and materials
for products, internal business policies, processes, techniques,
know-how, advertising plans, financial matters, customer and customer
lists, leases, and sub-leases. Seller agrees that it shall not, so long
as such Confidential Information remains secret or confidential, use or
disclose, directly or indirectly, to any person outside of Purchaser
any of such Confidential Information without the prior written consent
of Purchaser.
5. REASONABLENESS OF RESTRICTION. Seller acknowledges that the
covenants and restrictions contained in this Agreement are reasonable
as to the time and geographic scope to which Seller's activities are to
be restricted. Further, Seller understands said restrictions and agrees
to be fully bound with respect thereto. In addition, Seller represents
that it has and will be adequately compensated for providing such
restrictive covenants, that Purchaser has paid additional consideration
for such restrictive covenants pursuant to the Purchase Agreement, and
that such limitations on Seller's activities for the time and the areas
designated shall not prevent Seller from engaging in any other
businesses during the Restricted Period.
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<PAGE> 3
6. BUSINESS OF PURCHASER. For purposes of this Agreement, the
term "Business of Purchaser" shall mean the business of providing
temporary corporate housing through leasing and sub-leasing commercial
rental properties and residential rental properties, appropriately
furnishing said properties and providing all amenities with respect
thereto, including utilities, household goods, health and entertainment
facilities and the like.
7. REMEDIES FOR BREACH OF COVENANT. In the event of a
threatened breach by Seller of any of the provisions of this Agreement,
it is agreed that Purchaser shall be entitled to injunctive and other
equitable relief, in whole or in part and from time to time, as more
fully described in Section 8 below. In the event of a breach by Seller
of any of the provisions of this Agreement, Purchaser shall be entitled
to (a) injunctive and other equitable relief, in whole or in part and
from time to time, as more fully described in Section 8 below, (b) have
the Restricted Period extended to allow Purchaser an uninterrupted
period equal to the full Restricted Period without violation by Seller
and (c) seek actual damages. The parties hereto acknowledge and
stipulate that it is impossible to determine with any reasonable
accuracy the amount of prospective damages to Purchaser upon breach of
any covenant contained in this Agreement, and that the remedies set
forth herein are reasonable based upon the facts and circumstances of
the parties at the time of entering into this Agreement, and with due
regard to future expectations.
8. INJUNCTIVE RELIEF. Seller acknowledges that remedies at law
for any breach or threatened breach of the provisions of this
instrument will be inadequate and, accordingly, that Purchaser shall,
in addition to all other available remedies (including, without
limitation, seeking such monetary damages as can be shown to have been
sustained by reason of such breach), be entitled to injunctive or other
equitable relief without being required to post bond or other security
of any character, and without having to prove or otherwise establish
the inadequacy of available remedies at law for the breach or
threatened breach hereof by Seller. Seller further agrees that it shall
not plead or otherwise defend any claim of breach or threatened breach
thereof on grounds of adequate remedy at law in an action by Purchaser
against Seller for injunctive relief or for specific performance of any
of Seller's obligations pursuant to this Agreement. Such remedies and
those remedies set forth in Section 7 shall be cumulative and
nonexclusive and shall be in addition to any other remedy to which
Purchaser is entitled.
9. GOVERNING LAW; VENUE. This Agreement shall be construed in
accordance with and governed by the laws of the State of Maryland,
without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of Maryland or any other jurisdiction)
that would cause the
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<PAGE> 4
application of the laws of any jurisdiction other than the State of
Maryland. The parties hereto further agree that any action brought to
enforce any right or obligation under this Agreement shall be subject
to the exclusive jurisdiction of the courts of the State of California.
10. ATTORNEY'S FEES. In the event either of the parties hereto
shall institute any action or proceeding against the other party
relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to reimbursement from the other party for
its reasonable disbursements incurred in connection therewith,
including its reasonable attorney fees incurred in connection
therewith.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this 2nd day of June, 1997.
EXECUSTAY, INC., a Maryland
corporation
By: /s/ Gary R. Abrahams
------------------------------
Gary R. Abrahams
President
PROM MANAGEMENT GROUP,
INC., a California corporation dba
Maxim Property Management
By: /s/ Vicki R. Mullins
------------------------------
Vicki R. Mullins
Executive Vice President and
Chief Financial Officer
PROM X, INC., a California
corporation dba The Corporate
Living Network
By: /s/ Vicki R. Mullins
------------------------------
Vicki R. Mullins
Assistant Secretary
- 4 -
<PAGE> 1
Exhibit 10.6
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease Agreement") made and entered into
as of the 20th day of August, 1993, by and between 7595 RICKENBACKER LLC, a
Maryland Limited Liability Company, ("Landlord"), and EXECUTIVE AMENITIES, INC.,
a Maryland Corporation ("Tenant").
WHEREAS, Landlord is the owner of land upon which it is constructing
a 38,000 square foot building in accordance with plans and specifications
attached hereto as Exhibit "A", said property, when completed, will be
identified as stated in Section 1. below ("Leased Premises"); and
WHEREAS, Tenant has been involved in the planning process and is
desirous of leasing the Leased Premises from Landlord when completed in
accordance with the plans and specifications; and
WHEREAS, Landlord desires to lease the Leased Premises to Tenant and
Tenant desires to lease the Leased Premises from Landlord in accordance with the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual agreements herein
contained, Landlord and Tenant hereby covenant and agree as follows:
1. Leased Premises.
Landlord does hereby lease to Tenant and Tenant does hereby lease
from Landlord, upon the following terms and conditions, the following premises:
7595 Rickenbacker Drive, Gaithersburg, Maryland.
2. Term.
A. The term of this Lease (the "Lease Term") shall commence on the
"Rent Commencement Date", and shall end twenty (20) Lease Years after said Rent
Commencement Date. The Rent Commencement Date shall be the first day of the
first calendar month after an Occupancy Permit is received on behalf of Tenant
to occupy the Leased Premises. The first "Lease Year" during the term hereof
shall be the period commencing on the Rent Commencement Date, and shall
terminate twelve (12) full calendar months thereafter. Each subsequent Lease
Year during the term hereof shall commence on the day immediately following the
last day of the preceding Lease Year, and shall continue for a period of twelve
(12) full calendar months.
<PAGE> 2
B. Notwithstanding the provisions of Section 2.A. above with respect
to the term of this Lease, Tenant shall have the option to extend the term of
this Lease for one (1) additional five (5) year period provided that at the time
of exercise of such option, Tenant is not in default under any of the terms,
provisions or conditions of this Lease. Such option shall be exercised, if at
all, by Tenant giving to Landlord written notice thereof by certified or
registered mall, at any time at least six (6) months prior to the end of the
original Lease Term. Upon the giving of such notice, the term of this Lease
shall be extended for the five (5) year period commencing at midnight on the
last day of the original Lease Term upon all of the terms, provisions and
conditions of this Lease except that the rent for such option period(s) shall be
negotiated at the time Tenant notifies Landlord of its election to exercise its
option to extend the Lease Term. In no event, however, shall the rent for any
option period be less than the rent for the last year of the preceding lease
term.
3. Rent.
A. Commencing with the Rent Commencement Date and for the first Lease
Year, Tenant covenants to pay to Landlord as fixed annual rent for the Leased
Premises (the "Rent") the sum of Two Hundred Twenty Eight Thousand
($228,000.00), payable at the rate of Nineteen Thousand ($19,000.00) Dollars per
month. Said amount shall increase each Lease Year by an amount equal to
one-hundred (100%) percent of the percentage increase in the U.S. Department of
Labor, Bureau of Labor Statistics Consumer Price Index for Urban Wage and
Clerical Earners, for the Washington, D.C. Metropolitan Area (1986 = 100), All
Items, at each anniversary date of the Rent Commencement Date over the
corresponding index as it existed at the previous anniversary date of the Rent
Commencement Date, and applying such percentage increase to the rent for the
previous Lease Year. In the event that the Federal Government changes the
publication frequency of the Consumer Price Index so that a Consumer Price Index
is not available to make the cost of living adjustment of Tenant's Rent, the
cost of living adjustment shall be based on the percentage difference between
the Consumer Price Index for the closest preceding month for which the Consumer
Price Index is available and the Consumer Price Index on the previous
anniversary of the Rent Commencement Date. In the event that the Consumer Price
Index is discontinued a comparable publication or Index will be used to
determine any increase. In no event shall the rent increase for any subsequent
Lease Year over the prior Lease Year be less than 5%.
All monthly installments of Rent shall be payable in advance on the
first day of each month commencing on the Rent Commencement Date.
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<PAGE> 3
B. All rent shall be payable, without demand and without setoff or
other reduction, at Landlord's address as stated in Section 27.B. or such other
place as Landlord designates in writing. In the event that any Rent or
Additional Rent is not received by Landlord by the tenth (10th) day of each
month, Tenant agrees to pay Landlord a late charge equal to five (5%) of the
amount which is not timely received by Landlord.
C. No payment by Tenant or receipt by Landlord of a lesser amount
than the monthly installment of rent or other charges herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent or other
charges, nor shall any endorsement or statement on any check or letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check for payment without prejudice to Landlord's
right to recover the balance of such rent or pursue any other remedy in this
Lease provided.
4. Security Deposit.
Tenant shall pay to Landlord the sum of Nineteen Thousand
($19,000.00) Dollars upon execution of this Lease, as a security deposit on the
Leased Premises. The security deposit shall be held, without interest, as
security for the full and faithful performance by Tenant of each and every term,
provision, covenant and condition of this Lease. In the event that Tenant
defaults in respect of any of the terms, provisions, covenants and conditions of
this Lease, including but not limited to the payment of any Rent or Additional
Rent, Landlord may use, apply or retain the whole or any part of the security so
deposited. In the event that the Tenant shall fully and faithfully comply with
all the terms, provisions, covenants and conditions of this Lease, the security
deposit, without interest, shall be returned to Tenant within thirty (30) days
after it surrenders the Leased Premises at the expiration of the Lease Term.
5. Use.
The Leased Premises shall be used by Tenant for office and warehouse
purposes, only. Tenant shall, at its sole cost and expense, promptly comply with
all governmental laws, ordinances and regulations (Federal, state and municipal)
applicable to the Leased Premises and Tenant's use of the Leased Premises in its
business operations. Landlord agrees to cooperate in Tenant's efforts to obtain
necessary permits and licenses to commence its business operation, provided,
however, that this shall be at the sole, cost and expense of Tenant. Tenant
shall not permit any excessive odors, smoke, dust, gas, noise or vibration to
emanate from the Leased Premises, nor take any other action which would
constitute a nuisance. Tenant shall not receive, store or otherwise handle, any
product, material or merchandise which is explosive or highly flammable. Tenant
will not permit the Leased Premises to be used for any purpose or in any manner
(including, without
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<PAGE> 4
limitation, any method of storage) which would render the insurance thereon void
or increase the premiums therefor or the insurance risk. Landlord warrants that
the Leased Premises are properly zoned for the prescribed use by Tenant of the
Leased Premises.
Tenant shall not permit the storage or discharge into the earth or
its atmosphere of effluents, waste or other materials, solid, liquid or gaseous.
No waste or other materials shall be disposed of by Tenant in any way or manner
which would or will in the future cause the Tenant and/or Landlord to be liable
for fines and penalties under the laws or rules currently in effect (Federal,
state and/or municipal) or to incur expenses of any sort to correct any such
condition. Tenant shall indemnify and hold Landlord harmless from and against
any claims, fines, penalties or causes of action arising out of Tenant's failure
to comply with the provisions of this Section.
6. Surrender.
Tenant agrees that it will keep the Leased Premises and the fixtures
therein, in good order and condition and will at the expiration or termination
of the Lease Term, surrender and deliver up the Leased Premises in as good a
condition as they were at the commencement of the Lease Term, ordinary wear and
tear and damage by insured casualty not due to the negligence of Tenant
excepted.
7. Tenant's Repairs and Maintenance.
Tenant shall, at its own cost and expense, maintain the interior and
exterior of the Leased Premises, structural and nonstructural items, in good
condition, promptly making all necessary repairs and replacements, including,
but not limited to roof, driveways, sidewalks, windows, glass and plate glass,
doors, walls and finish work, floors and floor coverings, the sprinkler system,
if any, as well as all plumbing work and fixtures, inside and outside, termite
and pest extermination, regular removal of trash and debris and keep the Leased
Premises in a clean and sanitary condition. Tenant agrees that it will at the
time of occupancy, inspect the Leased Premises and take all equipment therein
including, but not limited to, the plumbing and electrical systems, the
sprinkler system, and HVAC, "as is" and that Landlord will make no
representation or warranty in connection therewith.
8. Alterations.
Without Landlord's prior written consent, Tenant shall not make any
alterations, additions or improvements to the Leased Premises. All alterations,
additions and improvements erected by Tenant shall be the property of Tenant
during the term of this Lease and Tenant shall, unless Landlord otherwise elects
as hereinafter provided, remove all such alterations, additions and improvements
and
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<PAGE> 5
restore the Leased Premises to their original condition by the termination of
this Lease; provided, however, that if Landlord so elects prior to the
termination of this Lease, such alterations, additions and improvements shall
become the property of Landlord as of the date of the termination of this Lease,
and shall be delivered to Landlord with the Leased Premises. All shelves, bins,
machinery and trade fixtures installed by Tenant may be removed by Tenant prior
to the termination of this Lease, if Tenant so elects, and shall be removed by
the date of the termination of this Lease if required by Landlord. Upon any such
removal, Tenant shall restore the Leased Premises to their original condition,
reasonable wear and tear excepted. All such removals and restorations shall be
accomplished in a good workmanlike manner so as not to damage the primary
structure or structural qualities of the Leased Premises.
All of the alterations, additions, improvements, repairs and
maintenance required of or made by, Tenant must conform to all regulations and
requirements of Federal, state and local governments.
Notwithstanding the foregoing, any such alterations, additions,
improvements, repairs and maintenance required of or made by Tenant shall not be
deemed to be an agreement or consent by Landlord to subject Landlord's interest
in the Leased Premises to any mechanic's or materialmen's liens which may be
filed in connection therewith.
9. Inspection.
Landlord (or its agents and employees) shall have the right to enter
and inspect the Leased Premises at any time, for the purpose of ascertaining the
condition of the Leased Premises or in order to make repairs. Landlord shall not
be liable to Tenant for any damages of any kind whatsoever caused by Landlords
inspection, repair, or maintenance of the Leased Premises, unless caused by the
gross negligence of Landlord. Landlord shall also have the right to enter the
Leased Premises at any reasonable time during business hours for the purpose of
showing the Leased Premises to prospective new tenants or potential buyers, and
shall have the right to erect on the Leased Premises a suitable sign indicating
the Leased Premises are available for rent and/or sale. Landlord shall use its
best efforts to minimize disruption to Tenant's business operations during such
entry or inspection. Tenant shall give written notice to Landlord at least sixty
(60) days prior to vacating the Leased Premises and shall arrange to meet with
Landlord for a joint inspection of the Leased Premises prior to vacating. In the
event of Tenant's failure to give such notice or arrange such joint inspection,
Landlord's inspection at or after Tenant's vacating the Leased Premises shall be
conclusively deemed correct for purposes of determining Tenant's responsibility
for repairs and restoration.
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<PAGE> 6
10. Utilities.
Tenant shall be responsible for the payment of all bills for
electricity, gas, sewer, water, telephone, and all other utilities used in the
Leased Premises. Tenant shall, where possible, place the above-referenced
utility services in Tenant's name. Tenant shall maintain a level of heat in the
Leased Premises which shall insure that the inside pipes and plumbing fixtures
will not freeze and break, and Tenant shall be responsible for any repairs and
replacements to said pipes and fixtures and any damage to the Leased Premises
and personal property arising from freezing pipes and fixtures.
Any failure in the services of utilities provided in or on the Leased
Premises shall not render Landlord liable in any respect for damages to either
person or property or the business of Tenant, nor be construed as an eviction of
Tenant, nor work an abatement of any Rent, or Additional Rent, nor relieve
Tenant from Tenant's obligations hereunder. In no event shall Landlord be
obligated to provide any such services or utilities in any manner or to any
extent.
11. Real Property Taxes.
Tenant agrees to pay to Landlord throughout the term of this Lease,
as Additional Rent, any and all real property taxes, assessments, and levies
assessed against the Leased Premises during each tax year ("Real Property
Taxes"). Tenant covenants and agrees to deposit monthly, in advance, and if
requested by Landlord, with Landlord on the first day of each calendar month
throughout the Lease Term an amount equal to one-twelfth (1/12th) of Landlord's
estimate of the Real Property Taxes for the next succeeding tax fiscal year. The
first installment shall be due and payable by Tenant on the Rent Commencement
Date, without proration, and the next installment shall be paid on the first day
of the next calendar month. Any underpayment of Tenant's obligations not covered
by the accumulation of monthly deposits shall be paid by Tenant within fifteen
(15) days of Landlord's demand and any overpayment shall be credited against the
installments next coming due. Any interest earned on the escrow deposits payable
hereunder shall be and remain the property of Landlord.
Should any governmental taxing authority acting under any present or
future law, ordinance or regulation, levy, assess, or impose a tax, excise
and/or assessment (other than an income or franchise tax) upon or against the
Rent, or any part of it, payable by Tenant to Landlord, either by way of
substitution (in whole or in part) for or in addition to any existing tax on the
Leased Premises or otherwise, Tenant shall be responsible for and shall pay such
tax, excise and/or assessment, or shall reimburse Landlord for the amount
thereof within thirty (30) days of demand, as the case may be.
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Reasonable expenses incurred by Landlord in obtaining or attempting to
obtain a reduction of any Real Property Taxes shall be added to and included as
Additional Rent. Real Property Taxes which are being contested by Landlord shall
nevertheless be included for purposes of computing Tenant's liability hereunder,
but if Tenant shall have paid any amount of Additional Rent pursuant to this
Section 11, and thereafter Landlord shall receive a refund of any portion of any
Real Property Taxes on which such payment shall have been based, Landlord shall
pay to Tenant such refund. Landlord shall have no obligation to contest, object
to or litigate the levy or imposition of any Real Property Taxes and may settle,
compromise, consent to, waive or otherwise determine in its discretion any Real
Property Taxes without the consent or approval of Tenant.
In the event any governmental authority includes in the tax base upon
which the Real Property Taxes are levied or assessed the value of any
improvements made by Tenant, or of any machinery, equipment, fixtures, inventory
or other personal property or assets of Tenant, then Tenant shall pay the entire
portion of the Real Property Taxes attributable to or based upon such items in
addition to the portion of the Real Property Taxes payable by Tenant as
otherwise provided in this Section.
Tenant agrees to pay before delinquency all taxes imposed on or
incidental to the personal property of Tenant, the conduct of its business and
its use and occupancy of the Leased Premises.
12. Assignment and Subletting.
Tenant shall not mortgage this Lease or any estate or interest
therein. Tenant shall not assign this Lease, in whole or in part, or sublet all
or any portion of the Leased Premises, without first obtaining the Landlord's
written consent, which consent can be given or withheld by the Landlord in
Landlord's sole and absolute discretion. This prohibition includes any
subletting or assignment which would otherwise occur by operation of law,
merger, consolidation, reorganization, transfer or other change of Tenant's
corporate or proprietary structure, or any assignment or subletting to or by a
receiver or Trustee in any bankruptcy, insolvency, or other proceedings. Any
change in ownership or power to vote a majority of the issued and outstanding
voting stock of Tenant, shall constitute an assignment for the purpose of this
Lease and shall require the written consent of Landlord as provided in this
Section. Consent by Landlord to any assignment or subletting shall not
constitute a waiver of the requirement for Landlord's consent to any subsequent
assignment or subletting. The acceptance by Landlord of the payment of rent
following any assignment or subletting shall not be deemed to be a consent by
Landlord to such assignment or subletting.
It is expressly understood and agreed that in the event Landlord
approves a sublease by Tenant such approval shall not be construed as a waiver
or release of
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Tenant from the terms of any covenant or obligation under this Lease, nor shall
the collection or acceptance of any rent from any such subtenant constitute a
waiver or release of Tenant of any covenant or obligation contained in this
Lease, nor shall any such subletting be construed to relieve Tenant from giving
Landlord notice or from obtaining the consent in writing of Landlord to any
future subletting. In the event that Tenant defaults hereunder, Tenant hereby
assigns to Landlord the rent due from any subtenant of Tenant and hereby
authorizes each such subtenant to pay said rent directly to Landlord. In
addition, if the rents and other amounts due and payable under any sublease for
any period shall exceed the rents and other amounts payable for the Leased
Premises pursuant to this Lease, then Tenant shall pay one hundred (100%)
percent of such excess to Landlord, as Additional Rent, as and when received by
Tenant.
Landlord may freely and fully assign its interest hereunder. In the
event of any transfer of title to the Leased Premises, or of Landlord's interest
in the Leased Premises, the transferor shall be relieved of all obligations of
Landlord under this Lease accruing after such transfer and it shall be deemed,
without further agreement, that such transferee has assumed and agreed to
perform and observe all obligations of Landlord herein during the period it is
the holder of transferor's interest under this Lease and further, it is hereby
agreed that Tenant shall be bound to such transferee Landlord in accordance with
all of the obligations as Tenant as set out in this Lease.
13. Fire and Casualty Damage.
In the case of the total destruction, or the destruction of a
substantial part of the Leased Premises by fire, other casualties, the elements
or other cause, or of such damage thereto as shall render the Leased Premises or
a substantial part thereof totally unfit for occupancy by Tenant, this Lease, at
the option of Landlord, by giving of written notice to the Tenant within ninety
(90) days after the date of such destruction or damage, shall terminate and be
at an end. In the event of termination, Tenant shall surrender and deliver to
Landlord the Leased Premises together with payment of the Rent and Additional
Rent to the date of such occurrence. For purposes of this Section, a
"substantial part" shall mean fifty (50%) percent or more of the Leased
Premises.
If the Lease does not terminate pursuant to the foregoing provisions
or there is only a partial destruction of the Leased Premises, the Landlord
shall, at its own expense, restore the Leased Premises with all reasonable
diligence, and the Rent shall be abated proportionately based upon the square
foot area of the Leased Premises still tenantable, from the date of casualty to
the date that the Leased Premises shall be fully restored by the Landlord.
Landlord, however, shall not be required to expend any sums in excess of
insurance proceeds received for purposes of such restoration. No compensation,
claim or diminution of Rent will be allowed
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or paid, by Landlord, by reason of inconvenience, annoyance, or injury to
business arising from the necessity of repairing the Leased Premises. In no
event shall Landlord be required to rebuild, repair, or replace any part of the
partitions, fixtures, additions and other improvements which may have been
placed in, on or about the Leased Premises by Tenant. Notwithstanding the
foregoing, if the restoration of the Premises is not completed within six (6)
months from the date of destruction or damage, then either party shall have the
right to terminate this Lease by notice given within fifteen (15) days
thereafter; otherwise the Lease shall continue.
14. Liability and Indemnification.
Landlord shall not be liable for any losses, damages, injuries or
accidents of any kind however or by whatever or whomever caused, arising from
any occurrence on or about the Leased Premises or the occupancy or uses by
Tenant of the Leased Premises or caused by any act or omission of Tenant, its
agents, servants, employees, assignees, customers or invitees, unless caused by
the gross negligence of Landlord and covered by casualty or liability insurance.
Notwithstanding any other provision of this Lease to the contrary, except to the
extent expressly prohibited by law, Tenant hereby waives any claim it might have
against Landlord or any partner, officer, director, employee or agent of
Landlord, for any consequential damages sustained by Tenant arising out of the
loss or damage to any person or property of Tenant. In addition, Tenant agrees
only to look to Landlord's interest in the Leased Premises for recovery of any
Judgment from Landlord, it being specifically agreed that Landlord shall not be
personally liable for any such Judgment.
Tenant shall indemnify Landlord, and shall save it harmless from and
against any and all claims, actions, damages, liability and expense, including
reasonable attorneys' fees, in connection with loss of life, personal injury or
damage to property arising from any occurrence in or about the Leased Premises,
or from the occupancy or uses by Tenant of the Leased Premises, or caused by any
act or omission of Tenant, its agents, servants, employees, assignees, customers
or invitees, including, but not limited to, the filing of any mechanics' or
materialmen's liens against the Leased Premises, unless caused by the gross
negligence of Landlord and covered by casualty or liability insurance.
Tenant shall pay all costs and expenses, including reasonable
attorneys' fees and court costs, that may be incurred by Landlord in enforcing
any of the covenants and agreements in this Lease or in enforcing a termination
of this Lease pursuant to Section 21. below.
15. Insurance.
At all times after the execution of this Lease, Tenant will carry and
maintain at Tenant's sole cost and expense:
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A. Public liability insurance with respect to the Leased Premises, to
afford protection with limits of not less than $1,000,000.00 with respect to
personal injury or death, and $100,000.00 with respect to property damage;
B. If and to the extent required by law, workmen's compensation or
similar insurance in form and amounts required by law;
C. Fire, vandalism and extended coverage insurance with respect to
Tenant's improvements and fixtures, equipment and other property in the Leased
Premises;
The insurance policies evidencing such insurance shall be maintained
with insurance companies approved by Landlord, shall name Landlord as an
additional named insured and shall also contain a provision by which the insurer
agrees that such policies shall not be cancelled except after thirty (30) days
written notice to Landlord. Upon execution of this Lease and annually
thereafter, and upon request by Landlord, Tenant shall deliver to Landlord a
certificate from the insurers evidencing each such policy to be in effect.
Each Insurance policy carried by Tenant pursuant to this Section 15.,
shall provide, if agreed to by the insurance company, that the insurance company
waives all rights of recovery by way of subrogation against Landlord in
connection with all matters included within the scope of such policies.
Notwithstanding the foregoing, if the Leased Premises are ever
subject to a Deed of Trust and the Lender requires any additional or different
coverage or requires any other provisions to be inserted into the insurance
contract, then Tenant agrees to insure that the same is accomplished, all at the
cost and expense of Tenant.
16. Condemnation.
If less than a substantial part of the Leased Premises shall be
taken, condemned or sold for public or quasi-public use or purpose by or to any
competent authority, then this Lease shall not terminate except as to the part
taken. The Lease will terminate as to the part taken as of the date when title
vests in any such authority. Tenant shall pay Rent and Additional Rent covering
only that part of the Leased Premises not so taken; the Rent for such space
shall be that portion of the total Rent and Additional Rent which the amount of
square foot area remaining bears to the total square foot area of all of the
Leased Premises. Tenant agrees that if the entire Leased Premises, or a
substantial part thereof, shall be taken or condemned or sold for public or
quasi-public use or to any competent authority, this Lease shall terminate as to
the entire Leased Premises as of the date when title vests in such authority.
Tenant shall have no claim against Landlord and shall have no
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claim or right to any portion of the amount awarded as damages or paid as a
result of any condemnation. Upon such condemnation or taking, Tenant shall have
no claim against Landlord for the value of any unexpired term of this Lease,
leasehold improvements or goodwill. For purposes of this Section, a "substantial
part" shall mean fifty (50%) percent or more of the Leased Premises.
Notwithstanding the foregoing provisions of this Section, Tenant
shall be entitled to make a separate claim against the condemning authority for
loss of its leasehold interest or other damages provided that the amount of
Landlord's award shall not be reduced thereby.
If less than a substantial part of the Leased Premises be taken by
condemnation, or the Lease is not terminated in accordance with the foregoing
provisions, Landlord shall, upon receipt of the award of condemnation, make all
necessary repairs or alterations to the Leased Premises so as to constitute the
Leased Premises a complete architectural unit, but Landlord shall not in any
event be required to spend for such work more than the amount received by
Landlord as damages. Tenant, at its sole cost and expense, shall, with respect
to all signs, trade fixtures, equipment, display cases, furniture, furnishings
and other installations of Tenant restore such part of the Leased Premises as is
not taken to as near to its former condition as possible.
Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Leased Premises requires that the condemnation proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made by any such holder, whereupon all rights and
obligations under this Lease shall terminate.
17. Holding Over.
Tenant will, at the termination of this Lease, yield immediate
possession to Landlord. However, if Tenant holds over, then unless the parties
hereto otherwise agree in writing on the terms of such holding over, the hold
over tenancy shall be subject to termination by Landlord at any time upon not
less than thirty (30) days advance written notice, or by Tenant at any time upon
not less than thirty (30) days advance written notice. However, in the event of
nonpayment of Rent or Additional Rent or any other payments required to be made
by Tenant hereunder, when due, or of the breach of any other covenant herein
contained by Tenant, Tenant shall not be entitled to any notice to quit, the
usual thirty (30) days' notice to quit being hereby waived. All of the other
terms and provisions of this Lease shall be applicable during that period,
except that Tenant shall pay Landlord from time to time upon demand as rental
for the period of any holdover, an amount equal to
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twice the rent in effect on the Lease termination date, computed on a daily
basis for each day of the holdover period; provided, however, that if Tenant is
holding over with Landlord's written consent, the monthly rental to be paid
shall equal the monthly rental previously paid for the last month of the initial
term of this Lease. No holding over by Tenant, whether with or without consent
of Landlord, shall operate to extend this Lease except as otherwise expressly
provided herein or in a written amendment to this Lease. This Section shall not
be construed as Landlord's consent for Tenant to hold over.
In the event Tenant shall hold over after the expiration of the term
hereby created, and if Landlord shall desire to regain possession of the Leased
Premises promptly at the expiration of the term aforesaid, then at any time
prior to Landlord's acceptance of Rent from Tenant as a monthly tenant
hereunder, Landlord may forthwith re-enter and take possession of the Leased
Premises without process, or by any legal process in force.
18. Quiet Enjoyment.
Landlord covenants that it now has good title to the Leased Premises
and represents and warrants that it has full right and authority to enter into
this Lease and that Tenant, upon paying the rent and performing its other
covenants and agreements herein set forth, shall peaceably and quietly have,
hold and enjoy the Leased Premises for the term of the Lease without hinderance
or molestation from Landlord, subject, however, to the terms and provisions of
this Lease.
19. Lien for Rent.
Tenant hereby grants to Landlord a lien on all personal property of
Tenant now or hereafter placed in or on the Leased Premises and such property
shall be and remain subject to such lien of Landlord for payment of all Rent,
Additional Rent and all other sums agreed to be paid by Tenant herein or for
costs relating to the Leased Premises that Tenant may hereafter agree to pay to
Landlord. Said lien shall be in addition to and cumulative of the Landlord's
lien rights provided by law.
20. Events of Default.
The following events shall be deemed to be events of default by
Tenant under this Lease:
A. Tenant shall fail to pay any installment of the Rent, Additional
Rent, or any other payment or reimbursement to Landlord required herein, when
due, and such failure shall continue for a period of five (5) days from the date
such payment is due.
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B. Tenant shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
C. Tenant shall file a petition under any chapter of the Bankruptcy
Reform Act, as amended, or under any similar law or statute of the United
States, the District of Columbia or any State, or a petition is filed against
Tenant and such petition is not dismissed within thirty (30) days of filing.
D. A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant. If said receiver shall be appointed pursuant to the
petition of someone other than Tenant, if such appointment is not terminated
within thirty (30) days of appointment.
E. Tenant shall vacate or abandon the Leased Premises for ten (10)
consecutive days, unless such vacating or abandonment is a result of alteration,
renovation, fire or condemnation and Tenant manifests an intention to return.
F. The taking of this Lease or the Leased Premises or any part thereof
upon execution or by other process of law directed against Tenant, or upon or
subject to any attachment at the instance of any creditor of or claimant against
Tenant, which shall not be discharged or disposed of within thirty (30) days
after the levy thereof.
G. Tenant shall fail to comply with any term, provision or covenant of
this Lease, other than the payment of Rent, Additional Rent and other charges,
and shall not cure such failure, within thirty (30) days after written notice
thereof to Tenant, or if cure, cannot be made within thirty (30) days, if Tenant
shall fail to diligently begin curing such failure within said thirty (30) day
period. However, any such failure to comply with the terms of this Lease must be
cured within a reasonable time after Landlord's initial notice to Tenant and
Tenant must make all diligent attempts to cure this failure as soon as possible
after Landlord's initial notice.
21. Remedies.
Upon the occurrence of any of the events of default, then, at the
option of Landlord, Tenant's right of possession shall thereupon terminate, and
Landlord shall be entitled to possession of the Leased Premises. Landlord may
proceed to recover possession either by forcible reentry without process of law
or by process of law. Any notice to quit, or of intention to reenter the Leased
Premises, is hereby expressly waived by Tenant. In the event of such reentry by
process of law or otherwise, Tenant nevertheless agrees to remain answerable for
any and all damages, including, but not limited to, reasonable attorneys' fees,
brokerage fees, expenses of placing the Leased Premises in first class rentable
condition and
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deficiency or loss of rent which Landlord may sustain by such reentry, whether
or not Landlord re-lets the Leased Premises, plus interest from the date due to
date of payment in the amount of one (1%) percent per month. In the event of
reentry, Landlord shall have full power, which is hereby acceded to by Tenant,
to re-let the Leased Premises for and on behalf of Tenant. Whether or not
Landlord re-lets the Leased Premises, Landlord shall have the right both to sue
each month for loss of rents, additional rents, and monthly deficits and to sue
immediately for all Rent, Additional Rent and monthly deficits due as of the
date of default and due for the remaining term of the Lease, such rentals for
the remainder of the term to be accelerated at Landlord's option. The
commencement or maintenance of any one or more actions shall not bar Landlord
from bringing subsequent actions for further accruals pursuant to provisions of
this Section. Anything to the contrary notwithstanding, Landlord may, at its
option, await the expiration of the term of this Lease before seeking to recover
any such rents, additional rents and monthly deficits, in which event the causes
of action shall not be deemed to have accrued until the date of expiration of
said term.
Tenant on behalf of itself and all persons claiming through Tenant,
including all creditors, does hereby waive any and all rights and privileges, so
far as is permitted by law, which Tenant and all such persons might otherwise
have under any present or future law (i) to the service of any notice of
intention to reenter, (ii) to reenter or repossess the Leased Premises, or (iii)
to restore the operation of this Lease, with respect to any dispossession of
Tenant by judgment or warrant of any court, whether such dispossession, reentry,
expiration or termination be by operation of law or pursuant to the provisions
of this Lease.
Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies provided herein or by law, nor shall pursuit of any
remedy herein provided constitute, a forfeiture or waiver of any Rent or
Additional Rent due to Landlord or of any damages accruing to Landlord by reason
of the violation of any of the other terms, provisions and covenants of this
Lease. No act or thing done by Landlord or its agents during the Lease Term
shall be deemed a termination of this Lease or an acceptance of the surrender of
the Leased Premises, and no agreement to terminate this Lease or accept a
surrender of the Leased Premises shall be valid unless it is in writing and
signed by Landlord. No waiver by Landlord of any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed a waiver of
any other violation or breach of any of the terms, provisions and covenants of
this Lease. Landlord's acceptance of the payment of Rent or other payments
hereunder after the occurrence of an event of default shall not be construed as
a waiver of such default, unless Landlord so notifies Tenant in writing.
Forbearance by Landlord to enforce one or more of its remedies upon an event of
default shall not constitute a waiver of such default or of Landlord's right to
enforce any such remedies with respect to such default or any subsequent
default.
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22. Landlord's Cure of Default by Tenant; Reimbursement of Expenses.
If Tenant defaults in making any payment or in doing any act herein
required, then Landlord may, but need not, make such payment or do such act. If
Landlord makes any such payment or incurs any charge or expense, on behalf of
Tenant under the terms of this Lease, the amount of the payment or expense,
shall constitute, Additional Rent hereunder, and shall, unless otherwise
provided herein, be due and payable within ten (10) days after Landlord sends a
written invoice therefor; provided, however, that the making of any such payment
or the doing of such act by Landlord shall not cure such default by Tenant, or
estop Landlord from pursuing any remedy to which Landlord would otherwise be
entitled.
23. Subordination.
This Lease is subject and subordinate to all ground or underlying
leases, and to any mortgage or deed of trust (which terms shall include both
construction and permanent financing) that may now or hereinafter encumber or
otherwise affect the Leased Premises or Landlord's leasehold interest therein,
and to all renewals, extensions, modifications, consolidations, replacements,
and/or refinancings thereof. This clause shall be self-operative, and no further
instrument of subordination shall be required by any mortgagee or trustee to
effect the subordination of this Lease. Nonetheless, in confirmation of such
subordination, Tenant shall, at Landlord's request, promptly execute any
requisite or appropriate certificate or document. Tenant hereby constitutes and
appoints Landlord as Tenant's attorney-in-fact to execute any stock certificates
or documents on behalf of Tenant. Tenant further covenants and agrees that it
will, at the written request of the party secured by a mortgage or deed of
trust, execute, acknowledge and deliver any instrument to effect the
subordination of this Lease to such mortgage or deed of trust. Tenant agrees
that in the event that any proceedings are brought for the foreclosure of such
mortgage or deed of trust, Tenant shall attorn to the purchaser at such
foreclosure sale, if requested to do so by the Purchaser, and to recognize the
purchaser as Landlord under this Lease, and Tenant waives the provisions of any
statute or rule of law, now or hereafter in effect, which may give Tenant any
right to terminate this Lease in the event that any such foreclosure proceeding
occurs.
24. Estoppel Certificates.
Tenant agrees, upon not less than five (5) days written notice by
Landlord, to execute, acknowledge and deliver to Landlord, a statement in
writing: (i) certifying that this Lease is unmodified and in full force and
effect, or if there have been modifications, that this Lease is in full force
and effect as modified and stating any such modifications; (ii) certifying that
Tenant has accepted possession of the Leased Premises; (iii) stating that no
rent under this Lease has been paid more than thirty
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(30) days in advance of its due date (other than the security deposit); (iv)
stating the address to which notices to Tenant should be sent; (v) certifying
that Tenant, as of the date of any such certification, has no charge, lien or
claim of set-off under this Lease, or otherwise, against rents or other charges
due or to become due hereunder; and (vi) stating whether or not to the best of
Tenant's knowledge, Landlord is in default in the performance of any covenant,
agreement or condition contained in this Lease, and, if so, specifying each such
default of which Tenant may have knowledge. Any such statement delivered
pursuant hereto maybe relied upon by any owner of the Leased Premises, any
prospective purchaser of the Leased Premises, any mortgagee, or prospective
mortgagee of the Leased Premises or of Landlord's interest, or any prospective
assignee of any sub-mortgagee.
25. Mechanics' Lien.
Tenant shall have no authority, express or implied, to create or
place any lien or encumbrance upon, or in any manner to bind, the interest of
Landlord in the Leased Premises or to charge the rentals payable hereunder for
any claim in favor of any person dealing with Tenant, including those who may
furnish materials or perform labor or any construction or repairs. Tenant
covenants and agrees to pay all sums legally due and payable by it on account of
any labor performed or materials furnished on the Leased Premises on which any
lien is or can be validly and legally asserted against its leasehold interest in
the Leased Premises. If any mechanics' or materialmen's lien is filed against
the Leased Premises for work furnished to Tenant such lien shall be discharged
by Tenant within ten (10) days, at Tenant's sole cost and expense, by the
payment thereof or by filing any bond required by law. If Tenant fails to
discharge any such mechanics' or materialmen's lien, Landlord may, at its
option, discharge the same and treat the cost thereof as Additional Rent payable
with the monthly installment of Rent next becoming due. In no event, however,
shall such payment by Landlord cure such default by Tenant or estop landlord
from pursuing any remedy to which Landlord would otherwise be entitled.
26. Financing Requirements.
In the event that any bank, insurance company, or other financial
institution providing mortgage financing for the Leased Premises requires, as a
condition of such financing, that modification to this Lease be obtained, and
provided that such modifications (a) are reasonable, (b) do not adversely affect
Tenant's use of the Leased Premises as herein permitted under the terms of the
Lease, and (c) do not increase the rentals and other sums required to be paid by
Tenant hereunder, Landlord shall submit such required modifications to Tenant,
and Tenant shall execute an Amendment hereto incorporating such modifications
within ten (10) days after the same has been submitted to Tenant. If Tenant
shall fail to so execute such an amendment, then Landlord shall thereafter have
the right to terminate this
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Lease, by giving Tenant written notice of such termination, and Landlord shall
thereupon be relieved from any further obligations hereunder.
27. Notices.
A. All Rent, Additional Rent and other payments required to be made
by Tenant to Landlord hereunder shall be payable to Landlord at the address set
forth in Section B. below or at such other address as Landlord may specify from
time to time by written notice.
B. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether or not actually received, when
deposited in the United States Mail, postage prepaid, Certified or Registered
Mail, addressed to the parties at the respective addresses set out below, or at
such other address as they have specified by written notice delivered in
accordance herewith:
IF TO LANDLORD: 7595 Rickenbacker Drive, Gaithersburg, Maryland
IF TO TENANT: Tenant hereby elects the Leased Premises as its domicile
for the purpose of service of all notices, writs or other legal
documents, or process, in any action or proceeding which Landlord
may undertake under this Lease.
28. No Partnership.
Nothing contained in this Lease shall be construed to create a
partnership or joint venture of or between Landlord and Tenant, or create any
other relationship between those parties other than that of Landlord and Tenant.
Any intention to create a joint venture, partnership or agency relationship
between the Landlord and Tenant is hereby expressly disclaimed. Nothing
contained in this Lease shall be construed so as to confer upon any other party
the rights of a third-party beneficiary.
29. No Representations by Landlord.
Neither Landlord nor any agent or employee of Landlord has made any
representations or promises with respect to the Leased Premises except as herein
expressly set forth, and no rights, privileges, easements or licenses are
required by Tenant except as herein set forth. Tenant, by taking possession of
the Leased Premises, shall accept the same "as is" and such taking of possession
shall be conclusive evidence that the Leased Premises is in good and
satisfactory condition at the time of such taking of possession.
30. Brokers.
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Landlord and Tenant each represent and warrant one to the other that
no one else, has carried on the negotiations relating to this Lease.
31. Waiver of Trial by Jury.
Tenant hereby waives its right to a trial by jury in any action,
proceeding or counterclaim, brought by either of the parties hereto on any
matters in any way connected with this Lease, the relationship of Landlord and
Tenant, and/or Tenant's use or occupancy of the Leased Premises.
32. Waiver of Redemption.
Tenant hereby expressly waives, for itself and all persons claiming
by, through, or under it, any right of redemption or for the restoration of the
operation of this Lease under any present or future law in case Tenant shall be
dispossessed for any cause, or in case Landlord shall obtain possession of the
Leased Premises as provided herein.
33. Net Lease.
It is the intention of Landlord and Tenant that this Lease is a net
lease and that Landlord shall only be responsible for those items and expenses
which are expressly made Landlord's responsibility herein, and all other items
and expenses shall be borne by Tenant, including all fees and assessments.
34. Binding Effect of Lease.
It is agreed that all rights, remedies and liabilities of the parties
hereto shall extend to their respective heirs' executors, administrators and,
except as otherwise expressly provided in this Lease, their successors and
permitted assigns.
35. Rules and Regulations.
Tenant, its agents, employees, invitees, licensees, customers,
clients, and guests shall at all times abide by and observe all rules or
regulations as may be promulgated from time to time by Landlord, provided a copy
is sent to Tenant, for the operation and maintenance of the Leased Premises.
Nothing contained in this Lease shall be construed to impose upon Landlord any
obligation to enforce such rules and regulations.
36. Applicable Law.
The laws of the State of Maryland shall govern the validity,
performance and enforcement of this Lease.
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<PAGE> 19
37. Time of Essence.
Time is of the essence with respect to the performance of Tenant's
obligations under the Lease.
38. Acceptance of Charges.
Tenant's failure to object to any statement, invoice or bill rendered
by Landlord within five (5) days of its receipt shall constitute Tenant's
acquiescence with respect thereto and shall render such statement, invoice or
bill an account stated between Landlord and Tenant.
39. Survival of Terms.
All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including, without
limitation, all payment obligations with respect to Rent, and Additional Rent
and all obligations and indemnifications concerning the condition of the Leased
Premises. Upon the expiration or earlier termination of the term hereof, and
prior to Tenant vacating the Leased Premises, Tenant shall pay to Landlord any
amount reasonably estimated by Landlord as necessary to put the Leased Premises
in good condition and repair, reasonable wear and tear excepted. All such
amounts shall be used by Landlord for payment of such obligations of Tenant
hereunder, with Tenant being liable for any additional costs therefor upon
demand by Landlord, or with any excess to be returned to Tenant after all such
obligations have been determined and satisfied.
40. Partial Invalidity.
If any provision of this Lease or the application thereof to any
person or circumstances shall to any extent be held void, unenforceable or
invalid, then the remainder of this Lease or the application of such provision
to persons or circumstances other than those as to which it is held void,
unenforceable or invalid shall not be effected thereby, and each provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.
41. Corporate Tenant.
If Tenant is a corporation, the persons executing this Lease on
behalf of Tenant hereby covenant and warrant that: Tenant is a duly constituted
corporation qualified to do business in the state in which the Premises are
located; all Tenant's franchises and corporate taxes have been paid to date; all
future forms, reports, fees and other documents necessary for Tenant to comply
with applicable laws will be
-19-
<PAGE> 20
filed by Tenant when due; and such persons are duly authorized by the board of
directors of such corporation to execute and deliver this Lease on behalf of the
corporation.
42. Miscellaneous.
A. Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural and vice versa, in any place in which the context so
requires.
B. If Tenant is a corporation or other entity, Tenant agrees to
furnish to the Landlord, promptly upon demand, appropriate documentation
evidencing the valid creation and existence of Tenant as a corporation or other
entity, and proof of due authorization by the Shareholders, Board of Directors
and/or owners of Tenant to enter into this Lease.
C. The captions, paragraph numbers and index appearing in this Lease
are for convenience of reference only, and in no way define, limit or otherwise
describe, explain, modify or amplify the interpretation or construction of any
provision of this Lease.
D. Whenever reference is made to Landlord hereunder the same shall
include the Landlord's partners, agents, and employees.
E. Landlord and Tenant each acknowledge that they have had full
opportunity to obtain legal counsel prior to executing this Lease.
43. Entire Agreement.
This Lease contains the entire and only agreement between the
parties. No oral statements or representations or prior written matter not
contained or referred to in this Lease shall have any force or effect. This
Lease shall not be modified in any way except by a writing executed by both
parties hereto. No waiver of any provision of this Lease shall be deemed to have
been made unless it is in writing and signed by both parties hereto.
44. Multiple Copies.
The parties may execute multiple copies of this Lease, each of which
shall be deemed an original.
IN WITNESS WHEREOF, the parties have duly executed this Lease under
seal as of the day and year first above written.
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<PAGE> 21
LANDLORD:
7595 RICKENBACKER LLC
BY: /s/
------------------------------
Authorized Signatory
TENANT:
EXECUTIVE AMENITIES, INC.
BY: /s/ Robert W. Zaugg
------------------------------
Authorized Signatory
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<PAGE> 22
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT to lease (the "Amendment") between 7595
Rickenbacker LLC ("Landlord") and Executive Amenities, Inc. ("Tenant") is made
as of the 12th day of May, 1994.
WITNESSETH:
WHEREAS, on August 20, 1993, Landlord and Tenant executed a Lease
Agreement for the premises located at 7595 Rickenbacker Drive, Gaithersburg,
Maryland (the "Lease"); and
WHEREAS, in order to enable Landlord to obtain the permanent financing
on the leased premises from the US Small Business Administration (the "SBA"),
the termination date of the Lease must be later than the maturity of the SBA
loan; and
WHEREAS, Landlord and Tenant desire to amend the Lease to extend the
term of lease.
NOW THEREFORE, in consideration of the mutual agreements herein
contained, Landlord and Tenant hereby covenant and agree as follows:
1. Term. Paragraph 2.A. of the Lease shall be deleted in its entirety
and the following shall be in its place and stead:
"A. The term of this Lease (the "Lease Term") shall commence on the
"Rent Commencement Date", and shall end twenty (20) Lease Years and one
(1) full calendar year after said Rent Commencement Date. The Rent
Commencement Date shall be the first day of the first calendar month
after an Occupancy Permit is received on behalf of Tenant to occupy the
Leased Premises. The first "Lease Year" during the term hereof shall be
the period commencing on the Rent Commencement Date, and shall
terminate twelve (12) full calendar months thereafter. Each subsequent
Lease Year during the term hereof shall commence on the day immediately
following the last day of the preceding Lease Year, and shall continue
for a period of twelve (12) full calendar months."
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<PAGE> 23
IN WITNESS WHEREOF, the parties have duly executed this Amendment
under seal as of the day and year first above written.
LANDLORD:
7595 RICKENBACRER LLC
BY: /s/
------------------------------
Authorized Signatory
TENANT:
EXECUTIVE AMENITIES, INC.
BY: /s/ Robert W. Zaugg
------------------------------
Authorized Signatory
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<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
ExecuStay Corporation of America, a Maryland corporation
Executive Furniture Centre, Inc., a Maryland corporation
Executive Amenities, Inc., a Maryland corporation
Executive Amenities -- West, Inc., a Maryland corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our reports dated June 4, 1997, accompanying the consolidated
financial statements and schedule of ExecuStay Corporation contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Vienna, Virginia
June 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EXECUSTAY CORPORATION AND SUBSIDIARIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 MAR-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 503,099 6,150
<SECURITIES> 0 0
<RECEIVABLES> 2,504,574 3,188,789
<ALLOWANCES> (238,056) (362,250)
<INVENTORY> 4,098,894 3,846,182
<CURRENT-ASSETS> 0 0
<PP&E> 3,068,849 3,125,817
<DEPRECIATION> (992,519) (1,081,388)
<TOTAL-ASSETS> 9,678,476 10,263,031
<CURRENT-LIABILITIES> 0 0
<BONDS> 2,681,527 3,284,529
0 0
0 0
<COMMON> 37,500 37,500
<OTHER-SE> 2,945,333 3,757,411
<TOTAL-LIABILITY-AND-EQUITY> 9,678,476 10,263,031
<SALES> 0 0
<TOTAL-REVENUES> 29,645,857 9,645,304
<CGS> 0 0
<TOTAL-COSTS> 18,472,252 6,167,083
<OTHER-EXPENSES> 8,207,200 2,463,322
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 307,709 80,535
<INCOME-PRETAX> 2,658,696 934,364
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 2,658,696 934,364
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,658,696 934,364
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
