<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1997
REGISTRATION NO. 333-30049
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
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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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
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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. [ ]
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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 AUGUST 1, 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.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the trading symbol "EXEC." Following 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 and will have the ability to control the affairs of the
Company.
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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)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
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Total (3)....................................... $ $ $
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(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. EQUITABLE SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1997
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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 December 31, 1994 to
approximately 1,800 at June 30, 1997, with an average rental period in the first
half of 1997 of more than three months. The Company currently leases apartments
in over 35 states.
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 owns no residential
housing; instead, housing occupied by ExecuStay residents is leased to the
Company (as tenant) from a variety of unaffiliated property owners and managers.
When responding to inquiries from prospective ExecuStay residents, the Company
is not limited to any particular pool of apartment units and therefore is able
to select suitable accommodations from any apartment property in the desired
location, affording greater flexibility in accommodating the preferences of its
customers. The Company generally has been able to enter into leases with
property owners that match each resident's desired length of stay and, as a
result, the units leased to the Company were vacant less than 2% of the time in
the first half of 1997. 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, from its own warehouse or through
unaffiliated rental companies, 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 for $850,000 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 for $1.9 million 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. The
Company borrowed approximately $2.9 million to finance these two acquisitions,
which loans are expected to be repaid with a portion of the net proceeds of this
offering. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "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."
Nasdaq National Market symbol................ "EXEC"
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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
173,650 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
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
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SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------- ------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Total revenue......................... $7,436 $8,722 $13,773 $17,208 $29,645 $11,858 $20,436
Total operating costs and expenses.... 6,536 7,810 12,248 15,092 26,679 10,939 18,593
------ ------ ------- ------- ------- ------- -------
Earnings from operations.............. 900 912 1,525 2,116 2,966 919 1,843
Interest expense...................... 113 68 195 240 308 133 209
------ ------ ------- ------- ------- ------- -------
Net income............................ $ 787 $ 844 $ 1,330 $ 1,876 $ 2,658 $ 786 $ 1,634
====== ====== ======= ======= ======= ======= =======
PRO FORMA DATA (1):
Net income............................ $ 1,595 $ 981
======= =======
Net income per common share........... $ 0.40 $ 0.25
======= =======
Weighted average common shares
outstanding (2)..................... 3,965 3,965
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JUNE 30, 1997
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PRO FORMA
ACTUAL AS ADJUSTED (3)
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(IN THOUSANDS)
BALANCE SHEET DATA:
Cash........................................................................... $ 7 $13,500
Property on or held for lease, net............................................. 4,221 4,221
Total assets................................................................... 14,950 28,443
Total bank debt................................................................ 7,552 --
Due to stockholders............................................................ 1,102 --
Total stockholders' equity..................................................... 2,230 24,192
</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 M 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 June 30, 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 $2.0
million as of June 30, 1997; (ii) a distribution to current stockholders of
$1.1 million declared on June 13, 1997; (iii) the recording of an
anticipated $183,000 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 July 1, 1997 through the closing of
this offering. See "Termination of S Corporation Status and Related
Distributions," "Dividend Policy" and Note M 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. The incurrence of additional
indebtedness would increase the Company's interest expense and, depending on the
future operating results of the acquired business, could have a material adverse
effect on the Company's net income. 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
6
<PAGE> 8
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Business Strategy."
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 25%
of the Company's revenue during 1996 and the first six 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, particularly Mr. Abrahams, Mr. Kaplan and Mr. Zaugg, 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 Representatives 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
DILUTION
Purchasers of Common Stock offered hereby will experience immediate and
substantial dilution in the pro forma net tangible book value per share of $6.63
from the initial public offering price of $10.00. See "Dilution."
NO DIVIDENDS
The Company currently intends to retain earnings for use in the operation
and expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's loan agreements
restrict its ability to pay dividends. See "Dividend Policy."
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 June 30, 1997, the undistributed S corporation
earnings of the Company were estimated to be $2.0 million. The Company expects
to accumulate additional earnings from July 1, 1997 to the Termination Date. The
Company currently estimates that such additional earnings will be between
$200,000 and $1.0 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 $183,000
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 or any of its subsidiaries 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 $2.2 million and $3.0 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 30, 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 30, 1997 had an outstanding balance of $2.0 million.
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 30, 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 June 30, 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>
JUNE 30, 1997
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED (1)
------ ---------------
<S> <C> <C>
(IN THOUSANDS)
<CAPTION>
<S> <C> <C>
Bank line of credit................................................... $1,990 $ --
====== =======
Notes payable to bank................................................. $5,562 $ --
Due to stockholders................................................... $1,102 $ --
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....................................... 55 24,128
Retained earnings................................................ 2,137 --
------ -------
Total stockholders' equity.................................. 2,230 24,192
------ -------
Total capitalization................................... $8,894 $24,192
====== =======
</TABLE>
- ---------------
(1) Gives effect to: (i) a distribution to the Company's current stockholders of
undistributed S corporation earnings, which totaled approximately $2.0
million as of June 30, 1997; (ii) a distribution to current stockholders of
$1.1 million declared on June 13, 1997; (iii) the recording of an
anticipated $183,000 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 July 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
173,650 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 June 30, 1997 was a
deficit of ($2.6) million, or approximately ($0.69) per share. Pro forma net
tangible book value per share as of June 30, 1997 represents total assets less
intangible assets and total liabilities, after giving effect to the distribution
of undistributed S corporation earnings, which were $2.0 million at June 30,
1997, a distribution to current stockholders of $1.1 million declared on June
13, 1997 and the related provision for deferred tax liabilities of $183,000,
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 June 30, 1997 would have
been $21.5 million, or $3.37 per share. This represents an immediate increase in
pro forma net tangible book value of $4.06 per share to existing stockholders
and an immediate dilution to new investors of $6.63 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 June 30, 1997... $(0.69)
Increase per share attributable to new investors............... 4.06
------
Pro forma net tangible book value per share at June 30, 1997 after
the offering...................................................... 3.37
------
Dilution in pro forma net tangible book value per share to new
investors......................................................... $ 6.63
======
</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 $3.71 per share, which would result in dilution to new investors of
$6.29 per share.
The following table sets forth, as of June 30, 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 six months ended June 30, 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 six months ended June 30, 1997 are not necessarily indicative
of the results to be expected for the entire year ending December 31, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ------------------
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 $ 7,963 $15,553
Furniture and houseware revenue........... 4,709 5,071 6,856 7,818 8,740 3,895 4,883
------ ------ ------- ------- ------- ------- -------
Total revenue......................... 7,436 8,722 13,773 17,208 29,645 11,858 20,436
Operating costs and expenses:
Cost of interim housing revenue........... 2,280 3,024 5,779 7,466 16,640 6,310 12,435
Cost of furniture and houseware revenue... 1,767 1,729 1,891 2,148 1,832 995 927
Personnel and payroll costs............... 1,769 2,390 3,464 3,876 5,597 2,463 3,506
Occupancy costs and nonrental depreciation
and amortization........................ 347 455 626 660 994 427 685
Other operating costs..................... 373 212 488 942 1,616 744 1,040
------ ------ ------- ------- ------- ------- -------
Total operating costs and expenses.... 6,536 7,810 12,248 15,092 26,679 10,939 18,593
------ ------ ------- ------- ------- ------- -------
Earnings from operations...................... 900 912 1,525 2,116 2,966 919 1,843
Interest expense.............................. 113 68 195 240 308 133 209
------ ------ ------- ------- ------- ------- -------
Net income.................................... $ 787 $ 844 $ 1,330 $ 1,876 $ 2,658 $ 786 $ 1,634
====== ====== ======= ======= ======= ======= =======
PRO FORMA DATA (1):
Net income.................................... $ 1,595 $ 981
======= =======
Net income per common share................... $ 0.40 $ 0.25
======= =======
Weighted average common shares outstanding
(2)......................................... 3,965 3,965
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................... $ 214 $ 19 $ 24 $ 229 $ 503 $ 7
Property on or held for lease, net................. 1,669 1,907 2,660 3,059 4,099 4,221
Total assets....................................... 2,538 3,241 5,932 6,519 9,678 14,950
Bank line of credit................................ -- 612 546 200 800 1,990
Notes payable to bank.............................. 1,083 490 453 743 1,882 5,562
Due to stockholders................................ -- -- -- -- -- 1,102
Total stockholders' equity......................... 975 1,409 1,862 2,481 2,983 2,230
</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 M 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 June 30, 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 M 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.
In recent years, the Company has experienced significant increases in
revenue from its interim housing operations. Since the costs associated with
interim housing revenue are greater as a percentage of revenue than the costs of
furniture and housewares revenue, the Company's earnings from operations as a
percentage of total revenue has declined. As interim housing revenue continues
to increase as a percentage of the Company's total revenue, this percentage may
continue to decline.
The Company began implementing its acquisition strategy in 1997. In April
1997, the Company purchased for $850,000 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 for $1.9
million 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 and 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>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Interim housing revenue......................... 50.2% 54.6% 70.5% 67.2% 76.1%
Furniture and houseware revenue................. 49.8 45.4 29.5 32.8 23.9
----- ----- ----- ----- -----
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 53.2 60.8
Cost of furniture and houseware revenue......... 13.7 12.5 6.2 8.4 4.5
----- ----- ----- ----- -----
Total cost of revenue...................... 55.7 55.9 62.3 61.6 65.3
----- ----- ----- ----- -----
Personnel and payroll costs..................... 25.2 22.5 18.8 20.8 17.2
Occupancy costs and nonrental depreciation and
amortization.................................. 4.5 3.8 3.4 3.6 3.4
Other operating costs........................... 3.5 5.5 5.5 6.3 5.1
----- ----- ----- ----- -----
Total operating costs and expenses......... 88.9 87.7 90.0 92.3 91.0
----- ----- ----- ----- -----
Earnings from operations............................. 11.1 12.3 10.0 7.7 9.0
Interest expense..................................... 1.4 1.4 1.0 1.1 1.0
----- ----- ----- ----- -----
Net income........................................... 9.7% 10.9% 9.0% 6.6% 8.0%
===== ===== ===== ===== =====
Number of leased units at end of period.............. 188 517 923 994 1,807
</TABLE>
The following table sets forth, for each component of revenue, the cost of
such revenue as a percentage of such revenue for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Cost of interim housing revenue...................... 83.6% 79.5% 79.6% 79.2% 80.0%
Cost of furniture and houseware revenue.............. 27.6% 27.5% 21.0% 25.5% 19.0%
</TABLE>
Interim housing revenue consists of the total charges to ExecuStay
residents for their housing accommodations, including charges for furniture,
housewares, accessories and utilities.
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.
16
<PAGE> 18
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 TO THE SIX MONTHS ENDED JUNE
30, 1996
The Company's total revenue increased 71% to $20.4 million for the six
months ended June 30, 1997 from $11.9 million for the same period in 1996. This
increase resulted primarily from a $7.6 million increase (95%) in interim
housing revenue, reflecting the Company's primary focus on expanding its interim
housing business. Aggregate interim housing revenue from the seven offices that
had been open throughout both periods accounted for $6.0 million of this
increase, reflecting the continued development and market penetration of these
offices. The balance of the increase in total revenue resulted from a $988,000
increase (25%) in furniture and houseware revenue from the first six months of
1996 to the same period in 1997, including a sale of approximately $480,000 to
one customer in 1997.
The cost of interim housing revenue increased 97% to $12.4 million for the
six months ended June 30, 1997 from $6.3 million for the same period in 1996.
The cost of furniture and houseware revenue decreased 7% to $927,000 from
$995,000 during the same periods due to the net effect of cost increases
attributable to the growth in revenue in 1997 and nonrecurring houseware
expenditures of approximately $261,000 during the 1996 period. Personnel and
payroll costs and occupancy and nonrental depreciation and amortization
increased by $1.0 million (40%) and $258,000 (60%), 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 34% to $1.0 million from $744,000 during
the same periods primarily as a result of increased advertising and promotion
relating to the recently opened offices.
Interest expense increased by $76,000 in the six months ended June 30, 1997
due to greater utilization of the Company's bank line of credit as the Company
expanded internally and completed its acquisitions in Orlando and San Francisco.
Net income increased by 108% to $1.6 million for the six months ended June
30, 1997 from $786,000 for the six months ended June 30, 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. The three offices that had been opened prior to 1995
accounted for $4.9 million of this $11.5 million increase, and the balance of
this increase was the result of increased activity at the four sales offices
opened in 1995 and early 1996. 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 $942,000 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.
17
<PAGE> 19
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 two offices that opened in 1995 accounted for 83% of 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 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 $942,000 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 ten 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."
18
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------
1995 1996 1997
---------------------------------------- ---------------------------------------- ------------------
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 6/30/97
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <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 $ 8,642
Furniture and
houseware
revenue......... 1,725 1,967 2,027 2,099 1,794 2,101 2,549 2,296 2,734 2,149
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue... 3,622 4,237 4,468 4,881 5,102 6,756 8,910 8,877 9,645 10,791
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 6,934
Cost of furniture
and houseware
revenue......... 463 673 543 469 478 517 429 408 666 261
Personnel and
payroll costs... 846 947 980 1,103 1,153 1,310 1,543 1,591 1,674 1,832
Occupancy costs
and nonrental
depreciation and
amortization.... 147 159 172 182 204 223 248 319 283 402
Other operating
costs........... 173 178 220 371 374 370 425 447 506 534
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
costs and
expenses...... 3,122 3,730 3,882 4,358 4,861 6,078 7,612 8,128 8,630 9,963
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings from
operations........ 500 507 586 523 241 678 1,298 749 1,015 828
Interest expense.... 59 63 61 57 59 75 89 85 81 128
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.......... $ 441 $ 444 $ 525 $ 466 $ 182 $ 603 $1,209 $ 664 $ 934 $ 700
====== ====== ====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------
1995 1996 1997
---------------------------------------- ---------------------------------------- ------------------
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 6/30/97
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <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% 80.1%
Furniture and
houseware
revenue......... 47.6 46.4 45.4 43.0 35.2 31.1 28.6 25.9 28.3 19.9
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue... 100.0% 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 64.3
Cost of furniture
and houseware
revenue......... 12.8 15.9 12.2 9.6 9.4 7.7 4.8 4.6 6.9 2.4
Personnel and
payroll costs... 23.4 22.3 21.9 22.6 22.6 19.4 17.3 17.9 17.4 17.0
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 3.7
Other operating
costs........... 4.8 4.2 4.9 7.6 7.3 5.5 4.8 5.0 5.2 4.9
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
costs and
expenses...... 86.2 88.0 86.9 89.3 95.3 90.0 85.4 91.6 89.5 92.3
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings from
operations........ 13.8 12.0 13.1 10.7 4.7 10.1 14.6 8.4 10.5 7.7
Interest expense.... 1.6 1.5 1.4 1.2 1.1 1.1 1.0 1.0 .8 1.2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.......... 12.2% 10.5% 11.8% 9.5% 3.6% 8.9% 13.6% 7.5% 9.7% 6.5%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided (used) by operating activities was $1.1 million for the
year ended December 31, 1996, and ($2,781,000) for the six months ended June 30,
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 $7.6 million at
June 30, 1997, an increase of $4.9 million 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
19
<PAGE> 21
1996, as well as the Orlando and San Francisco acquisitions in 1997.
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 30, 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 also has a $2.0 million line of credit with its term loan
lender, which expires May 31, 1998. Advances under the line of credit bear
interest at the bank's Prime Rate plus 0.50%. As of June 30, 1997, the
outstanding balance under the line of credit was $2.0 million.
The term loans and the line of credit are guaranteed by Mr. Abrahams, Mr.
Kaplan and Mr. Zaugg and are secured by the Company's assets. The lender has
agreed to release the current stockholders from their personal guarantees upon
the completion of this offering. The loan agreements include various covenants,
including (i) a prohibition on distributions in excess of 60% of net earnings,
(ii) a requirement that, after December 30, 1997, the Company maintain a
tangible net worth of at least $15 million and a cash flow to debt service ratio
of at least 1.5 to 1, and (iii) a requirement that the aggregate outstanding
principal balance of the loans at no time be greater than 1.5 times the
Company's earnings before interest, taxes, depreciation and amortization for the
most recent twelve-month period.
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.
20
<PAGE> 22
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 $25,000 and certain
intangible assets including $120,000 relating to a non-compete agreement and
goodwill of $705,000.
San Francisco. On June 1, 1997, the Company acquired for $1.9 million 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 $1.6 million.
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
------ ------
Gross margin.................................................. $ 441 $1,326
====== ======
</TABLE>
21
<PAGE> 23
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.
22
<PAGE> 24
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 December 31, 1994 to
approximately 1,800 at June 30, 1997, with an average rental period in the first
half of 1997 of more than three months. The Company currently leases apartments
in over 35 states.
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 a variety of unaffiliated property owners and managers. When responding to
inquiries from prospective ExecuStay residents, the Company is not limited to
any particular pool of apartment units and therefore is able to select suitable
accommodations from any apartment property in the desired location, affording
greater flexibility in accommodating the preferences of its customers. The
Company generally has been able to enter into leases with property owners that
match each resident's desired length of stay and, as a result, the units leased
to the Company were vacant less than 2% of the time in the first half of 1997.
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, from its own warehouse or through
unaffiliated rental companies, 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.
23
<PAGE> 25
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 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.
[Short, Extended and Interim Stay CHART]
24
<PAGE> 26
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.
25
<PAGE> 27
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
26
<PAGE> 28
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.
27
<PAGE> 29
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
28
<PAGE> 30
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.
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<PAGE> 31
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 30, 1997, the Company employed approximately 240 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.
30
<PAGE> 32
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............................ 44 Chief Executive Officer, President and Director
Marc B. Kaplan.............................. 48 Chief Financial Officer, Treasurer and Director
Robert W. Zaugg............................. 52 Chief Operating Officer, Secretary 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)..................... 54 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,
President, 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,
Treasurer, 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,
Secretary, 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 fourteen years, he has served as Chairman of the Board of
Directors and Chief Executive Officer of S & K Famous Brands, Inc., a menswear
retailer.
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<PAGE> 33
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 and President
Marc B. Kaplan.............................................................. 1996 99,616
Chief Financial Officer and Treasurer
Robert W. Zaugg............................................................. 1996 99,616
Chief Operating Officer and Secretary
</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.
32
<PAGE> 34
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 173,650 shares of Common Stock at an exercise price per
share equal to the initial public offering price in this offering. Such options
will vest at a rate of 25% per year beginning on the effective date of 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 AND EXCULPATION ARRANGEMENTS
The Company's Articles of Incorporation and Bylaws provide for the
indemnification of the Company's directors and officers to the fullest extent
permitted by the Maryland General Corporation Law, as amended (the "Maryland
Law"). The Maryland Law provides that a 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 include a provision limiting the
liability of its directors and officers to the corporation and its stockholders
for money damages, subject to specified restrictions. Maryland Law does not,
however, permit the liability of directors and officers to the corporation or
its stockholders to be limited to the extent that (1) it is proved that the
person actually received an improper benefit or profit in money, property or
services (to the extent such benefit or profit was received) or (2) judgment or
other final adjudication adverse to such person is entered in a proceeding based
on a finding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
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."
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<PAGE> 35
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
$940,000 at June 30, 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.
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<PAGE> 36
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......................................... 190,500(3) 5.0 2.9
David S. Santee........................................... 2,500(4) * *
Stuart C. Siegel.......................................... 2,500(4) * *
All executive officers and directors as a group (7
persons)................................................ 3,765,250 100.0% 58.7%
</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) Includes 3,000 shares issuable upon the exercise of options to be granted
upon the effectiveness of this offering to the extent exercisable within 60
days therafter.
(4) 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.
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<PAGE> 37
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
36
<PAGE> 38
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 Company's Bylaws allow the Board
of Directors to exempt any of the Company's shareholders from the control share
acquisition statute.
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.
37
<PAGE> 39
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 173,650 shares of Common Stock. See
"Management -- Stock Plans."
38
<PAGE> 40
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. and Equitable
Securities Corporation are acting as representatives (the "Representatives"),
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. .......................................
Equitable Securities Corporation.................................
---------
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 Representatives 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.
39
<PAGE> 41
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 Company and the
Representatives. 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 Representatives have advised the Company that they do not intend to
confirm sales to any account over which they exercise 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.
40
<PAGE> 42
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.
41
<PAGE> 43
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 June 30, 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 six months ended
June 30, 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 six months ended June 30, 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 six months ended
June 30, 1996 and 1997.............................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 44
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> 45
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
---------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE M)
<S> <C> <C> <C> <C>
ASSETS
Cash........................................ $ 228,910 $ 503,099 $ 6,650 $ 6,650
Accounts receivable, net.................... 911,447 2,266,518 3,809,858 3,809,858
Prepaid rent and other...................... 94,325 323,521 1,647,909 1,647,909
Property on or held for lease, net.......... 3,058,972 4,098,894 4,221,215 4,221,215
Property and equipment, net................. 1,998,446 2,076,330 2,040,621 2,040,621
Other assets................................ 226,914 410,114 3,223,619 3,223,619
---------- ---------- ----------- -----------
Total assets...................... $6,519,014 $9,678,476 $14,949,872 $14,949,872
========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C> <C> <C>
Bank line of credit......................... $ 200,000 $ 800,000 $ 1,989,603 $ 1,989,603
Notes payable to bank....................... 742,913 1,881,527 5,562,338 5,562,338
Capital lease obligation.................... 1,585,618 1,555,860 1,538,291 1,538,291
Accounts payable............................ 534,854 1,110,592 1,302,438 1,302,438
Accrued and other liabilities............... 974,363 1,347,664 1,224,975 1,224,975
Due to stockholders......................... -- -- 1,102,467 3,102,467
Deferred taxes payable...................... -- -- -- 183,000
---------- ---------- ----------- -----------
Total liabilities................. 4,037,748 6,695,643 12,720,112 14,903,112
Commitments and contingencies (Note J)
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 37,500
Additional paid-in capital............. 1,135,280 1,135,280 55,345 9,260
Retained earnings...................... 1,308,486 1,810,053 2,136,915 --
---------- ---------- ----------- -----------
Total stockholders' equity........ 2,481,266 2,982,833 2,229,760 46,760
---------- ---------- ----------- -----------
Total liabilities and
stockholders' equity....... $6,519,014 $9,678,476 $14,949,872 $14,949,872
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 46
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------------------
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 $ 7,962,629 $15,553,118
Furniture and houseware
revenue................ 6,856,486 7,817,677 8,740,394 3,895,265 4,882,670
----------- ----------- ----------- ----------- -----------
Total revenue....... 13,773,811 17,208,050 29,645,857 11,857,894 20,435,788
Operating costs and expenses:
Cost of interim housing
revenue................ 5,779,021 7,465,791 16,640,619 6,309,997 12,435,417
Cost of furniture and
houseware revenue...... 1,891,295 2,147,602 1,831,633 995,150 926,524
Personnel and payroll
costs.................. 3,463,742 3,875,845 5,596,781 2,462,784 3,505,668
Occupancy costs and
nonrental depreciation
and amortization....... 626,149 660,323 994,107 426,657 685,086
Other operating costs.... 488,374 942,697 1,616,312 744,164 1,040,540
----------- ----------- ----------- ----------- -----------
Total operating
costs and
expenses.......... 12,248,581 15,092,258 26,679,452 10,938,752 18,593,235
----------- ----------- ----------- ----------- -----------
Earnings from operations...... 1,525,230 2,115,792 2,966,405 919,142 1,842,553
Interest expense.............. 195,074 240,109 307,709 133,504 208,961
----------- ----------- ----------- ----------- -----------
Net income.................... $ 1,330,156 $ 1,875,683 $ 2,658,696 $ 785,638 $ 1,633,592
========== ========== ========== ========== ==========
Pro Forma Data (unaudited) (Note M)
Historical net income......... $ 2,658,696 $ 1,633,592
Provision for income taxes.... 1,063,000 653,000
----------- -----------
Pro forma net income.......... $ 1,595,696 $ 980,592
========== ==========
Pro forma net income per
share....................... $ 0.40 $ 0.25
========== ==========
Weighted average common shares
outstanding................. 3,965,000 3,965,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 47
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........... $ -- $36,500 $ 1,108,673 $ 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......... -- 36,500 1,108,673 716,856 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......... -- 37,500 1,135,280 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......... -- 37,500 1,135,280 1,810,053 2,982,833
Net income (unaudited)............... -- -- -- 1,633,592 1,633,592
Distributions (unaudited)............ -- -- (1,079,935) (1,306,730) (2,386,665)
------- ------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1997
(UNAUDITED)........................ $ -- $37,500 $ 55,345 $ 2,136,915 $ 2,229,760
======= ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 48
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------------------
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 $ 785,638 $ 1,633,592
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and
amortization............... 1,182,502 1,442,779 1,906,904 834,116 1,179,667
Net purchase of property on
or held for lease.......... (1,782,748) (1,549,326) (2,632,460) (1,623,885) (1,072,516)
Compensation paid in stock... -- 27,607 -- -- --
Changes in assets and
liabilities
Decrease (increase) in
accounts receivable.... 15,406 (62,005) (1,354,340) (674,453) (1,502,672)
Decrease (increase) in
prepaid rent and
other.................. (11,346) (33,572) (229,196) (964,261) (1,324,388)
Decrease (increase) in
other assets .......... (85,588) (20,025) (183,199) (136,500) (2,866,505)
Increase (decrease) in
accounts payable....... 338,889 (76,738) 575,738 314,887 191,846
Increase (decrease) in
accrued and other
liabilities............ 387,556 193,112 373,301 229,370 (122,689)
Increase in due to
stockholders........... -- -- -- -- 1,102,467
----------- ----------- ----------- ----------- -----------
Total adjustments................. 44,671 (78,168) (1,543,252) (2,020,726) (4,414,790)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities................ 1,374,827 1,797,515 1,115,444 (1,235,088) (2,781,198)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and
equipment....................... (383,384) (252,996) (392,251) (138,998) (140,763)
Net (increase) decrease in due
from unconsolidated
affiliates...................... (9,022) 18,932 (731) 2,642 (40,668)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities.......................... (392,406) (234,064) (392,982) (136,356) (181,431)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings on line of
credit.......................... (195,616) (346,000) 600,000 2,315,530 1,189,603
Distributions to stockholders..... (877,501) (1,284,053) (2,157,129) (904,825) (2,386,665)
Borrowings on bank loans.......... 130,349 750,000 1,900,000 -- 4,350,000
Payments on bank loans............ (26,786) (459,976) (761,386) (249,745) (669,189)
Payments on capital lease
obligations .................... (7,907) (18,683) (29,758) (13,026) (17,569)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities................ (977,461) (1,358,712) (448,273) 1,147,934 2,466,180
----------- ----------- ----------- ----------- -----------
Net increase in cash.................. 4,960 204,739 274,189 (223,510) (496,449)
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 $ 5,400 $ 6,650
============ ============ ============ ============ ============
Supplemental cash flows information:
Interest paid during the period... $ 195,074 $ 249,818 $ 313,098 $ 126,441 $ 183,848
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 49
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 June 30, 1997, and
for the six months ended June 30, 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> 50
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
certain tax methods and lives, and salvage values, for depreciating such assets,
the net effect of which approximated generally accepted accounting methods. The
effect of the change on operations for 1994, 1995 and 1996 was not material. 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> 51
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 G. The Company accounted for the
transaction using purchase accounting and recorded certain intangible assets
including $120,000 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 G. 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> 52
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,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable.............................. $1,037,663 $2,490,548 $4,179,721
Due from nonconsolidated affiliates.............. 13,295 14,026 54,694
Reserve for vacancies and doubtful accounts...... (139,511) (238,056) (424,557)
---------- ---------- ----------
Accounts receivable -- net....................... $ 911,447 $2,266,518 $3,809,858
========== ========== ==========
</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,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Furniture........................................ $4,468,674 $5,867,089 $6,015,597
Household amenities.............................. 1,337,891 1,890,866 2,449,027
---------- ---------- ----------
5,806,565 7,757,955 8,464,624
Less accumulated depreciation.................... 2,747,593 3,659,061 4,243,409
---------- ---------- ----------
$3,058,972 $4,098,894 $4,221,215
========== ========== ==========
</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 six months ended June 30, 1997 totaled $950,195.
NOTE E -- PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Vehicles......................................... $ 501,988 $ 544,110 $ 544,109
Leasehold improvements........................... 56,490 125,208 130,046
Computer equipment and software.................. 222,642 399,262 504,420
Furniture and equipment.......................... 298,770 388,061 420,204
Capital lease -- building........................ 1,612,208 1,612,208 1,612,208
---------- ---------- ----------
2,692,098 3,068,849 3,210,987
Less accumulated depreciation and amortization... 693,652 992,519 1,170,366
---------- ---------- ----------
$1,998,446 $2,076,330 $2,040,621
========== ========== ==========
</TABLE>
F-10
<PAGE> 53
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- PROPERTY AND EQUIPMENT -- (CONTINUED)
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 six months ended June 30, 1997 totaled
$176,472.
NOTE F -- OTHER ASSETS
The following is a summary of other assets:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Goodwill............................................ $ -- $ -- $2,321,018
Non-complete agreements............................. -- -- 328,024
Deposits............................................ 206,475 410,114 437,929
Other............................................... 20,439 -- 136,648
-------- -------- ----------
$226,914 $410,114 $3,223,619
======== ======== ==========
</TABLE>
Amortization expense for the six months ended June 30, 1997 totaled
approximately $53,000.
NOTE G -- BANK NOTES
The Company has a revolving line of credit and various term loans with a
bank.
Under the terms of the current line-of-credit agreement, which expires May
31, 1998, 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 June
30, 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 June 30, 1997 amounted to $1,989,603. 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.
F-11
<PAGE> 54
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- BANK NOTES -- (CONTINUED)
Term notes payable to the bank are as follows. They are deemed to be
substantially equal to fair value.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
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 $1,108,333
$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.... 619,444 282,909 104,005
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 --
$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 -- --
$1,500,000 note dated June 2, 1997, payable to bank,
interest at bank's prime rate plus 0.5%, with 24 payments
of $62,500 plus interest due monthly through June 1999;
collateralized by a blanket security interest on all
assets of the Company and personally guaranteed by the
current stockholders..................................... -- -- 1,500,000
$850,000 note dated June 2, 1997, payable to bank, interest
at bank's prime rate plus 0.5%, with 36 payments of
$23,611 plus interest due monthly through June 2000;
collateralized by a blanket security interest on all
assets of the Company and personally guaranteed by the
current stockholders..................................... -- -- 850,000
$2,000,000 note dated June 2, 1997, payable to bank,
interest at bank's prime rate, with 36 payments of
$55,556 plus interest due monthly through June 2000;
collateralized by a blanket security interest on all
assets of the Company and personally guaranteed by the
current stockholders..................................... -- -- 2,000,000
-------- ---------- ----------
$742,913 $1,881,527 $5,562,338
======== ========= =========
</TABLE>
F-12
<PAGE> 55
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- BANK NOTES -- (CONTINUED)
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>
NOTE H -- ACCRUED AND OTHER LIABILITIES
The following is a summary of accrued and other liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Accrued payroll and related expenses............... $264,396 $ 442,118 $ 449,790
Accrued sales tax payable.......................... 20,833 199,764 195,900
Customer deposits held............................. 265,512 295,111 290,902
Other accrued expenses............................. 423,622 410,671 288,383
-------- ---------- ----------
$974,363 $1,347,664 $1,224,975
======== ========= =========
</TABLE>
NOTE I -- 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 J).
NOTE J -- 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 six months ended
June 30, 1997.
F-13
<PAGE> 56
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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>
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 June 30, 1997, amounted to
approximately $940,000.
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>
F-14
<PAGE> 57
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Rent expense under the operating leases amounted to approximately $206,000,
$162,000 and $279,000 for 1994, 1995 and 1996, respectively.
NOTE K -- 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 six months ended June 30, 1997,
was $8,742.
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 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 L -- 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 M -- 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 six months ended June 30, 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>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Federal.............................................. $824,000 $506,000
State................................................ $239,000 $147,000
</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 3,965,000 shares. The
shares outstanding for all periods presented give retroactive
F-15
<PAGE> 58
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- PRO FORMA INFORMATION -- (CONTINUED)
effect to the Recapitalization and stock split described in Note A as well as
215,000 shares deemed to be outstanding at June 30, 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 June 30, 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)
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.
The pro forma balance sheet information of the Company at June 30, 1997,
reflects adjustments for the effects of: (1) distribution to the current
stockholders of the undistributed taxable earnings of approximately $2,000,000
as of June 30, 1997; and (2) additional income tax liabilities of approximately
$183,000 which would have resulted if the S corporation status had been
terminated at June 30, 1997.
The following table illustrates the effect of the pro forma balance sheet
adjustment described above:
<TABLE>
<CAPTION>
JUNE 30,
1997
-------------
<S> <C>
Historical stockholders' equity.............................................. $ 2,229,760
Effect of pro forma adjustments:
S corporation undistributed taxable earnings distribution to
stockholders........................................................... (2,000,000)
Additional income tax liabilities resulting from termination of
S corporation status.................................................. (183,000)
-------------
Pro forma stockholders' equity............................................... $ 46,760
==========
</TABLE>
F-16
<PAGE> 59
[INSIDE BACK COVER]
[PHOTOGRAPH OF CUSTOMER IN FURNISHED APARTMENT]
<PAGE> 60
- ------------------------------------------------------
- ------------------------------------------------------
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......................... 21
Business................................. 23
Management............................... 31
Certain Transactions..................... 34
Principal Stockholders................... 35
Description of Capital Stock............. 36
Shares Eligible for Future Sale.......... 38
Underwriting............................. 39
Legal Matters............................ 40
Experts.................................. 40
Additional Information................... 41
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 & SONS, INC.
EQUITABLE SECURITIES CORPORATION
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 61
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................................... 33,500
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..................................................... 12,490
--------
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. 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.
In June 1997, the Company granted, effective as of the effectiveness of
this registration statement, options to purchase an aggregate of 173,650 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.
II-1
<PAGE> 62
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.
*3.1.1 -- Form of Amendment to the Articles of Incorporation.
*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 -- Letter, dated July 25, 1997, regarding the Company's 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. (included in Exhibit 5.1).
*23.3 -- Consent of Dorsey & Whitney LLP.
**24.1 -- Powers of Attorney.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed with this amendment.
** Previously filed.
(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> 63
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> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the 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 August 1, 1997.
EXECUSTAY CORPORATION
By: /s/ GARY R. ABRAHAMS
------------------------------------
GARY R. ABRAHAMS
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities indicated on August 1, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------- ---------------------------------------------
<C> <S> <C>
* Chief Executive Officer and Director
- --------------------------------------- (principal executive officer)
GARY R. ABRAHAMS
* Chief Financial Officer and Director
- --------------------------------------- (principal financial and accounting officer)
MARC B. KAPLAN
* Chief Operating Officer and Director
- ---------------------------------------
ROBERT W. ZAUGG
* Director
- ---------------------------------------
DAVID S. SANTEE
* Director
- ---------------------------------------
STUART C. SIEGEL
/s/ GARY R. ABRAHAMS
- ---------------------------------------
GARY R. ABRAHAMS,
per se and Attorney-in-Fact
</TABLE>
II-4
<PAGE> 65
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> 66
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> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- -------- --------------------------------------------------------------------------- ----
<C> <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.
*3.1.1 -- Form of Amendment to the Articles of Incorporation.
*3.2 -- Bylaws of the Company.
*4.1 -- 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 -- Letter, dated July 25, 1997, regarding the Company's 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. (included in Exhibit 5.1).
*23.3 -- Consent of Dorsey & Whitney LLP.
**24.1 -- Powers of Attorney.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed with this amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
2,650,000 SHARES
COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
_________________, 1997
A.G. Edwards & Sons, Inc.
Equitable Securities Corporation
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, ExecuStay Corporation, a Maryland corporation (the
"Company") hereby addresses you as the representatives (the "Representatives")
of each of the persons, firms and corporations listed on Schedule I hereto
(collectively, the "Underwriters") and hereby confirms its agreement with the
several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
to the Underwriters 2,650,000 shares of its Common Stock, par value $.01 per
share (such 2,650,000 shares of Common Stock are herein referred to as the
"Firm Shares"). Solely for the purpose of covering over-allotments in the sale
of the Firm Shares, the Company further proposes to grant to the Underwriters
the right to purchase up to an additional 397,500 (the "Option Shares"), as
provided in Section 3 of this Agreement. The Firm Shares and the Option Shares
are herein sometimes referred to as the "Shares" and are more fully described
in the Prospectus hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF FIRM SHARES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each such Underwriter agrees, severally and not jointly, (a)
to purchase from the Company at a purchase price of $___ per share, the number
of Firm Shares set forth opposite the name of such Underwriter in Schedule I
hereto and (b) to purchase from the Company any additional number of Option
Shares which such Underwriter may become obligated to purchase pursuant to
Section 3 hereof.
The Company will deliver definitive certificates for the Firm Shares
at the office of A.G. Edwards & Sons, Inc., 77 Water Street, New York, New York
("Edwards' Office"), or such other place as you and the Company may mutually
agree upon, for the accounts of the Underwriters against payment to the Company
of the purchase price for the Firm Shares sold by it to the several
Underwriters by wire transfer of same-day funds payable to the order of the
Company and delivered to One North Jefferson Avenue, St. Louis, Missouri 63103,
or at such other place
<PAGE> 2
as may be agreed upon between you and the Company (the "Place of Closing"), at
10:00 a.m., St. Louis time, on _____________, 1997, or at such other time and
date not later than five full business days thereafter as you and the Company
may agree, such time and date of payment and delivery being herein called the
"Closing Date."
The certificates for the Firm Shares so to be delivered will be made
available to you for inspection at Edwards' Office (or such other place as you
and the Company may mutually agree upon) at least one full business day prior
to the Closing Date and will be in such names and denominations as you may
request at least two full business days prior to the Closing Date.
It is understood that an Underwriter, individually, may (but shall not
be obligated to) make payment on behalf of the other Underwriters whose checks
shall not have been received prior to the Closing Date for Shares to be
purchased by such Underwriter. Any such payment by an Underwriter shall not
relieve the other Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to offer the Shares to
the public upon the terms and conditions set forth in the Registration
Statement hereinafter defined.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES. The Company
hereby grants options to the Underwriters to purchase from it up to 397,500
Option Shares on the same terms and conditions as the Firm Shares; provided,
however, that such options may be exercised only for the purpose of covering
any over-allotments which may be made by them in the sale of the Firm Shares.
No Option Shares shall be sold or delivered unless the Firm Shares previously
have been, or simultaneously are, sold and delivered.
The options are exercisable on behalf of the several Underwriters by
you, as Representative, at any time, and from time to time, before the
expiration of 30 days from the date of this Agreement, for the purchase of all
or part of the Option Shares covered thereby, by notice given by you to the
Company in the manner provided in Section 12 hereof, setting forth the number
of Option Shares as to which the Underwriters are exercising the options, and
the date of delivery of said Option Shares, which date shall not be more than
five business days after such notice unless otherwise agreed to by the parties.
You may terminate the options at any time, as to any unexercised portion
thereof, by giving written notice to the Company to such effect.
You, as Representatives, shall make such allocation of the Option
Shares among the Underwriters as may be required to eliminate purchases of
fractional Shares.
Delivery of the Option Shares with respect to which the options shall
have been exercised shall be made to or upon your order at Edwards' Office (or
at such other place as you and the Company may mutually agree upon), against
payment by you of the per share purchase price to the Company by wire transfer
of same-day funds. Such payment and delivery shall be made at 10:00 a.m., St.
Louis time, on the date designated in the notice given by you as above provided
for, unless some other date and time are agreed upon, which date and time of
payment and delivery are called the "Option Closing Date." The certificates
for the Option Shares so to be
<PAGE> 3
delivered will be made available to you for inspection at Edwards' Office at
least one full business day prior to the Option Closing Date and will be in
such names and denominations as you may request at least two full business days
prior to the Option Closing Date. On the Option Closing Date, the Company
shall provide the Underwriters such representations, warranties, opinions and
covenants with respect to the Option Shares as are required to be delivered on
the Closing Date with respect to the Firm Shares.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to and agrees with each
Underwriter that:
(i) A registration statement (Registration No. 333-_____)
on Form S-1 with respect to the Shares, including a preliminary
prospectus, and such amendments to such registration statement as may
have been required to the date of this Agreement, has been prepared by
the Company pursuant to and in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the Rules and
Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed
with the Commission under the Act. Copies of such registration
statement, including any amendments thereto, each related preliminary
prospectus (meeting the requirements of Rule 430 or 430A of the Rules
and Regulations) contained therein, the exhibits, financial statements
and schedules have heretofore been delivered by the Company to you.
If such registration statement has not become effective under the Act,
a further amendment to such registration statement, including a form
of final prospectus, necessary to permit such registration statement
to become effective will be filed promptly by the Company with the
Commission. If such registration statement has become effective under
the Act, a final prospectus containing information permitted to be
omitted at the time of effectiveness by Rule 430A of the Rules and
Regulations will be filed promptly by the Company with the Commission
in accordance with Rule 424(b) of the Rules and Regulations. The term
"Registration Statement" as used herein means the registration
statement as amended at the time it becomes or became effective under
the Act (the "Effective Date"), including financial statements and all
exhibits and, if applicable, the information deemed to be included by
Rule 430A of the Rules and Regulations. The term "Prospectus" as used
herein means (i) the prospectus as first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, (ii) if no
such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date or (iii) if a Term Sheet
or Abbreviated Term Sheet (as such terms are defined in Rule 434(b)
and 434(c), respectively, of the Rules and Regulations) is filed with
the Commission pursuant to Rule 424(b)(7) of the Rules and
Regulations, the Term Sheet or Abbreviated Term Sheet and the last
Preliminary Prospectus filed with the Commission prior to the time the
Registration Statement became effective, taken together. The term
"Preliminary Prospectus" as used herein shall mean a preliminary
prospectus as contemplated by Rule 430 or 430A of the Rules and
Regulations included at any time in the Registration Statement.
<PAGE> 4
(ii) The Commission has not issued, and is not to the
knowledge of the Company threatening to issue, an order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus nor
instituted proceedings for that purpose. Each Preliminary Prospectus
at its date of issue, the Registration Statement and the Prospectus
and any amendments or supplements thereto conform or will conform, as
the case may be, in all material respects to the requirements of, the
Act and the Rules and Regulations. Neither the Registration Statement
nor any amendment thereto, as of the applicable effective date, and
neither the Prospectus nor any supplement thereto contains or will
contain, as the case may be, any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representation or
warranty as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the
Underwriters specifically for use in the preparation thereof.
(iii) The filing of the Registration Statement and the
execution and delivery of this Agreement have been duly authorized by
the Board of Directors of the Company; this Agreement constitutes a
valid and legally binding obligation of the Company enforceable in
accordance with its terms (except to the extent the enforceability of
the indemnification and contribution provisions of Section 7 hereof
may be limited by public policy considerations as expressed in the Act
as construed by courts of competent jurisdiction, and except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights
generally and by general principles of equity); the issue and sale of
the Shares by the Company and the performance of this Agreement and
the consummation of the transactions herein contemplated will not
result in a violation of the Company's articles of incorporation or
bylaws or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or its subsidiaries under, any
statute, or under any indenture, mortgage, deed of trust, note, loan
agreement, sale and leaseback arrangement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which they are bound or to which any of the properties or assets
of the Company or its subsidiaries is subject, or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or its subsidiaries or their properties,
except to such extent as does not materially adversely affect the
business of the Company and its subsidiaries taken as a whole; no
consent, approval, authorization, order, registration or qualification
of or with any court or governmental agency or body is required for
the consummation of the transactions herein contemplated, except such
as may be required by the National Association of Securities Dealers,
Inc. (the "NASD") or under the Act or Rules and Regulations or any
state securities laws.
(iv) Except as described in the Prospectus, neither the
Company nor any of its subsidiaries has sustained since the date of
the latest audited financial statements included
<PAGE> 5
in the Prospectus any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree. Except as contemplated in the Prospectus,
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, the Company and its
subsidiaries taken as a whole have not incurred any material
liabilities or material obligations, direct or contingent, other than
in the ordinary course of business, or entered into any material
transactions not in the ordinary course of business, and there has not
been any material change in the capital stock or long-term debt of the
Company and its subsidiaries taken as a whole or any material adverse
change in the condition (financial or other), net worth, business,
affairs, management, prospects or results of operations of the Company
and its subsidiaries taken as a whole. The Company and its
subsidiaries have filed all necessary federal, state and foreign
income and franchise tax returns and paid all taxes shown as due
thereon; all tax liabilities are adequately provided for on the books
of the Company and its subsidiaries except to such extent as would not
materially adversely affect the business of the Company and its
subsidiaries taken as a whole; the Company and its subsidiaries have
made all necessary payroll tax payments and are current and up-to-date
as of the date of this Agreement; and the Company and its subsidiaries
have no knowledge of any tax proceeding or action pending or
threatened against the Company or its subsidiaries which might
materially adversely affect their business or property.
(v) Except as described in the Prospectus, there is not
now pending or, to the knowledge of the Company, threatened or
contemplated, any action, suit or proceeding to which the Company or
its subsidiaries is a party before or by any court or public,
regulatory or governmental agency or body which might be expected to
result (individually or in the aggregate) in any material adverse
change in the condition (financial or other), business or prospects of
the Company and its subsidiaries taken as a whole, or might be
expected to materially and adversely affect (individually or in the
aggregate) the properties or assets thereof; and there are no
contracts or documents of the Company or its subsidiaries which would
be required to be filed as exhibits to the Registration Statement by
the Act or by the Rules and Regulations which have not been filed as
exhibits to the Registration Statement.
(vi) The Company has duly and validly authorized capital
stock as described in the Prospectus; all outstanding shares of Common
Stock of the Company and the Shares conform, or when issued will
conform, to the description thereof in the Registration Statement and
the Prospectus and have been, or, when issued and paid for will be,
duly authorized, validly issued, fully paid and nonassessable; and the
issuance of the Shares to be purchased from the Company hereunder is
not subject to preemptive rights.
(vii) The Company and its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of the states or other jurisdictions in which they are
incorporated, with full power and authority (corporate and other) to
own, lease and operate their properties and conduct their businesses
as described in the Registration Statement; the Company and its
subsidiaries are duly qualified to do
<PAGE> 6
business as foreign corporations in good standing in each state or
other jurisdiction in which their ownership or leasing of property or
conduct of business legally requires such qualification, except where
the failure to be so qualified would not have a material adverse
effect on the ability of the Company and its subsidiaries to conduct
its or their business as described in the Registration Statement; and
the outstanding shares of capital stock of the Company's subsidiaries
have been duly authorized and validly issued, are fully paid and
nonassessable and are owned by the Company free and clear of any
mortgage, pledge, lien, encumbrance, charge or adverse claim and are
not the subject of any agreement or understanding with any person; no
options, warrants or other rights to purchase, agreement or other
obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in the subsidiaries are
outstanding.
(viii) Grant Thornton LLC, the accounting firm which has
certified the financial statements filed with the Commission as a part
of the Registration Statement, is an independent public accounting
firm within the meaning of the Act and the Rules and Regulations.
(ix) The consolidated financial statements and schedules
of the Company, including the notes thereto, filed with and as a part
of the Registration Statement, are accurate in all material respects
and present fairly the consolidated financial position of the Company
and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and statements of cash flow for the
respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved except as otherwise disclosed in the
Prospectus. The selected financial data included in the Registration
Statement and Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements in the Registration Statement and Prospectus.
(x) Neither the Company nor any subsidiary is in default
with respect to any contract or agreement to which it is a party;
provided that this representation shall not apply to defaults which in
the aggregate are not materially adverse to the condition, financial
or other, or the business or prospects of the Company and its
subsidiaries taken as a whole.
(xi) Neither the Company nor any subsidiary is in
violation of any other laws, ordinances or governmental rules or
regulations to which it is subject, and neither the Company nor any
subsidiary has failed to obtain any other license, permit, franchise,
easement, consent, or other governmental authorization necessary to
the ownership, leasing and operation of its properties or to the
conduct of its business, which violation or failure would materially
adversely affect the business, operations, affairs, properties,
prospects, profits or condition (financial or other) of the Company
and its subsidiaries taken as a whole. Neither the Company nor any
subsidiary has, at any time during the past five years, (A) made any
unlawful contributions to any candidate for any political
<PAGE> 7
office, or failed fully to disclose any contribution in violation of
law, or (B) made any payment to any state, federal or foreign
government official, or other person charged with similar public or
quasi-public duty (other than payment required or permitted by
applicable law).
(xii) Except as described in the Prospectus, the Company
and its subsidiaries own or possess, or can acquire on reasonable
terms, adequate patents, patent licenses, trademarks, service marks
and trade names necessary to conduct the business now operated by
them, and neither the Company nor any subsidiary has received any
notice of infringement of or conflict with asserted rights of others
with respect to any patents, patent licenses, trademarks, service
marks or trade names which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material
adverse effect on the conduct of the business, operations, financial
condition or income of the Company and its subsidiaries taken as a
whole.
(xiii) The Company and its subsidiaries have good and
marketable title to all property owned by them, free and clear of all
liens, encumbrances, restrictions and defects except such as are
described in the Registration Statement or do not interfere with the
use made and proposed to be made of such property; and any property
held under lease or sublease by the Company or its subsidiaries is
held under valid, subsisting and enforceable leases or subleases with
such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries, and neither the Company nor any subsidiary has any
notice or knowledge of any material claim of any sort which has been,
or may be, asserted by anyone adverse to the Company's or any
subsidiary's rights as lessee or sublessee under any lease or sublease
described above, or affecting or questioning the Company's or any of
its subsidiary's rights to the continued possession of the leased or
subleased premises under any such lease or sublease in conflict with
the terms thereof.
(xiv) Except as described in the Prospectus, to the
knowledge of the Company, there is no factual basis for any action,
suit or other proceeding involving the Company or its subsidiaries or
any of their material assets for any failure of the Company or any of
its subsidiaries, or any predecessor thereof, to comply with any
requirements of federal, state or local regulation relating to air,
water, solid waste management, hazardous or toxic substances, or the
protection of health or the environment. Except as described in the
Prospectus, none of the property owned or leased by the Company or any
of its subsidiaries is, to the knowledge of the Company, contaminated
with any waste or hazardous substances, and neither the Company nor
any of its subsidiaries may be deemed an "owner or operator" of a
"facility" or "vessel" which owns, possesses, transports, generates or
disposes of a "hazardous substance" as those terms are defined in
Section 9601 of the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. Section 9601 et seq.
<PAGE> 8
(xv) No labor disturbance exists with the employees of the
Company or its subsidiaries or, to the knowledge of the Company, is
imminent which would have a material adverse effect on the Company and
its subsidiaries taken as a whole.
(xvi) The Company has not taken and will not take, directly
or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of the Company's Common Stock, and the Company is not aware of
any such action taken or to be taken by affiliates of the Company.
(xvii) The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(b) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
5. ADDITIONAL COVENANTS. The Company covenants and agrees with
the several Underwriters that:
(a) If the Registration Statement is not effective under the Act,
the Company will use its best efforts to cause the Registration Statement to
become effective as promptly as possible, and it will notify you, promptly
after it shall receive notice thereof, of the time when the Registration
Statement has become effective. The Company (i) will prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations, if
required, a Prospectus containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations or otherwise or a Term Sheet or Abbreviated Term Sheet,
as applicable; (ii) will not file any amendment to the Registration Statement
or supplement to the Prospectus of which the Underwriters shall not previously
have been advised and furnished with a copy or to which the Underwriters shall
have reasonably objected in writing or which is not in compliance with the
Rules and Regulations; and (iii) will promptly notify you after it shall have
received notice thereof of the time when any amendment to the Registration
Statement becomes effective or when any supplement to the Prospectus has been
filed.
(b) The Company will advise the Underwriters promptly, after it
shall receive notice or obtain knowledge thereof, of any request of the
Commission for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution or threatening of
any proceedings for that purpose, and the Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if
issued.
<PAGE> 9
(c) The Company will cooperate with the Underwriters and their
counsel in endeavoring to qualify the Shares for sale under the securities laws
of such jurisdictions as they may have designated and will make such
applications, file such documents, and furnish such information as may be
necessary for that purpose, provided the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to
file such a consent or to subject itself to taxation as doing business in any
jurisdiction where it is not now so taxed. The Company will, from time to
time, file such statements, reports, and other documents, as are or may be
required to continue such qualifications in effect for so long a period as the
Underwriters may reasonably request.
(d) The Company will deliver to, or upon the order of, the
Underwriters, without charge from time to time, as many copies of any
Preliminary Prospectus as they may reasonably request. The Company will
deliver to, or upon the order of, the Underwriters without charge as many
copies of the Prospectus, or as it thereafter may be amended or supplemented,
as they may from time to time reasonably request. The Company consents to the
use of such Prospectus by the Underwriters and by all dealers to whom the
Shares may be sold, both in connection with the offering or sale of the Shares
and for such other purposes and for such period of time thereafter as the
Prospectus is required by law to be delivered in connection with the offering
or sale of the Shares. The Company will deliver to the Underwriters at or
before the Closing Date two signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Underwriters such number of copies of the Registration Statement, without
exhibits, and of all amendments thereto, as they may reasonably request.
(e) If, during the period in which a prospectus is required by law
to be delivered by an Underwriter or dealer, any event shall occur as a result
of which, in the judgment of the Company or in your judgment or in the opinion
of counsel for the Underwriters, it becomes necessary to amend or supplement
the Prospectus in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with law.
(f) The Company will make generally available to its shareholders
and will file as an exhibit in a report pursuant to the Securities and Exchange
Act of 1934, as amended (the "1934 Act"), as soon as it is practicable to do
so, but in any event not later than 15 months after the effective date of the
Registration Statement, an earnings statement in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date of
the Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise the Underwriters in writing when such statement has
been so made available.
<PAGE> 10
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives at their principal executive offices a
reasonable number of copies of annual reports, quarterly reports, current
reports and copies of all other documents, reports and information furnished by
the Company to its shareholders or filed with any securities exchange pursuant
to the requirements of such exchange or with the Commission pursuant to the Act
or the 1934 Act. The Company will deliver to the Representatives similar
reports with respect to any significant subsidiaries, as that term is defined
in the Rules and Regulations, which are not consolidated in the Company's
financial statements. Any report, document or other information required to be
furnished under this paragraph (g) shall be furnished as soon as practicable
after such report, document or information becomes available.
(h) The Company will apply the proceeds from the sale of the
Shares as set forth in the description under "Use of Proceeds" in the
Prospectus, which description complies in all respects with the requirements of
Item 504 of Regulation S-K.
(i) The Company will supply you with copies of all correspondence
to and from, and all documents issued to and by, the Commission in connection
with the registration of the Shares under the Act.
(j) Prior to the Closing Date (and, if applicable, the Option
Closing Date), the Company will furnish to you, as soon as they have been
prepared, copies of any unaudited interim consolidated financial statements of
the Company and its subsidiaries for any periods subsequent to the periods
covered by the financial statements appearing in the Registration Statement and
the Prospectus.
(k) Prior to the Closing Date (and, if applicable, the Option
Closing Date), the Company will not issue any press releases or other
communications directly or indirectly and will hold no press conferences with
respect to the Company or any of its subsidiaries, the financial condition,
results of operations, business, properties, assets or liabilities of the
Company or any of its subsidiaries, or the offering of the Shares, without your
prior written consent.
(l) The Company will use its best efforts to obtain approval for,
and maintain the quotation of the Shares on, the National Association of
Securities Dealers, Inc. Automated Quotation/National Market System (the
"Nasdaq/NMS").
(m) For a period of 180 days from the Effective Date, the Company
will not, and will use its best efforts to cause its directors and officers to
not, directly or indirectly sell, contract to sell or otherwise dispose of any
shares of the Company's Common Stock, any securities exchangeable for Common
Stock or any other rights to acquire such shares without your prior written
consent, except for the Shares sold hereunder and except for sales of shares of
Common Stock to the Company's employees pursuant to the exercise of options
under the Company's stock option plan.
<PAGE> 11
(n) The Company and its subsidiaries will maintain and keep
accurate books and records reflecting their assets and maintain internal
accounting controls which provide reasonable assurance that (1) transactions
are executed in accordance with management's authorization, (2) transactions
are recorded as necessary to permit the preparation of the Company's
consolidated financial statements and to maintain accountability for the assets
of the Company and its subsidiaries, (3) access to the assets of the Company
and its subsidiaries is permitted only in accordance with management's
authorization, and (4) the recorded accounts of the assets of the Company and
its subsidiaries are compared with existing assets at reasonable intervals.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase and pay for the Shares, as provided
herein, shall be subject to the accuracy in all material respects, as of the
date hereof and as of the Closing Date (and, if applicable, the Option Closing
Date), of the representations and warranties of the Company contained herein,
to the performance in all material respects by the Company of its covenants and
obligations hereunder, and to the following additional conditions:
(a) All filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made. No stop order suspending the effectiveness of
the Registration Statement, as amended from time to time, shall have been
issued and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened or contemplated by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Underwriters.
(b) No Underwriter shall have disclosed in writing to the Company
on or prior to the Closing Date (and, if applicable, the Option Closing Date),
that the Registration Statement or Prospectus or any amendment or supplement
thereto contains an untrue statement of fact which, in the opinion of counsel
to the Underwriters, is material, or omits to state a fact which, in the
opinion of such counsel, is material and is required to be stated therein or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(c) On the Closing Date (and, if applicable, the Option Closing
Date), you shall have received:
(i) the opinion of Dorsey & Whitney LLP, counsel for the
Company, addressed to you and dated the Closing Date (and, if applicable, the
Option Closing Date), to the effect that:
(A) The Company and its subsidiaries are duly
qualified to do business as foreign corporations in good standing in
each state or other jurisdiction in which their ownership or leasing
of property or conduct of business legally requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the ability of the Company and its
subsidiaries to conduct its or their business as described in the
Registration Statement; and the outstanding shares of capital stock of
the Company's subsidiaries, to the knowledge of such counsel, are
owned by the Company free and clear of any mortgage, pledge, lien,
encumbrance, charge or adverse
<PAGE> 12
claim and are not the subject of any agreement or understanding with
any person; to the knowledge of such counsel, no options, warrants or
other rights to purchase, agreement or other obligations to issue or
other rights to convert any obligations into shares of capital stock
or ownership interests in the subsidiaries are outstanding.
(B) To the knowledge of such counsel, the
shareholders of the Company have no preemptive rights with respect to
the issuance of the Shares (other than under Maryland law or under the
Company's Certificate of Incorporation or By-Laws, as to which such
counsel need express no opinion.)
(C) Such counsel has been advised by the staff of
the Commission that the Registration Statement has become effective
under the Act and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Act.
(D) The Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue date, comply as to form in all material
respects to the requirements of the Act and the applicable rules and
regulations (except that such counsel need express no opinion as to
the financial statements or other financial data).
(E) The descriptions in the Registration
Statement and Prospectus of contracts and other documents filed as
exhibits to the Registration Statement are accurate summaries and
fairly present the information disclosed therein in all material
respects.
(F) No authorization, approval, consent, order,
registration or qualification of or with of any court or governmental
body, authority or agency is required with respect to the Company in
connection with the transactions contemplated by this Agreement,
except such as may be required under the Act or the Rules and
Regulations or as may be required by the NASD or under state
securities laws in connection with the purchase and distribution of
the Shares by the Underwriters.
(G) The filing of the Registration Statement has
been duly authorized by the Board of Directors of the Company. This
Agreement has been duly authorized, executed and delivered by the
Company. The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a violation of the
Company's articles of incorporation or bylaws or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company and
its subsidiaries under, any statute, or under any indenture, mortgage,
deed of trust, note, loan agreement, sale and leaseback arrangement,
or any other agreement or instrument known to such counsel after due
inquiry to which the Company or any of its subsidiaries is a party or
by which they are bound or to which any of the properties or assets of
the Company or its subsidiaries are subject, or any order, rule or
regulation
<PAGE> 13
known to such counsel after due inquiry of any court or governmental
agency or body having jurisdiction over the Company or its
subsidiaries or their properties, except, in the case of any such
violation, breach, default, creation or imposition, to such extent as
does not materially adversely affect the business of the Company and
its subsidiaries taken as a whole.
(H) To the knowledge of such counsel after due
inquiry, (i) there are no material (individually, or in the aggregate)
legal, governmental or regulatory proceedings pending or threatened to
which the Company or any subsidiary is a party or of which the
business or properties of the Company or any subsidiary is the subject
which are not disclosed in the Registration Statement and Prospectus;
(ii) there are no contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement which are not
described or filed as required; and (iii) there are no statutes or
regulations required to be described in the Registration Statement or
Prospectus which are not described as required.
(I) To the knowledge of such counsel after due
inquiry, the Company and each of its subsidiaries hold all licenses,
certificates, permits and approvals from all state, federal and other
regulatory authorities, and have satisfied in all material respects
the requirements imposed by regulatory bodies, administrative agencies
or other governmental bodies, agencies or officials, that are required
for the Company and its subsidiaries lawfully to own, lease and
operate its properties and conduct its business as described in the
Prospectus, and, to the knowledge of such counsel after due inquiry,
each of the Company and its subsidiaries is conducting its business in
compliance in all material respects with all of the laws, rules and
regulations of each jurisdiction in which it conducts its business.
(J) The statements made in the Registration
Statement under the captions "Dividend Policy", "Capitalization",
"Management", "Certain Transactions" and "Shares Eligible for Future
Sale", to the extent that they constitute summaries of documents
referred to therein or matters of law or legal conclusions, have been
reviewed by such counsel and are accurate summaries and fairly present
the information disclosed therein.
(K) The Company is not an "investment company" or
a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
Such counsel shall confirm that, although such counsel cannot
guarantee the accuracy, completeness or fairness of any statements in
the Registration Statement, in the course of its duties in connection
with the preparation of the Registration Statement and Prospectus,
nothing came to such counsel's attention that would lead them to
believe that either the Registration Statement or Prospectus or any
amendment or supplement thereto (other than the financial statements
or other financial data as to which such counsel need
<PAGE> 14
express no opinion) contains any untrue statement of a material fact
or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering the foregoing opinion, such counsel may rely,
provided that the opinion shall state that you and they are entitled
to so rely, (1) as to matters involving laws of any jurisdiction other
than the State of __________ or the United States, upon opinions
addressed to the Underwriters of other counsel satisfactory to them
and to Hale and Dorr LLP, counsel to the Underwriters, and (2) as to
all matters of fact, upon certificates and written statements of the
executive officers of, and accountants for, the Company.
(ii) the opinion of Piper & Marbury L.L.P., special Maryland
counsel for the Company, addressed to you and dated the Closing Date (and, if
applicable, the Option Closing Date), to the effect that:
(A) The Company and its subsidiaries have been
duly incorporated and are validly existing as corporations in good
standing under the laws of the State of Maryland, the state in which
each is incorporated, with full power and authority (corporate and
other) to own, lease and operate their properties and conduct their
business as described in the Registration Statement; and the
outstanding shares of capital stock of the Company's subsidiaries have
been duly authorized and validly issued, are fully paid and
nonassessable.
(B) The Company has duly and validly authorized
capital stock as set forth under the heading "Capitalization" in the
Prospectus; all outstanding shares of Common Stock of the Company and
the Shares conform to the description thereof in the Prospectus under
the heading "Description of Capital Stock", and the outstanding shares
of Common Stock have been duly authorized and are validly issued,
fully paid and non-assessable; the Shares to be sold by the Company
have been duly authorized and, when delivered and paid for in
accordance with this Agreement, will be validly issued, fully paid and
non-assessable, and the shareholders of the Company have no preemptive
rights with respect to the issuance of the Shares under Maryland law
or under the Company's Certificate of Incorporation or By-Laws.
(C) The statements made in the Registration
Statement under the captions "Description of Capital Stock" and "Part
II--Item 14--Indemnification of Directors and Officers", to the extent
that they constitute summaries of documents referred to therein or
matters of law or legal conclusions, have been reviewed by such
counsel and are accurate summaries and fairly present the information
disclosed therein.
(d) You shall have received on the Closing Date (and, if
applicable, the Option Closing Date), from Hale and Dorr LLP, counsel to the
several Underwriters, such opinion or opinions, dated the Closing Date (and, if
applicable, the Option Closing Date) with respect to the incorporation of the
Company, the validity of the Shares, the Registration Statement, the
<PAGE> 15
Prospectus and other related matters as you may reasonably require; the Company
shall have furnished to such counsel such documents as they reasonably request
for the purpose of enabling them to pass on such matters.
(e) You shall have received at or prior to the Closing Date from
Hale and Dorr LLP a memorandum or memoranda, in form and substance satisfactory
to you, with respect to the qualification for offering and sale by the
Underwriters of the Shares under state securities or Blue Sky laws of such
jurisdictions as the Underwriters may have designated to the Company.
(f) On the business day immediately preceding the date of this
Agreement and on the Closing Date (and, if applicable, the Option Closing
Date), you shall have received from Grant Thornton LLC, a letter or letters,
dated the date of this Agreement and the Closing Date (and, if applicable, the
Option Closing Date), respectively, in form and substance satisfactory to you,
confirming that they are independent public accountants with respect to the
Company within the meaning of the Act and the published Rules and Regulations,
and the answer to Item 509 of Regulation S-K set forth in the Registration
Statement is correct insofar as it relates to them, and stating to the effect
set forth in Schedule II hereto.
(g) Except as contemplated in the Prospectus, (i) neither the
Company nor any of its subsidiaries shall have sustained since the date of the
latest audited financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree; and (ii) subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries shall have incurred
any liability or obligation, direct or contingent, or entered into
transactions, and there shall not have been any change in the capital stock or
long-term debt of the Company and its subsidiaries or any change in the
condition (financial or other), net worth, business, affairs, management,
prospects or results of operations of the Company or its subsidiaries, the
effect of which, in any such case described in clause (i) or (ii), is in your
judgment so material or adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being delivered
on such Closing Date (and, if applicable, the Option Closing Date) on the terms
and in the manner contemplated in the Prospectus.
(h) There shall not have occurred any of the following: (i) a
suspension or material limitation in trading in securities generally on the New
York Stock Exchange or the American Stock Exchange or the establishing on such
exchanges by the Commission or by such exchanges of minimum or maximum prices
which are not in force and effect on the date hereof; (ii) a general moratorium
on commercial banking activities declared by either federal or state
authorities; (iii) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency
or war, if the effect of any such event specified in this clause (iii) in your
judgment makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares in the manner contemplated in the
Prospectus; (iv) any calamity or crisis, change in national, international or
world affairs, act of God, change in the international or domestic markets, or
change in the existing financial,
<PAGE> 16
political or economic conditions in the United States or elsewhere, if the
effect of any such event specified in this clause (iv) makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the
Shares in the manner contemplated in the Prospectus; or (v) the enactment,
publication, decree, or other promulgation of any federal or state statute,
regulation, rule, or order of any court or other governmental authority, or the
taking of any action by any federal, state or local government or agency in
respect of fiscal or monetary affairs, if the effect of any such event
specified in this clause (v) in your judgment makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
in the manner contemplated in the Prospectus.
(i) You shall have received certificates, dated the Closing Date
(and, if applicable, the Option Closing Date) and signed by the President and
the Chief Financial Officer of the Company stating that (i) they have carefully
examined the Registration Statement and the Prospectus as amended or
supplemented and nothing has come to their attention that would lead them to
believe that either the Registration Statement or the Prospectus, or any
amendment or supplement thereto as of their respective effective or issue
dates, contained, and the Prospectus as amended or supplemented at such Closing
Date, contains any untrue statement of a material fact, or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and, that (ii) all representations and warranties made herein
by the Company are true and correct in all material respects at such Closing
Date, with the same effect as if made on and as of such Closing Date, and all
agreements herein to be performed by the Company on or prior to such Closing
Date have been duly performed in all material respects.
(j) The Company shall have furnished to you at the Closing Date
(and, if applicable, the Option Closing Date) such other certificates as you
may have reasonably requested as to the accuracy, on and as of such Closing
Date, of the representations and warranties of the Company herein and as to the
performance by the Company of its obligations hereunder.
(k) The Shares shall have been approved for trading upon official
notice of issuance on the Nasdaq/NMS.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Hale and Dorr LLP, counsel for the several Underwriters. The
Company will furnish you with such conformed copies of such opinions,
certificates, letters and documents as you may request.
If any of the conditions specified above in this Section 6 shall not
have been satisfied at or prior to the Closing Date (and, if applicable, the
Option Closing Date) or waived by you in writing, this Agreement may be
terminated by you on notice to the Company.
7. INDEMNIFICATION. (a) The Company will indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject, under the Act or otherwise, insofar as such
<PAGE> 17
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or in any
blue sky application or other document executed by the Company or based on any
information furnished in writing by the Company, filed in any jurisdiction in
order to qualify any or all of the Shares under the securities laws thereof
("Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and will reimburse each Underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, or any Blue Sky Application in
reliance upon and in conformity with written information furnished to the
Company by you or by any Underwriter through you, specifically for use in the
preparation thereof; and provided, further, that if any Preliminary Prospectus
or the Prospectus contained any alleged untrue statement or allegedly omitted
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading and such statement or omission shall
have been corrected in a revised Preliminary Prospectus or in the Prospectus or
in an amended or supplemented Prospectus, the Company shall not be liable to
any Underwriter or controlling person under this subsection (a) with respect to
such alleged untrue statement or alleged omission to the extent that any such
loss, claim, damage or liability of such Underwriter or controlling person
results from the fact that such Underwriter sold Shares to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, such revised Preliminary Prospectus or Prospectus or amended or
supplemented Prospectus. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement and, each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director, officer or controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, any amendment or supplement thereto, or any Blue Sky Application or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, such amendment or supplement, or any Blue Sky Application in
reliance upon and in conformity with written information furnished to the
Company by any such
<PAGE> 18
Underwriter specifically for use in the preparation thereof; and will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
agreement shall be in addition to any liabilities which the Underwriters may
otherwise have.
(c) Any party which proposes to assert the right to be indemnified
under this Section 7 shall, within ten days after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party under this Section 7,
notify each such indemnifying party of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served, but the omission so to
notify such indemnifying party of any such action, suit or proceeding shall not
relieve such indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 7. In case any such
action, suit or proceeding shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it shall wish, jointly with any other indemnifying party, similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its own counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment of counsel by such indemnified
party at the expense of the indemnifying party has been authorized by the
indemnifying party, (ii) the indemnified party shall have been advised by such
counsel in a written opinion that there may be a conflict of interest between
the indemnifying party and the indemnified party in the conduct of the defense,
or certain aspects of the defense, of such action (in which case the
indemnifying party shall not have the right to direct the defense of such
action with respect to those matters or aspects of the defense on which a
conflict exists or may exist on behalf of the indemnified party) or (iii) the
indemnifying party shall not in fact have employed counsel to assume the
defense of such action, in any of which events such fees and expenses to the
extent applicable shall be borne by the indemnifying party. An indemnifying
party shall not be liable for any settlement of any action or claim effected
without its consent. Each indemnified party, as a condition of such indemnity,
shall cooperate in good faith with the indemnifying party in the defense of any
such action or claim.
(d) If the indemnification provided for in this Section 7 is for
any reason, other than pursuant to the terms thereof, judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right to appeal)
to be unavailable to an indemnified party under subsections (a) or (b) above in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate
<PAGE> 19
to reflect the relative benefits received by the Company and the Underwriters
from the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault, as applicable, of the Company
and the Underwriters in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as other relevant equitable considerations. The relative
benefits received by, as applicable, the Company and the Underwriters shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company contained in
Sections 7 and 11 herein or in certificates delivered pursuant hereto, and the
agreements of the Underwriters contained in Section 7 hereof, shall remain
operative and in full force and effect regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of any
Underwriter or any controlling person, the Company or any of its officers,
directors or any controlling persons, and shall survive delivery of the Shares
to the Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS. (a) If any Underwriter shall
default in its obligation to purchase the Shares which it has agreed to
purchase hereunder, you may in your discretion arrange for you or another party
or other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled to
a further period of thirty-six hours within which to procure another party or
parties reasonably satisfactory to you to purchase such Shares on such terms.
In the event that, within the respective prescribed periods,
<PAGE> 20
you notify the Company that you have so arranged for the purchase of such
Shares, or the Company notifies you that they have so arranged for the purchase
of such Shares, you or the Company shall have the right to postpone the Closing
Date for a period of not more than seven days, in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
to file promptly any amendments to the Registration Statement or the Prospectus
which in your opinion may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any persons substituted under this Section
9 with like effect as if such person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters made by you or the
Company as provided in subsection (a) above, the aggregate number of Shares
which remains unpurchased does not exceed one tenth of the total Shares to be
sold on the Closing Date, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the Shares which such Underwriter agreed
to purchase hereunder and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of Shares which
such Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters made by you or the
Company as provided in subsection (a) above, the number of Shares which remains
unpurchased exceeds one tenth of the total Shares to be sold on the Closing
Date, or if the Company shall not exercise the right described in subsection
(b) above to require the non-defaulting Underwriters to purchase Shares of the
defaulting Underwriter or Underwriters, then this Agreement shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter or
the Company except for the expenses to be borne by the Company and the
Underwriters as provided in Section 11 hereof and the indemnity and
contribution agreements in Section 7 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. EFFECTIVE DATE AND TERMINATION. (a) This Agreement shall
become effective at 1:00 p.m., St. Louis time, on the first business day
following the effective date of the Registration Statement, or at such earlier
time after the effective date of the Registration Statement as you in your
discretion shall first release the Shares for offering to the public; provided,
however, that the provisions of Section 7 and 11 shall at all times be
effective. For the purposes of this Section 10(a), the Shares shall be deemed
to have been released to the public upon release by you of the publication of a
newspaper advertisement relating to the Shares or upon release of telegrams,
facsimile transmissions or letters offering the Shares for sale to securities
dealers, whichever shall first occur.
(b) This Agreement may be terminated by you at any time before it
becomes effective in accordance with Section 10(a) by notice to the Company;
provided, however, that the provisions of this Section 10 and of Section 7 and
Section 11 hereof shall at all times be
<PAGE> 21
effective. In the event of any termination of this Agreement pursuant to
Section 9 or this Section 10(b) hereof, the Company shall not then be under any
liability to any Underwriter except as provided in Section 7 or Section 11
hereof.
(c) This Agreement may be terminated by you at any time at or
prior to the Closing Date by notice to the Company if any condition specified
in Section 6 hereof shall not have been satisfied on or prior to the Closing
Date. Any such termination shall be without liability of any party to any
other party except as provided in Sections 7 and 11 hereof.
(d) This Agreement also may be terminated by you, by notice to the
Company, as to any obligation of the Underwriters to purchase the Option
Shares, if any condition specified in Section 6 hereof shall not have been
satisfied at or prior to the Option Closing Date or as provided in Section 9 of
this Agreement.
If you terminate this Agreement as provided in Sections 10(b), 10(c)
or 10(d), you shall notify the Company by telephone or telegram, confirmed by
letter.
11. COSTS AND EXPENSES. The Company will bear and pay the costs
and expenses incident to the registration of the Shares and public offering
thereof, including, without limitation, (a) the fees and expenses of the
Company's accountants and the fees and expenses of counsel for the Company, (b)
the preparation, printing, filing, delivery and shipping of the Registration
Statement, each Preliminary Prospectus, the Prospectus and any amendments or
supplements thereto (except as otherwise expressly provided in Section 5(d)
hereof) and the printing, delivery and shipping of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, Underwriters'
Questionnaires and Powers of Attorney and Blue Sky Memoranda, (c) the
furnishing of copies of such documents (except as otherwise expressly provided
in Section 5(d) hereof) to the Underwriters, (d) the registration or
qualification of the Shares for offering and sale under the securities laws of
the various states, including the reasonable fees and disbursements of
Underwriters' counsel relating to such registration or qualification, (e) the
fees payable to the NASD and the Commission in connection with their review of
the proposed offering of the Shares, (f) all printing and engraving costs
related to preparation of the certificates for the Shares, including transfer
agent and registrar fees, (g) all initial transfer taxes, if any, (h) all fees
and expenses relating to the authorization of the Shares for trading on
Nasdaq/NMS, (i) all travel expenses, including air fare and accommodation
expenses, of representatives of the Company in connection with the offering of
the Shares and (j) all of the other costs and expenses incident to the
performance by the Company of the registration and offering of the Shares;
provided, however, that the Underwriters will bear and pay the fees and
expenses of the Underwriters' counsel (other than the fees and disbursements
relating to the registration or qualification of the Shares for offering and
sale under the securities laws of the various states), the Underwriters'
out-of-pocket expenses, and any advertising costs and expenses incurred by the
Underwriters incident to the public offering of the Shares;
If this Agreement is terminated by you in accordance with the
provisions of Section 10(c), the Company shall reimburse the Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel to the Underwriters.
<PAGE> 22
12. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o A.G. Edwards & Sons, Inc. at One North Jefferson
Avenue, St. Louis, Missouri 63103, Attention: Syndicate, facsimile number (314)
289-7387, or if sent to the Company shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to the Company at 7595
Rickenbacker Drive, Gaithersburg, Maryland 20879, Attention: Gary R. Abrahams,
facsimile number (301) 948-4888. Notice to any Underwriter pursuant to Section
7 shall be mailed, delivered, sent by facsimile transmission, or telegraphed
and confirmed to such Underwriter's address as it appears in the Underwriters'
Questionnaire furnished in connection with the offering of the Shares or as
otherwise furnished to the Company.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Company and their respective successors
and assigns. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, corporation or other entity, other than
the parties hereto and their respective successors and assigns and the
controlling persons, officers and directors referred to in Section 7, any legal
or equitable right, remedy or claim under or in respect of this Agreement or
any provision herein contained; this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns and
said controlling persons and said officers and directors, and for the benefit
of no other person, corporation or other entity. No purchaser of any of the
Shares from any Underwriter shall be construed a successor or assign by reason
merely of such purchase.
In all dealings with the Company under this Agreement you shall act on
behalf of each of the several Underwriters, the Company shall be entitled to
act and rely upon any statement, request, notice or agreement on behalf of the
Underwriters, made or given by you on behalf of the Underwriters, as if the
same shall have been made or given in writing by the Underwriters.
14. COUNTERPARTS. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall
be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
15. PRONOUNS. Whenever a pronoun of any gender or number is used
herein, it shall, where appropriate, be deemed to include any other gender and
number.
16. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Missouri.
<PAGE> 23
If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company and the Underwriters.
EXECUSTAY CORPORATION
By:
-------------------------------
Name:
Title:
Accepted in St. Louis,
Missouri as of the date
first above written, on
behalf of ourselves and each
of the several Underwriters
named in Schedule I hereto.
A.G. EDWARDS & SONS, INC.
EQUITABLE SECURITIES CORPORATION
By: A.G. EDWARDS & SONS, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 24
SCHEDULE I
Name Number of Shares
A.G. Edwards & Sons, Inc.
Equitable Securities Corporation
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
- --------------------- -----
Total
-----
<PAGE> 25
SCHEDULE II
Pursuant to Section 6(g) of the Underwriting Agreement, Grant Thornton
LLC shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the meaning of the Act
and the applicable Rules and Regulations thereunder.
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules audited (and, if applicable,
prospective financial statements and/or pro forma financial information
examined) by them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Act and the applicable Rules and Regulations thereunder;
and, if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of the
unaudited consolidated interim financial statements, selected financial data,
pro forma financial information, prospective financial statements and/or
condensed financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished to the Representative of the
Underwriters (the "Representative").
(iii) On the basis of limited procedures, not constituting
an audit in accordance with generally accepted auditing standards, consisting
of a reading of the unaudited financial statements and other information
referred to below, performing the procedures specified by the AICPA for a
review of interim financial information as discussed in SAS No. 71, Interim
Financial Information, on the latest available interim financial statements of
the Company and its subsidiaries, inspection of the minute books of the Company
and its subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) any material modifications should be made to the
unaudited statements of consolidated income, statements of
consolidated financial position and statements of consolidated cash
flows included in the Prospectus for them to be in conformity with
generally accepted accounting principles, or the unaudited statements
of consolidated income, statements of consolidated financial position
and statements of consolidated cash flows included in the Prospectus
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations thereunder.
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the
<PAGE> 26
unaudited consolidated financial statements from which such
data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included in the Prospectus.
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus.
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the
compilation of those statements.
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or any decreases
in consolidated working capital, net current assets or net assets or
other items specified by the Representative, or any changes in any
items specified by the Representative, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter.
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or
per share amounts of consolidated net income or any other
changes in any other items specified by the Representative, in
each case as compared with the comparable period of the
preceding year and with any other period of corresponding
length specified by the Representative, except in each case
for changes, decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in
such letter.
(iv) In addition to the audit referred to in their
report(s) included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraph (iii)
above, they have carried out certain specified procedures, not constituting an
audit in accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representative, which are derived from the general accounting records of the
Company and its subsidiaries for the periods covered by their reports and any
interim or other periods since the latest period covered by their reports,
which appear in the Prospectus, or in Part II of, or in exhibits and schedules
to,
<PAGE> 27
the Registration Statement specified by the Representative, and have compared
certain of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found them to
be in agreement.
<PAGE> 28
2,650,000 SHARES
COMMON STOCK
($.01 PAR VALUE)
AGREEMENT AMONG UNDERWRITERS
____________________, 1997
A.G. Edwards & Sons, Inc.
Equitable Securities Corporation
As Representatives of the Several Underwriters
One North Jefferson Avenue
St. Louis, Missouri 63103
1. UNDERWRITING AGREEMENT. We understand that ExecuStay
Corporation, a Maryland corporation (the "Company") proposes to enter into an
underwriting agreement in substantially the form attached (the "Underwriting
Agreement") with you and other prospective underwriters (including us)
(collectively, the "Underwriters") providing for the several purchase by the
Underwriters from the Company of 2,650,000 shares of its Common Stock, $.01 par
value, upon the terms stated in the Underwriting Agreement (such 2,650,000
shares of Common Stock are herein referred to as the "Firm Shares"), in which
we will agree in accordance with the terms thereof to purchase the number of
Firm Shares set forth opposite our name in Schedule I thereto. In addition,
the Company proposes to grant to the Underwriters, upon the terms stated in the
Underwriting Agreement, the right to purchase up to an additional 397,500
shares of Common Stock (the "Option Shares"), identical to the Firm Shares, for
the sole purpose of covering over-allotments in the sale of the Firm Shares.
We will agree in accordance with the terms of the Underwriting Agreement to
purchase our proportionate share of the Option Shares which you determine to be
purchased. The Firm Shares and the Option Shares are collectively referred to
herein as the "Shares."
2. REGISTRATION STATEMENT AND PROSPECTUS. The Shares are more
particularly described in a registration statement (Registration No. 333-___)
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"). Amendments to such
registration statement have been or are being filed, or a form of prospectus is
being filed pursuant to Rule 424(b) and Rule 430A under the Act, or a Term
Sheet or Abbreviated Term Sheet is being filed pursuant to Rule 424(b)(7) under
the Act, in which, with our consent hereby confirmed, we have been named as one
of the Underwriters of the Shares. A copy of the registration statement as
filed and a copy of each amendment as filed (excluding exhibits) have
heretofore been delivered to us. We confirm that we have examined the
registration statement, including amendments thereto, relating to the Shares,
as filed with the Commission, that we are willing to accept the
responsibilities of an Underwriter under the Act in
<PAGE> 29
respect of the registration statement, and we are willing to proceed with a
public offering of the Shares in the manner contemplated therein. The
registration statement and the related prospectus may be further amended, but
no such amendment or change shall release or affect our obligations hereunder
or under the Underwriting Agreement. As used herein, the terms "Registration
Statement," "Prospectus," "Preliminary Prospectus," "Term Sheet" and
"Abbreviated Term Sheet" shall have the same meanings as specified in the
Underwriting Agreement.
3. AUTHORITY OF A.G. EDWARDS & SONS, INC. AND EQUITABLE
SECURITIES CORPORATION. We hereby authorize A.G. Edwards & Sons, Inc. and
Equitable Securities Corporation, acting on our behalf, as our representatives
(a) to complete, execute, and deliver the Underwriting Agreement, to determine
the public offering price of the Shares and the underwriting discount with
respect thereto and to make such variations, if any, as in your judgment are
appropriate and are not material, provided that the respective amount of Shares
set forth opposite our name in Schedule I thereto shall not be increased
without our consent, except as provided herein or in the Underwriting
Agreement, (b) to waive performance or satisfaction by the Company of
obligations or conditions included in the Underwriting Agreement if in your
judgment such waiver will not have a material adverse effect upon the interests
of the Underwriters, and (c) to take such actions as in your discretion may be
necessary or advisable to carry out the Underwriting Agreement, this Agreement,
and the transactions for the accounts of the several Underwriters contemplated
thereby and hereby. We also authorize you to determine all matters relating to
the public advertisement of the Shares.
4. PUBLIC OFFERING. We authorize you, with respect to any Shares
which we so agree to purchase, to reserve for sale, and on our behalf to sell,
to dealers selected by you (including you or any of the other Underwriters,
such dealers so selected being hereinafter called "Selected Dealers") and to
others all or part of our Shares as you may determine. Reservations for sales
to persons other than Selected Dealers shall be as nearly as practicable in
proportion to the respective underwriting obligations of the Underwriters,
unless you agree to a smaller proportion at the request of an Underwriter.
Reservations for sales to Selected Dealers need not be in such proportion. All
sales of reserved Shares shall be as nearly as practicable in proportion to the
respective reservations as calculated from day to day.
In your discretion, from time to time, you may add to the reserved
Shares any Shares retained by us remaining unsold, and you may upon our request
release to us any of our Shares reserved but not sold. Any Shares so released
shall not thereafter be deemed to have been reserved. Upon termination of this
Agreement, or prior thereto at your discretion, you shall deliver to our
account any of our Shares reserved but not sold and delivered, except that if
the aggregate of all reserved but unsold and undelivered Shares is less than
265,000 Shares, you are authorized to sell such Shares for the accounts of the
several Underwriters at such price or prices as you may determine.
Sales of reserved Shares shall be made to Selected Dealers at the
public offering price less the Selected Dealers' Concession pursuant to the
Selected Dealer Agreement in substantially the form attached hereto, and to
others at the public offering price. Underwriters and Selected Dealers may
reallow a concession to other dealers as set forth in the Selected Dealer
Agreement.
<PAGE> 30
After advice from you that the Shares are released for sale to the
public, we will offer to the public in conformity with the terms of the
offering set forth in the Prospectus such of our Shares as you advise us are
not reserved. We authorize you after the Shares are released for sale to the
public, in your discretion, to change the public offering price of the Shares
and the concession, and to buy Shares for our account from Selected Dealers at
the public offering price less such amount not in excess of the Selected
Dealers' Concession as you may determine.
Sales of Shares between Underwriters may be made with your prior
consent, or as you deem advisable for blue sky purposes.
We agree that we will not sell to any accounts over which we exercise
discretionary authority any Shares which we have agreed to purchase under the
Underwriting Agreement.
5. ADDITIONAL PROVISIONS REGARDING SALES. You may, in your
discretion, charge our account with an amount equal to the Selected Dealers'
Concession in respect of each Share purchased under the Underwriting Agreement
by you and not sold by you for our account (and each Share which you believe
has been substituted therefor) which may be delivered against a purchase
contract made by you for our account prior to the later of (a) the termination
of all of the provisions referred to in Section 10 hereof or (b) the covering
by you of any short position created by you for our account, or in lieu of such
charge, require us to repurchase on demand at the total cost thereof (including
commissions), plus transfer taxes, any such Share so delivered.
6. PAYMENT AND DELIVERY. At or before 9:00 a.m., New York City
time, on the Closing Date (as defined in the Underwriting Agreement) and on
each Option Closing Date (as defined in the Underwriting Agreement), we will
deliver to you at your office at 77 Water Street, New York, New York, a
certified or bank cashiers' check payable to your order, in clearing house
funds, in the amount equal to the initial offering price set forth in the
Prospectus less the Selected Dealers' Concession in respect of the number of
Firm Shares or Option Shares, as the case may be, to be purchased by us
pursuant to the Underwriting Agreement. We authorize you for our account to
make payment of the purchase price for the Shares to be purchased by us against
delivery to you of such Shares, and the difference between such price and the
amount of our check delivered to you therefor shall be credited to our account.
Unless we notify you at least two full business days prior to such Closing Date
to make other arrangements, you may, in your discretion, advise the Company to
prepare our certificates in our name. If you have not received our funds as
requested, you may in your discretion make such payment on our behalf, in which
event we will reimburse you promptly. Any such payment by you shall not
relieve us from any of our obligations hereunder or under the Underwriting
Agreement.
We authorize you for our account to accept delivery of our Shares from
the Company and to hold such of our Shares as you have reserved for sale to
Selected Dealers and others and to deliver such Shares against such sales. You
will deliver to us our unreserved Shares as promptly as practicable.
Notwithstanding the foregoing provisions of this Section 6, if you so
notify us, payment for and delivery of our Shares may be made through the
facilities of The Depository Trust
<PAGE> 31
Company, if we are a member, unless we have otherwise notified you prior to a
date to be specified by you, or, if we are not a member, settlement may be made
through a correspondent who is a member pursuant to instructions we may send to
you prior to such specified date.
As promptly as practicable after you receive payment for reserved
Shares sold for our account, you will remit to us the purchase price paid by us
for such Shares and credit or debit our account with the difference between the
sale price and such purchase price.
7. AUTHORITY TO BORROW. In connection with the transactions
contemplated in the Underwriting Agreement or this Agreement, we authorize you,
in your discretion, to advance your own funds for our account, charging current
interest rates, to arrange loans for our account and in connection therewith to
execute and deliver any notes or other instruments and hold or pledge as
security any of our Shares or any Common Stock of the Company purchased for our
account. Any lender may rely upon your instructions in all matters relating to
any such loan.
Any of our Shares and any Common Stock of the Company purchased for
our account held by you may from time to time be delivered to us for carrying
purposes, and any such securities will be delivered to you upon demand.
8. STABILIZATION AND OTHER MATTERS. We authorize you in your
discretion to make purchases and sales of the Common Stock of the Company for
our account in the open market or otherwise, for long or short account, on such
terms as you deem advisable and in arranging sales to over-allot. If you have
purchased Common Stock for stabilizing purposes prior to the execution of this
Agreement, such purchases shall be treated as having been made pursuant to the
foregoing authorization. We also authorize you, either before or after the
termination of the offering provisions of this Agreement, to cover any short
position incurred pursuant to this Section on such terms as you deem advisable.
All such purchases and sales and over-allotments shall be made for the accounts
of the several Underwriters as nearly as practicable in proportion to their
respective underwriting obligations. Our net commitment under this Section
(excluding any commitment incurred under the Underwriting Agreement upon
exercise of the right to purchase Option Shares) shall not, at the end of any
business day, exceed 15% of our maximum underwriting obligation. We will on
your demand take up and pay for at cost any Common Stock so purchased or sold
or over-allotted for our account, and, if any other Underwriter defaults in its
corresponding obligation, we will assume our proportionate share of such
obligation without relieving the defaulting Underwriter from liability. We
will be obligated in respect of purchases and sales made for our account
hereunder whether or not any proposed purchase of the Shares from the Company
is consummated. The existence of this provision is no assurance that the price
of the Shares will be stabilized or that, if stabilizing is commenced, it may
not be discontinued at any time.
We agree to advise you, from time to time upon your request, during
the term of this Agreement, of the number of Shares retained by us remaining
unsold, and will, upon your request, sell to you for the accounts of one or
more of the several Underwriters such number of such Shares as you may
designate at such prices, not less than the net price to Selected Dealers nor
more than the public offering price, as you may determine.
<PAGE> 32
If you effect any stabilizing purchase pursuant to this Section 8, you
will notify us promptly of the date and time when the first stabilizing
purchase was effected and the date and time when stabilizing was terminated.
You will retain such information as is required to be retained by you as
"Manager" pursuant to Rule 17a-2 under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). We agree that we will not effect any stabilizing
purchases without your express authorization, and, if any purchases are
effected, we agree to furnish to you not later than three business days
following the date upon which stabilization was commenced such information as
is required under Rule 17a-2(d).
With respect to the Underwriting Agreement, you are also authorized in
your discretion (a) to exercise the option therein as to all or any part of the
Option Shares, and to terminate such option in whole or in part prior to its
expiration, (b) to postpone the Closing Date and the Option Closing Date
referred to in the Underwriting Agreement, and any other time or date specified
therein, (c) to exercise any right of cancellation or termination, (d) to
arrange for the purchase by other persons (including yourselves or any other
Underwriter) of any Shares not taken up by any defaulting Underwriter, and (e)
to consent to such other changes in the Underwriting Agreement as in your
judgment do not materially adversely affect the substance of our rights and
obligations thereunder.
We further agree that (a) prior to the termination of this Agreement
we will not, directly or indirectly, bid for or purchase any Shares for our own
account, except as provided in this Agreement and in the Underwriting
Agreement, and (b) prior to the completion (as defined in Rule 10b-6 under the
1934 Act) of our participation in this distribution, we will otherwise comply
with Rule 10b-6.
9. ALLOCATION OF EXPENSES AND SETTLEMENT. We authorize you to
charge our account with (a) all transfer taxes on Shares purchased by us
pursuant to the Underwriting Agreement and sold by you for our account, (b)
Selected Dealers' Concessions in connection with the purchase, marketing and
sale of the Shares for our account, and (c) our proportionate share (based upon
our underwriting obligation) of all other expenses incurred by you under this
Agreement and in connection with the purchase, carrying, sale and distribution
of the Shares. Your determination of the amount and allocation of such
expenses shall be conclusive. In the event of the default of any Underwriter
in carrying out its obligations hereunder, the expenses chargeable to such
Underwriter pursuant to this Agreement and not paid by it, as well as any
additional losses or expenses arising from such default, may be proportionately
charged by you against the other Underwriters not so defaulting (including such
other persons who purchase Shares upon a default by an Underwriter pursuant to
Section 11 hereof), without, however, relieving such defaulting Underwriter
from its liability therefor.
As soon as practicable after termination of this Agreement, the
accounts hereunder will be settled, but you may reserve from distribution such
amount as you deem necessary to cover possible additional expenses. You may at
any time make partial distributions of credit balances or call for payment of
debit balances. Any of our funds in your hands may be held with your general
funds without accountability for interest. Notwithstanding the termination of
this Agreement or any settlement, we will pay (a) our proportionate share
(based on our underwriting
<PAGE> 33
obligation) of all expenses and liabilities which may be incurred by or for the
accounts of the Underwriters, including any liability based on the claim that
the Underwriters constitute an association, unincorporated business or other
separate entity, and of any expenses incurred by you or any other Underwriter
with your approval in contesting any such claim or liability, and (b) any
transfer taxes paid after such settlement on account of any sale or transfer
for our account.
10. TERMINATION. The offering provisions of this Agreement shall
terminate 30 days from the date hereof unless extended by you. You may extend
said provisions for a period or periods not exceeding an additional 30 days in
the aggregate, provided that the Selected Dealer Agreements, if any, are
similarly extended. Whether extended or not, said provisions may be terminated
in whole or in part by notice from you.
11. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters
in respect of their obligations hereunder or under the Underwriting Agreement
shall not release us from any of our obligations or in any way affect the
liability of any defaulting Underwriter to the other Underwriters for damages
resulting from such default. In case of such default by one or more
Underwriters, you are authorized to increase, pro rata with other
non-defaulting Underwriters, the number of Shares which we shall be obligated
to purchase pursuant to the Underwriting Agreement, provided that the aggregate
amount of all such increases for our account shall not exceed our pro rata
share of 265,000 Shares; and you are further authorized to arrange, but shall
not be obligated to arrange, for the purchase by other persons, who may include
yourselves or other Underwriters, of all or a portion of any aggregate amount
not taken up. In the event any such arrangements are made, the respective
numbers of Shares to be purchased by the non-defaulting Underwriters and by any
such other persons shall be taken as the basis for the underwriting obligations
under this Agreement.
12. POSITION OF A.G. EDWARDS & SONS, INC. AND EQUITABLE SECURITIES
CORPORATION. Except as otherwise specifically provided in this Agreement, you
shall have full authority to take such action as you may deem advisable in
respect of all matters pertaining to the Underwriting Agreement and this
Agreement and in connection with the purchase, carrying, sale, and distribution
of the Shares (including authority to terminate the Underwriting Agreement as
provided therein). You shall be under no liability to us for or in respect of
the value of the Shares or the validity or the form thereof, the Registration
Statement, any Preliminary Prospectus, the Prospectus, the Underwriting
Agreement, or other instruments executed by the Company or others; or for or in
respect of the issuance, transfer, or delivery of the Shares; or for the
performance by the Company or others of any agreement on its or their part; nor
shall you be liable under any of the provisions hereof or for any matters
connected herewith, except for your own want of good faith, for obligations
expressly assumed by you in this Agreement and for any liabilities imposed upon
you by the Act. No obligations on your part shall be implied or inferred
herefrom. Authority with respect to matters to be determined by you, or by you
and the Company, pursuant to the Underwriting Agreement, shall survive the
termination of this Agreement.
In taking all actions hereunder, except in the performance of your own
obligations hereunder and under the Underwriting Agreement, you shall act only
as the representative of each of the Underwriters. The commitments and
liabilities of each of the several Underwriters
<PAGE> 34
are several in accordance with their respective purchase obligations and are
not joint or joint and several. Nothing contained herein shall constitute the
Underwriters partners or render any of them liable to make payments otherwise
than as herein provided. If for federal income tax purposes the Underwriters
should be deemed to constitute a partnership, then each Underwriter elects to
be excluded from the application of Subchapter K, Chapter 1, Subtitle A, of the
Internal Revenue Code of 1986, as amended, and agrees not to take any position
inconsistent with such election. Each Underwriter authorizes A.G. Edwards &
Sons, Inc., in its discretion, on behalf of such Underwriter, to execute such
evidence of such election as may be required by the Internal Revenue Service.
13. COMPENSATION TO A.G. EDWARDS & SONS, INC. AND EQUITABLE
SECURITIES CORPORATION. As compensation for your services in connection with
the purchase of the Shares and the management of the public offering of the
Shares, we agree to pay you and authorize you to charge our account with an
amount equal to $____ per share of the Shares which we have agreed to purchase
pursuant to the Underwriting Agreement.
14. INDEMNIFICATION AND FUTURE CLAIMS. Each Underwriter,
including you, agrees to indemnify, hold harmless and reimburse each other
Underwriter and each person, if any, who controls any other Underwriter within
the meaning of Section 15 of the Act, and any successor of any other
Underwriter, to the extent that, and upon the terms upon which, each
Underwriter will be obligated pursuant to the Underwriting Agreement to
indemnify, hold harmless and reimburse the Company, its directors, officers,
and controlling persons therein specified.
In the event that at any time any person other than an Underwriter
asserts a claim against one or more of the Underwriters or against you as
representatives of the Underwriters arising out of an alleged untrue statement
or omission in the Registration Statement (or any amendment thereto) or in any
Preliminary Prospectus or the Prospectus (or any amendment or supplement
thereto) or relating to any transaction contemplated by this Agreement, we
authorize you to make such investigation, to retain such counsel for the
Underwriters and to take such action in the defense of such claim as you may
deem necessary or advisable. You may settle such claim with the approval of a
majority in interest (based upon underwriting obligations) of the Underwriters.
We will pay our proportionate share (based upon our underwriting obligation) of
all expenses incurred by you (including the fees and expenses of counsel for
the Underwriters) in investigating and defending against such claim and our
proportionate share of the aggregate liability incurred by all underwriters in
respect of such claim (after deducting any contribution or indemnification
obtained pursuant to the Underwriting Agreement, or otherwise, from persons
other than Underwriters), whether such liability is the result of a judgment
against one or more of the Underwriters or the result of any such settlement.
There shall be credited against any amount paid or payable by us pursuant to
this paragraph any loss, damage, liability or expense which is incurred by us
as a result of any such claim asserted against us, and if such loss, claim,
damage, liability, or expense is incurred by us as a result of any such claim
against us, and if such loss, claim, damage, liability, or expense is incurred
by us subsequent to any payment by us pursuant to this paragraph, appropriate
provision shall be made to effect such credit, by refund or otherwise. Any
Underwriter may retain separate counsel at its own expense. A claim against or
liability incurred by a person who controls an Underwriter shall be deemed to
have been made
<PAGE> 35
against or incurred by such Underwriter. In the event of default by any
Underwriter in respect of its obligations under this Section, the
non-defaulting Underwriters shall be obligated to pay the full amount thereof
in the proportions that their respective underwriting obligations bear to the
underwriting obligations of all non-defaulting Underwriters, without relieving
such defaulting Underwriter of its liability hereunder. Our agreements
contained in this Section will remain in full force and effect regardless of
any investigation made by or on behalf of such other Underwriter or controlling
person and will survive the delivery of and payment for the Shares and the
termination of this Agreement and the similar agreements entered into with the
other Underwriters.
15. BLUE SKY AND OTHER MATTERS. You will not have any
responsibility with respect to the right of any Underwriter or other person to
sell the Shares in any jurisdiction notwithstanding any information you may
furnish in that connection. We authorize you to file a New York Further State
Notice, if required, and to make and carry out on our behalf any agreements
which you may deem necessary in order to procure registration or qualification
of any of the Shares in any jurisdiction, and we will at your request make such
payments, and furnish to you such information, as you may deem required by
reason of any such agreements.
We authorize you to file on behalf of the several Underwriters with
the National Association of Securities Dealers, Inc. (the "NASD") such
documents and information, if any, which are available or have been furnished
to you for filing pursuant to the applicable rules, statements, and
interpretations of the NASD.
16. TITLE TO SHARES. The Shares purchased by the respective
Underwriters shall remain the property of such Underwriters until sold and no
title to any such Shares shall in any event pass to you by virtue of any of the
provisions of this Agreement.
17. CAPITAL REQUIREMENTS. We confirm that the incurrence by us of
our obligations under this Agreement and under the Underwriting Agreement will
not place us in violation of Rule 15c3-1 under the 1934 Act or of any
applicable rules relating to capital requirements of any securities exchange or
association to which we are subject.
18. LIABILITY FOR FUTURE CLAIMS. Neither any statement by you of
any credit or debit balance in our account nor any reservation from
distribution to cover possible additional expenses relating to the Shares will
constitute any representation by you as to the existence or nonexistence of
possible unforeseen expenses or liabilities of or charges against the several
Underwriters. Notwithstanding the distribution of any net credit balance to
us, we will be and remain liable for, and will pay on demand, (a) our
proportionate share (based upon our underwriting obligation) of all expenses
and liabilities which may be incurred by or for the accounts of the
Underwriters, including any liability which may be incurred by the Underwriters
or any of them based on the claim that the Underwriters constitute an
association, unincorporated business, partnership, or any separate entity, and
(b) any transfer taxes paid after such settlement on account of any sale or
transfer for our account.
<PAGE> 36
19. ACKNOWLEDGMENT OF REGISTRATION STATEMENT, ETC. We hereby
confirm that we have examined the Registration Statement (including any
amendments or supplements thereto) and Prospectus relating to the Shares filed
with the Commission, that we are willing to accept the responsibilities of an
underwriter thereunder and that we are willing to proceed as therein
contemplated. We confirm that we have authorized you to advise the Company on
our behalf (a) as to the statements to be included in any Preliminary
Prospectus and in the Prospectus (including any supplement thereto) relating to
the Shares, insofar as they relate to us, and (b) that there is no information
about us required to be stated in said Registration Statement or said
Preliminary Prospectus or the Prospectus (including any supplement thereto)
other than as set forth in the Underwriters' Questionnaire previously delivered
by us to you and the Company. We understand that the aforementioned documents
are subject to further change and that we will be supplied with copies of any
amendment or amendments to the Registration Statement and of any amended
Prospectus promptly, if and when received by you, but the making of such
changes and amendments will not release us or affect our obligations hereunder
or under the Underwriting Agreement.
20. NOTICES AND GOVERNING LAW. Any notice from you to us shall be
mailed, telephoned, or telegraphed to us at our address as set forth in the
Underwriters' Questionnaire. Any notice from us to you shall be deemed to have
been duly given if mailed, telephoned or telegraphed to you at One North
Jefferson Avenue, St. Louis, Missouri 63103, Attention: Syndicate. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Missouri.
21. OTHER PROVISIONS. We represent that we are actually engaged
in the investment banking or securities business and that we are a member in
good standing of the NASD or, if we are not such a member, that we are a
foreign dealer not eligible for membership in the NASD and that we will not
offer or sell any Shares in, or to persons who are nationals or residents of,
the United States of America. In making sales of Shares, if we are such a
member, we agree to comply with all applicable rules of the NASD, including,
without limitation, the Interpretation of Rule 2110 of the NASD's Rules of
Conduct with respect to Free-Riding and Withholding (IM-2110-1) and Rule 2740
of such Rules, or if we are a foreign dealer, we agree to comply with such
Interpretation and Rules 2730, 2740 and 2750 of such Rules as though we were
such a member, and with Rule 2420 as that Rule applies to a non-member broker
or dealer in a foreign country. We confirm that you have heretofore delivered
to us such number of copies of the Prospectus as have been reasonably requested
by us, and we further confirm that we have complied and will comply with Rule
15c2-8 under the 1934 Act concerning delivery of each Preliminary Prospectus
and the Prospectus, and that we will furnish to persons who receive a
confirmation of sale (i) a copy of the Prospectus filed pursuant to Rule 424(b)
or Rule 424(c) under the Act or (ii) if a Term Sheet or Abbreviated Term Sheet
is used, a copy of the Term Sheet or Abbreviated Term Sheet and the last
Preliminary Prospectus filed with the Commission prior to the time the
Registration Statement became effective. We are aware of our statutory
responsibilities under the Act, and you are authorized on our behalf to so
advise the Commission.
<PAGE> 37
22. COUNTERPARTS. This Agreement may be signed in any number of
counterparts which, taken together, shall constitute one and the same
instrument, and you may confirm the execution of such counterparts by facsimile
signature.
-----------------------------
As Attorney-in-Fact for each of the several Underwriters named in
Schedule I to the Underwriting Agreement
<PAGE> 38
Confirmed as of the date first above written.
A.G. Edwards & Sons, Inc.
As Representative of the Several Underwriters
By:
---------------------------
Name:
Title:
Equitable Securities Corporation
As Representative of the Several
Underwriters
By:
----------------------------
Name:
Title:
<PAGE> 39
EXECUSTAY CORPORATION
2,650,000 SHARES
COMMON STOCK
($.01 PAR VALUE)
SELECTED DEALER AGREEMENT
__________________, 1997
Underwriters represented by us have severally agreed to purchase from
the above-named company ("Company") the above shares of Common Stock
("Shares"). The Shares are described in the enclosed Prospectus, the receipt
of which you hereby acknowledge.
1. OFFERING TO SELECTED DEALERS. The several Underwriters,
acting through us, are severally offering part of the Shares for sale to
certain dealers ("Selected Dealers"), as principals, subject to the terms and
conditions stated herein and in the Prospectus, at the public offering price
per Share set forth in the Prospectus, less the per Share concession set forth
in the Prospectus (such concession hereinafter referred to as the "Selected
Dealers' Concession"). Sales of Shares to you pursuant to such offering will
be evidenced by our written confirmation and will be on such terms and
conditions set forth therein and in the Prospectus. In purchasing Shares, you
will rely upon no statement whatsoever, written or oral, other than statements
in the Prospectus.
2. REOFFERING BY SELECTED DEALERS. We are advising you by
telegram of the method and terms of the offering. Acceptances of any reserved
Shares received at the office of A.G. Edwards & Sons, Inc., One North Jefferson
Avenue, St. Louis, Missouri 63103, after the time specified therefor in the
telegram and any order for additional Shares will be subject to rejection in
whole or in part. Subscription books may be closed by us at any time in our
discretion without notice and the right is reserved to reject any subscription
in whole or in part, but notification of allotments against and rejections of
subscriptions will be made as promptly as practicable.
We are advising you in such telegram of the release by us of the
Shares being sold by the Underwriters for public offering and of the public
offering price of the Shares. Upon receipt of such advice, the Shares
thereafter purchased by you hereunder are to be offered by you to the public at
the public offering price, subject to the terms thereof. You agree that in
selling Shares purchased hereunder you will comply with the applicable
requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended. Except as herein otherwise provided, Shares
shall not be offered or sold by you below the public offering price before the
termination of this Agreement, except that a concession from such public
offering price of not in excess of the per Share amount set forth in the
Prospectus may be allowed to dealers who are actually engaged in the investment
banking or securities business, who execute
<PAGE> 40
the written agreement prescribed by Rule 2740(c) of the Rules of Conduct of the
National Association of Securities Dealers, Inc. ("NASD") and who are members
in good standing of the NASD or foreign dealers, not eligible for membership in
the NASD, who represent to you that they will promptly reoffer the Shares at
the public offering price and will abide by the conditions with respect to
foreign brokers and dealers set forth in the first paragraph of Section 4
hereof.
It is assumed that Shares sold by you will be effectively placed for
investment. If we contract for or purchase in the open market or otherwise for
the account of any Underwriter any Shares sold to you and not effectively
placed for investment, we may charge you the Selected Dealers' Concession
originally allowed you on the Shares so repurchased, and you agree to pay such
amount to us on demand. Shares so delivered to you against any such repurchase
need not be the identical Shares originally purchased by you.
You will advise us upon request of Shares purchased by you remaining
unsold, and we shall have the right to repurchase such unsold Shares on demand
at the public offering price less all or part of the Selected Dealers'
Concession.
3. PAYMENT AND DELIVERY. Payment for Shares purchased by you
shall be made by you on such dates and at such places as we advise you, by
certified or bank cashiers' check payable to the order of A.G. Edwards & Sons,
Inc. in such clearing house funds as we advise, against delivery of such
Shares. Delivery instructions must be in our hands at the office of A.G.
Edwards & Sons, Inc., One North Jefferson Avenue, St. Louis, Missouri, 63103,
at such time as we request. Notwithstanding such provisions, if we so notify
you, payment for and delivery of Shares purchased by you hereunder may be made
through the facilities of the Depository Trust Company, if you are a member,
unless you have otherwise notified us prior to the date specified in our
telegram to you, or, if you are not a member, settlement may be made through a
correspondent who is a member pursuant to instructions which you will send to
us prior to such specified date.
The above payment shall be made at the public offering price, or if we
so advise you, at a net price equal to the public offering price less the
Selected Dealers' Concession. If payment is made by you at the public offering
price, the Selected Dealers' Concession payable to you hereunder shall be paid
promptly after the termination of this Agreement (or on such earlier date as we
may determine), except that such Concession may be withheld and cancelled, at
our discretion, as to Shares which we have repurchased as set forth in the
third paragraph of Section 2 hereof.
4. POSITION OF SELECTED DEALERS AND UNDERWRITERS. You represent
that you are actually engaged in the investment banking or securities business
and that you are a member in good standing of the NASD or that you are a
foreign dealer, not eligible for membership in the NASD, which agrees not to
offer or sell any Shares in, or to persons who are nationals or residents of,
the United States of America. In making sales of Shares, if you are such a
member, you agree to comply with all applicable rules of the NASD, including,
without limitation, the Interpretation of Rule 2110 of the NASD's Rules of
Conduct with respect to Free-Riding and Withholding (IM-2110-1) and Rule 2740
of such Rules, or, if you are a foreign dealer, you agree
<PAGE> 41
to comply with such Interpretation and Rules 2730, 2740 and 2750 of such Rules
as though you were such a member, and with Rule 2420 as that Rule applies to a
non-member broker or dealer in a foreign country. You also confirm that you
have complied and will comply with the prospectus delivery requirements of Rule
15c2-8 under the Securities Exchange Act of 1934, as amended, in accordance
with your prior undertaking to do so, and that you will furnish to persons who
receive a confirmation of sale a copy of the Prospectus.
You are not authorized to give any information or make any
representations other than as contained in the Prospectus, or to act as agent
for any Underwriter or us. Nothing shall constitute the Selected Dealers an
association, unincorporated business or other separate entity or partners with
the several Underwriters, with us, or with each other, but you shall be liable
for your proportionate share of any tax, liability or expense based on any
claim to the contrary. Neither we nor any Underwriter shall be under any
liability to you, except for obligations expressly assumed by us in this
Agreement, and no obligations on our part shall be implied or inferred
herefrom.
5. BLUE SKY MATTERS. We will not have any responsibility with
respect to the right of any dealer to sell the Shares in any jurisdiction,
notwithstanding any information we may furnish in that connection. We have
filed a New York Further State Notice, if required.
6. NOTICES. All communications from you to us shall be addressed
to A.G. Edwards & Sons, Inc., One North Jefferson Avenue, St. Louis, Missouri
63103, Attention: Syndicate. Any notice from us to you shall be delivered,
mailed or telegraphed to you at the address to which this letter is mailed.
7. TERMINATION. This Agreement shall terminate 30 days after the
date hereof unless extended by us for a period or periods not exceeding an
additional 30 days in the aggregate, and, whether extended or not, may be
terminated by us at any time. Such termination shall not affect your
obligation to pay for any Shares purchased by you or any of the provisions of
Section 4 hereof.
Please confirm your agreement hereto by signing the duplicate copy of
this Agreement enclosed herewith and returning it to us at the address in
Section 6 above.
A.G. Edwards & Sons, Inc.
By:
-----------------------
Authorized Signatory
Equitable Securities Corporation
By:
-----------------------
Authorized Signatory
<PAGE> 42
_______________, 1997
A.G. Edwards & Sons, Inc.
Equitable Securities Corporation
as Representatives of the Several Underwriters
One North Jefferson
St. Louis, Missouri 63103
We hereby confirm our order for Common Stock, $.01 par value, of
ExecuStay Corporation (the "Shares") for such number of Shares specified in our
order and under the terms and conditions contained in your written confirmation
of our purchase and the foregoing Agreement.
We hereby confirm our agreement to all the terms and conditions stated
in the foregoing Agreement. We acknowledge receipt of the Prospectus relating
to the above Shares and we further state that in entering this order we have
relied upon the Prospectus and no other statement whatsoever, written or oral.
We confirm that we are actually engaged in the investment banking or securities
business and are a member in good standing of the NASD or that we are a foreign
dealer, not eligible for membership in the NASD, which agrees not to offer or
sell any Shares in, or to persons who are nationals or residents of, the United
States of America. We agree that in making sales of Shares, if we are such a
member, we will comply with all applicable rules of the NASD, including,
without limitation, the Interpretation of Rule 2110 of the NASD's Rules of
Conduct with respect to Free-Riding and Withholding (IM-2110-1) and Rule 2740
of such Rules, or, if we are a foreign dealer, we will comply with such
Interpretation and Rules 2730, 2740 and 2750 of such Rules as though we were
such a member, and with Rule 2420 as that Rule applies to a non-member broker
or dealer in a foreign country. Further, we confirm that we have complied and
will comply with the prospectus delivery requirements of Rule 15c2-8 under the
Securities Exchange Act of 1934, as amended, and that we will furnish to
persons who receive a confirmation of sale a copy of the Prospectus.
-----------------------------------
(Please print or type name of firm)
By:
-------------------------------
(Authorized Representative)
Dated: , 1997
-----------------
<PAGE> 1
EXHIBIT 3.1.1
ARTICLES OF AMENDMENT
OF
EXECUSTAY CORPORATION
ExecuStay Corporation, a Maryland Corporation having its
principal office in Gaithersburg, Montgomery County, Maryland (hereinafter
called the Corporation), hereby certifies to the State Department of
Assessments and Taxation of Maryland, that:
FIRST: The Articles of the Corporation are hereby amended by adding a
sixteenth article which shall be as follows:
"SIXTEENTH: To the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, no director or
officer of the Corporation shall be personally liable to the Corporation
or its stockholders for money damages. No amendment of the Articles of
Incorporation of the Corporation or repeal of any of its provisions shall
limit or eliminate the limitation on liability provided to directors and
officers hereunder with respect to any act or omission occurring prior to
such amendment or repeal."
SECOND: The board of directors of the Corporation by unanimous
written consent pursuant to Section 2-408 of Corporations and Associations
Article of the Annotated Code of Maryland on July 31, 1997 duly adopted a
resolution in which was set forth the forgoing amendment to the charter,
declaring that the said amendment of the charter as proposed was advisable and
directing that it be submitted for action thereon by the stockholders of the
Corporation.
THIRD: That the said amendment has been consented to and authorized
by the holders of all the issued and outstanding stock, entitled to vote, by a
written consent given in accordance with the provisions of Section 2-505 of
Corporations and Associations Article of the Annotated Code of Maryland, and
filed with the records of stockholders meeting.
FOURTH: The amendment of the Articles of the Corporation as
hereinabove set forth has been duly advised by the board of directors and
approved by the stockholders of the Corporation.
FIFTH: The information required by subsection (b)(2)(i) of Section
2-607 of the Maryland General Corporation Law was not changed by the amendment.
IN WITNESS WHEREOF, ExecuStay Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnesses by its
Secretary on July 31, 1997.
EXECUSTAY CORPORATION
By
-----------------------------
Gary R. Abrahams, President
Witness: (Attest)
- ----------------------------
Robert W. Zaugg, Secretary
THE UNDERSIGNED, President of ExecuStay Corporation, who
executed on behalf of said corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of
his knowledge, information and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material respects, under
the penalties of perjury.
----------------------------
Gary R. Abrahams, President
<PAGE> 1
EXHIBIT 3.2
EXECUSTAY CORPORATION
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETING. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, which annual meeting shall be held either at 10:00 a.m. on
the second Wednesday of May in each year if not a legal holiday, or at such
other time on such other day falling on or before the 30th day thereafter as
shall be set by the Board of Directors. Except as the Charter or statute
provides otherwise, any business may be considered at an annual meeting without
the purpose of the meeting having been specified in the notice. Failure to hold
an annual meeting does not invalidate the Corporation's existence or affect any
otherwise valid corporate acts.
SECTION 1.02. SPECIAL MEETING. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
President or by the Board of Directors or on the written request (addressed to
the Secretary of the Corporation) of stockholders entitled to cast at least 25
percent of all the votes entitled to be cast at the meeting.
SECTION 1.03. PLACE OF MEETINGS. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the
Board of Directors.
SECTION 1.04. NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than
ten nor more than 90 days before each stockholders' meeting, the Secretary
shall give written notice of the meeting to each stockholder entitled to vote
at the meeting and each other stockholder entitled to notice of the meeting.
The notice shall state the time and place of the meeting and, if the meeting is
a special meeting or notice of the purpose is required by statute, the purpose
of the meeting. Notice is given to a stockholder when it is personally
delivered to him, left at his residence or usual place of business, or mailed
to him at his address as it appears on the records of the Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to notice
waives notice if he before or after the meeting signs a waiver of the notice
which is filed with the records of stockholders' meetings, or is present at the
meeting in person or by proxy.
SECTION 1.05. QUORUM; VOTING. Unless statute or the Charter
provides otherwise, at a meeting of stockholders the presence in person or by
proxy of stockholders entitled to cast a majority of all the votes entitled to
be cast at the meeting constitutes a quorum, and a majority of all the votes
cast at a meeting at which a quorum is present is sufficient to approve any
matter which properly comes before the meeting, except that a plurality of all
the votes cast at a meeting at which a quorum is present is sufficient to elect
a director.
-1-
<PAGE> 2
SECTION 1.06. ADJOURNMENTS. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been transacted
at the meeting as originally notified may be deferred and transacted at any
such adjourned meeting at which a quorum shall be present.
SECTION 1.07. GENERAL RIGHT TO VOTE; PROXIES. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be voted
for as many individuals as there are directors to be elected and for whose
election the share is entitled to be voted. A stockholder may vote the stock
the stockholder owns of record either in person or by proxy. A stockholder may
sign a writing authorizing another person to act as proxy. Signing may be
accomplished by the stockholder or the stockholder's authorized agent signing
the writing or causing the stockholder's signature to be affixed to the writing
by any reasonable means, including facsimile signature. A stockholder may
authorize another person to act as proxy by transmitting, or authorizing the
transmission of, a telegram, cablegram, datagram, or other means of electronic
transmission to the person authorized to act as proxy or to a proxy
solicitation firm, proxy support service organization, or other person
authorized by the person who will act as proxy to receive the transmission.
Unless a proxy provides otherwise, it is not valid more than 11 months after
its date. A proxy is revocable by a stockholder at any time without condition
or qualification unless the proxy states that it is irrevocable and the proxy
is coupled with an interest. A proxy may be made irrevocable for so long as it
is coupled with an interest. The interest with which a proxy may be coupled
includes an interest in the stock to be voted under the proxy or another
general interest in the Corporation or its assets or liabilities.
SECTION 1.08. CONDUCT AND BUSINESS OF VOTING. At all meetings of
stockholders the proxies and ballots shall be received, and all questions
touching the qualification of voters and the validity of proxies, the
acceptance or rejection of votes and procedures for the conduct of business not
otherwise specified by these By-Laws, the Charter or law, shall be decided or
determined by the chairman of the meeting.
SECTION 1.09. INFORMAL ACTION BY STOCKHOLDERS. Any action required
or permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings an
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
SECTION 1.10. STOCKHOLDER PROPOSALS. For any stockholder proposal
to be presented in connection with an annual meeting of stockholders of the
Corporation, including any proposal relating to the nomination of a director to
be elected to the Board of Directors of the Corporation, the stockholders must
have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to the
Secretary at the
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<PAGE> 3
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such stockholder and of the beneficial owner, if any, on
whose behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made, (i) the name and address of such stockholder, as they appear
on the Corporation's books, and of such beneficial owner and (ii) the class and
number of shares of stock of the Corporation which are owned beneficially and
of record by such stockholders and such beneficial owner. For the 1998 annual
meeting the previous year's meeting shall be deemed to have take place on June
4, 1997; provided that this sentence shall cease to be a part of the By-Laws
after the holding of the 1998 annual meeting and any adjournments thereof.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. FUNCTION OF DIRECTORS. The business and affairs of
the Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the Charter or By-Laws.
SECTION 2.02. NUMBER OF DIRECTORS. The Corporation shall have at
least three directors; provided that, if there is no stock outstanding, the
number of Directors may be less than three but not less than one, and, if there
is stock outstanding and so long as there are less than three stockholders, the
number of Directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
the Charter until changed as herein provided. Two-thirds of the entire Board of
Directors may alter the number of directors set by the Charter to not exceeding
25 nor less than the minimum number then permitted herein, but the action may
not affect the tenure of office of any director.
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<PAGE> 4
SECTION 2.03. ELECTION AND TENURE OF DIRECTORS. At each annual
meeting, the stockholders shall elect directors to hold office until the next
annual meeting and until their successors are elected and qualify.
SECTION 2.04. REMOVAL OF DIRECTOR. Unless statute or the Charter
provides otherwise, the stockholders may remove any director, with or without
cause, by the affirmative vote of a majority of all the votes entitled to be
cast for the election of directors.
SECTION 2.05. VACANCY ON BOARD. A vacancy on the Board of
Directors caused by the removal of a Director shall be filled by the holders of
stock entitled to vote for the election of such Director. Either of the
shareholders or the Board of Directors may elect a successor to fill any other
vacancy on the Board of Directors, as permitted by law.
SECTION 2.06. REGULAR MEETINGS. Any regular meeting of the Board
of Directors shall be held on such date and at any place as may be designated
from time to time by the Board of Directors.
SECTION 2.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by one-third of the Board of Directors by vote at a meeting, or in
writing with or without a meeting. A special meeting of the Board of Directors
shall be held on such date and at any place as may be designated from time to
time by the Board of Directors. In the absence of designation such meeting
shall be held at such place as may be designated in the call.
SECTION 2.08. NOTICE OF MEETING. The Secretary shall give notice
to each director of each regular and special meeting of the Board of Directors.
The notice shall state the time and place of the meeting. Notice is given to a
director when it is delivered personally to him, left at his residence or usual
place of business, or sent by telegraph, facsimile transmission or telephone,
at least 24 hours before the time of the meeting or, in the alternative by mail
to his address as it shall appear on the records of the Corporation, at least
72 hours before the time of the meeting. Unless the By-Laws or a resolution of
the Board of Directors provides otherwise, the notice need not state the
business to be transacted at or the purposes of any regular or special meeting
of the Board of Directors. No notice of any meeting of the Board of Directors
need be given to any director who attends, or to any director who, in writing
executed and filed with the records of the meeting either before or after the
holding thereof, waives such notice. Any meeting of the Board of Directors,
regular or special, may adjourn from time to time to reconvene at the same or
some other place, and no notice need be given of any such adjourned meeting
other than by announcement.
SECTION 2.09. ACTION BY DIRECTORS. Unless statute or the Charter
or By-Laws requires a greater proportion, the action of a majority of the
directors present at a meeting at which a quorum is present is action of the
Board of Directors. A majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. In the absence of a
quorum, the directors present by majority vote and without notice other than by
announcement may adjourn the meeting from time to time until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have
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<PAGE> 5
been transacted at the meeting as originally notified. Any action required or
permitted to be taken at a meeting of the Board of Directors may be taken
without a meeting, if an unanimous written consent which sets forth the action
is signed by each member of the Board and filed with the minutes of proceedings
of the Board.
SECTION 2.10. MEETING BY CONFERENCE TELEPHONE. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
these means constitutes presence in person at a meeting, but shall not
constitute attendance for the purpose of compensation pursuant to Section 2.11.
SECTION 2.11. COMPENSATION. By resolution of the Board of
Directors a fixed sum and expenses, if any, for attendance at each regular or
special meeting of the Board of Directors, and other compensation for their
services as such, may be paid to directors. Directors who are full-time
employees of the Corporation need not be paid for attendance at meetings of the
board for which fees are paid to other directors. A director who serves the
Corporation in any other capacity also may receive compensation for such other
services, pursuant to a resolution of the directors.
SECTION 2.12. RESIGNATION. Any director may resign at any time by
sending a written notice of such resignation to the home office of the
Corporation addressed to the Chairman of the Board or the President. Unless
otherwise specified herein such resignation shall take effect upon receipt
thereof by the Chairman of the Board or the President.
SECTION 2.13. ADVISORY DIRECTORS. The Board of Directors may by
resolution appoint advisory directors to the Board, who may also serve as
directors emeriti, and shall have such authority and receive such compensation
and reimbursement as the Board of Directors shall provide. Advisory directors
or directors emeriti shall not have the authority to participate by vote in the
transaction of business.
ARTICLE III.
OFFICERS
SECTION 3.01. EXECUTIVE OFFICERS. The Corporation shall have a
President, a Secretary and a Treasurer. It may also have one or more
Vice-Presidents, one or more Assistant Vice-Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers. A person may hold more than
one office in the Corporation but may not serve concurrently as both President
and Vice-President of the Corporation.
SECTION 3.02. PRESIDENT AND CHIEF EXECUTIVE OFFICER. Unless
otherwise provided by the Board of Directors, the President shall serve as the
Chief Executive Officer of the Corporation and shall preside at all meetings of
the stockholders and of the Board of Directors at which he shall be present; he
shall have general charge and supervision of the assets and affairs of the
Corporation; he may sign and execute, in the name of the Corporation, all
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<PAGE> 6
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation; and, in general,
he shall perform all duties incident to the office of a president of a
corporation, and such other duties as are from time to time assigned to him by
the Board of Directors.
SECTION 3.03. CHIEF OPERATING OFFICER. Unless otherwise provided
by the Board of Directors, the Chief Operating Officer of the Corporation shall
have general charge and supervision of the operations of the Corporation and,
in general, shall perform all duties incident to the office of a chief
operating officer of a corporation, and such other duties as are from time to
time assigned to him by the Board of Directors.
SECTION 3.04. VICE-PRESIDENTS. The Vice-President or
Vice-Presidents, at the request of the President or in his absence or during
his inability to act, shall perform the duties and exercise the functions of
the President, and when so acting shall have the powers of the President. If
there be more than one Vice-President, the Board of Directors may determine
which one or more of the Vice-Presidents shall perform any of such duties or
exercise any of such functions, or if such determination is not made by the
Board of Directors, the President may make such determination; otherwise any of
the Vice-Presidents may perform any of such duties or exercise any of such
functions. The Vice-President or Vice-Presidents shall have such other powers
and perform such other duties, and have such additional descriptive
designations in their titles (if any), as are from time to time assigned to
them by the Board of Directors or the President.
SECTION 3.05. SECRETARY. The Secretary shall keep the minutes of
the meetings of the stockholders, of the Board of Directors and of any
committees, in books provided for the purpose; he shall see that all notices
are duly given in accordance with the provisions of the By-Laws or as required
by law; he shall be custodian of the records of the Corporation; he may witness
any document on behalf of the Corporation, the execution of which is duly
authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and, when so affixed, may attest the
same; and, in general, he shall perform all duties incident to the office of a
secretary of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors or the President.
SECTION 3.06. TREASURER AND CHIEF FINANCIAL OFFICER. Unless
otherwise provided by the Board of Directors, the Treasurer shall serve as the
Chief Financial Officer of the Corporation and shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by the
Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of a treasurer of a corporation, and such other duties as are from time
to time assigned to him by the Board of Directors or the President.
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<PAGE> 7
SECTION 3.07. OTHER OFFICERS. The assistant and subordinate
officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board
of Directors or the President.
SECTION 3.08. ELECTION, TENURE AND REMOVAL OF OFFICERS. The Board
of Directors shall elect the officers. The Board of Directors may from time to
time authorize any committee or officer to appoint assistant and subordinate
officers. Election or appointment of an officer, employee or agent shall not of
itself create contract rights. All officers shall be appointed to hold their
offices, respectively, during the pleasure of the Board. The Board of Directors
(or, as to any assistant or subordinate officer, any committee or officer
authorized by the Board) may remove an officer at any time. The removal of an
officer does not prejudice any of his contract rights. The Board of Directors
(or, as to any assistant or subordinate officer, any committee or officer
authorized by the Board) may fill a vacancy which occurs in any office for the
unexpired portion of the term.
SECTION 3.09. COMPENSATION. The Board of Directors shall have
power to fix the salaries and other compensation and remuneration, of whatever
kind, of all officers of the Corporation. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation. The Board of Directors may authorize any committee or officer,
upon whom the power of appointing assistant and subordinate officers may have
been conferred, to fix the salaries, compensation and remuneration of such
assistant and subordinate officers.
ARTICLE IV.
STOCK
SECTION 4.01. CERTIFICATES FOR STOCK. Each stockholder is entitled
to certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
Corporation, the name of the stockholder or other person to whom it is issued,
and the class of stock and number of shares it represents. It shall be in such
form, not inconsistent with law or with the Charter. Each stock certificate
shall be signed by the President and countersigned by the Secretary. Each
certificate may be sealed with the actual corporate seal or a facsimile of it
or in any other form and the signatures may be either manual or facsimile
signatures. A certificate is valid and may be issued whether or not an officer
who signed it is still an officer when it is issued.
SECTION 4.02. TRANSFERS. The Board of Directors shall have power
and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock.
SECTION 4.03. RECORD DATES AND CLOSING OF TRANSFER BOOKS. The
Board of Directors may set a record date or direct that the stock transfer
books be closed for a stated period for the purpose of making any proper
determination with respect to stockholders, including which stockholders are
entitled to notice of a meeting, vote at a meeting, receive a
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<PAGE> 8
dividend, or be allotted other rights. The record date may not be prior to the
close of business on the day the record date is fixed nor, subject to Section
1.06, more than 90 days before the date on which the action requiring the
determination will be taken; the transfer books may not be closed for a period
longer than 20 days; and, in the case of a meeting of stockholders, the record
date or the closing of the transfer books shall be at least ten days before the
date of the meeting.
SECTION 4.04. STOCK LEDGER. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number
of shares of stock of each class which the stockholder holds. The stock ledger
may be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
SECTION 4.05. LOST STOCK CERTIFICATES. The Board of Directors of
the Corporation may determine the conditions for issuing a new stock
certificate in place of one which is alleged to have been lost, stolen, or
destroyed.
ARTICLE V.
FINANCE
SECTION 5.01. CHECKS, DRAFTS, ETC. All checks, drafts and orders
for the payment of money, notes and other evidences of indebtedness, issued in
the name of the Corporation, shall, unless otherwise provided by resolution of
the Board of Directors, be signed by the President, a Vice-President or an
Assistant Vice-President and countersigned by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary.
SECTION 5.02. ANNUAL STATEMENT OF AFFAIRS. The President or Chief
Financial Officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial
statement of operations for the preceding fiscal year. The statement of affairs
shall be submitted at the annual meeting of the stockholders and, within 20
days after the meeting, placed on file at the Corporation's principal office.
To the extent that any other applicable authority shall require the Corporation
to produce and file reports of the same or substantially similar nature, any
such reports may suffice to satisfy the requirements of this Section 5.02 to
the extent permitted by law.
SECTION 5.03. FISCAL YEAR. The fiscal year of the Corporation
shall be the twelve calendar months period ending December 31 in each year,
unless otherwise provided by the Board of Directors.
SECTION 5.04. DIVIDENDS. If declared by the Board of Directors at
any meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
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<PAGE> 9
SECTION 5.05. CONTRACTS. To the extent permitted by applicable
law, and except as otherwise prescribed by the Charter or these By-Laws with
respect to certificates for shares, the Board of Directors may authorize any
officer, employee, or agent of the Corporation to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Corporation. Such authority may be general or confined to specific instances.
SECTION 5.06. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 5.07. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the Board of Directors may
select.
ARTICLE VI.
SUNDRY PROVISIONS
SECTION 6.01. BOOKS AND RECORDS. The Corporation shall keep
correct and complete books and records of its accounts and transactions and
minutes of the proceedings of its stockholders and Board of Directors and of
any executive or other committee when exercising any of the powers of the Board
of Directors. The books and records of a Corporation may be in written form or
in any other form which can be converted within a reasonable time into written
form for visual inspection. Minutes shall be recorded in written form but may
be maintained in the form of a reproduction. The original or a certified copy
of the By-Laws shall be kept at the principal office of the Corporation.
SECTION 6.02. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule, or regulation relating to a corporate seal to
place the word "Seal" adjacent to the signature of the person authorized to
sign the document on behalf of the Corporation.
SECTION 6.03. BONDS. The Board of Directors may require any
officer, agent or employee of the Corporation to give a bond to the
Corporation, conditioned upon the faithful discharge of his duties, with one or
more sureties and in such amount as may be satisfactory to the Board of
Directors.
SECTION 6.04. VOTING UPON SHARES IN OTHER CORPORATIONS. Stock of
other corporations or associations, registered in the name of the Corporation,
may be voted by the President, a Vice-President, or a proxy appointed by either
of them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
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<PAGE> 10
SECTION 6.05. MAIL. Any notice or other document which is required
by these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 6.06. EXECUTION OF DOCUMENTS. A person who holds more than
one office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 6.07. AMENDMENTS. In accordance with the Charter, these
By-Laws may be repealed, altered, amended or rescinded by the stockholders of
the Corporation only by vote of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the Board of Directors may repeal, alter, amend or
rescind these By-Laws by vote of a majority of the Board of Directors at a
legal meeting held in accordance with the provisions of these By-Laws.
SECTION 6.08. EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE. To
the fullest extent permitted by Maryland law, the Board of Directors shall have
the authority to determine that the provisions of Sections 3-701 to 3-709 of
the Corporations and Associations Article of the Annotated Code of Maryland
shall not apply to any share of the capital stock of the Corporation then or
thereafter beneficially held (during the period of such beneficial ownership)
by any then-current or contemplated shareholder, his spouse and children, any
lineal descendants of any of the foregoing, any estates of any of the
foregoing, any trusts now or hereafter established for the benefit of any of
the foregoing, any other entity now or hereafter controlled by any of the
foregoing, any of the associates or affiliates of the foregoing or any other
person acting in concert or as a group with any of the foregoing, and that such
shares of capital stock shall be exempted from such Sections to the fullest
extent permitted by Maryland law.
SECTION 6.09. RELIANCE. Each director, officer, employee and agent
of the Corporation shall, in the performance of his or her duties with respect
to the Corporation, be fully justified and protected with regard to any act or
failure to act in reliance in good faith upon the books of account or other
records of the Corporation, upon an opinion of counsel or upon reports made to
the Corporation by any of its officers or employees or by the adviser,
accountants, appraisers or other experts or consultants selected by the Board
of Directors or officers of the Corporation, regardless of whether such counsel
or expert may also be a director.
ARTICLE VII.
INDEMNIFICATION.
SECTION 7.01. PROCEDURE. Any indemnification, or payment of
expenses in advance of the final disposition of any proceeding, shall be made
promptly, and in any event within 60 days, upon the written request of the
director or officer entitled to seek indemnification (the "Indemnified Party").
The right to indemnification and advances hereunder shall be
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<PAGE> 11
enforceable by the Indemnified Party in any court of competent jurisdiction, if
(i) the Corporation denies such request, in whole or in part, or (ii) no
disposition thereof is made within 60 days. The Indemnified Party's costs and
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
reimbursed by the Corporation. It shall be a defense to any action for advance
for expenses that (a) a determination has been made that the facts then known
to those making the determination would preclude indemnification or (b) the
Corporation has not received either (i) an undertaking as required by law to
repay such advances in the event it shall ultimately be determined that the
standard of conduct has not been met or (ii) a written affirmation by the
Indemnified Party of such Indemnified Party's good faith belief that the
standard of conduct necessary for indemnification by the Corporation has been
met.
SECTION 7.02. EXCLUSIVITY, ETC. The indemnification and advance of
expenses provided by the Charter and these By-Laws shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advance of expenses may be entitled under any law (common or statutory), or any
agreement, vote of stockholders or disinterested directors or other provision
that is consistent with law, both as to action in his official capacity and as
to action in another capacity while holding office or while employed by or
acting as agent for the Corporation, shall continue in respect of all events
occurring while a person was a director or officer after such person has ceased
to be a director or officer, and shall inure to the benefit of the estate,
heirs, executors and administrators of such person. All rights to
indemnification and advance of expenses under the Charter of the Corporation
and hereunder shall be deemed to be a contract between the Corporation and each
director or officer of the Corporation who serves or served in such capacity at
any time while this By-Law is in effect. Nothing herein shall prevent the
amendment of this By-Law, provided that no such amendment shall diminish the
rights of any person hereunder with respect to events occurring or claims made
before its adoption or as to claims made after its adoption in respect of
events occurring before its adoption. Any repeal or modification of this By-Law
shall not in any way diminish any rights to indemnification or advance of
expenses of such director or officer or the obligations of the Corporation
arising hereunder with respect to events occurring, or claims made, while this
By-Law or any provision hereof is in force.
SECTION 7.03. SEVERABILITY; DEFINITIONS. The invalidity or
unenforceability of any provision of this Article VII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article VII means this Article VII in its entirety.
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<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
CN
COMMON STOCK COMMON STOCK
CUSIP 30150K 10 0
SEE REVERSE FOR CERTAIN DEFINITIONS
EXECUSTAY CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF. PAR VALUE $.01 PER SHARE
OF
EXECUSTAY CORPORATION transferable upon the books of the Corporation in person
or by attorney upon surrender of this Certificate properly endorsed or
assigned. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
Witness the seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
CHIEF EXECUTIVE OFFICER SECRETARY
COUNTERSIGNED AND REGISTERED
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT AND REGISTRAR
BY [SIG]
AUTHORIZED SIGNATURE
<PAGE> 2
EXECUSTAY CORPORATION
A full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof of the corporation and the qualifications, limitations or
restrictions of such preferences and/or rights will be furnished by said
corporation to any stockholder upon request and without charge.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with rights of
survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- Custodian
------------- -------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For value received, ____________________ hereby sell, assign, and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------
- ----------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- -------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated,
-------------------- ---------------------------------------------
NOTICE: The signatures to this
assignment must correspond with the notes as
written upon the face of the Certificate in
every particular, without alteration or
enlargement, or any change whatever.
SIGNATURE(S) GUARANTEED:
------------------------------------------------------
<PAGE> 1
EXHIBIT 5.1
[PIPER & MARBURY L.L.P. LETTERHEAD]
July 31, 1997
ExecuStay Corporation
7595 Rickenbacker Drive
Gaithersburg, MD 20879
Ladies and Gentlemen:
We have acted as special Maryland counsel to ExecuStay Corporation, a
Maryland corporation (the "Company"), in connection with the filing with the
Securities and Exchange Commission (the "Commission") of a Registration
Statement on Form S-1, file no. 333-30049 (the "Registration Statement"),
relating to 3,047,500 shares of Common Stock, $0.01 par value per share, of the
Company (the "Shares") to be offered to the public pursuant to the terms of the
prospectus contained in the Registration Statement (the "Prospectus") and an
underwriting agreement between the Company and A.G. Edwards & Sons, Inc. and
Equitable Securities Corporation, as representatives of the several
underwriters (the "Underwriting Agreement").
In this capacity, we have examined the Registration Statement, the
Prospectus, the form of Underwriting Agreement, the Charter and By-Laws of the
Company, the proceedings of the Board of Directors of the Company or a
committee thereof relating to the issuance of the Shares, a Certificate of
Executive Officer of the Company dated July 31, 1997, and such other statutes,
certificates, instruments, and documents relating to the Company and matters of
law as we have deemed necessary to the issuance of the opinion. In such
examination, we have assumed, without independent investigation, the
genuineness of all signatures, the legal capacity of all individuals who have
executed any of the aforesaid documents, the authenticity of documents
submitted to us as originals, the conformity with originals of all documents
submitted to us as copies (and the authenticity of the originals of such
copies), and that all public records reviewed are accurate and complete. As to
factual matters, we have relied on the Certificate of Executive Officer and
have not independently verified the matters stated therein.
Based upon the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion and so advise you
that upon the issuance and delivery of the Shares in accordance with the terms
set forth in the Prospectus and the Underwriting Agreement, the Shares will
have been duly and validly authorized and will be validly issued, fully paid,
and non-assessable.
<PAGE> 2
[PIPER & MARBURY L.L.P. LETTERHEAD]
ExecuStay Corporation
July 31, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus included in the Registration Statement. In giving
our consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or
the rules and regulations of the Commission thereunder.
Very truly yours,
<PAGE> 1
EXHIBIT 10.1
EXECUSTAY CORPORATION
1997 INCENTIVE AND STOCK OPTION PLAN
SECTION 1. PURPOSE.
The purpose of this 1997 Incentive and Stock
Option Plan is to promote the interests of ExecuStay Corporation (the
"Company"), and its shareholders by aiding the Company in attracting and
retaining employees and directors capable of contributing to the growth and
success of, and providing strategic direction to, the Company, and by offering
such employees and directors an opportunity to acquire a proprietary interest
in the Company, thereby providing them incentives to put forth maximum efforts
for the success of the Company's business and aligning the interests of such
employees and directors with those of the Company's shareholders.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall
have the meanings set forth below:
(a) "Affiliate" shall mean (i) any entity that,
directly or indirectly through one or more intermediaries, is controlled by the
Company and (ii) any entity in which the Company has a significant equity
interest, in each case as determined by the Committee.
(b) "Award" shall mean any Option or Other
Stock-Based Grant granted under the Plan.
(c) "Award Agreement" shall mean any written
agreement, contract or other instrument or document evidencing any Award
granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time, and any regulations promulgated
thereunder.
(e) "Committee" shall mean a committee of the
Board of Directors of the Company designated by such Board to administer the
Plan, which shall consist of members appointed from time to time by the Board
of Directors and shall be composed solely of two or more "non-employee
directors" within the meaning of Rule 16b-3, each of whom is an "outside
director" within the meaning of Section 162(m) of the Code to the extent
required by such Section.
(f) "Company" shall mean ExecuStay Corporation, a
Maryland corporation, and any successor corporation.
<PAGE> 2
(g) "Eligible Person" shall mean any employee,
officer, director, consultant or independent contractor providing services to
the Company or any Affiliate who the Committee determines to be an Eligible
Person.
(h) "Exchange Act" shall mean the Securities and
Exchange Act of 1934, as amended.
(i) "Fair Market Value" shall mean, with respect
to any property (including, without limitation, any Shares or other
securities), the fair market value of such property determined by such methods
or procedures as shall be established in good faith from time to time by the
Committee. Where there is a public market for the Shares, the fair market value
per Share on a given date shall be the closing price of a Share in the
over-the-counter market on such date, as reported in The Wall Street Journal
(or, if not so reported, as otherwise reported by the Nasdaq Stock Market
("Nasdaq") or, in the event the Shares are traded on the Nasdaq National Market
("NMS") or listed on a stock exchange, the fair market value per Share shall be
the closing price on such system or exchange on such date, as reported in The
Wall Street Journal; if such market or exchange is not open for trading on such
date, the Fair Market Value shall be determined as of the day closest to such
date when such market or exchange is open for trading.
(j) "Incentive Stock Option" shall mean an option
granted under Section 6(a) of the Plan that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
(k) "Non-Employee Director" shall mean a director
who is not also an employee of the Company or an Affiliate.
(l) "Non-Qualified Stock Option" shall mean an
option granted under Section 6(a) of the Plan that is not intended to be an
Incentive Stock Option.
(m) "Option" shall mean an Incentive Stock Option
or a Non-Qualified Stock Option.
(n) "Other Stock-Based Award" shall mean any
right granted under Section 6(b) of the Plan.
(o) "Participant" shall mean an Eligible Person
whom the Committee designates to receive an Award under the Plan.
(p) "Person" shall mean any individual,
corporation, partnership, association or trust.
(q) "Plan" shall mean this 1997 Incentive and
Stock Option Plan, as amended from time to time.
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<PAGE> 3
(r) "Shares" shall mean shares of Common Stock,
$.01 par value, of the Company or such other securities or property as may
become subject to Awards pursuant to an adjustment made under Section 4(c) of
the Plan.
SECTION 3. ADMINISTRATION.
(a) Power and Authority of the Committee. The
Plan shall be administered by the Committee; provided, however, that Section 7
of the Plan shall not be administered by the Committee but rather by the Board
of Directors subject to the provisions and restrictions of Section 7. Subject
to the express provisions of the Plan and to applicable law, and except with
respect to Section 7 of the Plan, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options;
(vi) determine whether, to what extent and under what circumstances Awards may
be exercised in cash, Shares, other securities, other Awards or other property,
or canceled, forfeited or suspended; (vii) determine whether, to what extent
and under what circumstances cash, Shares, other securities, other Awards,
other property and other amounts payable with respect to an Award under the
Plan shall be deferred either automatically or at the election of the holder
thereof or the Committee; (viii) interpret and administer the Plan and any
instrument or agreement relating to, or Award made under, the Plan; (ix)
establish, amend, suspend or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.
(b) Delegation. The Committee may delegate its
powers and duties under the Plan to one or more officers of the Company or any
Affiliate or a committee of such officers, subject to such terms, conditions
and limitations as the Committee may establish in its sole discretion;
provided, however, that the Committee shall not delegate its powers and duties
under the Plan (i) with regard to officers or directors of the Company or any
Affiliate who are subject to Section 16 of the Exchange Act in such a manner as
would cause any Award made under the Plan not to comply with the requirements
of Rule 16b-3 or (ii) in such a manner as would cause the Plan not to comply
with the requirements of Section 162(m) of the Code to the extent required by
such Section.
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<PAGE> 4
(c) Power and Authority of the Board of
Directors. Notwithstanding anything to the contrary contained herein, the
Board of Directors may, at any time and from time to time, without any further
action of the Committee, exercise the powers and duties of the Committee under
the Plan.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) Shares Available. Subject to adjustment as
provided in Section 4(c), the aggregate number of Shares which may be issued
under all Awards under the Plan shall be 700,000. Shares to be issued under the
Plan shall be authorized but previously unissued Shares. If any Shares covered
by an Award or to which an Award relates are not purchased or are forfeited, or
if an Award otherwise terminates without delivery of any Shares, then the number
of Shares counted against the aggregate number of Shares available under the
Plan with respect to such Award, to the extent of any such forfeiture or
termination, shall again be available for granting Awards under the Plan.
Notwithstanding the foregoing, and subject to adjustment as provided in the Plan
and Section 422 or 424 of the Code or any successor provision, the number of
Shares available under the Plan for granting Incentive Stock Options shall not
exceed 700,000 Shares.
(b) Accounting for Awards. For purposes of this
Section 4, if an Award entitles the holder thereof to receive or purchase
Shares, the number of Shares covered by such Award or to which such Award
relates shall be counted on the date of grant of such Award against the
aggregate number of Shares available for granting Awards under the Plan.
(c) Adjustments. In the event that the Committee
shall determine that any dividend or other distribution (whether in the form of
cash, Shares, other securities or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase or exchange of Shares or other securities of
the Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or other securities or other property) which
thereafter may be made the subject of Awards, (ii) the number and type of
Shares (or other securities or other property) subject to outstanding Awards
and (iii) the purchase or exercise price with respect to any Award; provided,
however, that the number of Shares covered by any Award or to which such Award
relates shall always be a whole number.
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<PAGE> 5
SECTION 5. ELIGIBILITY.
Any Eligible Person, including any Eligible Person
who is an officer or director of the Company or any Affiliate, shall be
eligible to be designated a Participant. In determining which Eligible Persons
shall receive an Award and the terms of any Award, the Committee may take into
account the nature of the services rendered by the respective Eligible Persons,
their present and potential contributions to the success of the Company or such
other factors as the Committee, in its discretion, shall deem relevant.
Notwithstanding the foregoing, an Incentive Stock Option may only be granted to
full or part-time employees (which term as used herein includes, without
limitation, officers and directors who are also employees) and an Incentive
Stock Option shall not be granted to an employee of an Affiliate unless such
Affiliate is also a "subsidiary corporation" of the Company within the meaning
of Section 424(f) of the Code or any successor provision. Non-Employee
Directors shall be eligible to receive Awards of Non-Qualified Stock Options
under the Plan only as provided in Section 7 of the Plan.
SECTION 6. AWARDS.
(a) Options. The Committee is hereby authorized
to grant Options to Participants with the following terms and conditions and
with such additional terms and conditions not inconsistent with the provisions
of the Plan as the Committee shall determine:
(i) Exercise Price. The purchase price per Share
purchasable under an Option shall be determined by the
Committee; provided, however, that the purchase price per
Share purchasable under an Option shall not be less than
100% of the Fair Market Value of a Share on the date of
grant of such Option.
(ii) Option Term. The term of each Option shall be
fixed by the Committee; provided, however, that the term
of an Incentive Stock Option may not extend more than ten
years from the date of grant of such Incentive Stock
Option.
(iii) Time and Method of Exercise. The Committee
shall determine the time or times at which an Option may
be exercised in whole or in part and the method or
methods by which, and the form or forms (including,
without limitation, cash, Shares, promissory notes, other
securities, other Awards or other property, or any
combination thereof, having a Fair Market Value on the
exercise date equal to the relevant exercise price) in
which payment of the exercise price with respect thereto
may be made or deemed to have been made.
(iv) Certain Options to be Treated as
Non-Qualified Stock Options. If the aggregate Fair Market
Value of all Shares subject to Incentive Stock
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<PAGE> 6
Options granted to a Participant under all plans of the
Company and its parent and subsidiary corporations (as
described in Section 422(d) of the Code) that are
exercisable for the first time during any calendar year
exceeds $100,000 at the time an Option is granted to
such Participant, then such Option shall be treated as
an Option that does not qualify as an Incentive Stock
Option.
(v) Ten Percent Shareholder Rule. Notwithstanding
any other provision in the Plan, if at the time an Option
is otherwise to be granted pursuant to the Plan to a
Participant who owns, directly or indirectly (within the
meaning of Section 424(d) of the Code), Common Stock of
the Company possessing more than 10% of the total
combined voting power of all classes of stock of the
Company or its parent or any subsidiary, then any
Incentive Stock Option to be granted to such Participant
pursuant to the Plan shall satisfy the requirements of
Section 422(c)(5) of the Code, and the exercise price of
such Option shall be not less than 110% of the Fair
Market Value of the Shares covered, and such Option by
its terms shall not be exercisable after the expiration
of five years from the date such Option is granted.
(vi) Option Limitations Under the Plan. No
Eligible Person who is an employee of the Company at the
time of grant may be granted any Option, the value of
which is based solely on an increase in the value of the
Shares after the date of grant of such Option, covering
more than 300,000 Shares in the aggregate in any calendar
year. The foregoing annual limitation specifically
includes the grant of any Option representing "qualified
performance-based compensation" within the meaning of
Section 162(m) of the Code to the extent required by such
Section.
(b) Other Stock-Based Awards. The Committee is
hereby authorized to grant to Participants such other Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares), as are deemed by the Committee to be
consistent with the purpose of the Plan; provided, however, that such grants
must comply with Rule 16b-3 and applicable law. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine the
terms and conditions of such Awards. Shares or other securities delivered
pursuant to a purchase right granted under this Section 6(b) shall be purchased
for such consideration, which may be paid by such method or methods and in such
form or forms (including, without limitation, cash, Shares, promissory notes,
other securities, other Awards or other property or any combination thereof),
as the Committee shall determine, the value of which consideration, as
established by the Committee, shall not be less than 100% of the Fair Market
Value of such Shares or other securities as of the date such purchase right is
granted.
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<PAGE> 7
(c) General. Except as otherwise specified with
respect to Awards to Non-Employee Directors pursuant to Section 7 of the Plan:
(i) No Cash Consideration for Awards. Awards
shall be granted for no cash consideration or for such
minimal cash consideration as may be required by
applicable law.
(ii) Grant of Additional Awards. An Eligible
Person who has been granted an Award under this Plan may
be granted additional Awards under the Plan if the
Committee shall so determine.
(iii) Forms of Payment under Awards. Subject to
the terms of the Plan and of any applicable Award
Agreement, payments or transfers to be made by the
Company or an Affiliate upon the grant, exercise or
payment of an Award may be made in such form or forms as
the Committee shall determine (including, without
limitation, cash, Shares, promissory notes, other
securities, other Awards or other property or any
combination thereof), and may be made in a single payment
or transfer, in installments or on a deferred basis, in
each case in accordance with rules and procedures
established by the Committee.
(iv) Limits on Transfer of Awards. No Award
(other than Other Stock Grants) and no right under any
such Award shall be transferable by a Participant
otherwise than by will or by the laws of descent and
distribution; provided, however, that, if so determined
by the Committee, a Participant may, in the manner
established by the Committee, designate a beneficiary or
beneficiaries to exercise the rights of the Participant
and receive any property distributable with respect to
any Award upon the death of the Participant. Each Award
or right under any Award shall be exercisable during the
Participant's lifetime only by the Participant or, if
permissible under applicable law, by the Participant's
guardian or legal representative. No Award or right under
any such Award may be pledged, alienated, attached or
otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be
void and unenforceable against the Company or any
Affiliate.
(v) Term of Awards. The term of each Award shall
be for such period as may be determined by the Committee
and the Committee shall be under no duty to provide terms
of like duration for Awards granted under the Plan.
(vi) Restrictions; Securities Exchange Listing.
All certificates for Shares or other securities delivered
under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations and other
requirements of the Securities and Exchange
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<PAGE> 8
Commission and any applicable federal or state
securities laws, and the Committee may cause a legend or
legends to be placed on any such certificates to make
appropriate reference to such restrictions. If the
Shares or other securities are quoted on Nasdaq, traded
on NMS or listed on a stock exchange, the Company shall
not be required to deliver any Shares or other
securities covered by an Award unless and until such
Shares or other securities have been admitted for
quotation or trading on NMS or such stock exchange.
SECTION 7. OPTIONS TO NON-EMPLOYEE DIRECTORS.
(a) Eligibility. If the Plan is approved by the
shareholders of the Company, Options shall be granted automatically under the
plan to each Non-Employee Director under the terms and conditions contained in
this Section 7. The authority of the Committee under this Section 7 shall be
limited to ministerial and non-discretionary matters.
(b) Option Grants. Each Non-Employee Director
serving on the Company's Board of Directors upon effectiveness of the Company's
initial public offering (the "Public Offering") will be granted an Option to
purchase 10,000 shares of Common Stock. Each Non-Employee Director first elected
or appointed following the Public Offering shall also be granted an Option to
purchase 10,000 Shares on the date of their election or appointment.
Non-Employee Directors shall be granted additional Options to purchase 10,000
Shares at the fourth anniversary of the initial grant if such director continues
to serve on the Board of Directors. The exercise price of each Option shall be
equal to 100% of the Fair Market Value per Share on the date of grant. Such
Options shall be Non-Qualified Stock Options, shall terminate on the tenth
anniversary of the date of grant, unless previously exercised or terminated, and
shall be exercisible as to 25% of the shares subject to such option on the date
of grant and as to an additional 25% on each of the first, second and third
anniversaries of the date of grant. Such Options shall be subject to the terms
and conditions of Sections 6(a) and 10 of the Plan and to other standard terms
and conditions contained in the form of Non-Qualified Stock Option Agreement
used by the Company from time to time. Such Options shall also terminate three
months following the date upon which the participant ceases to be a director of
the Company, except that:
(i) In the event that a Non-Employee Director who
is granted an Option shall cease to be a director of the
Company by reason of such director's willful and material
misconduct, the Options shall terminate as of the date of
such misconduct, and
(ii) If a Non-Employee Director who is granted an
Option shall die while a director of the Company or
within three months after he or she ceases to be a
director of the Company for any reason other than willful
and material misconduct, or if such director ceases to be
a director of the Company by
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<PAGE> 9
reason of his or her disability and he or she shall not
have fully exercised the Option, the Option may be
exercised at any time within 12 months after such
director's death, or 12 months after cessation of
directorship, in accordance with its terms by such
director's legal representatives or administrators or by
any person or persons to whom the Option has been
transferred by will or the applicable laws of descent
and distribution, but only to the extent of the full
number of Shares such director was entitled to purchase
under the Option on the date of death or cessation of
directorship.
(c) Exercise of Non-Employee Director Options.
Non-Qualified Stock Options granted to Non-Employee Directors may be exercised
in whole or in part from time to time by serving written notice of exercise on
the Company at its principal executive offices, to the attention of the
Company's Secretary. The notice shall state the number of Shares as to which
the Option is being exercised and be accompanied by payment of the purchase
price. A Non-Employee Director may, at such Director's election, pay the
purchase price by check payable to the Company, by promissory note, in Shares,
or in any combination thereof having a Fair Market Value on the exercise date
equal to the applicable exercise price. If payment or partial payment is made by
promissory note, such note shall be (i) full recourse, (ii) limited in principal
amount to the maximum amount permitted under applicable laws, rules and
regulations, (iii) bear interest at a rate not less than the minimum rate
required to avoid the imputation of income, original issue discount or a
below-market-rate loan pursuant to Sections 483, 1274 or 7872 of the Code or any
successor provisions thereto.
(d) Amendments to Section 7. The provisions of
this Section 7 may not be amended more often than once every six months other
than to comply with changes in the Code or the rules and regulations
promulgated under the Code.
SECTION 8. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law
and unless otherwise expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of
Directors of the Company may amend, alter, suspend, discontinue or terminate
the Plan; provided, however, that, notwithstanding any other provision of the
Plan or any Award Agreement, without the approval of the shareholders of the
Company, no such amendment, alteration, suspension, discontinuation or
termination shall be made that, absent such approval, would:
(i) cause Rule 16b-3 under the Exchange Act or
Section 162(m) of the Code to become unavailable with
respect to the Plan;
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<PAGE> 10
(ii) violate the rules or regulations of Nasdaq,
NMS or any stock exchange that are applicable to the
Company; or
(iii) cause the Company to be unable, under the
Code, to grant Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may
waive any conditions or rights of the Company under any outstanding Award,
prospectively or retroactively. The Committee may not amend, alter, suspend,
discontinue or terminate any outstanding Award, prospectively or retroactively,
without the consent of the Participant or holder or beneficiary thereof, except
as otherwise provided herein or in the Award Agreement.
(c) Correction of Defects, Omissions and
Inconsistencies. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall deem desirable to carry the Plan into effect.
SECTION 9. INCOME TAX WITHHOLDING; TAX BONUSES.
(a) Withholding. In order to comply with all
applicable federal or state income tax laws or regulations, the Company may
take such action as it deems appropriate to ensure that all applicable federal
or state payroll, withholding, income or other taxes, all of which are and
shall remain the sole and absolute responsibility of a Participant, are
withheld or collected from such Participant. In order to assist a Participant in
paying all or a portion of the federal and state taxes to be withheld or
collected upon exercise or receipt of (or the lapse of restrictions relating to)
an Award, the Committee, in its discretion and subject to such additional terms
and conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or (ii) delivering to the Company Shares other than Shares
issuable upon exercise or receipt of (or the lapse of restrictions relating to)
such Award with a Fair Market Value equal to the amount of such taxes. The
election, if any, must be made on or before the date that the amount of tax to
be withheld is determined.
(b) Tax Bonuses. The Committee, in its
discretion, shall have the authority, at the time of grant of any Award under
this Plan or at any time thereafter, to approve cash bonuses to designated
Participants (except to Non-Employee Directors) to be paid upon their exercise
or receipt of (or the lapse of restrictions relating to) Awards in order to
provide funds to pay all or a portion of federal and state taxes due as a
result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount
of any such tax bonus.
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<PAGE> 11
SECTION 10. GENERAL PROVISIONS.
(a) No Rights to Awards. No Eligible Person,
Participant or other Person shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of treatment of Eligible
Persons, Participants or holders or beneficiaries of Awards under the Plan. The
terms and conditions of Awards need not be the same with respect to any
Participant or with respect to different Participants.
(b) Award Agreements. No Participant will have
rights under an Award granted to such Participant unless and until an Award
Agreement shall have been duly executed on behalf of the Company and, if
required by the Company, signed by the Participant.
(c) No Limit on Other Compensation Arrangements.
Nothing contained in the Plan shall prevent the Company or any Affiliate from
adopting or continuing in effect other or additional compensation arrangements,
and such arrangements may be either generally applicable or applicable only in
specific cases.
(d) No Right to Employment. The grant of an
Award shall not be construed as giving a Participant the right to be retained
in the employ, or as giving a Non-Employee Director the right to continue as a
Director, of the Company or any Affiliate, nor will it affect in any way the
right of the Company or an Affiliate to terminate such employment at any time,
with or without cause. In addition, the Company or an Affiliate may at any
time dismiss a Participant from employment, or terminate the term of a
Non-Employee Director, free from any liability or any claim under the Plan,
unless otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction
and effect of the Plan or any Award, and any rules and regulations relating to
the Plan or any Award, shall be determined in accordance with the laws of the
State of Maryland.
(f) Severability. If any provision of the Plan
or any Award is or becomes or is deemed to be invalid, illegal or unenforceable
in any jurisdiction or would disqualify the Plan or any Award under any law
deemed applicable by the Committee (or, in the case of grants under Section 7
of the Plan, the Board of Directors), such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be so construed
or deemed amended without, in the determination of the Committee (or, in the
case of grants under Section 7 of the Plan, the Board of Directors), materially
altering the purpose or intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction or Award, and the remainder of the Plan or
any such Award shall remain in full force and effect.
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<PAGE> 12
(g) No Trust or Fund Created. Neither the Plan
nor any Award shall create or be construed to create a trust or separate fund
of any kind or a fiduciary relationship between the Company or any Affiliate
and a Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any unsecured general
creditor of the Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares
shall be issued or delivered pursuant to the Plan or any Award, and the
Committee shall determine whether cash shall be paid in lieu of any fractional
Shares or whether such fractional Shares or any rights thereto shall be
canceled, terminated or otherwise eliminated.
(i) Headings. Headings are given to the Sections
and subsections of the Plan solely as a convenience to facilitate reference.
Such headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
(j) Other Benefits. No compensation or benefit
awarded to or realized by any Participant under the Plan shall be included for
the purpose of computing such Participant's compensation under any
compensation-based retirement, disability, or similar plan of the Company
unless required by law or otherwise provided by such other plan.
(k) Section 16(b) Compliance. The Plan is
intended to comply in all respects with Rule 16b-3 or any successor provision,
as in effect from time to time, and in all events the Plan shall be construed
in accordance with the requirements of Rule 16b-3. If any Plan provision does
not comply with Rule 16b-3 as hereafter amended or interpreted, the provision
shall be deemed inoperative. The Board of Directors, in its absolute
discretion, may bifurcate the Plan so as to restrict, limit or condition the
use of any provision of the Plan to participants who are (i) officers or
directors of the Company or (ii) Affiliates, in each case subject to Section 16
of the Exchange Act, without so restricting, limiting or conditioning the Plan
with respect to other participants.
SECTION 11. EFFECTIVE DATE; TERM.
(a) Effective Date. The Plan shall be effective
as of the date of its approval by the Board of Directors of the Company (the
"Effective Date"); provided, however, that if the Company's shareholders do not
approve the Plan at a meeting of shareholders within one year of the Effective
Date, the Plan shall be null and void and all Awards granted under the Plan
shall be of no force or effect.
(b) Term. Awards shall be granted under the Plan
only during a 10- year period beginning on the Effective Date. Unless
otherwise expressly provided in
12
<PAGE> 13
the Plan or in an applicable Award Agreement, however, any Award theretofore
granted may extend beyond the end of such 10-year period, and the authority of
the Committee provided for hereunder with respect to the Plan and any Awards,
and the authority of the Board of Directors of the Company to amend the Plan,
shall extend beyond the termination of the Plan.
13
<PAGE> 14
EXECUSTAY CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (the "Agreement") is
made and entered into effective as of _______________, ____, by and between
ExecuStay Corporation, a Maryland corporation (the "Company"), and
_____________________ ("Optionee").
WHEREAS, the Company has adopted the ExecuStay Corporation
1997 Incentive and Stock Option Plan (the "Plan"), which permits the issuance
of stock options for the purchase of shares of the Company's Common Stock, $.01
par value, (the "Common Stock"), and the Company wishes to grant this stock
option to Optionee pursuant to the Plan. (Capitalized terms used herein but
not otherwise defined herein have the meanings assigned to them in the Plan.)
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, and for other good and valuable
consideration, the adequacy and receipt of which are hereby acknowledged, the
Company and Optionee do hereby agree as follows:
SECTION 1. GRANT OF OPTION.
The Company hereby grants Optionee, as of the date of this
Agreement, the right and option (hereinafter called the "Option") to purchase
all or any part of an aggregate of ________ shares of the Common Stock at the
price of $_____ per share and subject to all of the terms and conditions of
this Agreement and of the Plan. The Option is not intended to be an Incentive
Stock Option governed by the provisions of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
-1-
<PAGE> 15
SECTION 2. DURATION AND EXERCISABILITY.
(a) The Option may not be exercised by Optionee except as
set forth below, and the Option shall in all events terminate ten years from
the date hereof. Subject to the other terms and conditions set forth herein,
the Option shall vest and may be exercised by Optionee in cumulative
installments as follows:
Cumulative percentage
On or after each of of shares as to which the
the following dates Option is exercisable___
------------------- ------------------------
(b) During the lifetime of Optionee, the Option shall be
exercisable only by Optionee. The Option shall not be assignable or
transferable by Optionee, otherwise than by will or the laws of descent or
distribution.
SECTION 3. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) In the event that Optionee shall cease to be employed by
the Company or its Affiliates for any reason other than Optionee's gross and
willful misconduct or Optionee's death or disability, Optionee shall have the
right to exercise the Option at any time within three months after such
termination of employment to the extent of the full number of shares Optionee
was entitled to purchase under the Option on the date of termination, subject
to the condition that the Option shall not be exercisable after the expiration
of its term.
(b) In the event that Optionee shall cease to be employed by
the Company or its Affiliates by reason of Optionee's gross and willful
misconduct during the course of employment (as reasonably determined by the
Company), the Option shall terminate as of the date of the misconduct.
(c) If Optionee shall die while in the employ of the Company
or its Affiliates or within three months after termination of employment for
any reason other than gross and willful misconduct, or if Optionee shall become
disabled within the meaning of Section 22(e)(3) of the Code while in the employ
of the Company or its Affiliates and Optionee shall not have fully exercised
the Option, the Option may be exercised at any time within twelve months after
Optionee's
-2-
<PAGE> 16
death or disability by the legal representative or, if applicable, guardian of
Optionee, or by any person to whom the Option is transferred by will or the
applicable laws of descent or distribution, to the extent of the full number of
shares Optionee was entitled to purchase under the Option on the date of death
(or termination of employment, if earlier) or disability and subject to the
condition that the Option shall not be exercisable after the expiration of its
term.
SECTION 4. MANNER OF EXERCISE.
(a) The Option may only be exercised by Optionee or other
proper party by delivery, within the Option period, of written notice to the
Company at its principal office. The notice shall state the number of shares
as to which the Option is being exercised. The Company will verify the
appropriateness of the election and determine the amounts of compensation and
related withholding tax.
(b) The exercise amount and applicable taxes must be
tendered by the Optionee or other proper party prior to the issuance of shares
covered by the notice of exercise. Payment shall be made to the Company in
cash (including bank check, certified check, personal check, or money order),
or, at the discretion of the Committee and as specified by the Committee, (i)
by delivering certificates for Common Stock already owned by the Optionee or
other proper party having a Fair Market Value as of the date of exercise equal
to the full purchase price of the shares as to which the Option is exercised,
(ii) by delivery (including by facsimile) to the Company or its designated
agent of an executed irrevocable option exercise form together with irrevocable
instructions to a broker-dealer to sell a sufficient portion of the shares as
to which the Option is exercised and deliver the sale proceeds directly to the
Company to pay for the exercise price, (iii) by delivering to the Company the
full option price in a combination of cash and Employee's full recourse
liability promissory note with a principal amount not to exceed eighty percent
(80%) of the option price and a term not to exceed five (5) years, which
promissory note shall provide for interest on the unpaid balance thereof which
at all times is not less than the minimum rate required to avoid the imputation
of income, original issue discount or a below-market rate loan pursuant to
Sections 483, 1274 or 7872 of the Code or any successor provisions thereto,
(iv) by a combination of the foregoing methods of payment, or (v) such other
consideration and method of payment for the issuance of shares as may be
permitted under applicable laws.
(c) The exercise of the Option is contingent upon receipt
from Optionee (or other proper person exercising the Option) of a
representation that, at the time of such exercise, it is Optionee's intention
to acquire the shares being purchased for investment and not with a view to the
distribution or sale thereof within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"); provided, however, that the receipt of such
representation shall not be required
-3-
<PAGE> 17
upon exercise of the Option in the event that, at the time of such exercise,
the shares subject to the Option shall have been properly registered under the
Securities Act and all applicable state securities laws. Such representation
shall be in writing and in such form as the Company may reasonably request.
The certificate representing the shares so issued for investment shall be
imprinted with an appropriate legend setting forth all applicable restrictions
on the transferability of such shares.
SECTION 5. MISCELLANEOUS.
(a) The Option is issued pursuant to the Plan and is subject
to all of the terms and conditions thereof. Optionee acknowledges receipt of a
copy of the Plan and represents to the Company that he or she is familiar with
the provisions thereof.
(b) Nothing in this Agreement shall confer on Optionee any
right to continue in the employ of the Company or any Affiliate of the Company
or affect, in any way, the right of the Company or any Affiliate of the Company
to terminate Optionee's employment at any time.
(c) Until Optionee or any other proper party has been issued
the shares as to which this Option has been exercised, he or she shall possess
no rights as a shareholder with respect to such shares.
(d) The exercise of all or any part of the Option shall only
be effective at such time as the sale of the Common Stock pursuant to such
exercise will not violate any federal or state securities laws.
(e) If there shall be any change in the Common Stock subject
to the Option, through any dividend or other distribution (whether in the form
of cash, shares of Common Stock, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of
shares of Common Stock or other securities of the Company, issuance of warrants
or other rights to purchase shares of Common Stock or other securities of the
Company or other similar corporate transaction or event, then, in order to
prevent dilution or enlargement of the option rights granted hereunder, the
Committee shall make appropriate adjustments in accordance with the Plan in the
number and type of shares of Common Stock (or other securities or other
property) subject to the Option and the exercise price with respect to the
Option; provided, however, that the number of shares of Common Stock subject to
the Option shall always be a whole number.
-4-
<PAGE> 18
(f) The Company shall at all times during the term of the
Option reserve and keep available such number of shares of the Common Stock as
will be sufficient to satisfy the requirements of this Agreement.
SECTION 6. FEDERAL AND STATE TAXES
In order to provide the Company with the opportunity to claim
the benefit of any income tax deduction which may be available to it upon the
exercise of the option, and in order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to insure that, if necessary, all applicable federal or state
payroll, withholding, income or other taxes are withheld or collected from
Employee. Employee may elect to satisfy his or her federal and state income
tax withholding obligations upon exercise of this option by (i) having the
Company withhold a portion of the shares of Common Stock otherwise to be
delivered upon exercise of such option having a fair market value equal to the
amount of federal and state income tax required to be withheld upon such
exercise, in accordance with the rules of the Committee, or (ii) delivering to
the Company shares of its Common Stock other than the shares issuable upon
exercise of such option with a fair market value equal to such taxes, in
accordance with the rules of the Committee.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed effective as of the date first set forth above.
ExecuStay Corporation
By
--------------------------------
Name
--------------------------
Its
---------------------------
[Optionee]
-----------------------------------
Name
-------------------------
-5-
<PAGE> 19
EXECUSTAY CORPORATION
EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT
This Employee Incentive Stock Option Agreement (the
"Agreement") is made and entered into effective as of _____________, _____, by
and between ExecuStay Corporation, a Maryland corporation (the "Company"), and
_____________________ ("Optionee").
WHEREAS, the Company has adopted the ExecuStay Corporation
1997 Incentive and Stock Option Plan (the "Plan"), which permits the issuance
of stock options for the purchase of shares of the Common Stock, $.01 par
value, of the Company (the "Common Stock"), and the Company wishes to grant
this stock option to Optionee pursuant to the Plan. (Capitalized terms used
herein but not otherwise defined herein have the meanings assigned to them in
the Plan.)
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, and for other good and valuable
consideration, the adequacy and receipt of which are hereby acknowledged, the
Company and Optionee do hereby agree as follows:
SECTION 1. GRANT OF OPTION.
The Company hereby grants Optionee, as of the date of this
Agreement, the right and option (hereinafter called the "Option") to purchase
all or any part of an aggregate of ________ shares of the Common Stock at the
price of $_____ per share and subject to all of the terms and conditions of
this Agreement and of the Plan. It is understood and agreed that such price is
not less than 100% of the Fair Market Value of each such share on the date of
this Agreement. The Option is intended to be an Incentive Stock Option
governed by the provisions of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
<PAGE> 20
SECTION 2. DURATION AND EXERCISABILITY.
(a) The Option may not be exercised by Optionee except as
set forth below, and the Option shall in all events terminate ten years from
the date hereof. Subject to the other terms and conditions set forth herein,
the Option shall vest and may be exercised by Optionee in cumulative
installments as follows:
<TABLE>
<CAPTION>
Cumulative percentage
On or after each of of shares as to which the
the following dates Option is exercisable
------------------- ------------------------
<S> <C>
</TABLE>
(b) During the lifetime of Optionee, the Option shall be
exercisable only by Optionee. The Option shall not be assignable or
transferable by Optionee, otherwise than by will or the laws of descent or
distribution.
(c) Optionee understands that to the extent that the
aggregate fair market value (determined as of the date hereof) of the Common
Stock with respect to which all Incentive Stock Options (within the meaning of
Section 422 of the Code) are exercisable for the first time by Optionee during
any calendar year exceeds $100,000, such options shall be treated as options
that do not qualify as Incentive Stock Options.
SECTION 3. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) In the event that Optionee shall cease to be employed by
the Company or its Affiliates for any reason other than Optionee's gross and
willful misconduct or Optionee's death or disability, Optionee shall have the
right to exercise the Option at any time within three months after such
termination of employment to the extent of the full number of shares Optionee
was entitled to purchase under the Option on the date of termination, subject
to the condition that the Option shall not be exercisable after the expiration
of its term.
(b) In the event that Optionee shall cease to be employed by
the Company or its Affiliates by reason of Optionee's gross and willful
misconduct during the course of employment (as reasonably determined by the
Company), the Option shall terminate as of the date of the misconduct.
-2-
<PAGE> 21
(c) If Optionee shall die while in the employ of the Company
or its Affiliates or within three months after termination of employment for
any reason other than gross and willful misconduct, or if Optionee shall become
disabled within the meaning of Section 22(e)(3) of the Code while in the employ
of the Company or its Affiliates and Optionee shall not have fully exercised
the Option, the Option may be exercised at any time within twelve months after
Optionee's death or disability by the legal representative or, if applicable,
guardian of Optionee, or by any person to whom the Option is transferred by
will or the applicable laws of descent or distribution, to the extent of the
full number of shares Optionee was entitled to purchase under the Option on the
date of death (or termination of employment, if earlier) or disability and
subject to the condition that the Option shall not be exercisable after the
expiration of its term.
SECTION 4. MANNER OF EXERCISE.
(a) The Option may only be exercised by Optionee or other
proper party by delivery, within the Option period, of written notice to the
Company at its principal office. The notice shall state the number of shares
as to which the Option is being exercised. The Company will verify the
appropriateness of the election and determine the amounts of compensation and
related withholding tax.
(b) The exercise amount and applicable taxes must be
tendered by the Optionee or other proper party prior to the issuance of shares
covered by the notice of exercise. Payment shall be made to the Company in
cash (including bank check, certified check, personal check, or money order),
or, at the discretion of the Committee and as specified by the Committee, (i)
by delivering certificates for Common Stock already owned by the Optionee or
other proper party having a Fair Market Value as of the date of exercise equal
to the full purchase price of the shares as to which the Option is exercised,
(ii) by delivery (including by facsimile) to the Company or its designated
agent of an executed irrevocable option exercise form together with irrevocable
instructions to a broker-dealer to sell a sufficient portion of the shares as
to which the Option is exercised and deliver the sale proceeds directly to the
Company to pay for the exercise price, (iii) by delivering to the Company the
full option price in a combination of cash and Employee's full recourse
liability promissory note with a principal amount not to exceed eighty percent
(80%) of the option price and a term not to exceed five (5) years, which
promissory note shall provide for interest on the unpaid balance thereof which
at all times is not less than the minimum rate required to avoid the imputation
of income, original issue discount or a below-market rate loan pursuant to
Sections 483, 1274 or 7872 of the Code or any successor provisions thereto,
(iv) by a combination of the foregoing methods of payment, or (v) such other
consideration and method of payment for the issuance of shares as may be
permitted under applicable laws.
-3-
<PAGE> 22
(c) The exercise of the Option is contingent upon receipt
from Optionee (or other proper person exercising the Option) of a
representation that, at the time of such exercise, it is Optionee's intention
to acquire the shares being purchased for investment and not with a view to the
distribution or sale thereof within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"); provided, however, that the receipt of such
representation shall not be required upon exercise of the Option in the event
that, at the time of such exercise, the shares subject to the Option shall have
been properly registered under the Securities Act and all applicable state
securities laws. Such representation shall be in writing and in such form as
the Company may reasonably request. The certificate representing the shares so
issued for investment shall be imprinted with an appropriate legend setting
forth all applicable restrictions on the transferability of such shares.
SECTION 5. MISCELLANEOUS.
(a) The Option is issued pursuant to the Plan and is subject
to all of the terms and conditions thereof. Optionee acknowledges receipt of a
copy of the Plan and represents to the Company that he or she is familiar with
the provisions thereof.
(b) Nothing in this Agreement shall confer on Optionee any
right to continue in the employ of the Company or any Affiliate of the Company
or affect, in any way, the right of the Company or any Affiliate of the Company
to terminate Optionee's employment at any time.
(c) Until Optionee or any other proper party has been issued
the shares as to which this Option has been exercised, he or she shall possess
no rights as a shareholder with respect to such shares.
(d) The exercise of all or any part of the Option shall only
be effective at such time as the sale of the Common Stock pursuant to such
exercise will not violate any federal or state securities laws.
(e) If there shall be any change in the Common Stock subject
to the Option, through any dividend or other distribution (whether in the form
of cash, shares of Common Stock, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of
shares of Common Stock or other securities of the Company, issuance of warrants
or other rights to purchase shares of Common Stock or other securities of the
Company or other similar corporate transaction or event, then, in order to
prevent dilution or enlargement of the option rights granted hereunder, the
Committee shall make appropriate adjustments in accordance with the Plan in the
number and type of shares of Common Stock (or
-4-
<PAGE> 23
other securities or other property) subject to the Option and the exercise
price with respect to the Option; provided, however, that the number of shares
of Common Stock subject to the Option shall always be a whole number.
(f) The Company shall at all times during the term of the
Option reserve and keep available such number of shares of the Common Stock as
will be sufficient to satisfy the requirements of this Agreement.
(g) If Optionee shall dispose of any of the shares of Common
Stock acquired upon exercise of the Option within two years from the date
hereof or within one year after exercise of the Option, then, in order to
provide the Company with the opportunity to claim the benefit of any income tax
deduction which may be available to it under the circumstances, Optionee shall
promptly notify the Company of the dates of acquisition and disposition of such
shares, the number of shares so disposed of, and the consideration, if any,
received for such shares. In order to comply with all applicable federal and
state income tax laws and regulations, the Company may take such action as it
deems appropriate to ensure that, if necessary, all applicable federal or state
payroll, withholding, income or other taxes are withheld or collected from
Optionee.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed effective as of the date first set forth above.
ExecuStay Corporation
By
------------------------------
Name
------------------------
Its
-------------------------
[Optionee]
---------------------------------
Name
------------------------
-5-
<PAGE> 24
EXECUSTAY CORPORATION
NON-EMPLOYEE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
This Non-Employee Director Nonqualified Stock Option Agreement
(the "Agreement") is made and entered into effective as of _______________,
____, by and between ExecuStay Corporation, a Maryland corporation (the
"Company"), and _____________________("Optionee").
WHEREAS, the Company has adopted the ExecuStay Corporation
1997 Incentive and Stock Option Plan (the "Plan"), which permits the issuance
of stock options for the purchase of shares of the Company's Common Stock, $.01
par value, (the "Common Stock"), and the Company wishes to grant this stock
option to Optionee pursuant to the Plan. (Capitalized terms used herein but
not otherwise defined herein have the meanings assigned to them in the Plan.)
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, and for other good and valuable
consideration, the adequacy and receipt of which are hereby acknowledged, the
Company and Optionee do hereby agree as follows:
SECTION 1. GRANT OF OPTION.
The Company hereby grants Optionee, as of the date of this
Agreement, the right and option (hereinafter called the "Option") to purchase
all or any part of an aggregate of 10,000 shares of Common Stock at the price
of $_____ per share and subject to all of the terms and conditions of this
Agreement and of the Plan. The Option is not intended to be an Incentive Stock
Option governed by the provisions of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
SECTION 2. DURATION AND EXERCISABILITY.
(a) The Option may not be exercised by Optionee
except as set forth below, and the Option shall in all events terminate ten
years from the date hereof. Subject to the other terms and conditions set
forth herein, the Option shall vest and may be exercised by Optionee in
cumulative installments as follows:
<TABLE>
<CAPTION>
Percentage
On or after each of of Shares as to which the
the following dates Option is exercisable
------------------- ---------------------------
<S> <C>
Effective date . . . . . . . . . . 25%;
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
First anniversary of
effective date . . . . . . . . . . 50%;
Second anniversary of effective date 75%;
Third anniversary of
effective date . . . . . . . . . . 100%
</TABLE>
(b) During the lifetime of Optionee, the Option shall be
exercisable only by Optionee. The Option shall not be assignable or
transferable by Optionee, other than by will or the laws of descent and
distribution.
SECTION 3. EFFECT OF TERMINATION OF DIRECTORSHIP.
(a) If Optionee ceases to serve as Director of the Company
(including termination due to inability to continue service as Director with
the Company as a result of Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code)), Optionee may exercise the Option to
the extent that he was entitled to exercise it at the date of such termination.
To the extent that Optionee is not entitled to exercise the Option at the date
of such termination, or if Optionee does not exercise such Option (which he was
entitled to exercise) within the term of the Option, the Option shall
terminate.
(b) Notwithstanding the provisions of Section 3(a) above, if
Optionee dies during the term of the Option:
(i) If Optionee was at the time of death
serving as Director and had been in Continuous Status as a
Director since the date of grant of the Option, then the
Option may be exercised by Optionee's estate or by a
person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of
the right to exercise that would have accrued had Optionee
continued living and remained in Continuous Status
as Director for six months after the date of death.
(ii) If Optionee's death occurred within 30
days after the termination of Optionee's Continuous
Status as Director, then the Option may be exercised
by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or
inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination
of Continuous Status as Director.
-2-
<PAGE> 26
SECTION 4. MANNER OF EXERCISE.
(a) The Option may only be exercised by Optionee or other
proper party within the option period by delivering written notice of exercise
to the Company at its principal executive office. The notice shall state the
number of Shares as to which the Option is being exercised and shall be
accompanied by payment in full of the option price for all of the Shares
designated in the notice.
(b) Optionee may, at the Company's election, pay the
option price in cash, by check (bank check, certified check or personal check)
or by any other means set forth in the Plan.
(c) The exercise of the Option is contingent upon receipt
from Optionee (or other proper person exercising the Option) of a
representation that, at the time of such exercise, it is Optionee's intention
to acquire the Shares being purchased for investment and not with a view to the
distribution or sale thereof within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"); provided, however, that the receipt of such
representation shall not be required upon exercise of the Option if, at the
time of such exercise, the issuance of the Shares subject to the Option shall
have been properly registered under the Securities Act and all applicable state
securities laws. Such representation shall be in writing and in such form as
the Company may reasonably request. The certificate representing the Shares so
issued for investment shall be imprinted with an appropriate legend setting
forth all applicable restrictions on their transferability.
SECTION 5. MISCELLANEOUS
(a) The Option is issued pursuant to the Plan and is
subject to all of the terms and conditions thereof. Optionee acknowledges
receipt of a copy of the Plan and represents to the Company that he or she is
familiar with the provisions thereof.
(b) Until Optionee or any other proper party has been
issued the shares as to which this Option has been exercised, he or she shall
possess no rights as a shareholder with respect to such shares.
(c) The exercise of all or any part of the Option shall
only be effective at such time as the sale of the Common Stock pursuant to such
exercise will not violate any federal or state securities laws.
(d) If there shall be any change in the Common Stock
subject to the Option, through any dividend or other distribution (whether in
the form of cash, shares of Common Stock, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of
shares of Common Stock or other securities
-3-
<PAGE> 27
of the Company, issuance of warrants or other rights to purchase shares of
Common Stock or other securities of the Company or other similar corporate
transaction or event, then, in order to prevent dilution or enlargement of the
option rights granted hereunder, the Committee shall make appropriate
adjustments in accordance with the Plan in the number and type of shares of
Common Stock (or other securities or other property) subject to the Option and
the exercise price with respect to the Option; provided, however, that the
number of shares of Common Stock subject to the Option shall always be a whole
number.
(e) The Company shall at all times during the term of the
Option reserve and keep available such number of shares of the Common Stock as
will be sufficient to satisfy the requirements of this Agreement.
SECTION 6. FEDERAL AND STATE TAXES
In order to provide the Company with the opportunity to claim
the benefit of any income tax deduction which may be available to it upon the
exercise of the option, and in order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to insure that, if necessary, all applicable federal or state
payroll, withholding, income or other taxes are withheld or collected from
Optionee. Optionee may elect to satisfy his or her federal and state income
tax withholding obligations upon exercise of this option by (i) having the
Company withhold a portion of the shares of Common Stock otherwise to be
delivered upon exercise of such option having a fair market value equal to the
amount of federal and state income tax required to be withheld upon such
exercise, in accordance with the rules of the Committee, or (ii) delivering to
the Company shares of its Common Stock other than the shares issuable upon
exercise of such option with a fair market value equal to such taxes, in
accordance with the rules of the Committee.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed effective as of the date first set forth above.
ExecuStay Corporation
By
----------------------------
Name
-----------------------
Its
------------------------
[Optionee]
-------------------------------
Name
------------------------
-4-
<PAGE> 1
EXHIBIT 10.7
[CRESTAR BANK LETTERHEAD]
July 25, 1997
Mr. Marc Kaplan
Executive Amenities and Affiliates
7595 Rickenbacker Drive
Gaithersburg, MD 20879
Dear Marc:
I am pleased to confirm Crestar Bank's commitment to renew a $2,000,000.00 line
of credit to Executive Amenities, Inc. and Affiliates, and Execustay. The line
will be available to finance short-term working capital needs of the Company
during the twelve month period ending May 31, 1998.
Borrowings under the line of credit will be evidenced by a master note and will
accrue interest at Crestar's prime rate plus .5%. Crestar's prime rate is that
interest rate established from time to time by the Bank and recorded in its
Central Credit Administration Division as a reference for fixing the lending
rate on commercial loans. The interest rate on borrowings will change
simultaneously with any change in the rate. Accrued interest will be billed
monthly.
All advances under this line are to be unconditionally guaranteed by Marc
Kaplan, Gary Abrahams, Robert Zaugg, and secured by Blanket lien on corporate
assets. Guarantors shall be required to submit annual updated and signed
personal financial statements.
We will require CPA audited financial statements within 90 days of the
Company's fiscal year end and interim quarterly balance sheet and income
statements.
Crestar shall not be obligated to make any advances under this line of credit
if Crestar determines at any time that a material adverse change has occurred
in the Company's financial condition since December 31, 1997.
The loan shall be subject to certain financial conditions which shall be
determined based on projections to be supplied by the Borrower. Covenants
shall include, but are not limited to the following:
1. Maximum distributions of 60% of net earnings
2. Minimum cash flow to debt service ratio of 1.25:1 at 9/30/97, and 1.5:1 at
12/31/97 and thereafter
3. Maximum funded bank debt to EBITDA of 1.5 to 1.00 at all times
4. Minimum tangible net worth of $700,000 at September 30, 1997 and
$15,000,000 at December 30, 1997.
<PAGE> 2
June 2, 1997
Page 2
We appreciate this opportunity to work with you and wish you continued success.
Should you have questions, please do not hesitate to call me at 301-215-9767.
Sincerely yours,
/s/ DIANE E. BAUMAN
Diane E. Bauman
Vice President
Agreed by:
Executive Amenities and Affiliates
[SIG] 7/25/97
- ------------------------ ------------
Title: EVP Date
<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
August 1, 1997
<PAGE> 1
Exhibit 23.3
[DORSEY & WHITNEY LLP LETTERHEAD]
ExecuStay Corporation
7595 Rickenbacker Drive
Gaithersburg, Maryland 20879
Re: ExecuStay Corporation Registration on Form S-1
SEC File No. 333-30049 ( the "Registration Statement")
Ladies and Gentlemen:
We hereby consent to the reference to our firm under the
heading "Legal Matters" in the prospectus constituting part of the Registration
Statement.
Dated: July 31, 1997
Very truly yours,
DORSEY & WHITNEY LLP
JTK
<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 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 JUN-30-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 503,099 6,650
<SECURITIES> 0 0
<RECEIVABLES> 2,504,574 4,234,415
<ALLOWANCES> (238,056) (424,557)
<INVENTORY> 4,098,894 4,221,215
<CURRENT-ASSETS> 0 0
<PP&E> 3,068,849 3,210,987
<DEPRECIATION> (992,519) (1,170,366)
<TOTAL-ASSETS> 9,678,476 14,949,872
<CURRENT-LIABILITIES> 0 0
<BONDS> 2,681,527 7,551,941
0 0
0 0
<COMMON> 37,500 37,500
<OTHER-SE> 2,945,333 2,192,260
<TOTAL-LIABILITY-AND-EQUITY> 9,678,476 14,949,872
<SALES> 0 0
<TOTAL-REVENUES> 29,645,857 20,435,788
<CGS> 0 0
<TOTAL-COSTS> 18,472,252 13,361,941
<OTHER-EXPENSES> 8,207,200 5,231,294
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 307,709 208,961
<INCOME-PRETAX> 2,658,696 1,633,592
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 2,658,696 1,633,592
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,658,696 1,633,592
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
