<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ___________
Commission File No. 000-22941
EXECUSTAY CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 52-2042280
(State of Incorporation) (I.R.S. Employer identification No.)
7595 RICKENBACKER DRIVE
GAITHERSBURG, MARYLAND 20879
(Address of principal executive offices)
(301) 948-4888
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
At November 9, 1998, there were outstanding 8,141,113 shares of the
Company's common stock.
<PAGE> 2
EXECUSTAY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30 1998 (unaudited)
And December 31, 1997 3
Consolidated Statements of Operations for the
Three Months Ended September 30 1998 and 1997 (unaudited) 4
Consolidated Statements of Operations for the
Nine Months Ended September 30 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risks 13
PART II. OTHER INFORMATION
Item 1. Legal proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES
EXHIBIT INDEX
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------------------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents $16,134,958 307,626
Accounts receivable, net 5,657,600 16,102,641
Prepaid rent and other 723,350 3,471,627
Property on or held for lease, net 4,912,013 7,643,714
Property and equipment, net 2,383,958 4,933,156
Deferred tax-asset 241,000 597,000
Goodwill and other intangibles 12,231,040 42,564,826
Other assets 1,546,018 3,556,913
------------------------------------------
Total assets $43,829,937 $79,177,503
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank line of credit $ 5,000,000 $ 3,040,670
Notes payable to bank - 17,000,000
Capital lease obligation 1,519,844 1,490,429
Loan payable - 200,850
Accounts payable 2,632,348 3,854,922
Accrued and other liabilities 3,651,960 4,541,087
------------------------------------------
Total liabilities 12,804,152 30,127,958
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,
6,983,500 and 8,230,392 shares issued and outstanding 69,835 82,304
Additional paid-in capital 29,720,738 44,036,019
Retained earnings 1,235,212 4,931,222
------------------------------------------
Total stockholders' equity 31,025,785 49,049,545
------------------------------------------
Total liabilities and stockholders' equity $43,829,937 $79,177,503
==========================================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------
1997 1998
----------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Interim housing revenue $ 12,277,571 $ 38,190,233
Furniture and housewares revenue 2,539,725 2,614,581
----------------------------------------------------
Total revenue 14,817,296 40,804,814
Operating costs and expenses:
Cost of revenue 10,039,456 29,598,973
Personnel and payroll costs 2,315,751 4,880,859
Occupancy costs 321,932 748,057
Other operating costs 597,399 1,328,570
Depreciation and amortization 159,073 619,576
Nonrecurring operating expenses - 524,498
----------------------------------------------------
Total operating costs and expenses 13,433,611 37,700,533
----------------------------------------------------
Earnings from operations 1,383,685 3,104,281
Interest expense 69,227 356,914
----------------------------------------------------
Earnings before income taxes 1,314,458 2,747,367
Income tax expense 156,000 1,100,000
----------------------------------------------------
Net income $ 1,158,458 $ 1,647,367
====================================================
Pro Forma Data
Historical earnings before income taxes $ 1,314,458 $ 2,747,367
Provision for income taxes 526,000 1,100,000
----------------------------------------------------
Pro forma net income $ 788,458 $ 1,647,367
====================================================
Pro forma income per share - basic $ 0.16 $ 0.20
====================================================
- diluted $ 0.16 $ 0.20
====================================================
Weighted average common shares outstanding - basic 4,845,755 8,230,392
====================================================
- diluted 4,851,025 8,235,501
====================================================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1997 1998
----------------------------------------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Interim housing revenue $ 27,830,689 $ 80,934,700
Furniture and housewares revenue 7,422,395 7,645,682
----------------------------------------------
Total revenue 35,253,084 88,580,382
Operating costs and expenses:
Cost of revenue 23,401,397 63,955,194
Personnel and payroll costs 5,821,419 11,478,006
Occupancy costs 749,877 1,610,942
Other operating costs 1,637,939 3,037,250
Depreciation and amortization 416,213 1,349,406
Nonrecurring operating expenses - 630,347
----------------------------------------------
Total operating costs and expenses 32,026,845 82,061,145
----------------------------------------------
Earnings from operations 3,226,239 6,519,237
Interest expense 278,188 359,227
----------------------------------------------
Earnings before income taxes 2,948,051 6,160,010
Income tax expense 156,000 2,464,000
----------------------------------------------
Net income $ 2,792,051 $ 3,696,010
==============================================
Pro Forma Data
Historical earnings before income taxes $ 2,948,051 $ 6,160,010
Provision for income taxes 1,179,000 2,464,000
----------------------------------------------
Pro forma net income $ 1,769,051 $ 3,696,010
==============================================
Pro forma income per share - basic $ 0.41 $ 0.49
==============================================
- diluted $ 0.41 $ 0.49
==============================================
Weighted average common shares outstanding - basic 4,334,079 7,598,975
==============================================
- diluted 4,335,855 7,619,441
==============================================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1998
--------------------------------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,792,051 $ 3,696,010
Adjustments to reconcile net income to net cash provided
By operating activities
Depreciation and amortization 1,599,903 3,517,249
Deferred income tax benefit 107,000 90,000
Changes in assets and liabilities
Increase in accounts receivable (2,728,593) (9,790,085)
Net purchase of property on or held for lease (1,904,825) (3,828,221)
Increase in prepaid rent and other (161,104) (1,373,660)
Increase in other assets (83,329) ( 982,671)
Increase in accounts payable 376,006 23,871
Decrease in accrued and other liabilities (14,472) (736,604)
--------------------------------------------
Total adjustments (1,809,414) (13,080,121)
--------------------------------------------
Net cash provided by (used in) operating activities 982,637 (9,384,111)
--------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (292,431) (3,295,217)
Net (increase) decrease in due from unconsolidated affiliates (4,570) 96,281
Cash paid for acquisitions, net 2,762,006) (18,278,040)
--------------------------------------------
Net cash used in investing activities (3,059,007) (21,476,976)
--------------------------------------------
Cash flows from financing activities:
Net borrowings on line of credit (800,000) (1,959,330)
Distributions to stockholders (4,592,209) -
Payments on bank loans (6,231,527) -
Borrowings on bank loans 4,350,000 17,000,000
Proceeds from issuance of common stock - 22,500
Payments on capital lease obligations (26,680) (29,415)
Net proceeds from public offering 27,764,345 -
--------------------------------------------
Net cash provided by financing activities 20,463,929 15,033,755
--------------------------------------------
Net increase (decrease) in cash 17,387,559 (15,827,332)
Cash at beginning of period 503,099 16,134,958
--------------------------------------------
Cash at end of period $ 17,890,658 $ 307,626
============================================
Supplemental cash flows information:
Interest paid during the period $ 340,263 $ 381,421
Income taxes paid during the period $ - $ 3,290,207
Non-cash financing and investing activities:
Issuance of common stock in connection with acquisitions $ - $ 14,305,250
Assets acquired by assumption of debt $ - $ 200,850
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Execustay Corporation (the "Company") is a provider of interim housing for
corporate clients and professionals. In addition to providing fully
furnished housing, the Company also rents housewares and furniture to
property management companies and apartment communities. The Company has
offices in the mid-atlantic, southeast and western regions of the United
States.
The summarized financial information included herein does not include all
disclosures required to be included in a complete set of financial
statements prepared in conformity with generally accepted accounting
principles. Such disclosures were included with the financial statements of
the Company at December 31, 1997, and for the year then ended included in
the 1997 Annual Report on Form 10-K, filed by the Company with the
Securities and Exchange Commission.
The financial information contains all adjustments (consisting of normal
recurring accruals) which, in the opinion of management, are deemed
necessary for a fair presentation of the results for the interim periods.
The results for the interim periods are not necessarily indicative of
results that may be expected for the full fiscal year.
NOTE B - PRO FORMA INFORMATION
Prior to the consummation of the initial public offering in 1997, the
Company filed its federal and state income tax returns under the provisions
of Subchapter S of the Internal Revenue Code. Accordingly, no provision was
provided in the accompanying financial statements for federal and state
income taxes for the S Corporation periods, since the income of the Company
was taxable directly to its stockholders. On August 27, 1997, the Company
converted to a C Corporation and became subject to both federal and state
income taxes.
The pro forma adjustment in the consolidated statements of operations for
the three months and nine months ended September 30, 1997 reflects a
provision for income taxes based upon pro forma pretax earnings as if the
Company had been subject to federal, state and local income taxes. The pro
forma income tax provision has been prepared in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share are based upon the weighted average number of
common and common equivalents shares outstanding during the period. The
shares outstanding for September 30, 1997 give retroactive effect to the
recapitalization and stock split of the Company that was effected in
conjunction with the Company's initial public offering, as well as 324,000
shares deemed to be sold by the Company (at the initial offering price of
$10.00 per share) to fund the S-Corporation distribution in excess of the
previous 12 months undrawn earnings totaling $3.1 million, and the $1.1
million distribution declared on June 13, 1997.
7
<PAGE> 8
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------
1997 1998 1997 1998
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator
Pro forma net income $ 788,458 $1,647,367 $1,769,051 $3,696,010
Denominator/Weighted Average Shares
Denominator for basic EPS 4,845,755 8,230,392 4,334,079 7,598,975
Effect of dilutive securities stock
Options 5,270 5,109 1,776 20,466
--------- --------- --------- ---------
Denominator for diluted EPS 4,851,025 8,235,501 4,335,855 7,619,441
========= ========= ========= =========
</TABLE>
NOTE C - RECLASSIFICATIONS
Certain amounts in the consolidated statements of income for the three
months and nine months ended September 30, 1997 have been restated to
conform to the current period presentation.
NOTE D - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" which requires disclosure of comprehensive income and
its components in a full set of general-purpose financial statements.
Comprehensive income is defined as changes in stockholders' equity from
transactions and events from nonowner sources. For the periods ended
September 30, 1998 and 1997 the Company had no elements of comprehensive
income.
NOTE E - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. The statement must be adopted by the
Company on December 31, 1998. Under provisions of this statement, the
Company will be required to modify or expand the financial statement
disclosures for operating segments, products and services, and geographic
areas. Implementation of this disclosure standard will not affect the
Company's financial position or results of operations.
In December 1997, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," was issued and is effective for the
Company's 1998 fiscal year. The statement revises current disclosure
requirements for employers' pension and other retiree benefits.
Implementation of this disclosure standard will not affect the company's
financial position or results of operations.
8
<PAGE> 9
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE F - MATERIAL ACQUISITIONS
On January 1, 1998, the Company purchased 100% of the outstanding stock of
Corporate Accommodations, Inc., an interim housing company in Connecticut,
for approximately $1,450,000, consisting of $1,050,000 in cash and 45,455
of the Company's unregistered shares of common stock valued at $400,000 at
the time of the purchase. The purchase price also included seller
non-compete agreements and employment agreements with certain employees of
seller. The Company has accounted for the transaction in 1998 using
purchase accounting and recorded intangible assets including $ 25,000
relating to a non-compete agreement and goodwill of approximately $1.1
million.
On February 1, 1998 the Company purchased the net assets of F.L. Taylor
Corporation, an interim housing company located in Arizona, for
approximately $837,000. The purchase price also included a seller
non-compete agreement. The Company has accounted for the transaction in
1998 using purchase accounting and recorded tangible assets of $30,000 and
intangible assets including $25,000 relating to a non-compete agreement and
goodwill of approximately $782,000.
On April 1, 1998 the Company purchased the net assets of Southern
California Relocations, Inc., an interim housing company located in
California, for approximately $4,621,000 consisting of $3,365,750 in cash
and 94,693 of the Company's unregistered shares of common stock valued at
$1,155,250 at the time of the purchase. The purchase price also included a
seller non-compete agreement. The Company has accounted for the transaction
in 1998 using purchase accounting and recorded tangible assets of $36,100
and intangible assets including $75,000 relating to a non-compete agreement
and goodwill of approximately $4,510,000.
On May 29, 1998 the Company purchased 100% of the outstanding stock of
Accommodations America 1998, Inc., an interim housing company headquartered
in Atlanta, Georgia. The Company paid approximately $25.5 million,
consisting of $12.75 million in cash and 1,104,494 of the Company's
unregistered shares of common stock valued at $12.75 million. The purchase
price is subject to post closing adjustments based upon Accommodations
America 1998, Inc. net working capital at the closing date, the amount of
uncollected net receivables within 90 days of the closing date and the
amount of bad debts collected by the Company. The purchase price also
included seller non-compete agreements. The Company has accounted for this
transaction in 1998 using purchase accounting and recorded net assets of
approximately $2.5 million and goodwill and other intangible assets of
approximately $23.0 million.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
OVERVIEW
ExecuStay Corporation ("ExecuStay" or the "Company") is a leading provider
of interim housing for corporate clients and professionals. ExecuStay provides
fully furnished high-quality apartments for stays of 30 days or more. 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
housewares 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
Gaithersburg, Maryland.
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 the revenue mix has shifted heavily
toward interim housing revenue. As interim housing revenue continues to increase
as a percentage of the Company's total revenue, earnings as a percentage of
revenue may continue to decline slightly.
Growth in revenue is derived primarily from increases in the number of
leases signed with ExecuStay residents from existing sales offices as well as
leases obtained through the acquisition of other interim housing companies.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data as
a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------
1997 1998 1997 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Interim housing revenue 82.9% 93.6% 79.0% 91.4%
Furniture and houseware revenue 17.1 6.4 21.0 8.6
--------------------------------------------------------------------
Total revenue 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of revenue 67.8 72.5 66.4 72.2
Personnel and payroll costs 15.6 12.0 16.5 13.0
Occupancy costs 2.2 1.8 2.1 1.8
Other operating costs 4.0 3.3 4.7 3.4
Depreciation and amortization 1.1 1.5 1.2 1.5
Nonrecurring operating expenses - 1.3 - .7
--------------------------------------------------------------------
Total operating costs and expenses 90.7 92.4 90.9 92.6
--------------------------------------------------------------------
Earnings from operations 9.3 7.6 9.1 7.4
Interest expense .5 .9 .8 .4
--------------------------------------------------------------------
Earnings before income tax 8.8 6.7 8.3 7.0
Income tax expense 1.0 2.7 .4 2.8
--------------------------------------------------------------------
Net Income 7.8% 4.0% 7.9% 4.2%
====================================================================
</TABLE>
In the discussions below, the following terms have the meanings described
hereinafter.
Interim housing revenue consists of the total charges to ExecuStay
residents for their housing accommodations, including charges for furniture,
housewares, accessories and utilities.
10
<PAGE> 11
Furniture and houseware revenue includes all income from customers other
than ExecuStay residents and also includes revenue from the sale of new and used
inventory.
Cost of revenue includes costs related to apartment units rented to
ExecuStay residents, such as property rent, furniture and houseware rental
costs, utilities, telephone and cable television expenses. Also included is
depreciation on furniture and housewares inventory on rental or held in
inventory, the cost of inventory sold as well as certain other costs related
directly to revenue.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1997
Revenue increased 175% to $40.8 million for the three months ended
September 30, 1998 from $14.8 million for the three months ended September 30,
1997. The increase was primarily due to a $25.9 million increase (211%) in
interim housing revenue, from $12.3 million in the third quarter of 1997.
Acquisitions and new offices accounted for $16.0 million of the increase in
interim housing revenue. Aggregate interim housing revenue from the offices that
were operating during both periods increased 33%, which reflects the continued
development and market penetration of these offices. Consistent with the
Company's growth strategy, revenue from the rental and sale of furniture and
housewares to third parties did not increase or decrease materially in the third
quarter of 1998 as compared to the third quarter of 1997.
Cost of revenue increased by $19.6 million or 195% from $10.0 million for
the three months ended September 30, 1997 to $29.6 million for the three months
ended September 30, 1998. The increase in cost of revenue was primarily due to
the growth in interim housing business and the acquisition of interim housing
providers. Because of the continuing change in revenue mix from interim housing
and furniture and housewares rentals (interim housing revenue accounted for 94%
of revenue for the three months ended September 30, 1998 and 83% of revenues for
the three months ended September 30, 1997), the gross margin (revenue less cost
of revenue) decreased from 32% for the three months ended September 30, 1997 to
27% for the same period in 1998.
Personnel and payroll costs increased 111% from $2.3 million in the third
quarter of 1997 to $4.9 million in the third quarter of 1998. The increase was
due mainly to the addition of sales and office personnel who were necessary to
support the Company's growth and the acquisition of interim housing providers.
Occupancy costs increased by $426,000, a 132% increase over the same period in
1997. This increase was primarily the result of the expansion of the Company's
office and housewares warehouse locations. Other operating costs for the three
months ended September 30, 1998 increased 122% to $1.3 million, mainly because
of increased advertising and promotional expenses incurred as the Company
expanded into new markets. Depreciation and amortization increased by $461,000,
a 289% increase over the same period in 1997.
Net interest expense increased by $288,000 in the three months ended
September 30, 1998, due primarily to the fact that the Company borrowed funds to
complete acquisitions, purchase property on or held for lease for the expansion
of new warehouse locations and for working capital purposes. Proceeds from the
initial public offering were used to repay the debt incurred in connection with
acquisitions made earlier in 1997. Interest earned on the remaining offering
proceeds has been offset against interest expense incurred during the period.
Pro forma net income increased from $788,000 ($.16 per share) for the three
months ended September 30, 1997 to $1.6 million ($.20 per share) for the three
months ended September 30, 1998.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenue increased 151% to $88.6 million for the nine months ended September
30, 1998 from $35.3 million for the nine months ended September 30, 1997. This
increase was primarily due to a $53.1 million increase (191%) in interim housing
revenue, reflecting the Company's continued focus on expanding its interim
housing business. Acquisitions and new offices accounted for $38.3 million of
the increase in interim housing revenue. Aggregate interim housing revenue from
the offices that were operating during both periods increased 32%, which
reflects the continued development and market penetration of these offices.
Revenue from rental and sale of furniture and house wares increased $223,000
(3.0%) for the nine months ended September 30, 1998 as compared to the same
period in 1997.
11
<PAGE> 12
Cost of revenue increased 173% for the nine months ended September 30, 1998
to $64.0 million from $23.4 million for the same period in 1997. This increase
was driven by the Company's continued growth in the volume of interim housing
units leased and rented to customers and the acquisition of interim housing
providers. The Company's gross margin (revenue less cost of revenue) decreased
from 34% to 28% primarily because of the Company's changing revenue mix as
discussed above.
Compared to the nine months ended September 30, 1997, personnel and payroll
cost during the nine months ended September 30, 1998 increased by $5.7 million
(97%), and occupancy increased by $861,000 (115%). These increases were due to
recent acquisitions of interim housing providers. Other operating costs
increased 85% to $3.0 million from $1.6 million during the same period,
primarily as a result of new acquisitions and increased national advertising and
promotional expenses. Depreciation and amortization increased by $933,000, a
224% increase over the same period in 1997.
Net interest expense increased by $81,000 in the nine months ended
September 30, 1998, due primarily to the fact that the that the Company borrowed
funds to complete acquisitions, purchase property on or held for lease for the
expansion of new warehouse locations and for working capital purposes. Proceeds
from the initial public offering to repay the debt incurred in connection with
acquisitions made earlier in 1997. Interest earned on cash equivalents has been
offset against interest expense incurred during the period.
Pro forma net income increased from $1.8 million ($.41 per share) for the
nine months ended September 30, 1997 to $3.7 million ($.49 per share) for the
nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998 the Company's cash and cash
equivalents decreased by $15.8 million, from $16.1 million to $300,000. The
Company's cash resources were satisfactory to meet its obligations for the nine
months ended September 30, 1998. In addition to the $300,000 in cash available
to the Company as of September 30, 1998, the Company also has remaining under
its working capital line of credit and capital expenditures a banks commitment
of approximately $5.5 million.
Cash used by operating activities for the nine months ended September 30,
1998 was $9.4 million that consisted primarily of the net purchase of $3.8
million of property on or held for lease and an increase of $9.8 million in
accounts receivable.
Cash used in investing activities for the nine months ended September 30,
1998 was $21.5 million, of which $18.3 million, net of cash acquired, was used
to fund four acquisitions of interim housing companies during 1998. During the
nine months ended September 30, 1998 the Company purchased $3.3 million of
property and equipment of which $1.0 million was used to strengthen the current
infrastructure to support the Company's growth and the acquisition of interim
housing providers and become Year 2000 compliant.
Cash flows used in financing activities for the nine months ended September
30, 1998 totaled $15.0 million. During the nine months ended September 30, 1998
the Company borrowed $11.5 million to fund the acquisition of Accommodations
America 1998, Inc. and $5.5 million to strengthen the current infrastructure and
purchase property on or held for lease for the expansion of new warehouse
locations. During September 1998, the Company renegotiated its loan agreements,
increasing its working capital line of credit to $6.5 million, securing
commitments for $7.5 million for capital expenditures and investments in
infrastructure and obtaining financing for $2.4 million for the construction of
additional corporate headquarters and expanded warehouse facilities.
Subsequent to September 30, 1998 the Company received a signed commitment
letter from a new bank for a three year revolving $30 million
acquisition/working capital line of credit, $5.5 million term note for capital
expenditures and a $2.4 million construction loan for additional corporate
headquarters and expanded warehouse facilities. This financing arrangement is
expected to replace the Company's current financing arrangements. The Company
accepted this commitment on November 12, 1998.
NONRECURRING OPERATING EXPENSES
During the second and third quarters of 1998 the Company incurred
nonrecurring operating costs related to the merger of Accommodations America
1998, Inc. These costs incurred represent a diluted per share amount net of tax
of $.04 for the nine months and three months ended September 30, 1998,
respectively.
12
<PAGE> 13
YEAR 2000
The Company is currently assessing and working to resolve the potential
impact of the Year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The Year 2000 problem is the result
of computer programs being written using two digits (rather than four) to define
the applicable year. If any of the Company's programs that have time-sensitive
software recognize a date using "00" as the year 1900 rather than the year 2000,
it could result in miscalculations or systems failures. The Company has and will
continue to make certain investments in its software systems and applications to
ensure the Company is Year 2000 compliant.
Through the third quarter 1998, the Company has made considerable progress
in its enterprise-wide program started in late 1997 to convert its information
technology systems, comprised of computer hardware, purchased software, and
internally developed applications to support the Company's rapid growth, provide
sufficient capacity for anticipated future expansion, and in the process endorse
Year 2000 compliancy. The program involves upgrading the financial systems to a
client-server application, and all other systems to a web-enabled and modern
environment. Focus has been on the assessment, analysis, remediation, and
testing of corporate financial and operational systems to be completed and Year
2000 certified compliant by mid-year 1999. To date, at least 75% of the upgrade
and remediation plan have been completed with all desktop and server hardware
being replaced with Year 2000 compliant equipment. Preliminary estimates of the
total costs to be incurred prior to year 2000 range from $1.5 million to $2.0
million. Maintenance or modification costs will be expensed as incurred, while
the costs to implement and purchase new hardware and software have and will be
capitalized and depreciated or amortized over its useful lives. Although a
detailed remediation plan has been developed, a contingency plan will be
established. This plan will address concerns for unforeseen Year 2000 failures,
including the identification of alternate vendors or financial institutions, as
well as the financial resources necessary to reasonably ensure compliance by the
year 2000. It is expected that this plan will be completed by June 1999.
The Company has also reviewed its non-informational systems, such as
security, electrical, fire protection, and telephone, which may contain embedded
technology microprocessors or other similar circuitry. Based upon this review
the Company believes that its non-informational technology systems are Year 2000
compliant.
While the Company does not have a relationship with any particular third-
party vendors (property owners and unaffiliated houseware and furniture rental
companies) which is material to its operations, there can be no assurance that
the systems of other companies on which the Company relies will be converted in
a timely manner, or that the failure to convert would have an adverse impact on
the Company's operations. Costs associated with any such failure cannot be
reasonably estimated.
CAUTIONARY NOTE
This Quarterly Report on Form 10-Q contains forward-looking statements
reflecting management's knowledge and judgment about factors which could
materially affect Company performance in the future. Terms indicating future
expectation and optimism about future potential and anticipated growth in
revenue and earnings of the Company's business lines and like expressions
typically identify such statements. Actual results and events may differ
significantly from those discussed in forward-looking statements.
All forward-looking statements are subject to the risks and uncertainties
inherent with predictions and forecasts. They are necessarily speculative
statements, and unforeseen factors, such as a significant downturn in the
economy, increased competitive pressures, failure to absorb newly acquired
businesses or to successfully develop newly opened offices, could cause results
to differ materially from any that may be projected.
Forward-looking statements are made in the context of information available
as of the date stated. The Company undertakes no obligation to update or revise
such statements to reflect new circumstances or unanticipated events as they
occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. Changes in Securities.
None.
b. Recent Sales of Unregistered Securities
On September 27, 1998 the Company issued 5,414 shares of Company
common stock, valued at the time at approximately $48,700, to the
shareholders of Accommodations America 1998, Inc. The issuance of
the shares was part of the consideration paid by the Company in
exchange of all the outstanding stock of Accommodations America
1998, Inc. The placement, which did not involve a public offering of
the shares, was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended.
c. Use of Proceeds.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Subsequent to September 30, 1998 the Company received a signed
commitment letter from a new bank for a three year revolving $30
million acquisition/working capital line of credit, $5.5 million
term note for capital expenditures and a $2.4 million construction
loan for additional corporate headquarters and expanded warehouse
facilities. This financing arrangement is expected to replace the
Company's current financing arrangements. The Company accepted this
commitment on November 12, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.12 First Amended and Restated Revolving Note, dated September 23,
1998, by and among the Company and Crestar Bank
10.13 Inventory Note, dated September 23, 1998, by and among the
Company and Crestar Bank
10.14 Cap-Ex Note, dated September 23, 1998, by and among the
Company and Crestar Bank
10.15 Deed of Trust Note, dated October 16, 1998, by and among the
Company and Crestar Bank
14
<PAGE> 15
27.1 Financial Data Schedule
b. Reports on Form 8-K
On June 12, 1998 the Company filed a Current Report on Form 8-K to
report the merger of Accommodations America 1998, Inc.
("Accommodations") pursuant to Item 2 to the Form 8-K. In an
amendment to the Form 8-K, the Company filed the following financial
reports (dated as of July 2, 1998): audited balance sheets of
Accommodations as of May 29, 1998, December 31, 1997 and 1996 and
the related combined statements of operations, changes in equity
(deficit) and cash flows for the period from January 1, 1998 through
May 29, 1998 and the years ended December 31, 1997 and 1996;
unaudited pro forma consolidated balance sheet of ExecuStay
Corporation and subsidiaries as if the Accommodations merger had
occurred on May 29, 1998; and unaudited pro forma consolidated
statements of operations of ExecuStay Corporation and subsidiaries
for the period from January 1, 1998 through May 29, 1998 and the
year ended December 31, 1997 as if the Accommodations merger had
been completed at the beginning of the respective periods.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1998
ExecuStay Corporation
By: /s/ Marc B. Kaplan
--------------------
Marc B. Kaplan
(Principal Financial Officer and Authorized Officer)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S>
10.12 First Amended and Restated Revolving Note, dated September 23, 1998, by and among the Company and Crestar Bank
10.13 Inventory Note, dated September 23, 1998, by and among the Company and Crestar Bank
10.14 Cap-Ex Note, dated September 23, 1998, by and among the Company and Crestar Bank
10.15 Deed of Trust Note, dated October 16, 1998, by and among the Company and Crestar Bank
27.1 Financial Data Schedule
</TABLE>
17
<PAGE> 1
EXHIBIT 10.12
FIRST AMENDED AND RESTATED REVOLVING NOTE
$6,500,000 September 23, 1998
Rockville, Maryland
FOR VALUE RECEIVED, the undersigned (collectively, the Borrowers and
individually, a Borrower), jointly and severally, hereby promise to pay to the
order of CRESTAR BANK, a Virginia banking corporation (the Lender), at
Commercial Loan Services, P.O. Box 26202, Richmond, Virginia 23260-6202, or such
other location as the holder hereof may in writing designate, in lawful money of
the United States of America, the principal sum of SIX MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($6,500,000) (or such lesser amount as shall equal
the aggregate unpaid principal amount of the Revolving Loans made by the Lender
to the Borrowers under the Loan Agreement described below), in lawful money of
the United States of America in immediately available funds, on the Revolving
Facility Termination Date, without defense, offset or counterclaim, and to pay
interest on the unpaid principal amount of the Revolving Loans, at such office,
in like money and funds, for the period commencing on the date of each Revolving
Loan until such Revolving Loan shall be paid in full, at the rate per annum and
on the dates provided in the Loan Agreement. The Borrowers may borrow, prepay
without penalty, and reborrow hereunder in accordance with the provisions of the
Loan Agreement.
The Borrowers hereby further jointly and severally promise to pay interest
on the unpaid principal balance hereof, at a rate per annum equal to LIBOR plus
the applicable Spread in accordance with the terms of the Loan Agreement.
Interest shall be accrued daily on the unpaid principal balance hereof and shall
be computed on the basis of a 360-day year for the actual number of days
elapsed. Interest shall be payable monthly on the first Business Day of each
calendar month beginning on October 1, 1998.
The Lender is hereby authorized by the Borrowers to maintain records of
the amount of each Revolving Loan made by the Lender, the date such Revolving
Loan is made, and the amount of each payment or prepayment of principal of such
Revolving Loan received by the Lender. The Borrowers agree that the amounts so
evidenced in such records, absent manifest error, shall constitute conclusive
evidence of the amount owed hereunder.
This First Amended and Restated Revolving Note (the Revolving Note) is the
Revolving Note referred to in the First Amended and Restated Loan Agreement (as
further amended, modified or supplemented from time to time, the Loan
Agreement), dated as of September 23, 1998, between the Borrowers and the
Lender, and evidences the Revolving Loans made by the Lender thereunder.
Undefined capitalized terms used in this Revolving Note shall have the
respective meanings assigned to them in the Loan
<PAGE> 2
Agreement. This Revolving Note amends and restated in it entirety the $5,000,000
Revolving Note, dated May 18, 1998, made by the Borrowers and payable to the
Lender.
Upon the occurrence and continuation of an Event of Default, the principal
hereof and accrued interest hereon may be declared to be, or may become,
forthwith due and payable in the manner, upon the conditions and with the effect
provided in the Loan Agreement.
Upon the occurrence of an Event of Default, each Borrower hereby
authorizes any attorney designated by the Lender or any Clerk of any court of
record to appear for such Borrower in any court of record and to confess
judgment without prior hearing against any Borrower in favor of the Lender for
and in the amount of the unpaid principal balance hereof, all interest accrued
and unpaid thereon, all other amounts payable by the Borrowers to the Lender
under the terms of this Revolving Note or any of the other Loan Documents, costs
of suit, and attorneys' fees of $7,500 (if judgment be entered without contest).
If confession of judgment is contested, attorneys' fees under this paragraph
shall be ten percent (10%) of the unpaid principal balance hereof and interest
then due hereunder. Each Borrower hereby releases, to the extent permitted by
applicable law, all errors and all rights of exemption, appeal, stay of
execution, inquisition, and other rights to which the Borrowers may otherwise be
entitled under the laws of the United States of America or of any state or
possession of the United States of America now in force or which may hereafter
be enacted. The authority and power to appear for and enter judgment against the
Borrowers shall not be exhausted by one or more exercises thereof or by any
imperfect exercise thereof and shall not be extinguished by any judgment entered
pursuant thereto. Such authority may be exercised on one or more occasions or
from time to time in the same or different jurisdictions as often as the Lender
shall deem necessary or desirable, for all of which this Revolving Note shall be
a sufficient warrant. Notwithstanding any provision of this paragraph, each
Borrower retains its rights pursuant to Maryland Rules of Civil Procedure Rule
2-611.
Each Borrower, and every guarantor and endorser hereof, hereby waives
presentment, demand, notice of dishonor, protest and all other demands and
notices in connection with the delivery, acceptance, performance and enforcement
of this Revolving Note.
This Revolving Note shall be governed by and construed in accordance with
the laws of the State of Maryland, without reference to conflict of laws
principles.
[SIGNATURES ON FOLLOWING PAGES]
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrowers have caused this Revolving Note to be
executed by their duly authorized representatives as of the day and year first
above written.
BORROWERS:
----------
EXECUSTAY CORPORATION,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUSTAY CORPORATION OF AMERICA,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUTIVE AMENITIES, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
3
<PAGE> 4
EXECUTIVE AMENITIES-WEST, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUTIVE FURNITURE CENTRE, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
BOLAND CORPORATE HOUSING, INC.,
a New York corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
CORPORATE ACCOMMODATIONS, INC.,
a Connecticut corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
4
<PAGE> 1
EXHIBIT 10.13
INVENTORY NOTE
$3,500,000 September 23, 1998
Rockville, Maryland
FOR VALUE RECEIVED, the undersigned (collectively, the Borrowers and
individually, a Borrower), jointly and severally, hereby promise to pay to the
order of CRESTAR BANK, a Virginia banking corporation (the Lender), at
Commercial Loan Services, P.O. Box 26202, Richmond, Virginia 23260-6202, or such
other location as the holder hereof may in writing designate, in lawful money of
the United States of America, the principal sum of THREE MILLION FIVE HUNDRED
THOUSAND NO/100 DOLLARS ($3,500,000), in lawful money of the United States of
America in immediately available funds, on the dates and in the amounts set
forth below, without defense, offset or counterclaim, and to pay interest on the
unpaid principal amount hereof, at such office, in like money and funds, for the
period commencing on the date hereof until such principal amount shall be paid
in full, at the rate per annum and on the dates provided in the Loan Agreement.
The unpaid principal balance hereof shall be paid in 36 equal consecutive
monthly installments of principal of $97,223 each, due on the first Business Day
of each calendar month, beginning on November 1, 1998. If not sooner paid, the
entire unpaid principal balance hereof and all accrued and unpaid interest
therein shall be due and payable in full on September 30, 2001. The Borrowers
shall have the right to prepay the unpaid principal balance hereof, in whole or
in part, at any time. Partial prepayment shall be applied to installments due
hereunder in the inverse order of their maturities. Amounts prepaid may not be
reborrowed.
The Borrowers hereby further jointly and severally promise to pay interest
on the unpaid principal balance hereof, at a rate per annum equal to LIBOR plus
1.50%. Interest shall be accrued daily on the unpaid principal balance hereof
and shall be computed on the basis of a 360-day year for the actual number of
days elapsed. Interest shall be payable monthly on the first Business Day of
each calendar month beginning on October 1, 1998.
This Inventory Note (the Note) is one of the Inventory Notes referred to
in the First Amended and Restated Loan Agreement (as further amended, modified
or supplemented from time to time, the Loan Agreement), dated as of September
23, 1998, between the Borrowers and the Lender, and evidences an Inventory Loan
made by the Lender thereunder. Undefined capitalized terms used in this Note
shall have the respective meanings assigned to them in the Loan Agreement.
Upon the occurrence and continuation of an Event of Default, the principal
hereof and accrued interest hereon may be declared to be, or may become,
forthwith due and
<PAGE> 2
payable in the manner, upon the conditions and with the effect provided in the
Loan Agreement.
Upon the occurrence of an Event of Default, each Borrower hereby
authorizes any attorney designated by the Lender or any Clerk of any court of
record to appear for such Borrower in any court of record and to confess
judgment without prior hearing against any Borrower in favor of the Lender for
and in the amount of the unpaid principal balance hereof, all interest accrued
and unpaid thereon, all other amounts payable by the Borrowers to the Lender
under the terms of this Note or any of the other Loan Documents, costs of suit,
and attorneys' fees of $7,500 (if judgment be entered without contest). If
confession of judgment is contested, attorneys' fees under this paragraph shall
be ten percent (10%) of the unpaid principal balance hereof and interest then
due hereunder. Each Borrower hereby releases, to the extent permitted by
applicable law, all errors and all rights of exemption, appeal, stay of
execution, inquisition, and other rights to which the Borrowers may otherwise be
entitled under the laws of the United States of America or of any state or
possession of the United States of America now in force or which may hereafter
be enacted. The authority and power to appear for and enter judgment against the
Borrowers shall not be exhausted by one or more exercises thereof or by any
imperfect exercise thereof and shall not be extinguished by any judgment entered
pursuant thereto. Such authority may be exercised on one or more occasions or
from time to time in the same or different jurisdictions as often as the Lender
shall deem necessary or desirable, for all of which this Note shall be a
sufficient warrant. Notwithstanding any provision of this paragraph, each
Borrower retains its rights pursuant to Maryland Rules of Civil Procedure Rule
2-611.
Each Borrower, and every guarantor and endorser hereof, hereby waives
presentment, demand, notice of dishonor, protest and all other demands and
notices in connection with the delivery, acceptance, performance and enforcement
of this Note.
This Note shall be governed by and construed in accordance with the laws
of the State of Maryland, without reference to conflict of laws principles.
[SIGNATURES ON FOLLOWING PAGES]
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed by
their duly authorized representatives as of the day and year first above
written.
BORROWERS:
----------
EXECUSTAY CORPORATION,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUSTAY CORPORATION OF AMERICA,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUTIVE AMENITIES, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
3
<PAGE> 4
EXECUTIVE AMENITIES-WEST, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUTIVE FURNITURE CENTRE, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
BOLAND CORPORATE HOUSING, INC.,
a New York corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
CORPORATE ACCOMMODATIONS, INC.,
a Connecticut corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
4
<PAGE> 1
EXHIBIT 10.14
CAP-EX NOTE
$2,000,000 September 23, 1998
Rockville, Maryland
FOR VALUE RECEIVED, the undersigned (collectively, the Borrowers and
individually, a Borrower), jointly and severally, hereby promise to pay to the
order of CRESTAR BANK, a Virginia banking corporation (the Lender), at
Commercial Loan Services, P.O. Box 26202, Richmond, Virginia 23260-6202, or such
other location as the holder hereof may in writing designate, in lawful money of
the United States of America, the principal sum of TWO MILLION NO/100 DOLLARS
($2,000,000) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Cap-Ex Loans made by the Lender to the Borrowers under
the Loan Agreement described below), in lawful money of the United States of
America in immediately available funds, on the dates and in the amounts set
forth below, without defense, offset or counterclaim, and to pay interest on the
unpaid principal amount of the Cap-Ex Loans, at such office, in like money and
funds, for the period commencing on the date of each Cap-Ex Loan until such
Cap-Ex Loan shall be paid in full, at the rate per annum and on the dates
provided in the Loan Agreement.
The unpaid principal balance hereof shall be paid in 36 equal consecutive
monthly installments of principal due on the first Business Day of each calendar
month, beginning on January 4, 1999. If not sooner paid, the entire unpaid
principal balance hereof and all accrued and unpaid interest therein shall be
due and payable in full on December 31, 2001. The amount of each principal
installment shall be equal to 1/36th of the principal balance of the Cap-Ex
Loans outstanding on December 31, 1998. The Borrowers shall have the right to
prepay the unpaid principal balance hereof, in whole or in part, at any time.
Partial prepayment shall be applied to installments due hereunder in the inverse
order of their maturities. Amounts prepaid may not be reborrowed.
The Borrowers hereby further jointly and severally promise to pay interest
on the unpaid principal balance hereof, at a rate per annum equal to LIBOR plus
1.50%. Interest shall be accrued daily on the unpaid principal balance hereof
and shall be computed on the basis of a 360-day year for the actual number of
days elapsed. Interest shall be payable monthly on the first Business Day of
each calendar month beginning on October 1, 1998.
The Lender is hereby authorized by the Borrowers to maintain records of
the amount of each Cap-Ex Loan made by the Lender, the date such Cap-Ex Loan is
made, and the amount of each payment or prepayment of principal of such Cap-Ex
Loan received by the Lender. The Borrowers agree that the amounts so evidenced
in such records, absent manifest error, shall constitute conclusive evidence of
the amount owed hereunder.
<PAGE> 2
This Cap-Ex Note (the Note) is the Cap-Ex Note referred to in the First
Amended and Restated Loan Agreement (as further amended, modified or
supplemented from time to time, the Loan Agreement), dated as of September 23,
1998, between the Borrowers and the Lender, and evidences the Cap-Ex Loans made
by the Lender thereunder. Undefined capitalized terms used in this Note shall
have the respective meanings assigned to them in the Loan Agreement.
Upon the occurrence and continuation of an Event of Default, the principal
hereof and accrued interest hereon may be declared to be, or may become,
forthwith due and payable in the manner, upon the conditions and with the effect
provided in the Loan Agreement.
Upon the occurrence of an Event of Default, each Borrower hereby
authorizes any attorney designated by the Lender or any Clerk of any court of
record to appear for such Borrower in any court of record and to confess
judgment without prior hearing against any Borrower in favor of the Lender for
and in the amount of the unpaid principal balance hereof, all interest accrued
and unpaid thereon, all other amounts payable by the Borrowers to the Lender
under the terms of this Note or any of the other Loan Documents, costs of suit,
and attorneys' fees of $7,500 (if judgment be entered without contest). If
confession of judgment is contested, attorneys' fees under this paragraph shall
be ten percent (10%) of the unpaid principal balance hereof and interest then
due hereunder. Each Borrower hereby releases, to the extent permitted by
applicable law, all errors and all rights of exemption, appeal, stay of
execution, inquisition, and other rights to which the Borrowers may otherwise be
entitled under the laws of the United States of America or of any state or
possession of the United States of America now in force or which may hereafter
be enacted. The authority and power to appear for and enter judgment against the
Borrowers shall not be exhausted by one or more exercises thereof or by any
imperfect exercise thereof and shall not be extinguished by any judgment entered
pursuant thereto. Such authority may be exercised on one or more occasions or
from time to time in the same or different jurisdictions as often as the Lender
shall deem necessary or desirable, for all of which this Note shall be a
sufficient warrant. Notwithstanding any provision of this paragraph, each
Borrower retains its rights pursuant to Maryland Rules of Civil Procedure Rule
2-611.
Each Borrower, and every guarantor and endorser hereof, hereby waives
presentment, demand, notice of dishonor, protest and all other demands and
notices in connection with the delivery, acceptance, performance and enforcement
of this Note.
This Note shall be governed by and construed in accordance with the laws
of the State of Maryland, without reference to conflict of laws principles.
[SIGNATURES ON FOLLOWING PAGES]
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed by
their duly authorized representatives as of the day and year first above
written.
BORROWERS:
----------
EXECUSTAY CORPORATION,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUSTAY CORPORATION OF AMERICA,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUTIVE AMENITIES, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
3
<PAGE> 4
EXECUTIVE AMENITIES-WEST, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
EXECUTIVE FURNITURE CENTRE, INC.,
a Maryland corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
BOLAND CORPORATE HOUSING, INC.,
a New York corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
CORPORATE ACCOMMODATIONS, INC.,
a Connecticut corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
4
<PAGE> 1
EXHIBIT 10.15
DEED OF TRUST NOTE
$2,440,000.00 Silver Spring, Maryland
October 16, 1998
FOR VALUE RECEIVED, EXECUSTAY CORPORATION, a Maryland corporation,
EXECUSTAY CORPORATION OF AMERICA, a Maryland corporation, EXECUTIVE AMENITIES,
INC., a Maryland corporation, EXECUTIVE AMENITIES - WEST, INC., a Maryland
corporation, EXECUTIVE FURNITURE CENTRE, INC., a Maryland corporation, BOLAND
CORPORATE HOUSING, INC., a New York corporation, and CORPORATE ACCOMMODATIONS,
INC., a Connecticut corporation (collectively, the "Maker"), jointly and
severally promise to pay to the order of CRESTAR BANK, a Virginia banking
corporation (or its successors or assigns) (the "Payee"), the principal sum of
TWO MILLION FOUR HUNDRED FORTY THOUSAND DOLLARS ($2,440,000.00), or so much
thereof as may be advanced pursuant to that certain Building Loan Agreement of
even date herewith between the Maker and the Payee (the "Loan Agreement") and
remain unpaid, together with accrued interest, at the rate hereinafter set
forth, on the unpaid principal balance hereof from time to time, from the date
of this Note until the date the entire principal sum hereof has been paid in
full. Said interest and principal shall be payable as set forth hereinbelow.
Interest, computed at the "Annual Rate" (hereinafter defined), shall be
due and payable in consecutive monthly installments on the first day of each and
every calendar month during the term of this Note commencing on November 1,
1998, except that the last such payment of interest shall be due on the
"Maturity Date" (hereinafter defined). On each such interest payment date, all
interest accrued to that date shall be due and payable.
In addition to and together with the payments of interest required
hereunder as set forth above, the principal balance of this Note shall be
payable as follows:
(a) Commencing on the "Conversion Date" (hereinafter defined), and
continuing on the first day of each and every calendar month thereafter through
and including the date that is one hundred nineteen (119) months after the
Conversion Date, the unpaid principal balance evidenced by this Note shall be
due and payable in consecutive equal monthly installments calculated by the
Payee on the basis of a twenty (20)-year amortization schedule; and
(b) The entire unpaid principal balance, together with accrued and
unpaid interest thereon, and all other obligations of Maker hereunder, if not
sooner paid, shall be due and payable in full on February 28, 2009 (the
"Maturity Date").
Until the Conversion Date, the "Annual Rate" shall mean a fluctuating
annual rate of interest equal to the sum of the "Libor Rate" (hereinafter
defined) plus two hundred basis points (2.0%). Provided that no default by the
Maker then exists under this Note or the "Deed of Trust" (hereinafter defined),
the Maker shall have the option (the "Conversion Option"), upon written
1
<PAGE> 2
notice to the Payee at least thirty (30) days prior to the Conversion Date, to
convert the Annual Rate on the entire principal amount evidenced by this Note
for the then remaining term hereof, commencing on the Conversion Date, to either
(i) a fluctuating annual rate equal to the sum of the Libor Rate plus one
hundred fifty basis points (1.5%), or (ii) a fixed annual rate of interest equal
to the sum of the "Cost of Funds Rate" (hereinafter defined) plus one hundred
fifty basis points (1.5%). If the Maker fails to give the Payee a timely notice
of the interest rate it elects under the Conversion Option, the Maker shall be
conclusively deemed to have duly elected alternative (i) in the preceding
sentence. The Maker's right to exercise the Conversion Option shall be subject
to the following terms and conditions: (a) prior to the Maker's exercise of the
Conversion Option, the "Improvements" (as defined in the Loan Agreement) shall
have been satisfactorily completed in accordance with the approved "Plans and
Specifications" (as defined in the Loan Agreement), as determined by the Payee
and the Payee's "Inspector" (as defined in the Loan Agreement), free and clear
of any mechanic's or materialmen's liens; and (b) the Conversion Option may be
exercised only once during the term of this Note and, once exercised, shall be
irrevocable. If the Maker duly exercises (or is deemed to have duly exercised)
the Conversion Option, then, commencing on the Conversion Date and continuing
thereafter until this Note is repaid in full, the "Annual Rate" shall mean the
annual rate of interest elected (or deemed to have been elected) by the Maker in
accordance with this paragraph. The "Conversion Date" shall mean the first day
of the first calendar month after the satisfactory completion of the
Improvements in accordance with the approved Plans and Specifications, as
determined by the Payee and the Payee's Inspector.
The "Libor Rate" means, with respect to any particular month in which the
interest rate under this Note is to be established or adjusted, the one month
LIBOR established by the British Bankers Association on the first "Business Day"
(hereinafter defined) of such month (or as of the date of this Note with respect
to the initial rate) as displayed on page 3750 of the Telerate Services,
Incorporated screen or on such other display as may replace such page, and as
adjusted by the Payee for reserves, brokers' commissions, regulatory costs, and
deposit insurance requirements. In the event the LIBOR established by the
British Bankers Association is not reported on the Telerate Services,
Incorporated screen on the first Business Day of any month in which an
adjustment is to be made hereunder, then for the purpose of determining the
"Libor Rate", the Payee shall refer to such other independent recognized source
of data or another interbank quotation reflecting the London Interbank Market as
the Payee may consider appropriate in its sole discretion. "Business Day" means
a day (i) on which banks in the City of London, England are generally open for
interbank or foreign exchange transactions, and (ii) that is not a Saturday,
Sunday, or a day on which banks are required or permitted to be closed in the
State of Maryland.
The "Cost of Funds Rate" means the annual rate of interest, as determined
by the Payee as of the date that is thirty (30) days prior to the Conversion
Date, that would be paid on a deposit or other obligation of the Payee with a
maturity comparable to that of this Note, issued by the Payee at par to an
institutional investor, adjusted for reserves, brokers' commissions, regulatory
costs, and deposit insurance requirements.
All regular monthly payments made on account hereof shall be applied first
to the payment of any late charges accrued and due, then to accrued and unpaid
interest, then to unpaid principal then due and payable, and any remainder of
any such payment shall be applied to unpaid principal
2
<PAGE> 3
to be due and payable on the Maturity Date, and thereafter to any unpaid
installments of principal in the inverse order of maturity. All interest
hereunder shall be calculated based upon a 360-day-year factor applied to actual
days.
Upon the occurrence of any default hereunder, then (a) if the indebtedness
evidenced hereby is then accruing interest at a fluctuating Annual Rate
calculated on the basis of the Libor Rate, such payment, and the then unpaid
principal balance hereof, shall bear interest thereafter at a rate equal to 2%
in excess of the Annual Rate until such time as any such payment, together with
accrued interest thereon, is received by the holder hereof, and (b) if said
indebtedness is then accruing interest at a fixed Annual Rate calculated on the
basis of the Cost of Funds Rate, such payment, and the then unpaid principal
balance hereof, shall bear interest thereafter at a rate equal to the greater of
(i) 2% per annum in excess of the Annual Rate, or (ii) 2% per annum plus the
prime rate of interest established and declared from time to time by the Payee
(which is not necessarily the lowest rate of interest charged by the Payee to
borrowers), until such time as such default is cured. In addition to the
provisions contained in the preceding sentence, if any payment is received by
the holder hereof more than 15 days after the date such payment is due, then the
Maker promises to pay to such holder a "late charge" as liquidated damages equal
to 5% of the amount of such payment which was required to be paid pursuant to
this Note.
All payments of principal, interest and other sums due hereunder shall be
made during regular business hours at the office of the Payee at 14401 Sweitzer
Lane, Laurel, Maryland 20707, or at such other place as the holder of this Note
may from time to time designate in writing and shall be made in lawful money of
the United States of America which at the time of payment shall be legal tender
for the payment of public and private debts. All payments hereunder shall be
made without offset, demand, counterclaim, deduction, abatement, defense, or
recoupment, each of which Maker hereby waives.
This Note is made pursuant to the Loan Agreement and is secured by a Deed
of Trust and Security Agreement (the "Deed of Trust") of even date herewith
executed and delivered by the Maker and conveying to Joseph A. Hilseberg and
Mario Roca, Trustees, certain real property, together with any improvements
thereon, located in Montgomery County, Maryland, as more particularly described
in Exhibit "A" to the Deed of Trust (collectively, the "Property"). All of the
terms, covenants, conditions and provisions of the Loan Agreement and Deed of
Trust are hereby incorporated in and made a part of this Note to the same extent
as if herein set forth in full.
It is expressly agreed that time is of the essence of this Note. In the
event of a default in the payment of any amount hereunder as and when the same
becomes due and payable, or in the event of default by the Maker in the
performance of any of the terms, covenants, conditions or provisions of the Deed
of Trust, then, and in any of such events, the holder hereof may, at the option
of such holder, declare the entire outstanding principal balance hereof,
together with accrued interest thereon, late charges and any liquidated damages
provided for herein, and all other sums secured by the Deed of Trust to be
immediately due and payable without demand or further notice to the Maker or any
other person. Failure of the holder to exercise any rights hereunder shall not
constitute its waiver of the right to the later exercise thereof. All costs
incurred by the holder of this Note in connection with the indebtedness
evidenced hereby, including attorneys' fees (whether suit is brought or not),
shall be paid by the Maker on demand.
3
<PAGE> 4
So long as this Note is accruing interest at a fluctuating Annual Rate
calculated on the basis of the Libor Rate, the privilege is hereby reserved by
the Maker to prepay the principal of this Note in whole at any time, or in part
at any time and from time to time after the satisfactory completion of the
Improvements as described above, without any prepayment premium, upon no less
than thirty (30) days' prior written notice to the holder hereof and provided
that a payment of all accrued and unpaid interest to the date of such prepayment
is included with such prepayment as to the amount of principal being prepaid at
any time.
If this Note is accruing interest at a fixed Annual Rate calculated on the
basis of the Cost of Funds Rate, the privilege is hereby reserved by Maker to
prepay the principal of this Note in whole or in part at any time and from time
to time, provided that (a) the Maker shall provide no less than thirty (30)
days' prior written notice to the holder hereof of its intent to make any such
prepayment, (b) the Maker shall pay to the holder hereof at the time of each
such prepayment all accrued and unpaid interest to the date of such prepayment
as to the amount of principal being prepaid, and (c) the Maker shall also pay to
the holder hereof at the time of each such prepayment (whether such prepayment
is voluntary or involuntary), in consideration of the holder hereof accepting
such prepayment, a prepayment premium equal to the "Applicable Fraction"
(hereinafter defined) times an amount equal to the positive difference, if any,
calculated by subtracting (i) the present value of a series of hypothetical
payments, with one such hypothetical payment being made on the first day of each
calendar month from the date of the Maker's prepayment to and including the
Maturity Date, and with each such hypothetical payment being in an amount equal
to (A) one-twelfth (1/12th) of the applicable "Treasury Bond Yield" (hereinafter
defined) times (B) the principal amount that would have been outstanding under
this Note on the date of each such hypothetical payment if Maker had not made
the prepayment and if all amortization payments required under this Note had
been made as and when due prior to the date of each such hypothetical payment,
from (ii) the present value of the monthly payments of interest that would have
been payable under this Note from the date of the prepayment to and including
the Maturity Date if Maker had not made the prepayment and if all amortization
payments required under this Note had been made as and when due. The foregoing
present value calculations shall be made using an annual discount rate equal to
the applicable Treasury Bond Yield. The "Applicable Fraction" shall mean, with
respect to each prepayment, a fraction, the numerator of which is the amount of
that principal prepayment, and the denominator of which is the outstanding
principal amount of the indebtedness evidenced by this Note immediately prior to
that prepayment; and the "Treasury Bond Yield" shall mean, with respect to each
prepayment, the annual yield to maturity of non-callable debt obligations of the
United States Treasury having (x) an amount closest to, but not greater than,
the amount of the prepayment, and (y) a maturity closest to, but not greater
than, the number of months between the date of that prepayment and the Maturity
Date, all as reported in the Wall Street Journal (or, if the Wall Street Journal
is no longer published, as reported in another daily financial publication of
national circulation designated by the holder of this Note) on the fifth (5th)
business day preceding the date of that prepayment.
No prepayment premium will be charged with respect to involuntary
prepayments resulting from condemnation awards being paid to the holder hereof
or from proceeds from fire and/or casualty insurance being paid to the holder
hereof or with respect to payments of interest that would otherwise exceed
applicable law and are, therefore, treated as though they were prepayments of
principal hereunder. Partial prepayments shall not postpone or reduce any
regular payments of principal or interest, but shall be credited first to the
payment of any late charges accrued and due,
4
<PAGE> 5
then to other sums advanced by the Payee pursuant to the Deed of Trust, then to
accrued and unpaid interest, then to unpaid principal to be due and payable on
the Maturity Date and then, if applicable, to any unpaid installments of
principal in the inverse order of maturity.
Notwithstanding any provision herein or in the Deed of Trust or in any
other instrument or document executed in connection herewith, the total
liability for payments in the nature of interest shall not exceed the limits now
imposed by the usury laws of the jurisdiction whose laws govern the
interpretation and enforcement of this Note. If by reason of the acceleration of
the unpaid principal balance of this Note for any cause, or if, for any other
reason, interest in excess of the highest legal contract rate in said
jurisdiction shall at any time be paid, any such excess shall constitute and be
treated as a payment on the principal hereof and shall operate to reduce such
principal balance.
If any provision (or any part of any provision) contained in this Note
shall for any reason be held or deemed to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision (or remaining part of the affected provision) of this Note,
and this Note shall be construed as if such invalid, illegal or unenforceable
provision (or part thereof) had never been contained herein and the remaining
provisions of this Note shall remain in full force and effect.
The Maker, all endorsers and guarantors hereof, and all others who may
become liable for all or any part of the obligation evidenced hereby, waive
presentment, demand, protest, notice of demand and of dishonor and of
nonpayment, and any and all lack of diligence or delays in collection or
enforcement hereof. The Maker and all endorsers and guarantors hereof further
jointly and severally expressly agree with the holder hereof that said holder
may, from time to time, extend or renew this Note or any payment hereunder
without notice, in such manner, on such terms and for such time(s) as the holder
may see fit, all without in any way affecting or releasing the liability of the
Maker and all endorsers and guarantors hereof.
In the event any default shall occur hereunder or under any other document
evidencing or securing the indebtedness evidenced hereby, the Maker authorizes
the clerk or any attorney of any court of record to appear for all or any one
(1) or more of the entities collectively comprising the Maker, in any court of
competent jurisdiction, to waive the issuance and service of process and to
enter judgment by confession in favor of the holder of this Note for the balance
(principal and all other sums secured by the Deed of Trust) then due on this
Note, together with court costs, interest and an attorney's fee of fifteen
percent (15%) of the principal and interest then due hereunder. No single
exercise of the foregoing power to confess judgment shall be deemed to exhaust
the power, whether or not any such exercise shall be held by any court to be
invalid, voidable or void, but the power shall continue undiminished, and it may
be exercised from time to time as often as the holder of this Note shall elect,
until such time as the holder of this Note shall have received payment in full
of all indebtedness of Maker to the holder of this Note.
WAIVER OF TRIAL BY JURY. THE MAKER HEREBY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS NOTE AND/OR
ANY OF THE OTHER DOCUMENTS EVIDENCING OR SECURING THE DEBT TRANSACTION EVIDENCED
HEREBY. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY MAKER, AND
MAKER HEREBY
5
<PAGE> 6
REPRESENTS THAT NO ORAL OR WRITTEN STATEMENTS HAVE BEEN MADE BY ANY PARTY TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS
STATED EFFECT. MAKER FURTHER REPRESENTS THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT COUNSEL, SELECTED OF ITS OWN FREE WILL, IN THE SIGNING OF THIS NOTE
AND IN THE MAKING OF THIS WAIVER AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS
THIS WAIVER WITH SUCH COUNSEL.
This Note is to be construed and enforced according to and governed by the
laws of the State of Maryland.
[SIGNATURE PAGE FOLLOWS]
6
<PAGE> 7
IN WITNESS WHEREOF, the Maker has caused this Note to be executed, sealed,
and delivered as of the day and year first above written.
WITNESS: MAKER:
EXECUSTAY CORPORATION,
a Maryland corporation
By: [SEAL]
- ------------------------------ -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EXECUSTAY CORPORATION OF AMERICA,
a Maryland corporation
By: [SEAL]
- ------------------------------ -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EXECUTIVE AMENITIES, INC.,
a Maryland corporation
By: [SEAL]
- ------------------------------ -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EXECUTIVE AMENITIES - WEST, INC.,
a Maryland corporation
By: [SEAL]
- ------------------------------ -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[ADDITIONAL SIGNATURES FOLLOW]
7
<PAGE> 8
EXECUTIVE FURNITURE CENTRE, INC.,
a Maryland corporation
By: [SEAL]
- ------------------------------ -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BOLAND CORPORATE HOUSING, INC.,
a New York corporation
By: [SEAL]
- ------------------------------ -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
CORPORATE ACCOMMODATIONS, INC.,
a Connecticut Corporation
By: [SEAL]
- ------------------------------ -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
8
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<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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0
0
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