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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] Transition Report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _________________
Commission file number 1-13381
HOTELWORKS.COM, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-3096379
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
201 ALHAMBRA CIRCLE, CORAL GABLES, FL 33134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 305-774-3200
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Securities registered under Section 12 (b) of the Exchange Act: COMMON STOCK, PAR VALUE $.01
PER SHARE
Name of Exchange on which registered: AMERICAN STOCK EXCHANGE
Securities registered under Section 12 (g) of the Exchange Act: NONE
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Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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.
[ X ] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock, $.01 par value per
share (the "Common Stock"), held by non-affiliates of the Registrant as of April
10, 2000 (based upon the last sale price for the Common Stock on the American
Stock Exchange) was approximately $21,186,636.
The number of shares of Common Stock outstanding as of April 10, 2000
was 14,812,867.
DOCUMENTS INCORPORATED BY REFERENCE. Certain portions of the Registrant's
definitive proxy statement to be filed not later than April 29, 2000 pursuant to
Regulation 14A are incorporated by reference in Items 10 through 13 of Part III
of this Annual Report on Form 10-K.
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SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER
THE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, this Annual Report
on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 which involve certain risks and
uncertainties. The Company's actual results or outcomes may differ materially
from those anticipated. Important factors that the Company believes might cause
such differences are discussed in the cautionary statements accompanying the
forward-looking statements in this Annual Report on Form 10-K. In assessing
forward-looking statements contained herein, readers are urged to carefully read
those statements. When used in the Annual Report on Form 10-K, the words
"estimate," "anticipate," "expect," "believe," and similar expressions are
intended to identify forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Hotelworks.com, Inc. (the "Company"), formerly known as Hospitality
Worldwide Services, Inc., has historically been organized into the following six
lines of business: purchasing, reorder, logistics, renovation, real estate
investment and asset management, and hotel development. In September 1999, the
Company announced a strategic initiative to reposition the core purchasing,
reorder and logistics businesses into a business-to-business e-commerce company
and to divest itself of its renovation business and real estate investment and
asset management business. In December 1998, the Company decided to discontinue
its hotel development business. Given the change in strategic direction, the
operating results of the purchasing, reorder and logistics businesses are
presented as continuing operations and the operating results associated with the
renovation, real estate investment and asset management, and hotel development
businesses, as well as the estimated losses on disposal, are presented as
discontinued operations on the consolidated statements of operations for all
years presented.
The Company's consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
liquidity of the Company has been severely affected during 1999 by significant
losses from continuing operations and discontinued operations, which have
resulted in a significant deterioration of the stockholders' equity of the
Company from $58.4 million at December 31, 1998 to $0.5 million at December 31,
1999. In addition, certain of the Company's debt and line of credit facilities
are in default and the Company projects negative cash flows from operations in
2000. These circumstances have raised substantial doubt about the Company's
ability to continue as a going concern. Reference is made to Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for further discussion of the
Company's current financial condition and management's action plans to address
these matters. Accordingly, there are no assurances that the Company will have
sufficient funds available to it to satisfy all of its obligations during 2000.
After the resignations of a number of former directors and officers of
the Company in the fall of 1999, the Company retained counsel to assist in
conducting an investigation into various matters. In the course of the
investigation, the Company discovered, among other things, that approximately
$2.1 million of fraudulent charges had been submitted to and paid by the Company
during 1998 and 1999. Those funds have been returned to the Company by a former
officer of the Company, but the Company has not yet recovered any interest or
related costs. Management believes that it has identified the financial extent
of the fraudulent activities. The financial results for the fourth quarter of
1999 reflect the recovery. The Company has not restated any prior period
financial statements as management has determined that the impact was not
material in any period. The Company believes that other former directors,
officers and employees may have been involved in the fraudulent activities, that
there may have been breaches of fiduciary duties and other inappropriate
actions, and that the Company may be able to recover damages from those
individuals. The Company intends to pursue all available and appropriate
remedies and to make any appropriate referrals to law enforcement and
administrative agencies.
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CONTINUING OPERATIONS
In January 1997, the Company completed the acquisition of the Leonard
Parker Company, ("LPC") and its subsidiary, Parker Reorder Online ("Parker
Reorder"). LPC, founded in 1969, is a leading purchasing company for the
hospitality industry which acts as an agent or principal for the purchase of
goods and services for its customers which include major hotel and management
companies worldwide. LPC purchases furniture, fixtures and equipment, kitchen
supplies, linens and uniforms, guestroom amenities, and other supplies to meet
its customers' requirements for new hotel openings and major renovations. LPC
purchases annually, as a principal and as an agent, approximately $350 million
of goods and services for its customers. Parker Reorder has developed a
proprietary software product, Parker Fully Integrated Reorder Systems Tracking
("Parker FIRST"), which allows clients to reorder operating supplies and
equipment ("OS&E") and other products on-line and provides such clients with
access to forecasting and product evaluation capabilities. Parker Reorder offers
hotel properties the ability to order, on an as needed basis, any and all OS&E
products used by such properties. Commencing in 1998, Parker Reorder has
installed the Parker FIRST software at hotel properties and charges the hotel
properties a service fee based on the volume of transactions. The purchase price
of LPC and Parker Reorder, including acquisition costs and after final
adjustments, was approximately $12,140,000 which consisted primarily of
1,250,000 newly issued shares of Common Stock and $5 million stated value of
200,000 newly issued shares of 6% convertible preferred stock of the Company
(the "LPC Preferred"). The acquisition has been accounted for as a purchase with
the results of LPC and Parker Reorder included in the consolidated financial
statements of the Company from the acquisition date.
In connection with the strategic initiative discussed above, Parker
FIRST, which is a client server-based system, will be phased out completely in
2000, as the Company migrates the reorder business to an internet web-based
system. Further, the Company has determined that the goodwill and other
intangibles associated with the acquisition of Parker Reorder in January 1997 is
closely related to the Parker FIRST system. As such, the Company has recorded an
asset impairment charge in 1999 reflecting the remaining net book value of the
capitalized computer software costs associated with the Parker FIRST system and
the goodwill.
The LPC Preferred issued in connection with the acquisition was
convertible into the Company's common stock based upon a prescribed formula in
the purchase agreement. In October 1998, 80,000 shares of LPC Preferred were
converted into an aggregate of 584,800 shares of Common Stock. In September and
October 1999, the remaining 120,000 shares of LPC preferred were converted into
an aggregate of 1,269,399 shares of Common Stock.
In January 1998, the Company acquired Bekins Distribution Services,
Inc. ("Bekins"), a provider of transportation, warehousing and installation
services to a variety of customers worldwide. Founded in 1969, Bekins is a
logistical services company that serves clients who are opening, renovating or
relocating facilities by assuring that materials, fixtures, furniture and
merchandise are moved from multiple vendor locations to their ultimate
destinations in a controlled orderly sequence so that each item can be installed
on schedule. The purchase price of Bekins, including acquisition costs, of
approximately $11,400,000 consisted of 514,117 shares of Common Stock and the
assumption of certain Bekins' debt. Additionally, under the terms of the
purchase agreement, the Company was required to issue an additional 639,512
shares of Common Stock in January 1999 as a post closing adjustment based on the
market price of the Company's Common Stock on the one year anniversary of the
date of acquisition. The acquisition has been accounted for as a purchase with
the results of Bekins included in the consolidated financial statements of the
Company from the acquisition date. The issuance of additional shares pursuant to
the make-whole provision was accounted for as an equity transaction with no
adjustment to the purchase price or reported net income.
DISCONTINUED OPERATIONS
In August 1995, the Company acquired substantially all of the assets
and assumed certain liabilities of AGF Interior Services Co., a Florida
Corporation ("AGF"), that through its wholly-owned subsidiary, Hospitality
Restoration & Builders, Inc., a New York Corporation ("HRB"), provided
renovation services to the hospitality industry. Until January 1997, the
Company's only line of business was to provide, through HRB, a complete package
of renovation services to the hotel industry ranging from pre-planning and scope
preparation of a project to performing the renovation requirements and
delivering furnished rooms. In September 1999, as part of the Company's
strategic initiative discussed above, the Company decided to divest itself of
the renovation business.
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In May 1997, the Company entered into a joint venture ("Apollo Joint
Venture") with Apollo Real Estate Advisors II, L.P. ("Apollo") and Watermark
Investments Limited, LLC ("Watermark"), which is affiliated with Robert Berman,
the former Chairman and Chief Executive Officer of the Company, to identify,
acquire, renovate, refurbish and sell hotel properties. The Company performed
the renovation and procurement services for the properties purchased by the
Apollo Joint Venture. In addition, the Company acquired a non-controlling equity
interest in each of the entities formed to purchase such properties. As an
inducement to enter into the Joint Venture Agreement, the Company issued to
Apollo a seven-year warrant to purchase up to 750,000 shares of Common Stock at
$8.115 per share. The warrant expires in 2004. The warrant was initially
exercisable as to 250,000 shares and became exercisable as to the remaining
500,000 shares in increments of 100,000 shares for every $7,500,000 of
incremental renovation revenue and purchasing fees earned by the Company from
the Apollo Joint Venture. The warrant contains price protection provisions and
anti-dilution provisions that could result in the issuance of significantly more
shares under certain circumstances. In September 1997, the Apollo Joint Venture
acquired the Warwick Hotel in Philadelphia, Pennsylvania. Through March 31,
2000, the Company has made cumulative capital contributions of approximately
$791,000 to the joint venture operating entity that was formed to purchase the
property. In March 1998, the Apollo Joint Venture acquired the Historic Inn in
Richmond, Virginia. Through March 31, 2000, the Company has made cumulative
capital contributions of approximately $311,000 to the joint venture operating
entity that was formed in connection with the purchase of the property. In
September 1999, as part of the Company's strategic initiative discussed above,
the Company decided to divest itself of its real estate investment and asset
management business. Accordingly, the Company will not be making any further
investments under the Apollo Joint Venture agreement. In addition, the Company
is currently in negotiations with Apollo to settle all matters related to Apollo
and the Apollo Joint Venture.
In November 1997, the Company formed a wholly owned subsidiary,
Hospitality Construction Corporation ("HCC"), to specialize in new hotel
construction projects and major hotel upgrades. In addition, HCC was to manage
the renovation projects under the Apollo Joint Venture and any other similar
ventures. HCC's operations commenced in 1998 and related solely to hotel upgrade
and renovation projects, and did not include any new hotel construction
projects. In an effort to consolidate operations, the Company transferred the
HCC operations to HRB in 1998. As discussed above, the renovation business was
discontinued in 1999.
In December 1997, the Company formed a wholly owned subsidiary,
Hospitality Development Services Corporation ("HDS"). HDS was to provide hotel
development services involving managing and overseeing the development process
related to new hotel construction, to earn a developers fee. HDS commenced
operations in 1998. On January 6, 1998, the Company reached an agreement in
principle to enter into a master development agreement with Prime Hospitality
Corp. ("Prime") to develop up to 20 hotel properties over a two-year period
under the AmeriSuites brand name. In June 1998, the Company and Prime executed
the master development agreement. In late 1998, the Company was informed by
Prime that Prime was no longer going to pursue new development opportunities and
that Prime was abandoning their responsibilities under the master development
agreement, even though the Company had incurred significant costs up to such
time. As a result, in December 1998, management decided to discontinue its hotel
development business. The Company ceased its hotel development operations in
April 1999. In December 1999, the Company and Prime reached an agreement to
terminate the master development agreement whereby the Company received a
settlement payment of $300,000 and both parties agreed to a full release of
obligations and claims.
In February 1998, the Company formed a wholly owned subsidiary, HWS
Real Estate Advisory Group, Inc. ("HWS REAG") to purchase the assets of
Watermark's real estate advisory business, consisting primarily of contracts to
perform future asset management and advisory services as well as certain equity
interests in the Apollo Joint Venture. The purchase price for such business was
$1,500,000 of cash. The acquisition has been accounted for as a purchase with
the results of HWS REAG included in the consolidated financial statements of the
Company from the acquisition date. In September 1999, as part of the Company's
strategic initiative discussed above, the Company decided to divest itself of
its real estate investment and asset management business. On September 30, 1999,
the Company and Watermark entered into a Termination Agreement whereby all
agreements between the parties were terminated, and amongst other things,
includes a payment by Watermark to the Company of $885,000, that was made in
December 1999.
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In March 1998, the Company entered into a joint venture with ING Realty
Partners ("ING Joint Venture"), to acquire the Clarion Quality Hotel in Chicago,
Illinois, whereby the Company acquired a non-controlling equity interest in the
ING Joint Venture. The Company also performed the renovation and procurement
services for the property. Through March 30, 2000, the Company has made
cumulative capital contributions of approximately $3.2 million to the ING Joint
Venture. The other partners in the ING Joint Venture are entitled to specified
preferred returns and priority distributions of capital. In addition, the joint
venture agreement provides ING Realty Partners with the right to have the joint
venture sell the property after March 2000, and certain buy/sell provisions
which may be exercised by any partner. In September 1999, as part of the
Company's strategic initiative discussed above, the Company decided to divest
itself of its real estate investment and asset management business. Accordingly,
the Company will not be making any further investments in the ING Joint Venture
and is currently negotiating a settlement agreement with ING, whereby the
Company would principally divest itself of its equity interest in the ING Joint
Venture, as well as settle all other matters related to the ING Joint Venture.
On March 30, 1999, the Company, Watermark Investments Limited, LLC
("Watermark"), an affiliate of Robert Berman (the former Chairman of the Board
and Chief Executive Officer of the Company), Leonard Parker (a Director of the
Company), Douglas Parker (President of the Company and a Director) and certain
members of the family of Leonard Parker and Douglas Parker (collectively, the
"Parker Family") entered into an agreement (the "Parker Agreement") pursuant to
which members of the Parker Family agreed to sell to Watermark all remaining
shares of the LPC Preferred held by members of the Parker Family and 1,397,000
shares of Common Stock of the Company, constituting substantially all of the
Common Stock held by members of the Parker Family, no later than April 26, 1999.
The Parker Agreement was amended in April 1999 to provide for a closing of the
transactions contemplated by the Parker Agreement to occur no later than June
18, 1999. None of the transactions contemplated under the Parker Agreement have
been consummated and the Parker Agreement was terminated on June 21, 1999.
Financial information about the Company's business segments appears in
Footnote 18 to the Consolidated Financial Statements in Part II, Item 8 of this
report.
SALES AND MARKETING
The Company's sales and marketing strategy is to obtain and maintain
strategic alliances with hotel chains and franchises with a global presence and
to focus on customer needs for upscale full service hotels.
The Company's sales and marketing efforts are coordinated by senior
executives of the Company, together with salespersons who contact and maintain
relationships with appropriate hotel personnel. Because of the Company's
commitment to service and customer relationships, the majority of the Company's
business comes from referrals and repeat customers.
COMPETITION
Servicing the hospitality industry is a highly competitive business,
with competition based largely on price and quality of service. In its
purchasing and reorder businesses, the Company competes with other independent
procurement companies, hotel purchasing companies and food service distribution
companies. With respect to its internet, web-based reorder business, the Company
expects competition from a number of hotel management companies, hotel
companies, franchise operators and other entities who are pursuing the
development of software systems to provide on-line procurement services. In its
logistics business, the Company competes with national, regional and local
trucking and installation companies. There is no single competitor or small
number of competitors that are dominant in the Company's business areas.
However, some of the Company's competitors and potential competitors possess
substantially greater financial, personnel, marketing and other resources than
the Company.
REGULATION
The Company's logistics business is subject to various federal, state
and local laws and regulations, pursuant to which it is required to, among other
things, obtain licenses and general liability insurance and workers compensation
insurance. The Company believes that it is currently in compliance with these
laws and regulations in those states in which it currently operates. There are a
number of states in which the Company operates where a license is not required.
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The Company's purchasing and reorder businesses are subject to
regulation by various state laws and regulations and international customs,
duties, taxing and other authorities that regulate the import and distribution
of goods. Domestically, the freight carrier provides bills of lading and other
documentation that record the pick-up, shipping and delivery of merchandise
purchased by the Company for its clients. Internationally, the Company must
comply with the individual country's requirements as they relate to commercial
documentation. The Company believes that it is currently in compliance with the
laws and regulations in those states and countries in which it currently
operates.
DEPENDENCE ON CUSTOMERS
Most of the Company's customers are in the hospitality industry with
few of them accounting for a substantial portion of the Company's annual
revenues. During the year ended December 31, 1999, one customer, a high-ranking
government official of the United Arab Emirates, accounted for 13% of the
Company's revenues. During the year ended December 31, 1998, one customer, a
major lodging company, accounted for 14% of the Company's revenues. During the
year ended December 31, 1997, two customers, a high-ranking government official
of the United Arab Emirates and a major lodging company accounted for 18% and
11%, respectively, of the Company's revenues. As the Company continues to grow
and expand its businesses, the Company believes its dependence on significant
customers will decrease. There are no assurances that either continued growth or
decreased dependence on significant customers will occur.
EMPLOYEES
As of December 31, 1999, the Company and its subsidiaries employed 252
employees. Other than Bekins employees at the Las Vegas warehouse, none of the
Company's employees are represented by labor unions and the Company believes
that its relationship with its employees is good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases office space in Coral Gables, Florida which houses
its executive offices, as well as offices for LPC and Parker Reorder. The lease
has a ten-year term expiring in April 2009, covering approximately 55,300 square
feet at December 31, 1999, with 9,521 square feet to be returned to the landlord
on June 1, 2000, and 3,000 square feet to be returned to the landlord on
December 1, 2000, with an annual rental (net of return of space) of $1,127,000
increasing to $1,185,000 in 2002. LPC also maintains satellite offices, in Los
Angeles, California; Singapore and Amsterdam, The Netherlands, which do not
lease significant office space.
Bekins maintains its offices in St. Louis, Missouri under a lease which
expires in December 2006 at an annual fixed rental of approximately $230,000 for
13,900 square feet. Bekins also owns a 78,000 square foot warehouse in Orlando,
Florida, which is currently listed with a broker for sale. Bekins has entered
into a lease on 50,000 square feet of warehouse space in Orlando, Florida, at an
annual fixed rental of $190,000 increasing to $202,000 in March 2002, expiring
in February 2003. Bekins also leases warehouse space in Las Vegas, Nevada, where
it occupies 22,000 square feet under a lease which expires in October 2001 at an
annual fixed rental of $102,000.
The Company currently leases approximately 22,000 square feet of office
space in New York, Coral Gables and Los Angeles that it does not occupy, but has
leased to unrelated third parties under sub-lease agreements that expire
coterminous with the original lease. The sub-lease payments to be received by
the Company approximate the payments to be made by the Company under its leases
with landlords.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various litigation incident to its
business, and in certain instances the amounts sought include substantial claims
and counterclaims. Although the Company cannot predict the outcome with
certainty, in management's opinion based on the facts known at this time, the
Company anticipates that the resolution of such litigation will not have a
material adverse effect on its business, operating results or financial
condition.
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On June 1, 1998, an action (the "State Action") was brought against the
Company by West Atlantic Corp. ("West Atlantic") in the Supreme Court of the
State of New York. The State Action alleged that the Company retained West
Atlantic pursuant to an agreement dated March 1, 1995 (the "Agreement") to
perform certain marketing and selling services for the Company. The State Action
further alleged that fees were allegedly earned and not paid under the Agreement
and seeks damages relating to an alleged breach of contract of not less than
$10,000,000, damages with respect to alleged "significant benefits to the
Company" in an amount of not less than $5,000,000 and damages relating to breach
of the duties of good faith and fair dealing in an amount of not less than
$10,000,000. The Company has denied and continues to deny all of the allegations
and claims of wrongdoing made by West Atlantic in the State Action. However, in
an effort to avoid further expenses, the Company previously reached a tentative
agreement in principle with West Atlantic pursuant to which it agreed to pay
$250,000 to West Atlantic in a combination of cash and restricted stock (with
registration rights). That tentative agreement was never completed due to the
parties' inability to finalize essential terms of the agreement. West Atlantic
has recently made a motion to compel the Company to enforce the terms of the
tentative agreement. The motion has not yet been fully briefed, and is currently
pending. The Company believes that the tentative agreement with West Atlantic is
unenforceable, and intends to vigorously oppose the motion. In connection with
the State Action, the Company brought claims in federal and state court against
Tova Schwartz, the former President and Chief Executive Officer of the Company's
predecessor, seeking indemnification against the West Atlantic claims in the
State Action, other compensatory damages and punitive damages. The state and
federal actions claim that, among other things, Ms. Schwartz failed to disclose
to the Company the existence of the Agreement and West Atlantic's claims
thereunder, when the Company purchased from Ms. Schwartz certain shares of
Common Stock of the Company which she then held, sold its lighting business to
her and provided her with other severance benefits. Ms. Schwartz's motion for
dismissal of the Company's State Action indemnification claims was denied on
June 28, 1999. Ms. Schwartz has asserted counterclaims against the Company in
the State Action. She also joined Howard Anders, a former employee of the
Company, as a fourth-party defendant in the State Action. In addition, the
federal action, previously stayed by the tentative agreement of the parties, has
been reinstated. Ms. Schwartz has asserted counterclaims against the Company in
the federal action. She has joined Mr. Anders, along with Robert Berman and Alan
Friedberg, also former employees of the Company, as additional counterclaim
defendants in the federal action. The Company has concluded that, pursuant to
the Company's By-Laws, Messrs. Anders and Berman are entitled to indemnification
from the Company with respect to the state and federal actions. The court in the
State Action has dismissed, in part, the fourth-party complaint against Mr.
Anders. The Company has denied and continues to deny all of the allegations and
claims of wrongdoing made by Ms. Schwartz in the state and federal actions. The
Company intends to continue to vigorously defend all such claims against it and
to continue to assert its claims for indemnification against Ms. Schwartz.
After the resignations of a number of former directors and officers of
the Company in the fall of 1999, the Company retained counsel to assist in
conducting an investigation into various matters. In the course of the
investigation, the Company discovered, among other things, that approximately
$2.1 million of fraudulent charges had been submitted to and paid by the Company
during 1998 and 1999. Those funds have been returned to the Company by a former
officer of the Company, but the Company has not yet recovered any interest or
related costs. Management believes that it has identified the financial extent
of the fraudulent activities. The financial results for the fourth quarter of
1999 reflect the recovery. The Company has not restated any prior period
financial statements as management has determined that the impact was not
material in any period. The Company believes that other former directors,
officers and employees may have been involved in the fraudulent activities, that
there may have been breaches of fiduciary duties and other inappropriate
actions, and that the Company may be able to recover damages from those
individuals. The Company intends to pursue all available and appropriate
remedies and to make any appropriate referrals to law enforcement and
administrative agencies.
Prime and the Company entered into a master development agreement in
June 1998 which committed Prime and the Company to the joint development of up
to 20 AmeriSuites Hotels. Pursuant to the master development agreement, the
Company committed its resources to the development of the AmeriSuites Hotel
projects. Prior to the completion of development of several approved AmeriSuites
projects, Prime, in late 1998, withdrew from the venture. On March 17, 1999, the
Company filed an arbitration demand with the New York office of the American
Arbitration Association seeking to recover damages incurred by the Company and
lost profits due to Prime's withdrawal from the joint development of the
AmeriSuites projects. This case was settled in December 1999, with terms that
include the full release to both parties and a payment of $300,000 made by Prime
to the Company.
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In June 1999, Hospitality Restoration & Builders, Inc., a wholly owned
subsidiary of the Company ("HRB"), filed a lawsuit in the Supreme Court, New
York County against Servico, Inc. In general, the lawsuit alleged that Servico
breached its obligations to HRB under an agreement pursuant to which HRB was to
renovate certain hotel properties located in New York, Texas and Illinois. HRB
has asserted in the action that it suspended its work at these hotels due to
Servico's failure to pay for certain completed work and that as a result of the
suspension of work, Servico terminated the agreement with HRB. HRB is seeking
damages in excess of $20.0 million. As a result of motions made by Servico, the
actions related to the Texas and Illinois properties were dismissed for lack of
jurisdiction. HRB has subsequently filed actions against Servico in Texas and
Illinois. With respect to the New York properties, Servico has counterclaimed
against HRB to recover damages in excess of $18.0 million. The outcome of this
matter is uncertain at this time, however an adverse outcome in this action
could have a material adverse effect on the Company.
On February 3, 2000, Servico Rolling Meadows, Inc. ("Servico RM"),
filed a lawsuit in the United States District Court for the Northern District of
Illinois against HRB. In general, the lawsuit alleges that HRB furnished
defective work and failed to complete work required under an agreement to
renovate a hotel located in Rolling Meadows, Illinois. Servico RM is seeking
damages in excess of $4.0 million. In response to this action, on March 10,
2000, HRB filed an answer in which it denied Servico RM's claims and asserted
counterclaims against Servico RM for breach of contract, among other claims. HRB
is seeking damages in an amount in excess of $2.5 million against Servico RM in
connection with this counterclaim. To date, Servico RM has not answered or
otherwise responded to HRB's claims and formal discovery has not yet been
initiated. The outcome of this matter is uncertain at this time, however an
adverse outcome in this action could have material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 15, 1999, the Company held its 1999 Annual Meeting of
Shareholders (the "Meeting"), whereby the shareholders (1) approved an amendment
to the Company's Certificate of Incorporation to change the name of the Company
from "Hospitality Worldwide Services, Inc." to "Hotelworks.com, Inc." (2)
elected one member to the Company's Board of Directors (3) approved amendments
to the Company Certificate of Incorporation and By-Laws to provide that
vacancies that exist on the Board of Directors as a result of a determination by
the Board of Directors not to nominate an individual to fill a vacancy created
by the expiration of the term of a director may be filled by the remaining
members of the Board of Directors then in office, provided that such director
shall have a term that expires at the next succeeding annual meeting of
shareholders (4) approved the adoption of the Company's 1999 Stock Option Plan
and (5) ratified the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999. The vote on
such matters was as follows:
Number of Shares of Number of Shares of Common
1. Election of Director Common Stock For Stock - Withheld Authority
-------------------- ------------------- -------------------------
Leonard F. Parker 11,299,117 1,346,678
2. Approval of an amendment to the Company's Certificate of Incorporation
to change the name of the Company from "Hospitality Worldwide Services,
Inc." to "Hotelworks.com, Inc.":
For Against Abstaining
--- ------- ----------
13,906,904 84,080 7,300
3. Approval of amendments to the Company Certificate of Incorporation and
By-Laws to provide that vacancies that exist on the Board of Directors
as a result of a determination by the Board of Directors not to
nominate an individual to fill a vacancy created by the expiration of
the term of a director may be filled by the remaining members of the
Board of Directors then in office, provided that such director shall
have a term that expires at the next succeeding annual meeting of
shareholders:
For Against Abstaining
--- ------- ----------
10,000,651 327,243 43,463
8
<PAGE> 9
4. Approval of the adoption of the Company's 1999 Stock Option Plan:
For Against Abstaining
--- ------- ----------
8,500,489 16,380 94,825
5. Ratification of the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999:
For Against Abstaining
--- ------- ----------
12,007,789 1,899,727 90,768
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION. The Common Stock is traded on the American
Stock Exchange under the symbol "HWS". The following table sets
forth, for the periods indicated, the range of high and low bid
prices of the Common Stock.
High Low
------- ------
1998
First Quarter $13- 1/2 $ 8-3/4
Second Quarter 10-7/16 7-7/8
Third Quarter 9-5/16 2-7/8
Fourth Quarter 6-1/4 1-7/8
1999
First Quarter $ 6-5/8 $ 2-7/16
Second Quarter 3-7/8 2-9/16
Third Quarter 3-7/8 1-15/16
Fourth Quarter 5 1-1/2
On April 10, 2000, the last reported sales price of the Common Stock on
the American Stock Exchange was $1-3/4 per share.
(b) HOLDERS. As of April 10, 2000, there were approximately 80 record
holders and approximately 1,500 beneficial holders of the Common Stock.
(c) DIVIDENDS. The Company has not paid or declared any dividends upon
its Common Stock since its inception and does not intend to pay any
dividends on its Common Stock in the foreseeable future. The payment by
the Company of dividends, if any, in the future rests within the
discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its
financial condition, as well as, other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA (A)
In September 1999, Hotelworks.com, Inc. announced a strategic
initiative to reposition the core purchasing, reorder and logistics businesses
into a business-to-business e-commerce company and to divest itself of its
renovation business and real estate investment and asset management business. In
December 1998, the Company decided to discontinue its hotel development
business. Given the change in strategic direction, the operating results of the
purchasing, reorder and logistics businesses are presented as continuing
operations and the operating results associated with the renovation, real estate
investment and asset management, and hotel development businesses, as well as
the estimated losses on disposal, are presented as discontinued operations on
the consolidated statements of operations for all years presented.
9
<PAGE> 10
The following table presents selected financial data for the Company
for each of the five years in the period ended December 31, 1999. The
information in the table has been restated to reflect such amounts related
solely to the continuing operations of the Company, comprising the purchasing
and reorder businesses acquired in January 1997 and the logistics business
acquired in January 1998.
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands, Except Share Amounts)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $65,051 $173,003 $220,114
Loss from continuing operations (605) (183) (1,802) (2,069) (18,245)
Basic loss from continuing operations (.11) (.03) (.24) (.19) (1.35)
per common share
Diluted loss from continuing (.11) (.03) (.24) (.19) (1.35)
operations per common share
Total assets 8,288 9,523 79,594 122,355 61,781
Long-term debt -- -- - 2,965 68
</TABLE>
(a) No cash dividends were declared during the five-year period presented
above. See Item 1. DESCRIPTION OF BUSINESS for a description of all
acquisitions during the five-year period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In September 1999, the Company announced a strategic initiative to
reposition the core supply and distribution businesses into a
business-to-business e-commerce company, and to divest itself of its renovation
business and real estate investment and asset management business. In December
1998, the Company decided to discontinue its hotel development business. As a
result, the Company has reflected the operating results associated with the
renovation, real estate investment and asset management, and hotel development
businesses, as well as the estimated losses on disposal, as discontinued
operations on the consolidated statements of operations for all periods
presented. Accordingly, the continuing operations of the Company are comprised
of the purchasing, reorder and logistics businesses.
RESULTS OF OPERATIONS: 1999 COMPARED TO 1998
Revenues for the year ended December 31, 1999 were $220,113,533,
compared to $173,003,479 for the year ended December 31, 1998. The increase in
revenues resulted from a continuing expansion of the customer base across all
business lines and an increase in project scopes at LPC.
Cost of revenues for 1999 increased to $208,641,295 as compared to
$159,401,325 for 1998 due primarily to the higher revenue.
Gross profit for 1999 was $11,472,238 or 5.2% of revenues, compared to
$13,602,154 or 7.9% of revenues for 1998. The decrease in gross profit dollars
and percent was due to the aforementioned increase in project scope at LPC where
larger dollar volume purchasing contracts did not yield correspondingly larger
fees, as the complexity of the jobs did not necessarily increase along with the
size of the contract.
Selling, general and administrative ("SG&A") expenses for 1999 totaled
$22,697,922 or 10.4% of revenues, as compared to $16,659,136 or 9.6% of revenues
for 1998. The increase in SG&A expenses in 1999 was due to an expansion of the
administrative staff to support the higher sales levels, expenses for employee
terminations and other costs associated with the corporate office closing in New
York, and expenses relating to office relocations in Florida and St. Louis.
Additionally, the Company increased their reserves against certain receivables.
SG&A expenses also include $570,520 and $626,057 of amortization of goodwill and
other intangible assets for 1999 and 1998, respectively.
10
<PAGE> 11
An asset impairment charge of $9,252,000 was recorded in 1999, as the
Company made a determination that the Parker Reorder proprietary software
product, Parker FIRST, will not provide future long-term benefits to the Company
based on the repositioning of the Company's core businesses. The Parker FIRST
system, which is a client server-based system, will be phased out completely in
2000, as the Company migrates the reorder business to an internet web-based
system. Additionally, the Company has determined that the goodwill and other
intangibles associated with the acquisition of Parker Reorder in 1997 is closely
related to the Parker FIRST system and is considered an impaired asset as well.
Accordingly, the net book value of such assets was written-off in 1999.
The loss from operations for 1999 totaled $20,477,684, which includes
the above stated $9,252,000 asset impairment charge, as compared to a loss of
$3,056,982 for the previous year. Operating results decreased in the current
year due to the factors cited above.
Interest expense increased from $756,100 in 1998 to $1,774,111 in 1999.
The rise in interest expense was the result of increased borrowings under the
Company's lines of credit and an increase in interest rates given that the lines
of credit carry variable interest rates. Interest income decreased in 1999 to
$902,753 from $1,297,245 in 1998 in tandem with the decrease in investible funds
from 1998 to 1999.
The benefit for income taxes in 1999 was $3,103,829 primarily
representing a current benefit for a carryback claim for federal, state and
local income taxes based on taxable losses in 1999, offset by a valuation
allowance against previously recorded deferred tax assets. For 1998, the benefit
for income taxes was $447,263.
Based on factors discussed above, the loss from continuing operations
increased from a $2,068,574 loss in 1998 to a $18,245,213 loss in 1999. Basic
loss per share from continuing operations increased from a $0.19 loss in 1998 to
a loss of $1.35 in 1999.
The operating results associated with the discontinued operations were
a loss of $22,589,150 for 1999 compared to income of $2,192,812 for 1998. The
loss for the current year includes additional provisions on contract receivables
relating to the renovation business of approximately $17.0 million for
substantially complete renovation projects which have not yet been closed out
with customers, and the write-off of certain real estate investments and
receivables of approximately $500,000 relating to the real estate investment and
asset management business.
The loss on disposal of discontinued operations for 1999 was
$17,169,880. The loss includes the write-off of goodwill of approximately $5.0
million and anticipated and actual operating losses during the phase-out period
of $565,000 relating to the renovation business; the write-off of goodwill of
$450,000 and write-downs and reserves in connection with the anticipated
disposal of the real estate investments of approximately $5.1 million relating
to the real estate investment and asset management business; and additional
write-downs of approximately $1.3 million on certain real estate development
projects relating to the hotel development business. Management anticipates
disposing of the assets associated with these businesses and ceasing the
associated operations during 2000. However, the resolution date as to certain
disputed matters is uncertain.
RESULTS OF OPERATIONS: 1998 COMPARED TO 1997
Revenues for the year ended December 31, 1998 were $173,003,479,
compared to $65,051,279 for 1997. The increase in revenue resulted primarily
from growth in the customer base and project scopes at LPC along with the
purchase of Bekins in January 1998.
Gross profit for the year ended December 31, 1998 was $13,602,154 or
7.9% of revenues, compared to $4,879,226, or 7.5% of revenues, for 1997. The
increase in gross profit dollars was primarily due to an increase in sales
volume at LPC and the acquisition of Bekins.
Selling, general and administrative ("SG&A") expenses for the year
ended December 31, 1998 were $16,659,136, or 9.6% of revenues, compared to
$7,933,005, or 12.2% of revenues, for 1997. Included in SG&A expenses for the
years ended December 31, 1998 and 1997 were $626,057 and $390,613, respectively,
of amortization of goodwill and other intangible assets on acquisitions. The
increase in SG&A expenses in 1998 was due to the addition of Bekins as well as
the development of an administrative infrastructure.
The loss from operations for the year ended December 31, 1998 was
$3,056,982, compared to a loss of $3,053,779, for 1997.
11
<PAGE> 12
Interest income grew in 1998 to $1,297,245 from $722,875 in the prior
year primarily as a result of interest earned on invested funds raised in the
public offering of the Company's common stock in September 1997. Interest
expense increased from $93,869 in 1997 to $756,100 in 1998 due to increased
borrowings under the Company's lines of credit and the addition of Bekins debt
to the balance sheet upon its acquisition in January 1998.
The benefit for income taxes was $447,263 as compared to $623,017 for
1997. The decrease in the benefit for income taxes in 1998 was primarily due to
higher state and local taxes payable given the Bekins acquisition.
Based on the facts as discussed above, income from continuing
operations totaled a loss of $2,068,574 for 1998 as compared to a loss from
continuing operations of $1,801,756 for 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
liquidity of the Company has been severely affected during 1999 by significant
losses from continuing operations and discontinued operations, which have
resulted in a significant deterioration of the stockholders' equity of the
Company from $58.4 million at December 31, 1998 to $0.5 million at December 31,
1999. In addition, certain of the Company's debt and line of credit facilities
are in default and the Company projects negative cash flows from operations in
2000. These circumstances raise substantial doubt about the Company's ability to
continue as a going concern.
The losses from continuing operations emanate from a reduction in the
gross margins realized within the purchasing business in 1999 as compared to
prior years; an increase in selling, general and administrative expenses due to
an expansion of the administrative staff of the on-going businesses and expenses
related to employee terminations and other costs associated with the closing of
the Company's corporate office in New York; and an asset impairment charge of
$9.3 million related to the Parker FIRST software product. Management plans to
undertake a comprehensive review of its on-going businesses to address the gross
margins realized on its contracts, including evaluating integration
opportunities to achieve synergies in its businesses, reviewing the pricing
levels achieved for its services as well as reviewing the utilization of its
staff in executing those contracts. In addition, management plans to thoroughly
evaluate its overhead costs to ascertain where costs can be curtailed or
eliminated.
The losses from discontinued operations relate to the Company's
decision to divest itself of its renovation, real estate investment and asset
management, and hotel development businesses. Management has been diligently
attempting to resolve any remaining open matters relating to these businesses to
avoid any further financial deterioration to the Company. Management believes
that the reserves established in 1999 will be sufficient to cover any future
obligations related to these discontinued operations and to bring all open
matters to closure.
The Company's term loan and mortgage note payable were in default as of
December 31, 1999 and the Company's unsecured line of credit facilities, which
matured in September 1999, were not repaid and are currently in default.
Accordingly, all of these debt facilities are currently due and payable.
However, interest on all loans is being paid monthly at the contractual rate.
The Company anticipates selling a warehouse facility, the proceeds of which will
be used to repay the term loan and mortgage note payable. The Company is also
involved in active, on-going negotiations with the banks who provided the line
of credit facilities as to a refinancing of the facilities or an extension of
the expiration date. There are no assurances that the Company will be able to
successfully negotiate these facilities at terms favorable to the Company.
The Company's 2000 budget projects a net cash flow deficit from
operations of approximately $1.4 million and cash requirements related to the
development of its internet web-based reorder system of approximately $1.9
million. The net cash flow deficit from operations for 2000 primarily relates to
continued losses of the Parker Reorder business and corporate expenses.
Management believes that given its working capital position (exclusive of
short-term debt obligations) as of December 31, 1999 of $2.8 million, including
anticipated tax refunds of approximately $3.9 million relating to the Company's
ability to carryback current year tax losses to prior years for federal, state
and local tax purposes, their review of the on-going businesses' gross margins
and related expenses, and their ability to defer certain capital expenditures
and other current payment obligations, if necessary, that sufficient funds will
be available to cover operating cash flow deficits in 2000, but will not be
sufficient to repay the debt obligations of the Company which are currently in
default. Accordingly, there are no assurances that the Company will have
sufficient funds available to it to satisfy all of its obligations during 2000.
12
<PAGE> 13
Net cash used in operating activities of continuing operations was
$8,407,793 for the year ended December 31, 1999, compared to net cash used
of $9,342,100 for 1998. During the year ended December 31, 1999, cash generated
from a decrease in accounts receivable and deposits with vendors was offset by
declines in accounts payable and customer deposits.
Net cash used in operating activities of discontinued operations was
$4,710,429 for 1999 as compared to net cash used of $8,492,603 in 1998.
Net cash provided by investing activities of continuing operations for
the year ended December 31, 1999 was $6,794,521 compared to net cash provided of
$7,196,803 for the prior year. The primary source of investing cash for 1999 was
the sale of marketable securities.
Net cash provided by investing activities of discontinued operations
was $4,599,657 in 1999 and net cash used in investing activities was $9,490,769
for 1998, respectively, relate to the Company's investments, in 1998, and return
on investments, in 1999, in the real estate investment and asset management
business.
Net cash provided by financing activities for the year ended December
31, 1999 was $4,105,126 compared to net cash provided of $10,343,396 for the
year ended December 31, 1998. The primary financing source for 1999 and 1998
were borrowings under the Company's lines of credit.
INFLATION
Inflation and changing prices during the current year did not
significantly affect the major markets in which the Company conducts its
business. In view of the moderate rate of inflation, its impact on the Company's
business has not been significant.
YEAR 2000
The Year 2000 issue resulted from computer programs and circuitry that
do not differentiate between the year 1900 and the year 2000 because they were
written using two- rather than four-digit dates to define the applicable year.
If not corrected, many computer applications and date-sensitive devices could
have failed or created erroneous results before, on or after January 1, 2000.
The Year 2000 issue affected virtually all companies and organizations,
including the Company.
During 1999, the Company developed and implemented a plan to assure
Year 2000 readiness to avoid significant Year 2000 failures. The Company
completed its implementation and testing of its plan in November, 1999 and
to-date in 2000 has experienced no significant Year 2000 failures, either in its
own computer operations or those of its major customers or vendors. The Company
also does not anticipate any material Year 2000 failures going forward.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Although the Company does maintain offices outside the United States
and does conduct certain transactions in foreign currencies, the Company does
not believe that it has material exposure to risks associated with foreign
currency fluctuations related to its operations given the terms of its contracts
with customers. The Company does not use derivative financial instruments in its
operations. The Company does have exposure to market risks associated with
changes in interest rates given that the Company does maintain lines of credit
and long-term debt facilities which have variable interest rates.
ITEM 8. FINANCIAL STATEMENTS
See Index to Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE> 14
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Index of Financial Statements of Hotelworks.com, Inc.
(1) Financial Statements included under Item 8:
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
(3) Report of Independent Public Accountants
(b) Exhibits
Exhibit
Number Exhibits
------- --------
*3.1 Certificate of Incorporation, as amended, of the Company.
*3.2 Amended and Restated By-laws of the Company.
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form SB-2,
No. 33-7094-NY).
4.2 Rights Agreement dated as of November 24, 1997, by and between
the Company and Continental Stock Transfer & Trust Company, as
rights agent (the "Rights Agreement") (Incorporated by reference
to the Company's Registration Statement on Form 8-A filed with
the Commission on December 2, 1997).
4.3 Amendment to Rights Agreement dated January 7, 1998 (Incorporated
by reference to Exhibit 4.3 of the Company's Form 10-K for the
year ended December 31, 1997).
10.1 Asset Purchase Agreement dated as of April 1, 1995, by and among
AGF Interior Services Co., Watermark Investments Limited
(Bahamas), Watermark Investments Limited (Delaware), HRB, the
Company and Tova Schwartz (Incorporated by reference to the
Company's Current Report on Form 8-K dated August 22, 1995).
10.2 Divestiture, Settlement and Reorganization Agreement dated as of
February 26, 1996, by and among the Company, HRB, Watermark
Investments Limited (Bahamas), Watermark Investments Limited
(Delaware), AGF Interior Services Co., Tova Schwartz, Alan G.
Friedberg and Guillermo Montero (Incorporated by reference to
Exhibit 10.2 of the Company's Form 10-KSB for the year ended
December 31, 1995).
10.3 Memorandum Agreement dated April 12, 1996, by and between the
Company and Watermark (Incorporated by reference to Exhibit 10.3
of the Company's Form 10-KSB for the year ended December 31,
1995).
10.4 Bill of Sale and Assumption Agreement dated February 26, 1996, by
and between the Company and Tova Schwartz (Incorporated by
reference to Exhibit 10.4 of the Company's Form 10-KSB for the
year ended December 31, 1995).
10.5 Consulting Agreement dated February 28, 1996, by and between to
Company and Resource Holdings Associates (Incorporated by
reference to Exhibit 10.6 of the Company's Form 10-KSB for the
year ended December 31, 1995).
10.6 Employment Agreement, dated January 1, 1998, by and between the
Company and Robert A. Berman (Incorporated by reference to
Exhibit 10.6 to the Amendment No. 1 to the Company's Form 10-K,
filed on April 29, 1998, for the year ended December 31, 1997).
10.7 Employment Agreement, dated January 1, 1998, by and between the
Company and Howard G. Anders (Incorporated by reference to
Exhibit 10.7 to the Company's Form 10-K filed on April 29, 1998,
for the year ended December 31, 1997).
10.8 1996 Stock Option Plan (Incorporated by reference to Exhibit 4(a)
to the Company's Registration Statement on Form S-8 filed on
February 12, 1997, File No. 333-21689).
10.9 Form of Option Agreement for the 1996 Plan (Incorporated by
reference to Exhibit 4(b) to the Company's Registration Statement
on Form S-8 filed on February 12, 1997, File No. 333-21689).
10.10 Form of Stock Agreement for the Outside Directors' Plan
(Incorporated by reference to Exhibit 4(c) to the Company's
Registration Statement on Form S-8 filed on February 12, 1997,
File No. 333-21689).
10.11 Form of Option Granted to Officers (Incorporated by reference to
Exhibit 4(d) to the Company's Registration Statement on Form S-8
filed on February 12, 1997, File No. 333-21689).
10.12 Agreement and plan of Merger dated as of January 9, 1997, by and
among Leonard Parker Company, LPC Acquisition Corp., and the
Company (incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K filed January 24, 1997).
14
<PAGE> 15
10.13 Employment Agreement, dated as of January 9, 1997, by and among
The Leonard Parker Company, the Company and Leonard Parker
(Incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form SB-2 filed July 22, 1997, No.
333-31765).
10.14 Employment Agreement, dated January 1, 1998, by and between the
Company and Douglas Parker (Incorporated by reference to Exhibit
10.14 to the Amendment No. 1 to the Company's Form 10-K, filed on
April 29, 1998, for the year ended December 31, 1997).
10.15 Registration Rights Agreement, date as of January 9, 1997, by and
among the Company, Leonard Parker, Douglas Parker, Bradley
Parker, Philip Parker, Gregg Parker and Mitchell Parker
(Incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form SB-2 filed July 22, 1997, No.
333-31765).
10.16 Agreement to Joint Venture, dated as of May 12, 1997, by and
among Apollo Real Estate Advisors II, L.P., the Registrant and
Watermark Investments Limited, LLC. (Incorporated by reference to
Exhibit 10.19 to the Company's Registration Statement on Form
SB-2 filed July 22, 1997, No. 333-31765).
10.17 Warrant dated May 12, 1997 issued to Apollo Real Estate Advisors
II, L.P. (Incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form SB-2 filed July 22,
1997, No. 333-31765).
10.18 Agreement and Plan of Merger, dated as of January 1, 1998, by and
among the Company, HWS Acquisition Corp., a Delaware corporation,
Bekins Distribution Services Co., Inc. and the Sellers named
therein (Incorporated by reference to Exhibit 2.1 the Company's
Current Report on Form 8-K dated January 9, 1998).
10.19 Registration Rights Agreement dated as of January 1, 1998, by and
among the Company and the Shareholders named therein
(Incorporated by reference to Exhibit 10.1 to the Company's
Amended Current Report on 8-K, dated September 16, 1998).
10.20 Financial Advisory Agreement dated April 10, 1997, by and between
the Company and Resource Holdings Associates (Incorporated by
reference to the Company's Registration Statement on Form SB-2,
No. 333-31765).
10.21 Master Development Agreement, dated June 5, 1998, by and between
the Company and Prime Hospitality Corp. (Incorporated by
reference to Exhibit 10 to the Company's Form 10-Q for the
quarter ended June 30, 1998).
10.22 Stock Purchase Agreement, dated March 31, 1999, by and among the
Company, Watermark Investments Limited, LLC, Leonard Parker,
Douglas Parker, Philip Parker, Mitchell Parker, Gregg Parker and
Bradley Parker.
10.23 Agreement, by and between the Company and Watermark Investments
Limited, LLC, as terminated by Termination Agreement, dated
September 30, 1999 (Incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for the quarter ended Sept 30, 1999).
10.24 Termination Agreement, dated September 30, 1999, by and between
the Company and Robert A. Berman (Incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
September 30, 1999).
10.25 Employment Agreement, dated September 1, 1999, by and between the
Company and John F. Wilkens (Incorporated by reference to Exhibit
10.3 to the Company's Form 10-Q for the quarter ended September
30, 1999).
*10.26 Stipulation of Settlement and Mutual Release between Hospitality
Worldwide Services and Prime Hospitality Corporation dated
December 14, 1999.
*10.27 Hospitality Worldwide Services, Inc. 1999 Stock Option Plan.
11 Computation of earnings per share (Incorporated herein by
reference to Note 16 to the Company's Consolidated Financial
Statements).
*21 Subsidiaries of the Company
*27 Financial Data Schedule.
- ---------------------
*Filed herewith.
(c) Reports on Form 8-K
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HOTELWORKS.COM, INC.
Dated: April 14, 2000 By: /s/ Douglas A. Parker
----------------------------------------
Douglas A. Parker, Acting Chief
Executive Officer,
(principal executive officer)
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Leonard F. Parker Chairman of the Board, Secretary April 14, 2000
- -------------------------------------------- and Director
Leonard F. Parker
/s/ Douglas A. Parker Acting Chief Executive Officer, April 14, 2000
- -------------------------------------------- President and Director
Douglas A. Parker
/s/ John F. Wilkens Vice President - Treasurer (principal April 14, 2000
- -------------------------------------------- financial officer, principal
John F. Wilkens accounting officer)
/s/ Louis K. Adler Director April 14, 2000
- --------------------------------------------
Louis K. Adler
/s/ George C. Asch Director April 14, 2000
- --------------------------------------------
George C. Asch
/s/ Richard A. Bartlett Director April 14, 2000
- --------------------------------------------
Richard A. Bartlett
</TABLE>
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
HOTELWORKS.COM, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of stockholders' equity F-5
Statements of cash flows F-6, F-7
Notes to consolidated financial statements F-8-F-27
F-1
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Hotelworks.com, Inc.
We have audited the accompanying consolidated balance sheets of Hotelworks.com,
Inc., formerly Hospitality Worldwide Services, Inc., (a New York Corporation)
and subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
and the accompanying schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the accompanying schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Hotelworks.com, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements and schedule have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered significant losses from
continuing operations and discontinued operations during 1999, which has
resulted in a significant deterioration in the stockholders' equity of the
Company. In addition, certain of the Company's debt and line of credit
facilities are in default and the Company projects negative cash flows from
operations in 2000. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
April 12, 2000
F-2
<PAGE> 19
HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,559,938 $ 2,178,856
Marketable securities -- 8,500,000
Accounts receivable, net of allowance for doubtful accounts
of $1,743,364 and $679,989 28,300,842 34,375,071
Costs and estimated earnings in excess of billings (Note 7) 276,000 497,717
Deposits with vendors 7,050,701 12,759,446
Income taxes receivable (Note 11) 3,906,804 --
Prepaids and other current assets 1,187,637 890,924
Deferred taxes (Note 11) -- 3,834,079
Net current assets of discontinued operations (Note 4) -- 20,367,584
------------- -------------
Total current assets 45,281,922 83,403,677
Property and equipment, net (Notes 5 and 8) 5,195,180 8,226,887
Goodwill and other intangibles, net (Notes 5 and 6) 11,038,178 17,761,698
Deferred taxes (Note 11) -- 701,099
Other assets 85,818 782,721
Non-current assets of discontinued operations (Note 4) 180,067 11,478,750
------------- -------------
Total assets $ 61,781,165 $ 122,354,832
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 21,247,448 $ 24,516,071
Accrued and other liabilities 5,550,258 4,630,154
Billings in excess of costs and estimated earnings (Note 7) 142,000 227,000
Customer deposits 12,017,566 19,863,845
Current portion of long-term debt (Note 10) 2,902,000 621,000
Loans payable (Note 9) 15,835,000 10,925,000
Income taxes payable -- 176,045
Net current liabilities of discontinued operations (Note 4) 3,542,293 --
------------- -------------
Total current liabilities 61,236,565 60,959,115
Long-term debt (Note 10) 68,294 2,964,862
------------- -------------
Total liabilities 61,304,859 63,923,977
------------- -------------
Commitments and contingencies (Note 13)
Stockholders' equity: (Note 15)
Convertible preferred stock, $.01 par value, $25 stated value, -- 3,000,000
5,000,000 shares authorized, 0 and 120,000 shares issued and
outstanding
Common stock, $.01 par value, 50,000,000 shares authorized, 146,592 127,102
14,659,067 and 12,710,156 issued and outstanding
additional paid-in capital 59,612,964 56,447,760
Retained earnings (deficit) (59,283,250) (1,144,007)
------------- -------------
Total stockholders' equity 476,306 58,430,855
------------- -------------
Total liabilities and stockholders' equity $ 61,781,165 $ 122,354,832
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE> 20
HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 220,113,533 $ 173,003,479 $ 65,051,279
Cost of revenues 208,641,295 159,401,325 60,172,053
------------- ------------- -------------
Gross profit 11,472,238 13,602,154 4,879,226
Selling, general and administrative expenses 22,697,922 16,659,136 7,933,005
Asset impairment charge (Note 5) 9,252,000 -- --
------------- ------------- -------------
Loss from operations (20,477,684) (3,056,982) (3,053,779)
------------- ------------- -------------
Other income (expense):
Interest expense (1,774,111) (756,100) (93,869)
Interest income 902,753 1,297,245 722,875
------------- ------------- -------------
Total other income (expense) (871,358) 541,145 629,006
------------- ------------- -------------
Loss from continuing operations before
income taxes (21,349,042) (2,515,837) (2,424,773)
Income tax benefit (Note 11) (3,103,829) (447,263) (623,017)
------------- ------------- -------------
Loss from continuing operations (18,245,213) (2,068,574) (1,801,756)
------------- ------------- -------------
Discontinued operations (Notes 4 and 11):
Income (loss) from operations of discontinued businesses,
net of tax (22,589,150) 2,192,812 958,107
Loss on disposal of discontinued businesses, including
provision of $2,290,000 in 1999 and $104,000 in 1998
for operating losses during phase-out period, net of tax (17,169,880) (90,900) --
------------- ------------- -------------
Income (loss) from discontinued operations (39,759,030) 2,101,912 958,107
------------- ------------- -------------
Net income (loss) $ (58,004,243) $ 33,338 $ (843,649)
------------- ------------- -------------
Basic income (loss) per common share:
Loss from continuing operations $ (1.35) $ (0.19) $ (0.24)
------------- ------------- -------------
Discontinued operations:
Income (loss) from operations (1.65) 0.18 0.11
Loss on disposal (1.26) (0.01) --
------------- ------------- -------------
Income (loss) from discontinued operations (2.91) 0.17 0.11
------------- ------------- -------------
Net loss $ (4.26) $ (0.02) $ (0.13)
------------- ------------- -------------
Diluted income (loss) per common share:
Loss from continuing operations $ (1.35) $ (0.19) $ (0.24)
------------- ------------- -------------
Discontinued operations:
Income (loss) from operations (1.65) 0.18 0.11
Loss on disposal (1.26) (0.01) --
------------- ------------- -------------
Income (loss) from discontinued operations (2.91) 0.17 0.11
------------- ------------- -------------
Net loss $ (4.26) $ (0.02) $ (0.13)
------------- ------------- -------------
Weighted average common shares outstanding 13,665,465 12,092,437 8,885,570
------------- ------------- -------------
Weighted average common and common equivalent shares outstanding 13,665,465 12,092,437 8,885,570
------------- ------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 21
HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- -----------------------
Number of Additional Retained Total
Number of Stated Shares Treasury Paid in Earnings Stockholders'
Shares Value Outstanding Par Value Stock Capital (Deficit) Equity
--------- ------ ----------- --------- -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1996 -- $ -- 6,725,655 $ 72,257 $ (715,000) $ 8,185,410 $ 236,304 $ 7,778,971
Purchase of -- -- (500,000) -- (2,210,000) -- -- (2,210,000)
treasury stock
Exercise of stock -- -- 419,917 4,199 -- 1,018,931 -- 1,023,130
options and warrants
Issuance of shares 200,000 5,000,000 1,250,000 12,500 -- 6,940,000 -- 11,952,500
in connection with
acquisition
Stock issued in -- -- 3,450,000 24,500 2,925,000 27,379,246 -- 30,328,746
connection with
offering, net of
expenses
Income tax benefit -- -- -- -- -- 360,349 -- 360,349
from warrants
exercised
Warrants issued for -- -- -- -- -- 3,635,789 -- 3,635,789
services
Net loss -- -- -- -- -- -- (843,649) (843,649)
Preferred dividends -- -- -- -- -- -- (300,000) (300,000)
-------- ----------- ---------- -------- ----------- ----------- ------------ ------------
BALANCE,
December 31, 1997 200,000 5,000,000 11,345,572 113,456 -- 47,519,725 (907,345) 51,725,836
Exercise of stock -- -- 265,667 2,657 -- 768,024 -- 770,681
options and
warrants
Issuance of shares -- -- 514,117 5,141 -- 6,165,859 -- 6,171,000
in connection with
acquisition
Conversion of (80,000) (2,000,000) 584,800 5,848 -- 1,994,152 -- --
preferred stock
Net income -- -- -- -- -- -- 33,338 33,338
Preferred dividends -- -- -- -- -- -- (270,000) (270,000)
-------- ----------- ---------- -------- ----------- ----------- ------------ ------------
BALANCE
December 31, 1998 120,000 3,000,000 12,710,156 127,102 -- 56,447,760 (1,144,007) 58,430,855
Exercise of stock -- -- 40,000 400 -- 80,294 -- 80,694
options
Conversion of (120,000) (3,000,000) 1,269,399 12,695 -- 2,987,305 -- --
preferred stock
Issuance of shares -- -- 639,512 6,395 -- (6,395) -- --
in connection with
acquisition
Warrants issued for -- -- -- -- -- 104,000 -- 104,000
services
Net loss -- -- -- -- -- -- (58,004,243) (58,004,243)
Preferred dividends -- -- -- -- -- -- (135,000) (135,000)
-------- ----------- ---------- -------- ----------- ----------- ------------ ------------
BALANCE
December 31, 1999 -- $ -- 14,659,067 $146,592 -- $59,612,964 $(59,283,250) $ $476,306
-------- ----------- ---------- -------- ----------- ----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 22
HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($58,004,243) $ 33,338 ($ 843,649)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,208,706 1,667,785 682,982
Loss (income) from operations of discontinued businesses 18,857,810 (2,858,325) (1,809,112)
Loss on disposal of discontinued businesses 16,557,668 150,000 --
Asset impairment charge 9,252,000 -- --
Deferred income tax provision (benefit) 4,535,178 (3,796,090) (668,422)
(Increase) decrease in current assets:
Accounts receivable, net 6,074,158 (14,148,521) (10,454,580)
Costs and estimated earnings in excess of billings 221,717 (86,878) (584,595)
Deposits with vendors 5,708,745 (8,504,265) (4,255,181)
Income taxes receivable (3,906,804) -- --
Prepaid and other current assets (296,713) 245,399 379,322
Other assets 696,903 166,684 (525,150)
Increase (decrease) in current liabilities:
Accounts payable (3,268,623) 8,547,541 9,626,229
Accrued and other liabilities 1,063,029 2,451,782 604,023
Billings in excess of costs and estimated earnings (85,000) 80,800 --
Customer deposits (7,846,279) 6,540,274 10,046,533
Income taxes payable (176,045) 168,376 (290,191)
------------ ------------ ------------
Net cash provided by (used in) operating activities
of continuing operations (8,407,793) (9,342,100) 1,908,209
------------ ------------ ------------
Net cash provided by (used in) operating
activities of discontinued operations (4,710,429) (8,492,603) 1,785,589
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (8,500,000) (18,915,686)
Sale of marketable securities 8,500,000 18,915,686 --
Cash acquired upon acquisition, net of acquisition costs -- (62,000) 479,061
Purchase of property and equipment (1,705,479) (3,156,883) (2,644,890)
------------ ------------ ------------
Net cash provided by (used in) investing activities
of continuing operations 6,794,521 7,196,803 (21,081,515)
------------ ------------ ------------
Net cash provided by (used in) investing
activities of discontinued operations 4,599,657 (9,490,769) (464,105)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on loans payable 4,910,000 26,625,000 3,180,000
Repayment of loans payable -- (15,700,000) (4,580,000)
Repayment of long term debt (615,568) (1,352,285) --
Payment of preferred stock dividends (270,000) -- --
Purchase of treasury stock -- -- (2,210,000)
Proceeds from stock offering -- -- 32,126,630
Proceeds from exercise of stock options and warrants 80,694 770,681 1,023,130
------------ ------------ ------------
Net cash provided by financing activities 4,105,126 10,343,396 29,539,760
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,381,082 (9,785,273) 11,687,938
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,178,856 11,964,129 276,191
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,559,938 $ 2,178,856 $ 11,964,129
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 23
HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 1,550,027 $ 794,724 $ 178,113
Income taxes 466,081 3,826,546 785,127
NON-CASH INVESTING & FINANCING ACTIVITIES:
Net assets acquired (including goodwill and other -- 6,233,000 11,166,229
intangibles)
Stock issued for assets acquired -- 6,171,000 11,952,500
Preferred stock dividends not paid in lieu of purchase -- -- 300,000
price reduction for LPC acquisition
Warrants issued for services 104,000 -- 3,635,789
Preferred stock dividends accrued 135,000 270,000 --
Conversion of preferred stock into common stock 3,000,000 2,000,000 --
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE> 24
HOTELWORKS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Hotelworks.com, Inc., formerly known as Hospitality Worldwide Services,
Inc., (the "Company"), was incorporated in the State of New York on October 10,
1991. Through its wholly owned operating subsidiaries, the Company performs
purchasing services of furniture, fixtures and equipment, and operating supplies
and equipment for leading hotel and hospitality customers; performs reorder
services of operating supplies and equipment for leading hotel and hospitality
customers; and performs logistics services, including transportation,
warehousing and installation, to a wide variety of customers. Through September
1999, the Company's core businesses also included providing renovation services
to the hospitality industry as well as being active in the real estate
investment and asset management business.
In September 1999, the Company announced a strategic initiative to
reposition the core supply and distribution businesses into a
business-to-business e-commerce company, and to divest itself of its renovation
business and real estate investment and asset management business. In December
1998, the Company decided to discontinue its hotel development business. As a
result, the Company has reflected the operating results associated with the
renovation, real estate investment and asset management, and hotel development
businesses, as well as the estimated losses on disposal, as discontinued
operations on the consolidated statements of operations for all years presented.
Discontinued operations are further discussed in Note 4.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. The Company also has investments in
real estate joint ventures, which have been accounted for under the equity and
cost method, as appropriate. All significant intercompany balances and
transactions have been eliminated. Certain prior year balances have been
reclassified in the consolidated financial statements in order to provide a
presentation consistent with the current year. As discussed in Note 1, given the
Company's decision to discontinue certain businesses, all years have been
restated to reflect the operating results of those businesses as discontinued
operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Management believes that the estimates utilized in preparing
the Company's financial statements are reasonable and prudent, however, actual
results could differ from those estimates.
The most significant estimates for the Company relates to the
recognition of revenues under the percentage of completion method for its
purchasing and logistics businesses, and the estimation of reserves for asset
realizability and contingent liabilities. To the extent that contracts extend
over more than one reporting period, revisions in estimated earnings and the
estimated efforts during the course of the work are reflected in the year in
which the facts which require the revision become known. Due to the
uncertainties inherent in the estimation process, it is reasonably possible that
such estimates will be revised over the next year. When a loss is forecasted for
a contract, the full amount of the anticipated loss is recognized in the period
in which it is determined that a loss will occur.
REVENUE RECOGNITION
PURCHASING BUSINESS
The Company recognizes earnings for fixed fee service contracts under
the percentage of completion method. Under this method, the Company recognizes
as earnings that portion of the total earnings anticipated from a contract which
the efforts expended bears to the estimated efforts over the life of the
contract. Earnings for variable fee service contracts are generally recognized
upon completion of the associated service.
F-8
<PAGE> 25
The Company performs purchasing services either acting as a principal,
for which it functions in a manner similar to a purchaser and reseller of
merchandise, or as an agent. As an agent, revenues include solely the service
fee income and the cost of the contracts includes labor and other direct costs
associated with the contract and those indirect costs related to contract
performance. As a principal, the revenues and cost of the contracts also include
the associated merchandise purchased for the customer, which are recognized when
the merchandise is shipped directly from the vendor to the customer.
Customer deposits consist of amounts remitted to the Company by
customers as deposits on specific contracts. Deposits with vendors consist of
amounts paid by the Company to vendors on specific contracts.
REORDER BUSINESS
The Company recognizes earnings for variable fee service contracts upon
completion of the associated service. The Company performs reorder services
either acting as a principal, for which it functions in a manner similar to a
purchaser and reseller of merchandise, or as an agent. As an agent, revenues
include solely the service fee income and the cost of the contracts includes
labor and other direct costs associated with the contract and those indirect
costs related to contract performance. As a principal, the revenues and cost of
the contracts also include the associated merchandise purchased for the
customer, which are recognized when the merchandise is shipped directly from the
vendor to the customer.
LOGISTICS BUSINESS
The Company recognizes earnings on logistics and installation services
under the percentage of completion method. Under this method, the Company
recognizes as earnings that portion of the total earnings anticipated from a
contract which the efforts expended bears to the estimated efforts over the life
of the contract. The cost of the contracts includes labor and other direct costs
associated with the contract, including warehousing and transportation costs,
and those indirect costs related to contract performance.
DEPRECIATION AND AMORTIZATION
The Company calculates depreciation on property and equipment on the
straight-line method. Estimated useful lives are as follows: office equipment, 5
years; software, 5 years; furniture and fixtures, 10 years; and building and
improvements, 25 years. Leasehold improvements to property used in the Company's
operations are amortized on a straight-line basis over the lease terms.
Maintenance and repairs are expensed currently, while expenditures for
betterments are capitalized.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangible assets are amortized on a straight-line
basis over their estimated useful life of 30 years. Goodwill represents the
costs of an acquisition in excess of the fair value of net assets acquired at
the date of acquisition. Accumulated amortization was $959,792 and $559,196 at
December 31, 1999 and 1998, respectively.
EARNINGS PER COMMON SHARE
Basic earnings per common share are based on net income less preferred
stock dividends divided by the weighted average number of common shares
outstanding. Diluted earnings per common share are adjusted to reflect the
incremental number of shares issuable under stock-based compensation plans,
contingently issuable shares, the assumed conversion of convertible preferred
stock and the elimination of the preferred stock dividends, if such adjustments
are dilutive.
INCOME TAXES
Deferred income tax assets or liabilities are computed based on the
difference between the financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax expenses or
benefits are based on the changes in the asset or liability from period to
period.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
maturities of 90 days or less to be cash equivalents.
F-9
<PAGE> 26
MARKETABLE SECURITIES
Marketable securities consisted of certificates of deposit maturing in
six months or less as of December 31, 1998. Marketable securities are classified
as available-for-sale or as held-to-maturity, based on the Company's intended
holding period. Available-for-sale securities are reported at fair value based
on quoted market prices, with unrealized gains or losses, if any, reported as
other comprehensive income. Held-to-maturity investments are reported at
amortized cost. The cost basis of securities is determined on a specific
identification basis in calculating gains and losses.
LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If such review indicates that the asset is
impaired, when the carrying amount of an asset exceeds the sum of its expected
future cash flows, on an undiscounted basis, the asset's carrying amount is
written down to fair value. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value less cost to sell.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plans
using the intrinsic value based method, under which compensation cost is
measured as the excess of the stock's market price at the grant date over the
amount an employee must pay to acquire the stock. Expenses related to stock
options and warrants issued to non-employees are accounted for using the fair
value based method, under which the cost is measured as the fair value of the
security at the date of grant based on option-pricing models.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable, and accrued and other
liabilities approximate the fair values as of December 31, 1999, due to the
short-term maturity of these instruments. The carrying amounts as of December
31, 1999 of costs and estimated earnings in excess of billings, deposits with
vendors, billings in excess of costs and estimated earnings, and customer
deposits approximate fair value as these amounts are due or payable within the
Company's operating cycle. The fair value of marketable securities is based on
settlement amounts for such instruments given the intended holding period and
approximate their carrying amounts as of December 31, 1998. The fair value of
the Company's loans payable and long-term debt, which are currently in default,
can not be practicably determined given their current default status and the
Company's financial condition.
COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting and display of comprehensive income and its
components in a separate financial statement. Comprehensive income includes net
income plus other comprehensive income, which includes changes in cumulative
foreign translation adjustments and unrealized gains and losses on marketable
securities that are available-for-sale. The Company has not presented statements
of comprehensive income, as other comprehensive income was not material.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
During 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
provides that all derivative instruments should be recognized as either assets
or liabilities depending on the rights and obligations under the contract and
that all derivative instruments be measured at fair value. This pronouncement is
required to be adopted by January 1, 2001. Management has not yet determined the
impact, if any, that adoption of this pronouncement will have on the Company's
financial statements.
During 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" which broadly addresses how
companies report revenues in their financial statements. The Emerging Issues
Task Force ("EITF") is more thoroughly evaluating this topic in Issue No. 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent". The EITF has
not reached a consensus on this topic. The Company is monitoring the progress of
this topic in order to evaluate the impact, if any, on how the Company reports
revenue.
F-10
<PAGE> 27
3. GOING CONCERN
The Company's consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
liquidity of the Company has been severely affected during 1999 by significant
losses from continuing operations and discontinued operations, which have
resulted in a significant deterioration of the stockholders' equity of the
Company from $58.4 million at December 31, 1998 to $0.5 million at December 31,
1999. In addition, certain of the Company's debt and line of credit facilities
are in default and the Company projects negative cash flows from operations in
2000. These circumstances raise substantial doubt about the Company's ability to
continue as a going concern.
The losses from continuing operations emanate from a reduction in the
gross margins realized within the purchasing business in 1999 as compared to
prior years; an increase in selling, general and administrative expenses due to
an expansion of the administrative staff of the on-going businesses and expenses
related to employee terminations and other costs associated with the closing of
the Company's corporate office in New York; and an asset impairment charge of
$9.3 million related to the Parker FIRST software product as further discussed
in Note 5. Management plans to undertake a comprehensive review of its on-going
businesses to address the gross margins realized on its contracts, including
evaluating integration opportunities to achieve synergies in its businesses,
reviewing the pricing levels achieved for its services as well as reviewing the
utilization of its staff in executing those contracts. In addition, management
plans to thoroughly evaluate its overhead costs to ascertain where costs can be
curtailed or eliminated.
As further discussed in Note 4, the losses from discontinued operations
relate to the Company's decision to divest itself of its renovation, real estate
investment and asset management, and hotel development businesses. Management
has been diligently attempting to resolve any remaining open matters relating to
these businesses to avoid any further financial deterioration to the Company.
Management believes that the reserves established in 1999 will be sufficient to
cover any future obligations related to these discontinued operations and to
bring all open matters to closure.
As further discussed in Notes 9 and 10, the Company's term loan and
mortgage note payable were in default as of December 31, 1999 and the Company's
unsecured line of credit facilities, which matured in September 1999, were not
repaid and are currently in default. Accordingly, all of these debt facilities
are currently due and payable. However, interest on all loans is being paid
monthly at the contractual rate. The Company anticipates selling a warehouse
facility, the proceeds of which will be used to repay the term loan and mortgage
note payable. The Company is also involved in active, on-going negotiations with
the banks who provided the line of credit facilities as to a refinancing of the
facilities or an extension of the expiration date. There are no assurances that
the Company will be able to successfully sell the warehouse facility or
successfully negotiate these facilities at terms favorable to the Company.
The Company's 2000 budget projects a net cash flow deficit from
operations of approximately $1.4 million and cash requirements related to the
development of its internet web-based reorder system of approximately $1.9
million. The net cash flow deficit from operations for 2000 primarily relates to
continued losses of the Parker Reorder business and corporate expenses.
Management believes that given its working capital position (exclusive of
short-term debt obligations) as of December 31, 1999 of $2.8 million, including
anticipated tax refunds of approximately $3.9 million relating to the Company's
ability to carryback current year tax losses to prior years for federal, state
and local tax purposes, their review of the on-going businesses' gross margins
and related expenses, and their ability to defer certain capital expenditures
and other current payment obligations, if necessary, that sufficient funds will
be available to cover operating cash flow deficits in 2000, but will not be
sufficient to repay the debt obligations of the Company which are currently in
default. Accordingly, there are no assurances that the Company will have
sufficient funds available to it to satisfy all of its obligations during 2000.
F-11
<PAGE> 28
4. DISCONTINUED OPERATIONS
In September 1999, the Company announced a strategic initiative to
reposition the core supply and distribution businesses into a
business-to-business e-commerce company, and to divest itself of its renovation
business and real estate investment and asset management business. In December
1998, the Company decided to discontinue its hotel development business. As a
result, the Company has reflected the operating results associated with the
renovation, real estate investment and asset management, and hotel development
businesses, as well as the estimated losses on disposal, as discontinued
operations on the consolidated statements of operations for all years presented.
The loss from operations, net of taxes, for the discontinued businesses was
$22,589,150 in 1999. The income from discontinued operations, net of taxes, was
$2,192,812 and $958,107 for 1998 and 1997, respectively. The loss on disposal,
net of taxes, was $17,169,880 and $90,900 for 1999 and 1998, respectively. The
loss on disposal principally includes reserves and write-offs of certain
investments and receivables to their estimated recoverable amounts, the
write-off of goodwill associated with these businesses, and accruals for
estimated liabilities and operating losses during the phase-out period for the
discontinued businesses.
HOTEL DEVELOPMENT BUSINESS
In December 1997, the Company formed a wholly owned subsidiary,
Hospitality Development Services Corporation ("HDS"). HDS was to provide hotel
development services involving managing and overseeing the development process
related to new hotel construction, to earn a developers fee. HDS commenced
operations in 1998. On January 6, 1998, the Company reached an agreement in
principle to enter into a master development agreement with Prime Hospitality
Corp. ("Prime") to develop up to 20 hotel properties over a two-year period
under the AmeriSuites brand name. In June 1998, the Company and Prime executed
the master development agreement. In late 1998, the Company was informed by
Prime that Prime was no longer going to pursue new development opportunities and
that Prime was abandoning their responsibilities under the master development
agreement, even though the Company had incurred significant costs up to such
time. As a result, in December 1998, management decided to discontinue its hotel
development business.
The Company ceased its hotel development operations in April 1999. In
December 1999, the Company and Prime reached an agreement to terminate the
master development agreement, whereby the Company received a settlement payment
of $300,000 and both parties agreed to a full release of obligations and claims.
The loss on disposal for the year ended December 31, 1999 includes approximately
$1,670,000 of additional write-offs to record certain real estate development
projects to the amount realized by the Company. The loss on disposal for the
year ended December 31, 1998 included $150,000 of estimated operating losses
during the phase-out period.
RENOVATION BUSINESS
The Company provided renovation services to the hospitality industry,
through its wholly owned subsidiary, Hospitality Restoration & Builders, Inc.
("HRB"). HRB provided a complete package of renovation services to the hotel
industry, ranging from pre-planning and scope preparation of a project to
performing the renovation requirements and delivering furnished rooms.
In November 1997, the Company formed a wholly owned subsidiary,
Hospitality Construction Corporation ("HCC"), to specialize in new hotel
construction projects and major hotel upgrades. HCC's operations commenced in
1998 and related solely to hotel upgrade and renovation projects, and did not
include any new hotel construction projects. In an effort to consolidate
operations, the Company transferred the HCC operations to HRB in 1998.
In September 1999, as part of the Company's strategic initiative
discussed above, the Company decided to divest itself of its renovation
business. The Company transferred certain in-process renovation contracts to a
company owned by the former President of the renovation subsidiary in November
1999. The Company anticipates ceasing the remaining renovation operations in
2000. However, the resolution date as to certain disputed receivables with
customers related to specific renovation projects which have been substantially
completed is uncertain. Losses from discontinued operations for 1999 and 1998
include provisions on contract receivables of approximately $17,090,000 and
$8,863,000 related to renovation projects which have been substantially
completed but have not yet been closed out with customers. The loss on disposal
in 1999 includes additional provisions on contract receivables of $2,075,000, a
write-off of goodwill of approximately $5,000,000 and anticipated operating
losses during the phase-out period of $2,066,000.
F-12
<PAGE> 29
REAL ESTATE INVESTMENT AND ASSET MANAGEMENT BUSINESS
In May 1997, the Company entered into a joint venture ("Apollo Joint
Venture") with Apollo Real Estate Advisors II, L.P. ("Apollo") and Watermark
Investments Limited, LLC ("Watermark"), which is affiliated with Robert Berman,
the former Chairman and Chief Executive Officer of the Company, to identify,
acquire, renovate, refurbish and sell hotel properties. The Company performed
the renovation and procurement services for the properties purchased by the
Apollo Joint Venture. In addition, the Company acquired a non-controlling equity
interest in each of the entities formed to purchase such properties. As an
inducement to enter into the Joint Venture Agreement, the Company issued to
Apollo a seven-year warrant to purchase up to 750,000 shares of Common Stock at
$8.115 per share. The warrant expires in 2004. The warrant was initially
exercisable as to 250,000 shares and became exercisable as to the remaining
500,000 shares in increments of 100,000 shares for every $7,500,000 of
incremental renovation revenue and purchasing fees earned by the Company from
the Apollo Joint Venture. The warrant contains price protection provisions and
anti-dilution provisions that could result in the issuance of significantly more
shares under certain circumstances. In September 1997, the Apollo Joint Venture
acquired the Warwick Hotel in Philadelphia, Pennsylvania. Through March 31,
2000, the Company has made cumulative capital contributions of approximately
$791,000 to the joint venture operating entity that was formed to purchase the
property. In March 1998, the Apollo Joint Venture acquired the Historic Inn in
Richmond, Virginia. Through March 31, 2000, the Company has made cumulative
capital contributions of approximately $311,000 to the joint venture operating
entity that was formed in connection with the purchase of the property. In
September 1999, as part of the Company's strategic initiative discussed above,
the Company decided to divest itself of its real estate investment and asset
management business. Accordingly, the Company will not be making any further
investments under the Apollo Joint Venture agreement. In addition, the Company
is currently in negotiations with Apollo to settle all matters related to Apollo
and the Apollo Joint Venture.
In March 1998, the Company entered into a joint venture with ING Realty
Partners ("ING Joint Venture"), to acquire the Clarion Quality Hotel in Chicago,
Illinois, whereby the Company acquired a non-controlling equity interest in the
ING Joint Venture. The Company also performed the renovation and procurement
services for the property. Through March 30, 2000, the Company has made
cumulative capital contributions of approximately $3.2 million to the ING Joint
Venture. The other partners in the ING Joint Venture are entitled to specified
preferred returns and priority distributions of capital. In addition, the joint
venture agreement provides ING Realty Partners with the right to have the joint
venture sell the property after March 2000, and certain buy/sell provisions
which may be exercised by any partner. In September 1999, as part of the
Company's strategic initiative discussed above, the Company decided to divest
itself of its real estate investment and asset management business. Accordingly,
the Company will not be making any further investments in the ING Joint Venture
and is currently negotiating a settlement agreement with ING, whereby the
Company would principally divest itself of its equity interest in the ING Joint
Venture, as well as settle all other matters related to the ING Joint Venture.
In February 1998, the Company formed a wholly owned subsidiary, HWS Real
Estate Advisory Group, Inc. ("HWS REAG") to purchase the assets of Watermark's
real estate advisory business, consisting primarily of contracts to perform
future asset management and advisory services as well as certain equity
interests in the Apollo Joint Venture. The purchase price for such business was
$1,500,000 of cash. The acquisition has been accounted for as a purchase with
the results of HWS REAG included in the consolidated financial statements of the
Company from the acquisition date. On September 30, 1999, the Company and
Watermark entered into a Termination Agreement whereby all agreements between
the parties were terminated, and amongst other things, includes a payment by
Watermark to the Company of $885,000, that was made in December 1999.
The Company's real estate investment and asset management business was
comprised of the HWS REAG operations and investments in various real estate
ventures, including the Apollo Joint Venture and ING Joint Venture discussed
above. In September 1999, as part of the Company's strategic initiative
discussed above, the Company decided to divest itself of its real estate
investment and asset management business. The Company anticipates disposing of
its real estate investments, and concurrently ceasing the real estate asset
management and advisory operations in 2000. Losses from discontinued operations
for 1999 include the write-off of certain real estate investments and
receivables no longer deemed realizable of approximately $500,000. The loss on
disposal for 1999 includes the write-off of goodwill of $450,000 and write-downs
and reserves in connection with the anticipated disposal of real estate
investments of approximately $4,900,000 to record such investments at their
estimated recoverable amounts.
F-13
<PAGE> 30
SUMMARY OF FINANCIAL INFORMATION
The Company has reflected the operating results associated with the
renovation, real estate investment and asset management, and hotel development
businesses, as well as the estimated losses on disposal, as discontinued
operations on the consolidated statements of operations for all years presented.
Results of these operations, as presented in accompanying consolidated
statements of operations, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
RENOVATION BUSINESS:
Revenues $ 22,053,206 $ 56,014,202 $ 20,390,433
Income (loss) from operations, net of taxes (21,223,412) 3,141,971 1,745,023
Loss on disposal, net of taxes (9,847,414) -- --
REAL ESTATE INVESTMENT AND ASSET MANAGEMENT
BUSINESS:
Revenues -- 961,529 --
Income (loss) from operations, net of taxes (1,365,738) (82,407) (786,916)
Loss on disposal, net of taxes (5,652,262) -- --
HOTEL DEVELOPMENT BUSINESS:
Revenues -- -- --
Income (loss) from operations, net
of taxes -- (866,752) --
Loss on disposal, net of taxes (1,670,204) (90,900) --
TOTAL DISCONTINUED OPERATIONS:
Revenues 22,053,206 56,975,731 20,390,433
Income (loss) from operations, net
of taxes (22,589,150) 2,192,812 958,107
Loss on disposal, net of taxes (17,169,880) (90,900) --
</TABLE>
The remaining assets and liabilities of the discontinued operations as
of December 31, 1999 and 1998, as presented in the accompanying consolidated
balance sheets, are as follows:
<TABLE>
<CAPTION>
Real Estate
Investment & Asset Hotel
Renovation Management Development Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999:
Accounts receivable $ 23,535,764 $ -- $ -- $ 23,535,764
Allowance for doubtful accounts (20,903,638) -- -- (20,903,638)
Prepaids and other current assets, net 753,000 -- -- 753,000
Accounts payable (3,428,505) -- -- (3,428,505)
Accrued and other liabilities (2,468,028) (1,000,000) (30,886) (3,498,914)
------------ ------------ ------------ ------------
Net current liabilities (2,511,407) (1,000,000) (30,886) (3,542,293)
------------ ------------ ------------ ------------
Property and equipment, net 74,014 -- 34,420 108,434
Other assets 38,296 -- 33,337 71,633
------------ ------------ ------------ ------------
Net non-current assets $ 112,310 $ -- $ 67,757 $ 180,067
------------ ------------ ------------ ------------
DECEMBER 31, 1998:
Accounts receivable $ 28,666,028 $ 430,333 $ -- $ 29,096,361
Allowance for doubtful accounts (6,625,000) -- -- (6,625,000)
Costs and estimated earnings in
excess of billings 5,069,225 -- -- 5,069,225
</TABLE>
F-14
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Prepaids and other current assets 109,216 3,737,000 -- 3,846,216
Accounts payable (7,559,255) -- -- (7,559,255)
Accrued and other liabilities (1,758,805) -- (170,000) (1,928,805)
Billings in excess of costs and
estimated earnings (1,531,158) -- -- (1,531,158)
------------ ------------ ------------ ------------
Net current assets (liabilities) 16,370,251 4,167,333 (170,000) 20,367,584
------------ ------------ ------------ ------------
Property and equipment, net 387,058 36,496 65,241 488,795
Goodwill and other intangibles, net 5,273,241 1,404,167 -- 6,985,236
Other assets, net 40,246 3,025,335 1,246,966 4,004,719
------------ ------------ ------------ ------------
Net non-current assets $ 5,700,545 $ 4,465,998 $ 1,312,207 $ 11,478,750
------------ ------------ ------------ ------------
</TABLE>
Net current liabilities of discontinued operations at December 31,
1999, and net current assets of discontinued operations at December 31, 1998
include renovation accounts receivables and costs and estimated earnings in
excess of billings which include unapproved change orders and estimated net
claims, which involve negotiations with customers and in some cases may result
in litigation. The Company believes that it has established contractual or legal
bases for pursuing recovery of unapproved change orders and claims and it is
management's intention to pursue these matters and litigate, if necessary, until
a decision or settlement is reached. Unapproved change orders and claims involve
the use of estimates and it is reasonably possible that revisions to the
estimated recoverable amounts could be made within the next year. The settlement
of these amounts depends on individual circumstances and negotiations with the
counter party, accordingly, the timing of the collection will vary and may
extend beyond one year.
5. ASSET IMPAIRMENT CHARGE
As a result of the Company's strategic initiative to reposition the
core businesses into a business-to-business e-commerce company, the Parker
Reorder proprietary software product, Parker Fully Integrated Reorder Systems
Tracking ("Parker FIRST"), which is a client server-based system used by clients
to reorder operating supplies and equipment, will be phased out completely in
2000 as the Company migrates the reorder business to an internet web-based
system. Consequently, management has determined that the Parker FIRST system
will not provide future long-term benefits to the Company. In addition,
management has determined that the goodwill and other intangibles associated
with the acquisition of Parker Reorder in January 1997 is closely related to the
Parker FIRST system, which was under development at the time of the acquisition.
Accordingly, the Company has recorded for the year ended December 31,
1999, an asset impairment charge of $9,252,000, consisting of net capitalized
computer software costs associated with the Parker FIRST system of $3,099,000
and net goodwill and other intangibles of $6,153,000.
6. ACQUISITIONS
In January 1998, the Company acquired Bekins Distribution Services,
Inc. ("Bekins"), a leading provider of transportation, warehousing and
installation services to a variety of customers worldwide. Founded in 1969,
Bekins is a logistical services company that serves clients who are opening,
renovating or relocating facilities by assuring that materials, fixtures,
furniture and merchandise are moved from multiple vendor locations to their
ultimate destinations in a controlled orderly sequence so that each item can be
installed on schedule. The purchase price of Bekins, including acquisition
costs, of approximately $11,400,000 consisted of 514,117 shares of common stock
and the assumption of certain Bekins' debt. Additionally, under the terms of the
purchase agreement, the Company was required to issue an additional 639,512
shares of common stock in January 1999 given the decrease in the price of the
Company's common stock on the one year anniversary date of the acquisition,
which was accounted for as an equity transaction resulting in no adjustment to
the purchase price or reported net loss. The acquisition resulted in goodwill of
approximately $7,400,000 which is being amortized on a straight-line basis over
its estimated useful life of 30 years. The acquisition has been accounted for as
a purchase with the results of Bekins included in the consolidated financial
statements of the Company from the acquisition date.
F-15
<PAGE> 32
The following pro forma consolidated financial information has been
prepared to reflect the acquisition of Bekins. The pro forma financial
information is based on the historical financial statements of the Company, as
restated for discontinued operations, and Bekins. The accompanying pro forma
operating statements are presented as if the acquisition occurred on January 1,
1997. The pro forma financial information is unaudited and is not necessarily
indicative of what the actual results of operations of the Company would have
been assuming the transactions had been completed as of January 1, 1997.
Year Ended December 31 1997
- ---------------------- -----------
(UNAUDITED)
Revenues $84,966,000
Loss from continuing operations (1,633,000)
Basic loss per share from continuing operations (0.19)
Diluted loss per share from continuing operations (0.19)
-----------
The above unaudited pro forma statements have been adjusted to reflect
the amortization of goodwill over a 30 year period, officers compensation based
on employment agreements entered into at the date of acquisition, additional
income taxes on pro forma income and the 1,153,629 common shares issued as
consideration in the transaction.
7. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings on uncompleted
contracts represent unbilled receivables. Billings on uncompleted contracts in
excess of costs and estimated earnings represent deferred revenue, and consists
of:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Costs incurred and earnings on uncompleted contracts $ 6,132,097 $ 3,660,008
Billings to date (5,998,097) (3,389,291)
----------- -----------
Costs and estimated earnings on uncompleted contracts in excess of
billings 134,000 270,717
----------- -----------
Included in the accompanying consolidated balance sheets under the following
captions:
Costs and estimated earnings in excess of billings 276,000 497,717
Billings in excess of costs and estimated earnings (142,000) (227,000)
----------- -----------
$ 134,000 $ 270,717
----------- -----------
</TABLE>
8. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Building and improvements $ 2,264,874 $ 2,263,874
Furniture and fixtures 1,043,599 825,441
Office equipment 2,227,554 1,978,093
Leasehold improvements 552,898 427,938
Software 944,361 3,911,256
----------- -----------
7,033,286 9,406,602
Less: Accumulated depreciation and amortization (1,838,106) (1,179,715)
----------- -----------
$ 5,195,180 $ 8,226,887
----------- -----------
</TABLE>
F-16
<PAGE> 33
9. LOANS PAYABLE
In March 1998, the Company obtained an unsecured line of credit with
HSBC Bank (formerly Marine Midland Bank). This line expired on September 30,
1999, with outstanding borrowings of $9,885,000 and interest continues to be
charged at the bank's prime lending rate. The loan agreement provides the bank
with the ability to charge a default rate of interest of an additional 3%. In
July 1998, the Company obtained an unsecured line of credit with Bank of America
(formerly Nations Bank). This line expired on September 30, 1999, with
outstanding borrowings of $5,950,000 and interest continues to be charged at the
bank's prime lending rate. The Company is involved in active, on-going
discussions with HSBC Bank and Bank of America as to a refinancing of the
facilities or an extension of the expiration date.
In 1996, the Company obtained a secured line of credit with a bank. The
line provided for borrowings of up to $2.5 million, with interest at prime plus
1/2%. In September 1997, the Company repaid all outstanding borrowings under the
line.
In May 1997, the Company borrowed $2.2 million from an unrelated third
party at an annual interest rate of 12%. The note was paid in full in September
1997.
The weighted average interest rates for 1999, 1998 and 1997 on the
loans outstanding during the year were 8.45%, 8.20% and 8.92%, respectively.
10. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Term loan with Bank of America held by Bekins. Payable in quarterly $1,386,000 $1,854,000
installments of $117,000 with the final balance due on April 1, 2001. Interest
is at the bank's prime lending rate (8.50% at December 31, 1999)
Mortgage note payable with NationsBank held by Bekins related to the building 1,509,000 1,633,000
owned. Payable in quarterly installments of $31,000 with the final balance due
on April 1, 2001. Interest is at the bank's prime lending rate (8.50% at
December 31, 1999)
Capital lease obligations held by Bekins covering various office furniture and 14,000 43,000
equipment bearing interest at fixed rates of 6.75% to 10.50% with varying
payments through December 2001
Capital lease obligations held by LPC covering computer and office equipment 61,294 55,862
bearing interest at fixed rates of 8% to 10%, with payments through October
2004
---------- ----------
$2,970,294 $3,585,862
---------- ----------
</TABLE>
The term loan and mortgage note payable are cross-defaulted and are
secured by all of the assets of Bekins and contain restrictive covenants that
require, among other things, Bekins to maintain certain ratios of operating cash
flows to fixed charges and total funded debt to operating cash flows, as well as
minimum operating cash flows. At December 31, 1999, Bekins was in violation of
one of the covenants. Accordingly, the entire amount due under the term loan and
mortgage note payable have been classified as current liabilities.
The term loan contains a mandatory prepayment clause which requires
Bekins to make a principal payment to the bank based upon a calculation of
excess cash flow, as defined, on an annual basis. For 1998, the required payment
was waived by the bank. For 1999, the Company calculates the payment due as
$261,000, while the bank calculates the required payment as $379,500. The
payment is due April 30, 2000. The Company and the bank are currently in
discussions to resolve the difference in the calculated payment.
There is no assurance that this issue will be resolved in the Company's favor.
The Company does have exposure to market risks associated with changes
in interest rates given that the Company does maintain lines of credit (Note 9)
and long-term debt facilities which have variable interest rates.
F-17
<PAGE> 34
The following represents the aggregate annual principal payments on
long-term debt, given their current payment status for the years ended
December 31:
2000 $2,902,000
2001 49,869
2002 6,503
2003 6,503
2004 5,419
------------------
$2,970,294
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CONTINUING OPERATIONS
Current:
Federal $(2,721,337) $ (963,592) $ (672,362)
State and Local (574,118) 608,133 147,342
----------- ----------- -----------
Total Current (3,295,455) (355,459) (525,020)
----------- ----------- -----------
Deferred:
Federal 151,377 (73,674) (68,254)
State and Local 40,249 (18,130) (29,743)
----------- ----------- -----------
Total Deferred 191,626 (91,804) (97,997)
----------- ----------- -----------
Total (3,103,829) (447,263) (623,017)
----------- ----------- -----------
OPERATIONS OF DISCONTINUED BUSINESSES
Current:
Federal -- 4,080,714 1,032,711
State and Local -- 229,985 388,719
----------- ----------- -----------
Total Current -- 4,310,699 1,421,430
----------- ----------- -----------
Deferred:
Federal 2,947,618 (2,925,453) (397,293)
State and Local 783,722 (719,733) (173,132)
----------- ----------- -----------
Total Deferred 3,731,340 (3,645,186) (570,425)
----------- ----------- -----------
Total 3,731,340 665,513 851,005
----------- ----------- -----------
LOSS ON DISPOSAL OF DISCONTINUED BUSINESSES
Current:
Federal -- -- --
State and Local -- -- --
----------- ----------- -----------
Total Current -- -- --
----------- ----------- -----------
Deferred:
Federal 483,624 (47,280) --
State and Local 128,588 (11,820) --
----------- ----------- -----------
Total Deferred 612,212 (59,100) --
----------- ----------- -----------
Total 612,212 -- --
----------- ----------- -----------
Total Current Provision (Benefit) (3,295,455) 3,955,240 896,410
Total Deferred Provision (Benefit) 4,535,178 (3,796,090) (668,422)
----------- ----------- -----------
Total Provision $ 1,239,723 $ 159,150 $ 227,988
----------- ----------- -----------
</TABLE>
F-18
<PAGE> 35
The current benefit for income taxes in 1999 primarily represents the
benefit associated with the Company's ability to carryback 1999 tax losses to
prior years for federal, state and local tax purposes. The deferred provision in
1999 primarily represents the valuation allowance against the Company's
previously recorded deferred tax assets. The Company has also provided a
valuation allowance against deferred tax assets arising in 1999, representing
additional deductible expenses, given the Company's current tax position.
The following is a reconciliation of the Company's income taxes based
on the statutory rate and the actual provision for continuing operations:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax at 34% $(7,258,674) $ (855,385) $ (824,423)
State and local taxes, net of federal tax benefit (588,743) 389,402 77,615
Nondeductible goodwill amortization and expenses 2,261,036 223,748 123,791
Prior year provision adjustment -- (205,028) --
Valuation allowance on deferred tax assets 2,482,552 -- --
----------- ----------- -----------
$(3,103,829) $ (447,263) $ (623,017)
=========== =========== ===========
</TABLE>
Deferred income taxes result from temporary differences between the
financial reporting carrying amounts and the tax bases of assets and
liabilities. The source of these differences and tax effect of each at December
31, 1999 and 1998 are as follows:
Deferred Income Tax Liability (Asset) 1999 1998
------------ ------------
Warrant expense $ (774,928) $ (677,580)
Allowance for doubtful accounts (11,193,720) (3,834,079)
Investment reserves and write-offs (2,100,709) --
Operating losses during phase-out period (222,680) --
Depreciation expense 97,459 (23,647)
Rent expense (9,408) (102,562)
Goodwill amortization -- 62,959
Other (210,385) 39,731
------------ ------------
Total (14,414,371) (4,535,178)
Valuation allowance 14,414,371 --
------------ ------------
Net $ 0 $ (4,535,178)
============ ============
12. RELATED PARTY TRANSACTIONS
(a) In connection with the Apollo Joint Venture (see Note 4), on April 10,
1997, the Company and Resource Holdings, an entity affiliated with a
director of the Company, entered into a financial advisory agreement
pursuant to which Resource Holdings agreed to assist the Company in
connection with negotiations relating to the Apollo Joint Venture and to
provide general financial advisory, strategic planning and acquisition
advice to the Company. In consideration for those services, the Company
agreed to pay Resource Holdings 16 1/2% of certain distributions received
by the Company from the Apollo Joint Venture (after certain distributions
to the joint venture parties and returns on capital invested in each
project in which the Apollo Joint Venture participates) and a monthly
retainer of $10,000 per month. No distributions were received by the
Company from Apollo in 1999, 1998 or 1997. The financial advisory agreement
was terminated in April 1999.
(b) Officer and Employee Loans. At various times during the year, the Company
has provided short-term loans to various officers and employees of the
Company bearing interest at 12%. Loans provided during 1999, 1998 and 1997
amounted to $39,500, $3,590,000, and $767,000, respectively. The balance
owed to the Company was $289,500 and $250,000 at December 31, 1999 and
1998, respectively. In 1998, the Company provided a non-interest bearing
loan of $3,200,000 to Watertone Holdings LP, a firm managed by Watermark.
This loan was repaid in full in 1998. Watermark is affiliated with Robert
Berman, the former Chief Executive Officer and Chairman of the Board, and
certain shareholders of the Company.
F-19
<PAGE> 36
(c) During 1997, the Company completed renovation services for Watermark. In
1997, the Company and Watermark renegotiated the renovation contract to
provide for fees more consistent with a project of similar scope and
complexity. As a result of the renegotiations, the Company recognized
additional renovation revenues for the year ended December 31, 1997 of
$780,183 without an accompanying increase in costs. As of December 31, 1999
and 1998, the Company had no receivables due from Watermark.
In February 1998, the Company, through HWS REAG, purchased the assets of
Watermark's real estate advisory business for consideration of $1,500,000
in cash. In September 1999, the Company and Watermark entered into a
Termination Agreement pursuant to which Watermark paid $885,000 to the
Company in December 1999.
(d) During 1998 and 1997, the Company provided renovation and procurement
services to the Apollo Joint Venture and ING Joint Venture in which the
Company has an ownership interest (Note 4). The following revenues and
gross profit, which exclude the warrant expense related to the Apollo Joint
Venture (Note 15), have been reflected in discontinued operations in the
consolidated financial statements.
Year Ended December 31, 1999 December 31, 1998
---------- ----------------- -----------------
Revenues $ 16,065,121 $ 22,806,617
Cost of revenues 14,790,131 21,684,241
------------ -------------
Gross profit $ 1,274,990 $ 1,122,376
------------ -------------
Amounts receivable from the joint ventures were $2,100,077 and $5,722,696 at
December 31, 1999 and 1998, respectively.
13. COMMITMENTS AND CONTINGENCIES
(A) LEASE COMMITMENTS
The Company leases office space in New York, Los Angeles, St. Louis and
Coral Gables which expire at various dates through 2009. In conjunction with the
acquisition of Bekins in January 1998, the Company assumed a ground lease on a
warehouse in Orlando, Florida which expires in 2085, with a minimum annual
payment of $6,489 and assumed a lease on warehouse space in Las Vegas, Nevada
through October 2001.
The Orlando, Florida warehouse is currently listed for sale with a
broker. In anticipation of a sale, Bekins entered into a lease on warehouse
space in Orlando in February 2000.
The Company has entered into certain sub-lease arrangements for space
that it no longer occupies in New York, Los Angeles and Coral Gables with
unrelated third parties and with expiration dates that are coterminous with the
Company's original leases. The sub-lease payments to be received by the Company
approximate the payments to be made by the Company under its leases.
The aggregate future minimum lease payments due under operating leases,
exclusive of space under sub-leases, are as follows:
December 31
- -----------
2000 $ 2,287,366
2001 1,818,574
2002 1,755,275
2003 1,652,417
2004 1,579,803
Thereafter 6,117,912
------------
$ 15,211,347
============
Rent expense for 1999, 1998 and 1997 was $2,401,536, $2,101,282 and
$941,442 ,respectively.
(B) EMPLOYMENT AGREEMENTS
The Company currently has employment agreements with four members of
management personnel that expire from October 2000 to August 2002 at an
aggregate annual compensation of $809,000.
F-20
<PAGE> 37
(C) LITIGATION
The Company is a defendant in various litigation incident to its business
and in some instances the amounts sought include substantial claims and
counterclaims. Although the outcome of the litigation cannot be predicted with
certainty, in the opinion of management based on the facts known at this time,
the resolution of such litigation is not anticipated to have a material adverse
effect on the financial position or results of operations of the Company. As
these matters continue to proceed through the litigation process to ultimate
resolution, it is reasonably possible that the Company's estimation of the
effect of such matters could change within the next year.
In June 1999, Hospitality Restoration & Builders, Inc., a wholly owned
subsidiary of the Company ("HRB"), filed a lawsuit in the Supreme Court, New
York County against Servico, Inc. In general, the lawsuit alleged that Servico
breached its obligations to HRB under an agreement pursuant to which HRB was to
renovate certain hotel properties located in New York, Texas and Illinois. HRB
has asserted in the action that it suspended its work at these hotels due to
Servico's failure to pay for certain completed work and that as a result of the
suspension of work, Servico terminated the agreement with HRB. HRB is seeking
damages in excess of $20.0 million. As a result of motions made by Servico, the
actions related to the Texas and Illinois properties were dismissed for lack of
jurisdiction. HRB has subsequently filed actions against Servico in Texas and
Illinois. With respect to the New York properties, Servico has counterclaimed
against HRB to recover damages in excess of $18.0 million. The outcome of this
matter is uncertain at this time, however an adverse outcome in this action
could have a material adverse effect on the Company.
On February 3, 2000, Servico Rolling Meadows, Inc. ("Servico RM"),
filed a lawsuit in the United States District Court for the Northern District of
Illinois against HRB. In general, the lawsuit alleges that HRB furnished
defective work and failed to complete work required under an agreement to
renovate a hotel located in Rolling Meadows, Illinois. Servico RM is seeking
damages in excess of $4.0 million. In response to this action, on March 10,
2000, HRB filed an answer in which it denied Servico RM's claims and asserted
counterclaims against Servico RM for breach of contract, among other claims. HRB
is seeking damages in an amount in excess of $2.5 million against Servico RM in
connection with this counterclaim. To date, Servico RM has not answered or
otherwise responded to HRB's claims and formal discovery has not yet been
initiated. The outcome of this matter is uncertain at this time, however an
adverse outcome in this action could have material adverse effect on the
Company.
On June 1, 1998, an action (the "State Action") was brought against the
Company by West Atlantic Corp. ("West Atlantic") in the Supreme Court of the
State of New York. The State Action alleged that the Company retained West
Atlantic pursuant to an agreement dated March 1, 1995 (the "Agreement") to
perform certain marketing and selling services for the Company. The State Action
further alleged that fees were allegedly earned and not paid under the Agreement
and seeks damages relating to an alleged breach of contract of not less than
$10,000,000, damages with respect to alleged "significant benefits to the
Company" in an amount of not less than $5,000,000 and damages relating to breach
of the duties of good faith and fair dealing in an amount of not less than
$10,000,000. The Company has denied and continues to deny all of the allegations
and claims of wrongdoing made by West Atlantic in the State Action. However, in
an effort to avoid further expenses, the Company previously reached a tentative
agreement in principle with West Atlantic pursuant to which it agreed to pay
$250,000 to West Atlantic in a combination of cash and restricted stock (with
registration rights). That tentative agreement was never completed due to the
parties' inability to finalize essential terms of the agreement. West Atlantic
has recently made a motion to compel the Company to enforce the terms of the
tentative agreement. The motion has not yet been fully briefed, and is currently
pending. The Company believes that the tentative agreement with West Atlantic is
unenforceable, and intends to vigorously oppose the motion. In connection with
the State Action, the Company brought claims in federal and state court against
Tova Schwartz, the former President and Chief Executive Officer of the Company's
predecessor, seeking indemnification against the West Atlantic claims in the
State Action, other compensatory damages and punitive damages. The state and
federal actions claim that, among other things, Ms. Schwartz failed to disclose
to the Company the existence of the Agreement and West Atlantic's claims
thereunder, when the Company purchased from Ms. Schwartz certain shares of
Common Stock of the Company which she then held, sold its lighting business to
her and provided her with other severance benefits. Ms. Schwartz's motion for
dismissal of the Company's State Action indemnification claims was denied on
June 28, 1999. Ms. Schwartz has asserted counterclaims against the Company in
the State Action. She also joined Howard Anders, a former employee of the
Company, as a fourth-party defendant in the State Action. In addition, the
federal action, previously stayed by the tentative agreement of the parties, has
been reinstated. Ms. Schwartz has asserted counterclaims against the Company in
the federal action. She has joined Mr. Anders, along with Robert Berman and Alan
Friedberg, also former employees of the Company, as additional counterclaim
defendants in the federal action. The Company has concluded that, pursuant to
the Company's By-Laws, Messrs. Anders and Berman are entitled to indemnification
from the Company with respect to the state and federal actions. The court in the
State Action has dismissed, in part, the fourth-party complaint against Mr.
Anders. The Company has denied and continues to deny all of the allegations and
claims of wrongdoing made by Ms. Schwartz in the state and federal actions. The
Company intends to continue to vigorously defend all such claims against it and
to continue to assert its claims for indemnification against Ms. Schwartz.
After the resignations of a number of former directors and officers of
the Company in the fall of 1999, the Company retained counsel to assist in
conducting an investigation into various matters. In the course of the
investigation, the Company discovered, among other things, that approximately
$2.1 million of fraudulent charges had been submitted to and paid by the Company
during 1998 and 1999. Those funds have been returned to the Company by a former
officer of the Company, but the Company has not yet recovered any interest or
related costs. Management believes that it has identified the financial extent
of the fraudulent activities. The financial results for the fourth quarter of
1999 reflect the recovery. The Company has not restated any prior period
financial statements as management has determined that the impact was not
material in any period. The Company believes that other former directors,
officers and employees may have been involved in the fraudulent activities, that
there may have been breaches of fiduciary duties and other inappropriate
actions, and that the Company may be able to recover damages from those
individuals. The Company intends to pursue all available and appropriate
remedies and to make any appropriate referrals to law enforcement and
administrative agencies.
14. MAJOR CUSTOMERS
Most of the Company's customers are in the hospitality industry with a
few of them accounting for a substantial portion of annual revenues. For 1999,
one customer, a high-ranking government official of the United Arab Emirates,
accounted for 13% of the Company's revenues. The largest customer of the Company
for 1998, a major lodging company, accounted for 14% of the Company's revenues.
The largest customers of the Company for 1997, a high-ranking government
official of the United Arab Emirates and a major lodging company, accounted for
18% and 11%, respectively, of the Company's revenues.
15. STOCKHOLDERS' EQUITY
In January 1997, in connection with the acquisition of the Leonard
Parker Company and Parker Reorder, the Company issued 200,000 shares of 6%
Convertible Preferred Stock ("LPC Preferred"). The holders of LPC Preferred were
entitled to receive cash dividends at the rate of six percent (or $1.50) per
annum per share of LPC Preferred (the "Preferred Dividend"), accruing from the
date of issuance and payable commencing March 31, 1998. The dividends for 1998
were accrued at December 31, 1998 and paid in 1999, and the dividends for 1999
have been accrued as of December 31, 1999. If the Company is legally capable of
paying the Preferred Dividend and elects to accrue such amount, such accrued
dividends shall bear interest at the rate of 13 1/2% per annum until paid.
F-21
<PAGE> 38
The LPC Preferred was convertible into the Company's common stock based
upon a prescribed formula in the purchase agreement. In October 1998, 80,000
shares of LPC Preferred were converted into an aggregate of 584,800 shares of
common stock. The remaining 120,000 shares of LPC Preferred were converted into
an aggregate of 1,269,399 shares of Common Stock in September and October 1999.
The Company cannot pay or declare dividends on any capital stock other
than the LPC Preferred, unless all accrued and unpaid dividends on the LPC
Preferred for all prior applicable periods have been declared and paid. The
Company is not otherwise restricted from declaring and paying dividends to its
shareholders.
In January 1998, in connection with the acquisition of Bekins, the
Company issued 514,117 shares of common stock. Further, pursuant to a make-whole
provision in the purchase agreement, 639,512 additional shares of common stock
were issued by the Company in January 1999 (Note 6).
As an inducement to enter into the Joint Venture Agreement with Apollo
(Note 4), the Company issued to Apollo a seven-year warrant to purchase up to
750,000 shares of Common Stock at $8.115 per share. The warrant expires in 2004.
The warrant was initially exercisable as to 250,000 shares and became
exercisable as to the remaining 500,000 shares in increments of 100,000 shares
for every $7,500,000 of incremental renovation revenue and purchasing fees
earned by the Company from the Apollo Joint Venture. The warrant contains price
protection provisions and anti-dilution provisions that could result in the
issuance of significantly more shares under certain circumstances. The cost
associated with the warrants for the 250,000 shares initially exercisable were
expensed as warrant expense in 1997. The costs associated with the warrants for
the 100,000 share increments earned by Apollo were recognized as an additional
cost of the related renovation and procurement contract. In 1999, 1998 and 1997,
the Company recognized expenses related to these warrants of $381,525, $213,555
and $1,593,420, respectively, all of which are reflected in discontinued
operations on the accompanying Consolidated Statement of Operations.
16. STOCK OPTION PLANS
At December 31, 1999, the Company has four stock option plans. The
Company accounts for its stock option plans under the intrinsic value based
method, such that when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation cost is recognized.
During 1994, the Company's Board of Directors adopted a non-statutory
stock option plan for purposes of issuance of shares of the Company's common
stock to certain key employees or consultants. With respect thereto, options to
purchase a total of 160,000 shares were granted. The stock option plan has been
retired, and there are no additional shares available for grant. The last
remaining option for 50,000 shares was exercised in February 2000.
During 1996, the Company's Board of Directors adopted the 1996 Stock
Option for the purpose of providing incentive to the officers and employees of
the Company. With respect thereto, options to purchase a total of 2,032,000
shares were granted. The stock option plan has been retired and there are no
additional shares available for grant, although unexercised options remain
outstanding. Options granted vest over five years and the term of the option is
ten years. In addition, during 1997 the Company entered into an employment
agreement which provided for a stock option to acquire shares in Parker Reorder.
The former employee may be entitled to a less than 1% interest in Parker
Reorder, subject to certain restrictions.
During 1996, the Company's Board of Directors adopted, and the
shareholders approved, the 1996 Outside Directors Stock Option Plan for the
purpose of securing for the Company and its shareholders the benefits arising
from stock ownership by its outside directors. With respect thereto, options to
purchase a total of 130,000 shares were granted. The stock option plan has been
retired and there are no additional shares available for grant, although
unexercised options remain outstanding. Options were granted at the fair market
value of the stock. Options granted under the Outside Directors Plan vest over
three years and shall be exercisable in three equal installments beginning on
the first anniversary of the grant date. The term of the options is five years.
The options granted to the outside directors on April 1, 1999, covering an
aggregate of 30,000 shares, have been terminated and all rights to the options
have been surrendered.
F-22
<PAGE> 39
On December 15, 1999, the Company's Board of Directors adopted, and the
shareholders approved, the 1999 Stock Option Plan (the "Plan") for the purpose
of providing incentive to the officers and employees of the Company, who are
primarily responsible for the management and growth of the Company, as well as
to secure for the Company and its shareholders the benefits arising from stock
ownership by its outside directors. The Company can issue options for up to
2,500,000 shares under the Plan. Each option granted pursuant to the Plan shall
be designated at the time of grant as either an "incentive stock option" or as a
"non-qualified stock option". Incentive stock options are granted at the fair
market value of the stock while non-qualified stock options must be granted at
no less than 75% of the fair market value of the stock. The term and vesting
period for each option granted is determined by the Stock Option Committee,
which is composed of two or more outside members of the Board of Directors,
provided the maximum length of the term of each option granted will be no more
than ten years. Each outside director who becomes an outside director after
December 15, 1999, shall receive the grant of an option to purchase 15,000
shares of common stock. To the extent that shares of common stock remain
available for the grant of options under the Plan on April 1 of each year,
beginning on April 1, 2000, each outside director shall be granted an option to
purchase 10,000 shares of common stock. Options granted to outside directors
vest over three years and shall be exercisable in three equal annual
installments beginning on the first anniversary of the date of grant.
The Company is required to provide pro forma information regarding
income from continuing operations and earnings per share as if compensation cost
for the Company's stock option plans had been determined in accordance with the
fair value-based method, under which compensation cost would be measured at the
grant date based on the fair value of the awards and recognized over the vesting
period. The Company estimates the fair value of each stock option at the grant
date by using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998 and 1997, respectively: no
dividends paid for both years; expected volatility of 98% and 49%; risk-free
interest rate of 5.54% and 6.04%; and expected lives of 5.8 years and 5.3 years.
No options were granted in 1999.
Under the fair value based method, the Company's income from continuing
operations and earnings per share would have been the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Loss from continuing operations (in thousands):
As reported $ (18,245) $ (2,069) $ (1,802)
Pro forma (19,846) (3,443) (2,385)
Basic loss per share from continuing operations:
As reported (1.35) (0.19) (0.24)
Pro forma (1.46) (0.31) (0.30)
Diluted loss per share from continuing operations:
As reported (1.35) (0.19) (0.24)
Pro forma (1.46) (0.31) (0.30)
</TABLE>
F-23
<PAGE> 40
The following table contains information on stock options for the three
year period ended December 31, 1999:
Weighted Average
Option Shares Exercise Price
------------- ----------------
Outstanding, December 31, 1996 1,131,500 2.38
Granted 738,000 9.29
Exercised (122,250) 2.15
Canceled (19,250) 3.27
-------- ----
Outstanding, December 31, 1997 1,728,000 5.58
Granted 426,000 8.95
Exercised (250,834) 2.74
Canceled (179,750) 8.28
-------- ----
Outstanding, December 31, 1998 1,723,416 6.42
Granted - -
Exercised (40,000) 1.28
Canceled (819,416) 6.46
-------- ----
Outstanding, December 31, 1999 864,000 6.62
-------- ----
Exercisable at December 31, 1999 535,996 5.19
Exercisable at December 31, 1998 864,650 3.67
Exercisable at December 31, 1997 759,875 2.73
-------- ----
Exercise Price Less Exercise Price Equal
Than Market to Market
------------------- ---------------------
Weighted-average fair value of:
Options granted in 1997 -- $4.88
Options granted in 1998 -- $7.14
Options granted in 1999 -- --
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------- ------------------------------
Weighted
Average
Remaining Weighted Weighted
Amount Contractual Range of Average Amount Average
Outstanding Life (Years) Exercise Price Exercise Price Exercisable Exercise Price
----------- ------------ -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
276,500 4.76 $1.275- 2.75 2.48 276,500 2.48
225,000 2.11 6.125- 6.75 6.67 149,997 6.67
362,500 7.75 8.94- 12.00 9.75 109,499 10.00
------- ---- ------------ ---- ------- -----
864,000 5.32 $1.275-12.00 6.62 535,996 5.19
</TABLE>
F-24
<PAGE> 41
17. EARNINGS PER SHARE
The following table reconciles the components of basic and diluted
earnings per common share for loss from continuing operations for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NUMERATOR:
Loss from continuing operations $(18,245,213) $ (2,068,574) $ (1,801,756)
Preferred stock dividends (135,000) (270,000) (300,000)
------------ ------------ ------------
Loss available to common stockholders from (18,380,213) (2,338,574) (2,101,756)
continuing operations - Basic
------------ ------------ ------------
Effect of dilutive securities (a):
Preferred stock dividends -- -- --
------------ ------------ ------------
Loss available to common stockholders from $(18,380,213) $ (2,338,574) $ (2,101,756)
continuing operations - Diluted
------------ ------------ ------------
DENOMINATOR:
Weighted average common shares outstanding - 13,665,465 12,092,437 8,885,570
Basic
------------ ------------ ------------
Effect of dilutive securities (a):
Stock-based compensation plans -- -- --
Contingently issuable shares -- -- --
Convertible preferred stock -- -- --
------------ ------------ ------------
Weighted average common and common equivalent 13,665,465 12,092,437 8,885,570
shares outstanding - Diluted
------------ ------------ ------------
Basic loss per common share from continuing $ (1.35) $ (0.19) $ (0.24)
operations
Diluted loss per common share from continuing $ (1.35) $ (0.19) $ (0.24)
operations
</TABLE>
(a) The common stock equivalent shares for the years ended December 31, 1999,
1998 and 1997 were as follows: 211,449 shares, 738,984 shares and 991,232
shares, respectively, for the stock-based compensation plans; 14,211
shares, 395,600 shares and 0 shares, respectively, for the contingently
issuable shares; and 710,324 shares, 1,020,474 shares and 1,000,000 shares,
respectively, for the convertible preferred stock. The common stock
equivalents for these securities were not included in the calculation of
diluted loss per common share because the effect would be antidilutive.
18. OPERATING SEGMENTS
The Company's operating segments are based on the separate lines of
business acquired over the past several years which provide different services
to the hospitality industry, namely purchasing, reorder and logistics services.
Due to the strategic repositioning of the Company's lines of business, the
Company has changed the composition of its reportable segments. The Company's
renovation business and real estate investment and asset management business
have been classified as discontinued operations (Note 4) and are no longer
reported as part of segment reporting. In addition, the previously reported
purchasing segment has been segregated into the purchasing business and the
reorder business. The Company has restated the prior years to conform to the
revised segment reporting.
F-25
<PAGE> 42
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
SALES TO CUSTOMERS
Purchasing $ 173,921,924 $ 144,779,540 $ 60,802,249
Reorder 17,046,504 5,807,316 4,249,030
Logistics 29,145,105 22,416,623 --
Corporate -- -- --
------------- ------------- -------------
$ 220,113,533 $ 173,003,479 $ 65,051,279
------------- ------------- -------------
INTER-SEGMENT SALES
Purchasing $ 2,544,306 18,543,669 165,160
Reorder -- -- --
Logistics 4,543,032 3,610,377 --
Corporate -- -- --
------------- ------------- -------------
$ 7,087,338 $ 22,154,046 $ 165,160
------------- ------------- -------------
LOSS FROM OPERATIONS
Purchasing ($ 1,632,081) $ 3,299,112 $ 676,639
Reorder (12,278,965) (3,076,160) (1,449,268)
Logistics (846,940) 1,377,000 --
Corporate (5,719,698) (4,656,934) (2,281,150)
------------- ------------- -------------
($ 20,477,684) ($ 3,056,982) ($ 3,053,779)
------------- ------------- -------------
DEPRECIATION AND AMORTIZATION
Purchasing $ 415,376 $ 361,781 $ 358,278
Reorder 736,196 700,692 299,905
Logistics 667,000 537,000 --
Corporate 390,134 68,312 24,799
------------- ------------- -------------
$ 2,208,706 $ 1,667,785 $ 682,982
------------- ------------- -------------
INTEREST INCOME
Purchasing $ 565,304 $ 492,554 $ 310,711
Reorder -- -- --
Logistics 4,000 1,000 --
Corporate 333,449 803,691 412,164
------------- ------------- -------------
$ 902,753 $ 1,297,245 $ 722,875
------------- ------------- -------------
INTEREST EXPENSE
Purchasing 170,234 39,779 41,547
Reorder -- -- --
Logistics 284,000 353,000 --
Corporate 1,319,877 363,321 52,322
------------- ------------- -------------
$ 1,774,111 $ 756,100 $ 93,869
------------- ------------- -------------
TOTAL ASSETS AT YEAR END
Purchasing $ 32,862,748 $ 44,734,461 $ 32,117,828
Reorder 5,009,992 12,497,819 9,501,862
Logistics 16,067,410 17,051,060 --
Discontinued Operations 180,067 31,846,334 11,132,050
------------- ------------- -------------
Segment Total 54,120,217 106,129,674 52,751,740
Unallocated:
Cash and cash equivalents 2,456,771 1,283,411 6,000,493
Marketable securities -- 8,500,000 18,915,686
Income taxes receivable 3,906,804 -- --
Deferred taxes -- 4,535,178 739,088
Other 1,297,373 1,906,569 1,187,333
------------- ------------- -------------
</TABLE>
F-26
<PAGE> 43
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
$ 61,781,165 $ 122,354,832 $ 79,594,340
------------- ------------- -------------
CAPITAL EXPENDITURES
Purchasing $ 140,766 $ 603,780
$ 290,082
Reorder 301,927 1,905,308 2,055,307
Logistics 701,000 454,000 --
Corporate 561,786 193,795 299,501
------------- ------------- -------------
$ 1,705,479 $ 3,156,883 $ 2,644,890
------------- ------------- -------------
</TABLE>
All transactions between reportable segments are accounted for on an
arms length basis and are eliminated in consolidation.
Sales to Customers include sales to related parties (Note 12).
The Company's revenue and assets predominately relate to the United
States operations, with immaterial amounts related to foreign operations.
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (a)
<TABLE>
<CAPTION>
1999 Quarter Ended (c) March 31 June 30 September 30 December 31
- ---------------------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 56,859 $ 57,789 $ 52,840 $ 52,626
Gross profit 4,200 4,693 1,304 1,275
Loss from continuing operations (297) (661) (16,252)(d) (1,035)
Income (loss) from discontinued 841 100 (31,105) (9,595)
operations
Net income (loss) 545 (560) (47,357)(d) (10,632)
Basic earnings (loss) per common share:(b)
Loss from continuing operations (0.02) (0.05) (1.22) (0.07)
Net income (loss) 0.04 (0.04) (3.55) (0.73)
Diluted earnings (loss) per common share:(b)
Loss from continuing operations (0.02) (0.05) (1.22) (0.07)
Net income (loss) 0.04 (0.04) (3.55) (0.73)
</TABLE>
<TABLE>
<CAPTION>
1998 Quarter Ended (c) March 31 June 30 September 30 December 31
- ---------------------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 32,355 $ 39,851 $ 48,645 $ 52,152
Gross profit 3,333 3,517 3,924 2,828
Income (loss) from continuing operations 76 16 (120) (2,041)
Income (loss) from discontinued 1,144 1,567 2,418 (3,027)
operations
Net income (loss) 1,218 1,581 2,298 (5,064)
Basic earnings (loss) per common share:(b)
Income (loss) from continuing 0.01 0.00 (0.01) (0.16)
operations
Net income (loss) 0.10 0.13 0.18 (0.40)
Diluted earnings (loss) per common share:(b)
Income (loss) from continuing operations 0.01 0.00 (0.01) (0.16)
Net income (loss) 0.10 (0.13) 0.18 (0.40)
</TABLE>
(a) All amounts except per share data presented in thousands.
(b) The quarterly per share amounts are computed independently of annual
amounts.
(c) 1999 and 1998 quarterly amounts have been restated to reflect discontinued
operations.
(d) Includes asset impairment charge of $9,017,000.
F-27
<PAGE> 44
Hotelworks.com, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Charged to Balance
Beginning costs and other at end of
Description of period expenses accounts Deductions(1) period
- ----------- --------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Allowance for doubtful accounts
1997 $ 322,432 $ 18,915 $ -- $ (198,752) $ 142,595
1998 142,595 668,922 -- (131,528) 679,989
1999 679,989 1,632,922 -- (569,547) 1,743,364
DISCONTINUED OPERATIONS:
RENOVATION BUSINESS:
Reserves for loss on disposal,
including operating losses
during phase-out period
1997 -- -- -- -- --
1998 -- -- -- -- --
1999 -- 9,236,894 -- (6,330,837) 2,906,057
HOTEL DEVELOPMENT BUSINESS:
Reserves for loss on disposal,
including operating losses
during phase-out period
1997 -- -- -- -- --
1998 -- 150,000 -- -- 150,000
1999 150,000 1,670,204 -- (1,820,204) --
REAL ESTATE INVESTMENT AND ASSET
MANAGEMENT BUSINESS:
Reserves for loss on disposal,
including operating losses
during phase-out period
1997 -- -- -- -- --
1998 -- -- -- -- --
1999 -- 5,650,570 -- (713,071) 4,937,499
</TABLE>
(1) Charges to the accounts are for the purposes for which the reserves
were created.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
HOTELWORKS.COM, INC.
Under Section 402 of the Business Corporation Law
1. The name of the corporation is HOTELWORKS.COM, INC.
(hereinafter referred to as the "Corporation").
2. The purpose or purposes for which the Corporation is formed are as
follows; to wit,
To engage in any lawful act or activity for which corporations may be formed
under the Business Corporation Law. The Corporation is not formed to engage in
any act or activity requiring the consent or approval of any state official,
department, board, agency or other body without such consent or approval first
being obtained.
To own, operate, manage, acquire and deal in property, real and personal, which
may be necessary to the conduct of the business.
The Corporation shall have all of the powers enumerated in Section 202 of the
Business Corporation Law, subject to any limitations provided in the Business
Corporation Law or any other statute in the State of New York.
3. The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (b) of
Section 402 of the Business Corporation Law of the State of New York, as the
same may be amended and supplemented. Any repeal or modification of this Article
by the shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing hereunder with respect to
any act or omission occurring prior to such repeal or modification.
4. The county in which the office of the corporation is to
be located in the State of New York is: Nassau
5. The aggregate number of shares of stock that the Corporation shall
have authority to issue is (i) twenty million
<PAGE> 2
(20,000,000) shares of Common Stock, $0.01 par value per share ("Common Stock"),
and (ii) three million (3,000,000) shares of Preferred Stock, $0.01 par value
per share ("Preferred Stock"). The Board of Directors is hereby authorized to
fix or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
I. DESIGNATIONS AND AMOUNT. 200,000 shares of the Preferred Stock of
the Corporation, stated value of $25 (the "Stated Value") per share, shall
constitute a class of Preferred Stock designated as "Redeemable Convertible
Preferred Stock" (the "Preferred Stock").
II. RANK. The Preferred Stock shall rank senior to all classes and
series of common stock of the Corporation now or hereafter authorized, issued or
outstanding, including, without limitation, the Common Stock, par value $.01 per
share ("Common Stock") of the Corporation, and any other classes and series of
capital stock of the Corporation now or hereafter authorized, issued or
outstanding and specifically designated as being junior to the Preferred Stock
(collectively, the "Junior Securities"). Unless authorized by a vote of the
holders of a majority of the Preferred Stock then outstanding, no other capital
stock of the Corporation shall rank senior to the Preferred Stock.
III. DIVIDENDS.
(a) The holders of shares of Preferred Stock shall be entitled to
receive, out of assets of the Corporation legally available for payment, cash
dividends at the rate of six percent (6%) (or $1.50) per annum per share of
Preferred Stock (the "Preferred Dividend"), payable annually and in arrears on
the ninetieth day following the end of the fiscal year of The Leonard Parker
Company, a Florida corporation ("LPC") in each year, commencing March 31, 1998
(each a "dividend payment date"); PROVIDED, HOWEVER, that if on any such day
banks in the City of New York are authorized or required to close, a Preferred
Dividend otherwise payable on such day will be payable on the next day that
banks in the City of New York are not authorized or required to close. Such
Preferred Dividend shall accrue from the date of issuance and be cumulative from
the later of the date of initial issuance of such shares of Preferred Stock or
the most recent dividend payment date on which dividends have been paid on the
Preferred Stock by the Corporation. The party that holds the Preferred Stock on
an applicable record date, as shall be fixed by the Board, for any Preferred
Dividend will be entitled to receive such Preferred Dividend, without regard to
whether the Preferred Stock is outstanding subsequent to the applicable record
date but prior to the applicable dividend payment date. If the Corporation is
legally capable of paying the Preferred
2
<PAGE> 3
Dividend and elects to accrue such amount, such accrued dividends shall bear
interest at the rate of 13 1/2% per annum until paid.
(b) So long as any Preferred Stock shall remain outstanding, the
holders of the Preferred Stock shall be entitled to receive, and Parker Reorder
Corporation, a Florida corporation ("Parker Reorder"), shall pay, out of the
cumulative net profits (the "Cumulative Net Profits") of Parker Reorder, a cash
payment (the "Participating Dividend") equal to twenty percent (20%) of (i) the
Cumulative Net Profits of Parker Reorder, less (ii) all Participating Dividends
previously made to the holders of the Preferred Stock hereunder, such
Participating Dividend to be payable annually to the holders of the Preferred
Stock ninety (90) days following the end of each fiscal year of Parker Reorder.
Such Participating Dividend shall be paid in only such amounts as shall be
authenticated by a certificate executed by two officers of the Corporation.
"Cumulative Net Profits" shall mean net profits of Parker Reorder computed in
accordance with generally accepted accounting principles based on the audited
financial statements of Parker Reorder, assuming that taxes and other charges
are assessed as if it were a standalone company, cumulative from January 1,
1997. For purposes of calculating Cumulative Net Profits, expenses allocated to
Parker Reorder for goods or services provided by any affiliate of the Company
shall not exceed the sum Parker Reorder would have paid for such goods or
services to an unaffiliated third party. In the event that the Preferred Stock
ceases to be outstanding at a time prior to the end of a fiscal year of Parker
Reorder, Cumulative Net Profits and, consequently, the Participating Dividend,
shall be computed as of the end of the most recently completed fiscal quarter of
Parker Reorder and shall be paid within ninety (90) days after the Preferred
Stock ceases to be outstanding.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Corporation nor any subsidiary thereof shall pay or declare any
dividend or make any distribution upon, nor shall any distribution be made in
respect of, any Junior Securities, unless all accrued and unpaid Preferred
Dividends on the Preferred Stock for all prior and applicable dividend periods
have been or contemporaneously are declared and paid and the Preferred Dividends
on the Preferred Stock for the current and applicable dividend period, if
accrued, have been or contemporaneously are declared and set apart for payment.
IV. RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP, ETC.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to the stockholders of the Corporation, whether from
capital, surplus or earnings, shall be distributed in the following order of
priority:
3
<PAGE> 4
(i) The holders of shares of Preferred Stock shall be
entitled to receive, in cash, prior and in preference to any distribution to the
holders of any Junior Securities an amount equal to the Stated Value for each
share of the Preferred Stock then outstanding, plus an amount equal to all
accrued and unpaid Preferred Dividends and interest thereon, if any, on such
shares of Preferred Stock as of the date such payment is made to the holders of
shares of Preferred Stock; and
(ii) If there is a distribution pursuant to Section IV(a)(i)
hereof, the remaining assets of the Corporation available for distribution, if
any, to the stockholders of the Corporation shall be distributed pro rata to the
holders of issued and outstanding shares of Common Stock.
(b) If upon any liquidation, dissolution or winding up of the
Corporation, the assets distributable among the holders of shares of Preferred
Stock are insufficient to permit the payment in full to the holders of all such
shares of all preferential amounts payable to all such holders, then the entire
assets of the Corporation thus distributable shall be distributed ratably among
the holders of the shares of Preferred Stock in proportion to the respective
amounts that would be payable per share if such assets were sufficient to permit
payment in full.
(c) For purposes of this Section IV, a distribution of assets in
any liquidation, dissolution or winding up shall not include (i) any
consolidation or merger of the Corporation with or into any other corporation,
(ii) any liquidation, dissolution, winding up or reorganization of the
Corporation immediately followed by reincorporation of another corporation or
(iii) a sale or other disposition of all or substantially all of the
Corporation's assets to another corporation; PROVIDED, HOWEVER, that, in each
case, effective provision is made in the certificate of incorporation of the
resulting and surviving corporation or otherwise for the protection of the
rights of the holders of shares of Preferred Stock and that the holders of a
majority of the Preferred Stock then outstanding, voting as a class, shall have
given their approval.
(d) After the payment of the full preferential amounts provided
for herein to the holders of shares of Preferred Stock, such holders shall be
entitled to no other or further participation in the distribution of the assets
of the Corporation.
V. REDEMPTION OF PREFERRED STOCK.
(a) OPTIONAL REDEMPTION. At any time and from time to time after
the third anniversary of the closing of the purchase by the Corporation of all
of the common stock of LPC
4
<PAGE> 5
(the "Closing"), the Corporation shall have the option, on a pro rata basis, to
(unless otherwise prevented by law) redeem all, or any portion of, the Preferred
Stock in accordance with Section V(c) and upon 30 days prior written notice of
the Corporation's intention to exercise the redemption option to the holders of
shares of Preferred Stock, at a redemption price equal to the Stated Value for
each such share of the Preferred Stock then outstanding, plus an amount equal to
all accrued and unpaid Preferred Dividends and interest thereon, if any, on such
shares of Preferred Stock as of the date such redemption is exercised.
(b) MANDATORY REDEMPTION. At any time after the fifth anniversary
of the Closing, at the request of the holders of all of the Preferred Stock, the
Corporation must redeem, within 90 days after such notice is received, all of
the Preferred Stock in accordance with Section V(d), at a redemption price equal
to the Stated Value for each such share of the Preferred Stock then outstanding,
plus an amount equal to all accrued and unpaid Preferred Dividends and interest
thereon, if any, on such shares of Preferred Stock as of the date such
redemption is exercised. If the Corporation does not redeem all of the Preferred
Stock as provided in this Section V(b) within 90 days of notice duly served upon
the Corporation in accordance with Section V(d) by holders of a majority in
interest of the Preferred Stock, then the holders of the Preferred Stock, voting
together as a class, shall be entitled to elect such number of directors of the
Corporation as shall equal the minimum number required to equal a majority of
such Board of Directors. In order to effect such election, the Corporation will,
to the extent necessary, expand its Board of Directors to allow for such
additional members and will take all such additional actions as may be
reasonably necessary. Upon payment of the redemption price of the Preferred
Stock, the class vote as described herein shall expire and the holders of the
Preferred Stock shall cause the directors so elected to resign. The obligation
of the Corporation to redeem the Preferred Stock pursuant to this Section V(b)
shall be secured by a pledge of all of the capital stock of LPC, as evidenced by
that certain Pledge Agreement, dated January 9, 1997.
(c) OPTIONAL REDEMPTION PROCEDURE. Notice of any Preferred Stock
redemption date pursuant to Section V(a) hereof shall be sent by the Corporation
by first-class certified mail, return receipt requested, postage prepaid, to the
holders of record of shares of Preferred Stock at their respective addresses as
the same shall appear on the books of the Corporation at its principal corporate
office. At any time on or after any Preferred Stock redemption date, the holders
of record of shares of Preferred Stock to be redeemed on such Preferred Stock
redemption date in accordance with this Section V shall be entitled to receive
the applicable redemption price upon actual delivery to the
5
<PAGE> 6
Corporation or its agents of the certificates representing the shares to be
redeemed or delivery of an affidavit, in form reasonably acceptable to the
Corporation, that such certificates have been lost or destroyed.
(d) MANDATORY REDEMPTION PROCEDURE. If the Corporation receives an
election from the holders of the Preferred Stock pursuant to Section V(b)
hereof, notice of the Preferred Stock redemption date (which shall be on or
before the date 90 days after notice to the Corporation) shall be sent by the
Corporation by first-class certified mail, return receipt requested, postage
prepaid, to the holders of record of shares of Preferred Stock at their
respective addresses as the same shall appear on the books of the Corporation.
At any time on or after any Preferred Stock redemption date, the holders of
record of shares of Preferred Stock to be redeemed on such Preferred Stock
redemption date in accordance with this Section V shall be entitled to receive
the applicable redemption price upon actual delivery to the Corporation or its
agents of the certificates representing the shares to be redeemed.
VI. VOTING RIGHTS.
(a) Except as hereinafter set forth, the holders of Preferred
Stock shall be entitled to vote together with the holders of the Common Stock on
all matters submitted to the holders of the Common Stock. Each share of
Preferred Stock shall be entitled to 4.17 votes.
(b) The holders of record of the Preferred Stock, voting as a
class, shall be entitled to elect two (2) directors of the Corporation's Board
of Directors at any time that any of the Preferred Stock is outstanding.
(c) The holders of the Preferred Stock shall be entitled to vote
as a class with respect to any action of the Corporation adversely affecting the
Preferred Stock, its rights and preferences.
VII. CONVERSION OF PREFERRED STOCK.
(a) Any holder of the Preferred Stock shall have the right at such
holders' option, at any one time during the period beginning immediately after
the first anniversary of the Closing and ending on the third anniversary of the
Closing, to convert all of such holder's shares of Preferred Stock into (i) such
whole number of shares of Common Stock equal to the product of the Stated Value
and the number of such holder's shares of Preferred Stock, divided by the
average closing sale price (determined as provided in Section VII(e)) for the
Common Stock for the 20 trading days immediately prior to the date written
notice of the holder's intention to exercise the conversion option is given (the
"Conversion
6
<PAGE> 7
Rate"); PROVIDED, HOWEVER, that in no case shall the number of shares of Common
Stock into which each share of Preferred Stock may be converted be less than
five or greater than 25 or (ii) such whole number of shares of common stock, par
value $1.00 per share, of Parker Reorder (the "Parker Common Stock") equal to
9.80% of the outstanding shares of Parker Common Stock as calculated immediately
after such conversion.
(b) Before any holder of shares of Preferred Stock shall be
entitled to convert the same into shares of Common Stock, such holder shall give
(a) 10 days written notice in the case of exercising the conversion rights set
forth in Section VII(a)(i) (which notice shall not be given later than 10 days
prior to the end of the third anniversary of the Closing) or (b) 30 days written
notice in the case of exercising the conversion rights set forth in Section
VII(a)(ii) to the Corporation at its principal corporate office of the election
to convert the same and shall state therein the name or names in which the
certificates for shares of Common Stock are to be issued. After the expiration
of the applicable notice period, the holder of shares of Preferred Stock shall
surrender the certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred Stock, or to the nominee or nominees of such holder,
certificates for the number of shares of Common Stock or Parker Common Stock to
which such holders shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock or Parker
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock or Parker Common
Stock as of such date.
(c) The Corporation shall not be required to issue fractions of
shares of Common Stock upon conversion of the Preferred Stock. If any fractions
of a share would, but for this Section, be issuable upon any conversion of
Preferred Stock, in lieu of such fractional share, the Company shall pay to the
holder, in cash, an amount equal to the same fraction of the price per share of
Common Stock as determined in Section VII(a)(i). Notwithstanding the foregoing,
Parker Reorder may issue fractions of shares of Parker Common Stock upon
conversion of the Preferred Stock.
(d) The Corporation and Parker Reorder shall reserve and shall at
all times have reserved out of each of their respective authorized but unissued
shares of Common Stock sufficient shares of Common Stock to permit the
conversion
7
<PAGE> 8
of the then outstanding shares of the Preferred Stock pursuant to this Section
VII. All shares of Common Stock or shares of Parker Common Stock which may be
issued upon conversion of shares of the Preferred Stock pursuant to this Section
VII shall be validly issued, fully paid and nonassessable.
(e) The closing price for each day shall be the last reported sale
price or, in case no such reported sale takes place on such date, the average of
the reported closing bid prices for ten consecutive trading days ending the last
trading day before the day in question, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the closing
sale price of Common Stock, or in case no reported sale takes place, the average
of the daily closing bid and asked prices, for ten consecutive trading days
ending the last trading day before the day in question, on the Nasdaq SmallCap
Market ("NASDAQ"), or if Common Stock is not quoted on NASDAQ, the OTC
Electronic Bulletin Board or any comparable system, the closing sale price or,
in case no reported sale takes place, the average of the closing bid and asked
prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose. If Common Stock is not quoted on NASDAQ, the OTC Electronic Bulletin
Board or any comparable system, the Board of Directors shall in good faith
determine the current market price on such reasonable basis as it reasonably
considers appropriate.
(f) If any of the following shall occur: (i) any reclassification,
stock split or change of outstanding shares of Common Stock issuable upon
conversion of shares of Preferred Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or (ii) any consolidation or merger to
which the Corporation is a party other than a merger in which the Corporation is
the continuing corporation and which does not result in any reclassification or
stock split of, or change (other than a change in name, or par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination) in, outstanding shares of Common Stock, then in
addition to all of the rights granted to the holders of Preferred Stock as
designated herein, the Corporation, or such successor or purchasing corporation,
as the case may be, shall, as a condition precedent to such reclassification,
stock split, change, consolidation or merger, provide in its certificate of
incorporation or other charter document that each share of Preferred Stock shall
have rights which shall be as nearly equivalent as may be practicable to the
rights provided for in this Section VII. If, in the case of any such
8
<PAGE> 9
reclassification, stock split, change, consolidation merger, the stock or other
securities and property (including cash) receivable thereupon by a holder of
Common Stock includes shares of capital stock or other securities and property
of a corporation other than the successor purchasing corporation, as the case
may be, in such reclassification, stock split, change, consolidation or merger,
then the certificate of incorporation or other charter document of such other
corporation shall contain such additional provisions to protect the interests of
the holders of shares of the Preferred Stock as the Board of Directors shall
reasonably consider necessary by reason of the foregoing. The provision of this
Section VII(f) shall similarly apply to successive consolidations, mergers,
sales or conveyances.
(g) The Corporation will not, by amendment of its Certificate of
Incorporation, as amended, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section VII
and in the taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holders of the Preferred Stock against
impairment.
VIII. NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Preferred Stock, at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
IX. RESTRICTION OF TRANSFERABILITY. The shares of Preferred Stock may
not be sold, assigned or transferred except in accordance with the provisions of
Sections V and VII.
X. OTHER. The Corporation and its affiliates may not purchase shares of
Preferred Stock except ratably from all holders thereof.
9
<PAGE> 10
PREFERENCE STOCK:
Section 1. Designation, Amount and Par Value. The series of Preference
Stock shall be designated as "Series A Preference Stock" (the "Series A
Preference Stock"), and the number of shares so designated shall be 100,000. The
par value of each share of Preference Stock shall be $.01. Such number of shares
may be increased or decreased by resolution of the Board of Directors; provided,
that no decrease shall reduce the number of shares of Series A Preference Stock
to a number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preference Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preference Stock (or any similar stock) ranking prior and superior to
the Series A Preference Stock with respect to dividends, the holders of shares
of Series A Preference Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Preference Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preference Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preference Stock were entitled immediately prior
to such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
10
<PAGE> 11
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Preference Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Preference Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preference Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preference Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preference Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preference
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preference
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preference Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or
11
<PAGE> 12
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A Preference
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate
of Designations creating a series of Preference Stock or any similar stock, or
by law, the holders of shares of Series A Preference Stock and the holders of
shares of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) Except as set forth in the Certificate of Incorporation or
herein, or as otherwise provided by law, holders of Series A Preference Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Reacquired Shares. Any shares of Series A Preference Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preference Stock and may be reissued as part of a new series of Preference Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preference Stock or any similar stock or as otherwise
required by law.
Section 5. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preference Stock unless, prior thereto, the holders of shares of Series A
Preference Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preference Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or
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<PAGE> 13
(2) to the holders of shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preference Stock, except distributions made ratably on the Series A Preference
Stock and all such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preference Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 6. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preference Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preference Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. No Redemption. The shares of Series A Preference Stock shall
not be redeemable.
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Section 8. Rank. The Series A Preference Stock shall be of equal rank
in respect of the preference as to dividends and to payments upon the
liquidation, dissolution or winding up, whether voluntary or involuntary, of the
Corporation, with all shares of Preference Stock of all series.
Section 9. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preference
Stock so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series A Preference Stock,
voting together as a single class.
6. The Secretary of State is designated as agent of the corporation
upon whom process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the corporation
served upon him is:
The Corporation
218 Rockaway Turnpike, Suite 707
Cedarhurst, New York 11516
7. The directors shall be divided into three clases, each with, as
nearly as possible, one-third of the members of the Board of Directors, and
designated as Class I, Class II and Class III. Class I directors shall be
initially elected at the 1998 Annual Meeting of Shareholders for a term expiring
at the 1999 Annual Meeting of Shareholders; Class II directors shall be
initially elected at the 1998 Annual Meeting of Shareholders for a term expiring
at the 2000 Annual Meeting of Shareholders; Class III directors shall be
initially elected at the 1998 Annual Meeting of Shareholders for a term expiring
at the 2001 Annual Meeting of Shareholders. At each succeeding annual meeting of
shareholders of the Corporation, the successors of the class of directors whose
term expires at that meeting shall be elected for a term expiring at the annual
meeting of shareholders held in the third year following the year of their
election, and until their successors are elected and qualified. Notwithstanding
the foregoing, in the event that the Board of Directors does not nominate a
director for election by the shareholders at an annual meeting of shareholders,
the Board of Directors shall be entitled to appoint a director after such annual
meeting for a term that expires at the next succeeding annual meeting of
shareholders and until such director's successor is elected and qualified. At
such succeeding annual meeting, the shareholders shall elect a director for a
two-year term that expires at the annual meeting of shareholders held in the
second year following the year of such director's election by the shareholders,
and until such director's successor is elected and qualified. Thereafter, the
directors shall continue to be elected in accordance with the election schedule
set forth above.
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<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
HOTELWORKS.COM INC.
(f/k/a HOSPITALITY WORLDWIDE SERVICES, INC.)
(FORMED UNDER THE LAWS OF THE STATE OF NEW YORK)
(AS AMENDED ON JULY 14, 1997, JULY 6, 1998 AND
DECEMBER 28, 1999)
ARTICLE I
OFFICES
Section 1. OFFICES. The Corporation may have offices at such places
both within or without the State of New York as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held at a time fixed by the
Board of Directors. If this date shall fall upon a legal holiday at the place of
the meeting, then such meeting shall be held on the next succeeding business day
at the same hour. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders may
be called by the Board of Directors. Any such meeting shall be held at such time
and at such place, within or without the New York, as shall be determined by the
Board and as shall be stated in the notice of such meeting. At such meetings the
only business which may be transacted is that relating to the purpose or
purposes set forth in the notice thereof.
Section 3. PLACE OF MEETINGS. Meetings of shareholders shall be held at
such place, within or without the State of New York, as may be fixed by the
Board of Directors. If no place is so fixed, such meetings shall be held at the
office of the Corporation in the State of New York.
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Section 4. NOTICE OF MEETINGS. Notice of each meeting of shareholders
shall be given in writing and shall state the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called. Notice of a
special meeting shall indicate that it is being issued by or at the direction of
the person or persons calling or requesting the meeting.
If, at any meeting, action is proposed to be taken which would, if
taken, entitle objecting shareholders to receive payment for their shares, the
notice shall include a statement of that purpose and to that effect.
A copy of the notice of each meeting shall be given, personally or by
first class mail, not less than ten nor more than 50 days before the date of the
meeting, to each shareholder entitled to vote at such meeting. If mailed, such
notice is given when deposited in the United States mail, with postage thereon
prepaid, directed to the shareholder at his address as it appears on the record
of shareholders, or, if he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice under the
preceding paragraphs of this Section 4.
Section 5. WAIVER OF NOTICE. Notice of meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
Section 6. INSPECTORS OF ELECTION. The Board of Directors, in advance
of any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat shall, appoint two inspectors. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, before entering upon the discharge of
his duties, shall
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take and sign an oath faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them.
Section 7. LIST OF SHAREHOLDERS AT MEETINGS. A list of shareholders as
of the record date, certified by the Secretary or any Assistant Secretary or by
a transfer agent, shall be produced at any meeting of shareholders upon the
request thereat or prior thereto of any shareholder. If the right to vote at any
meeting is challenged, the inspectors of election, or person presiding thereat,
shall require such list of shareholders to be produced as evidence of the right
of the persons challenged to vote at such meeting, and all persons who appear
from such list to be shareholders entitled to vote thereat may vote at such
meeting.
Section 8. QUALIFICATION OF VOTERS. Unless otherwise provided in the
certificate of incorporation, every shareholder of record shall be entitled at
every meeting of shareholders to one vote for every share standing in his name
on the record of shareholders.
Treasury shares as of the record date and shares held as of the record
date by another domestic or foreign corporation of any type or kind, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held as of the record date by the Corporation, shall not be
shares entitled to vote or to be counted in determining the total number of
outstanding shares.
Shares held by an administrator, executor, guardian, conservator,
committee, or other fiduciary, except a trustee, may be voted by him, either in
person or by proxy, without transfer of such shares into his name. Shares held
by a trustee may be voted by him, either in person or by proxy, only after the
shares have been transferred into his name as trustee or into the name of his
nominee.
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Shares standing in the name of another domestic or foreign corporation
of any type or kind may be voted by such officer, agent or proxy as the by-laws
of such corporation may provide, or, in the absence of such provision, as the
board of directors of such corporation may determine.
A shareholder shall not sell his vote or issue a proxy to vote to any
person for any sum of money or anything of value except as permitted by law.
Section 9. QUORUM OF SHAREHOLDERS. The holders of a majority of the
shares entitled to vote thereat shall constitute a quorum at a meeting of
shareholders for the transaction of any business, provided that when a specified
item of business is required to be voted on by a class or series, voting as a
class, the holders of a majority of the shares of such class or series shall
constitute a quorum for the transaction of such specified item of business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders.
The shareholders who are present in person or by proxy and who are
entitled to vote may, by a majority of votes cast, adjourn the meeting despite
the absence of a quorum.
Section 10. PROXIES. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after the expiration of 11 months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.
The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the shareholder who executed the proxy unless
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the Secretary or any Assistant
Secretary.
Section 11. VOTE OR CONSENT OF SHAREHOLDERS. Directors shall, except as
otherwise required by law, be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election.
Whenever any corporate action, other than the election of directors, is
to be taken by vote of the shareholders, it shall, except as otherwise required
by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
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<PAGE> 5
Whenever shareholders are required or permitted to take any action by
vote, such action may be taken without a meeting on written consent, setting
forth the action so taken, signed by the holders of all outstanding shares
entitled to vote thereon. Written consent thus given by the holders of all
outstanding shares entitled to vote shall have the same effect as a unanimous
vote of shareholders.
Section 12. FIXING RECORD DATE. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than 50 nor less than ten days before the date of such meeting, nor
more than 50 days prior to any other action.
When a determination of shareholders of record entitled to notice of or
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof, unless the
Board of Directors fixes a new record date for the adjourned meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. POWER OF BOARD AND QUALIFICATION OF DIRECTORS. The business
of the Corporation shall be managed by the Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
certificate of incorporation or these by-laws. Each director shall be at least
18 years of age.
Section 2. NUMBER OF DIRECTORS. The number of directors constituting
the entire Board of Directors shall be the number, not less than three nor more
than fifteen, fixed from time to time by a majority of the total number of
directors which the Corporation would have, prior to any increase or decrease,
if there were no vacancies, provided, however, that no decrease shall shorten
the term of an incumbent director, and provided further, however, that if all of
the shares of the Corporation are owned beneficially and of record by less than
three shareholders, the number of directors may be less than three but not less
than the number of shareholders. Any newly created directorships or any decrease
in directorships shall be so apportioned among the classes as to make all
classes as nearly equal in number as possible.
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Section 3. ELECTION AND TERM. The directors shall be divided into three
classes, each with, as nearly as possible, one-third of the members of the Board
of Directors, and designated as Class I, Class II and Class III. Class I
directors shall be initially elected at the 1998 Annual Meeting of Shareholders
for a term expiring at the 1999 Annual Meeting of Shareholders; Class II
directors shall be initially elected at the 1998 Annual Meeting of Shareholders
for a term expiring at the 2000 Annual Meeting of Shareholders; and Class III
directors shall be initially elected at the 1998 Annual Meeting of Shareholders
for a term expiring at the 2001 Annual Meeting of Shareholders. At each
succeeding annual meeting of shareholders of the Corporation, the successors of
the class of directors whose term expires at that meeting shall be elected for a
term expiring at the annual meeting of shareholders held in the third year
following the year of their election, and until their successors are elected and
qualified.
Section 4. QUORUM OF DIRECTORS AND ACTION BY THE BOARD. A majority of
the entire Board of Directors shall constitute a quorum for the transaction of
business, and, except where otherwise provided by these by-laws, the vote of a
majority of the directors present at a meeting at the time of such vote, if a
quorum is then present, shall be the act of the Board.
Any action required or permitted to be taken by the Board of Directors
or any committee thereof may be taken without a meeting if all members of the
Board or the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consent thereto by the
members of the Board or committee shall be filed with the minutes of the
proceedings of the Board or committee.
Section 5. MEETINGS OF THE BOARD. An annual meeting of the Board of
Directors shall be held in each year directly after the annual meeting of
shareholders. Regular meetings of the Board shall be held at such times as may
be fixed by the Board. Special meetings of the Board may be held at any time
upon the call of the Chairman or any two directors.
Meetings of the Board of Directors shall be held at such places as may
be fixed by the Board for annual and regular meetings and in the notice of
meeting for special meetings. If no place is so fixed, meetings of the Board
shall be held at the principal office of the Corporation. Any one or more
members of the Board of Directors may participate in meetings by means of a
conference telephone or similar communications equipment.
No notice need be given of annual or regular meetings of the Board of
Directors. Notice of each special meeting of the Board shall be given to each
director either by mail not later than noon, New York time, on the third day
prior to the meeting or by telegram, written message or orally to the director
not later than noon, New York time, on the day prior to the meeting. Notices are
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deemed to have been given: by mail, when deposited in the United States mail; by
telegram at the time of filing; and by messenger at the time of delivery.
Notices by mail, telegram or messenger shall be sent to each director at the
address designated by him for that purpose, or, if none has been so designated,
at his last known residence or business address.
Notice of a meeting of the Board of Directors need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any
meeting of the Board of Directors.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of any
adjournment of a meeting to another time or place shall be given, in the manner
described above, to the directors who were not present at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
Section 6. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors or to the President
or to the Secretary of the Corporation. Such resignation shall take effect at
the time specified therein; and unless otherwise specified therein the
acceptance of such resignation shall not be necessary to make it effective.
Section 7. REMOVAL OF DIRECTORS. Any one or more of the directors may
be removed for cause by action of the Board of Directors.
Section 8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason except the removal
of directors by shareholders may be filled by vote of a majority of the
directors then in office, although less than a quorum exists. Vacancies
occurring as a result of the removal of directors by shareholders shall be
filled by the shareholders. A vacancy occurring in the Board of Directors as a
result of a determination by the Board of Directors not to nominate a director
for election by the shareholders at an annual meeting of shareholders shall be
filled by vote of a majority of the directors then in office, although less than
a quorum exists. A director elected to fill a vacancy shall be elected to hold
office for the unexpired term of his predecessor, except that a director elected
by the directors as a result of the failure of the Board of Directors to
nominate a director for election by the shareholders at an annual meeting of
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shareholders shall be elected to hold office until the next succeeding annual
meeting of shareholders and until his successor has been elected and qualified;
whereupon the shareholders shall elect a director for a term that expires at the
annual meeting of shareholders held in the second year following the year of
such director's election by the shareholders, and until his successor is elected
and qualified. A director elected to fill a vacancy for a newly created
directorship shall be elected to hold office until the next annual meeting of
shareholders and until his successor has been elected and qualified. For any new
Board created directorship that is filled by a vote of a majority of the
directors then in office, there shall not be any classification of the
additional director until the next annual meeting of shareholders. In the event
of a vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board until the
vacancy is filled.
Section 9. EXECUTIVE AND OTHER COMMITTEES OF DIRECTORS. The Board of
Directors, by resolution adopted by a majority of the entire Board, may
designate from among its members an executive committee and other committees
each consisting of three or more directors and each of which, to the extent
provided in the resolution, shall have all the authority of the Board, except
that no such committee shall have authority as to the following matters:
(1) The submission to shareholders of any action
that needs shareholders' approval;
(2) The filling of vacancies in the Board or in
any committee;
(3) The fixing of compensation of the directors
for serving on the Board or on any committee;
(4) The amendment or repeal of the by-laws, or the
adoption of new by-laws;
(5) The amendment or repeal of any resolution of the
Board which, by its term, shall not be so amendable
or repealable; or
(6) The removal or indemnification of directors.
The Board of Directors may designate one or more directors as alternate
members of any such committee, who may replace any absent member or members at
any meeting of such committee.
Unless a greater proportion is required by the resolution designating a
committee, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of the members present at a meeting at the time of such vote,
if a quorum is then present shall be the act of such committee.
Each such committee shall serve at the pleasure of the Board of
Directors.
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Section 10. COMPENSATION OF DIRECTORS. The Board of Directors shall
have authority to fix the compensation of directors for services in any
capacity.
Section 11. INTEREST OF DIRECTORS IN A TRANSACTION. Unless shown to be
unfair and unreasonable as to the Corporation, no contract or other transaction
between the Corporation and one or more of its directors, or between the
Corporation and any other corporation, firm, association or other entity in
which one or more of the directors are directors or officers, or are financially
interested shall be either void or voidable, irrespective of whether such
interested director or directors are present at a meeting of the Board of
Directors, or of a committee thereof, which authorizes such contract or
transaction and irrespective of whether his or their votes are counted for such
purpose. In the absence of fraud any such contract or transaction may be
conclusively authorized or approved as fair and reasonable by:
(1) The Board of Directors or a duly empowered committee
thereof, by a vote sufficient for such purpose without counting the
vote or votes of such interested director or directors (although he or
they may be counted in determining the presence of a quorum at the
meeting which authorizes such contract or transaction), if the fact of
such common directorship, officership or financial interest is
disclosed or known to the Board or committee (as the case may be); or
(2) The shareholders entitled to vote for the election of
directors, if such common directorship, officership or financial
interest is disclosed or known to such shareholders.
Notwithstanding the foregoing, no loan, except advances in connection
with indemnification, shall be made by the Corporation to any director unless it
is authorized by vote of the shareholders without counting any shares of the
director who would be the borrower.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The Board of Directors, as soon as may be
practicable after the annual election of directors, shall elect a Chairman of
the Board, a President, one or more Vice-Presidents, a Chief Financial Officer
and a Secretary, and from time to time may elect or appoint such other officers
as it may determine. When all of the issued and outstanding stock of the
Corporation is owned by one person, such person may hold all or any combination
of offices.
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Section 2. OTHER OFFICERS. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 3. COMPENSATION. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 4. TERM OF OFFICE AND REMOVAL. Each officer shall hold office
for the term for which he is elected or appointed, and until his successor has
been elected or appointed and qualified. Unless otherwise provided in the
resolution of the Board of Directors electing or appointing an officer, his term
of office shall extend to and expire at the meeting of the Board following the
next annual meeting of shareholders. Any officer may be removed by the Board,
with or without cause, at any time. Removal of an officer without cause shall be
without prejudice to his contract rights, if any, and the election or
appointment of an officer shall not of itself create contract rights.
Section 5. POWERS AND DUTIES.
(a) CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE
BOARD. If the Board of Directors appoints a Chairman of the Board, he shall,
when present, preside at all meetings of the Board of Directors. He shall
perform such duties and possess such powers as are usually vested in the office
of the Chairman of the Board or as may be vested in him by the Board of
Directors. If the Board of Directors appoints a Vice Chairman of the Board, he
shall, in the absence or disability of the Chairman of the Board, perform the
duties and exercise the powers of the Chairman of the Board and shall perform
such other duties and possess such other powers as may from time to time be
vested in him by the Board of Directors.
(b) PRESIDENT. The President shall, subject to the
direction of the Board of Directors, have general supervision and control of the
business of the Corporation. Unless otherwise provided by the directors, he
shall preside at all meetings of the shareholders and of the Board of Directors
(except as provided in Section 5(a) above). The President shall perform such
other duties and shall have such other powers as the Board of Directors may from
time to time prescribe.
(c) VICE PRESIDENTS. Any Vice President shall
perform such duties and possess such powers as the Board of Directors or the
President may from time to time prescribe. In the event of the absence,
inability or refusal to act of the President, the Vice President (or if there
shall be more than one, the Vice Presidents in the order determined by the Board
of Directors) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice
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President the title of Executive Vice President, Senior Vice President or any
other title selected by the Board of Directors.
(d) SECRETARY AND ASSISTANT SECRETARIES. The
Secretary shall perform such duties and shall have such powers as the Board of
Directors or the President may from time to time prescribe. In addition, the
Secretary shall perform such duties and have such powers as are incident to the
office of the secretary, including without limitation the duty and power to give
notices of all meetings of shareholders and special meetings of the Board of
Directors, to attend all meetings of shareholders and the Board of Directors and
keep a record of the proceedings, to maintain a stock ledger and prepare lists
of shareholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal or refusal
to act of the Secretary, the Assistant Secretary, (or if there shall be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of shareholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
(e) CHIEF FINANCIAL OFFICER AND CONTROLLER. The
Chief Financial Officer shall perform such duties and shall have such powers as
may from time to time be assigned to him by the Board of Directors or the
President. The Chief Financial Officer shall also be the Treasurer of the
Corporation unless the Board of Directors has appointed another person as the
Treasurer. In addition, the Chief Financial Officer shall perform such duties
and have such powers as are incident to the office of treasurer, including
without limitation the duty and power to keep and be responsible for all funds
and securities of the Corporation, to deposit funds of the Corporation in
depositories selected in accordance with these By-Laws, to disburse such funds
as ordered by the Board of Directors, to make proper accounts of such funds, and
to render as required by the Board of Directors statements of all such
transactions and of the financial condition of the Corporation.
The Controller shall perform such duties and possess such powers as the
Board of Directors, the President or the Chief Financial Officer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Chief Financial Officer, the Controller, (or if there shall be more than
one, the Controllers in the order determined by the Board of Directors)
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shall perform the duties and exercise the powers of the Chief Financial Officer.
Section 6. BONDED OFFICERS. The Board of Directors may require any
officer to give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors upon such terms and
conditions as the Board of Directors may specify, including without limitation a
bond for the faithful performance of his duties and for the restoration to the
Corporation of all property in his possession or under his control belonging to
the Corporation.
Section 7. BOOKS TO BE KEPT. The Corporation shall keep (a) correct and
complete books and records of account, (b) minutes of the proceedings of the
shareholders, Board of Directors and any committees of directors, and (c) a
current list of the directors and officers and their residence addresses. The
Corporation shall also keep at its office in the State of New York or at the
office of its transfer agent or registrar in the State of New York, if any, a
record containing the names and addresses of all shareholders, the number and
class of shares held by each and the dates when they respectively became the
owners of record thereof.
The Board of Directors may determine whether and to what extent and at
what times and places and under what conditions and regulations any accounts,
books, records or other documents of the Corporation shall be open to
inspection, and no creditor, security holder or other person shall have any
right to inspect any accounts, books, records or other documents of the
Corporation except as conferred by statute or as so authorized by the Board.
Section 8. CHECKS, NOTES, ETC. All checks and drafts on, and
withdrawals from the Corporation's accounts with banks or other financial
institutions, and all bills of exchange, notes and other instruments for the
payment of money, drawn, made, indorsed, or accepted by the Corporation, shall
be signed on its behalf by the person or persons thereunto authorized by, or
pursuant to resolution of, the Board of Directors.
ARTICLE V
FORMS OF CERTIFICATES AND LOSS AND
TRANSFER OF SHARES
Section 1. FORMS OF SHARE CERTIFICATES. The shares of the Corporation
shall be represented by certificates, in such forms as the Board of Directors
may prescribe, signed by the Chairman or the President or a Vice-President and
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and may be sealed with the seal of the Corporation or a facsimile
thereof. The signatures of the officers upon a certificate may be facsimiles if
the certificate is countersigned by a transfer agent
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<PAGE> 13
or registered by a registrar other than the Corporation or its employee. In case
any officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of issue.
Each certificate representing shares issued by the Corporation shall
set forth upon the face or back of the certificate, or shall state that the
Corporation will furnish to any shareholder upon request and without charge, a
full statement of the designation, relative rights, preferences and limitations
of the shares of each class of shares, if more than one, authorized to be issued
and the designation, relative rights, preferences and limitations of each series
of any class of preferred shares authorized to be issued so far as the same have
been fixed, and the authority of the Board of Directors to designate and fix the
relative rights, preferences and limitations of other series.
Each certificate representing shares shall state upon the face thereof:
(1) That the Corporation is formed under the laws
of the State of New York;
(2) The name of the person or persons to whom
issued; and
(3) The number and class of shares, and the designation
of the series, if any, which such certificate
represents.
Section 2. TRANSFERS OF SHARES. Shares of the Corporation shall be
transferable on the record of shareholders upon presentment to the Corporation
or a transfer agent of a certificate or certificates representing the shares
requested to be transferred, with proper indorsement on the certificate or on a
separate accompanying document, together with such evidence of the payment of
transfer taxes and compliance with other provisions of law as the Corporation or
its transfer agent may require.
Section 3. LOST, STOLEN OR DESTROYED SHARE CERTIFICATES. No certificate
for shares of the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or wrongfully taken, except, if and to the
extent required by the Board of Directors, upon:
(1) Production of evidence of loss, destruction or
wrongful taking;
(2) Delivery of a bond indemnifying the Corporation and
its agents against any claim that may be made against
it or them on account of the alleged loss,
destruction or wrongful taking of the replaced
certificate or the issuance of the new certificate;
(3) Payment of the expense of the Corporation and its
agents incurred in connection with the issuance of
the new certificate; and
(4) Compliance with such other reasonable requirements as
may be imposed.
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<PAGE> 14
ARTICLE VI
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The Corporation shall, to the fullest extent now or
hereafter permitted by the New York Business Corporation Law, indemnify any
director or officer who is or was made, or threatened to be made, a party to an
action or proceeding, whether civil or criminal, whether involving any actual or
alleged breach of duty, neglect or error, any accountability, or any actual or
alleged misstatement, misleading statement or other act or omission and whether
brought or threatened in any court or administrative or legislative body or
agency, including an action by or in the right of the Corporation to procure a
judgment in its favor and an action by or in the right of any other corporation
of any type or kind, domestic or foreign, or any partnership, joint venture,
trust, employee benefit plan or other enterprise, which any director or officer
of the Corporation is serving or served in any capacity at the request of the
Corporation, or is serving or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and costs, charges and
expenses, including attorneys' fees, or any appeal therein; provided, however,
that no indemnification shall be provided to any such director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that (i) his acts were committed in bad faith or were the result of
active and deliberate dishonesty and, in either case, were material to the cause
of action so adjudicated, or (ii) he personally gained in fact a financial
profit or other advantage to which he was not legally entitled.
(b) The Corporation may indemnify any other person (including,
without limitation, corporate personnel other than directors or officers) to
whom the Corporation is permitted to provide indemnification or the advancement
of expenses by applicable law, whether pursuant to rights granted pursuant to,
or provided by, the New York Business Corporation Law or other rights created by
(i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these By-Laws authorize the creation of other rights in any such manner.
(c) The Corporation shall, from time to time, reimburse or
advance to any person referred to in Section (a) the funds
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<PAGE> 15
necessary for payment of expenses, including attorneys' fees, incurred in
connection with any action or proceeding referred to in Section (a), upon
receipt of a written undertaking by or on behalf of such person to repay such
amount(s) if a judgment or other final adjudication adverse to the director or
officer establishes that (i) his acts were committed in bad faith or were the
result of active and deliberate dishonesty and, in either case, were material to
the cause of action so adjudicated, or (ii) he personally gained in fact a
financial profit or other advantage to which he was not legally entitled.
(d) The right to indemnification conferred by Section (a)
shall not be retroactive to events occurring prior to the adoption of this
Article VI.
(e) This Article VI may be amended, modified or repealed
either by action of the Board of Directors of the Corporation or by the vote of
the shareholders. Any repeal or modification of the foregoing provisions of this
Article VI shall not adversely affect any right or protection of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
-15-
<PAGE> 16
ARTICLE VII
GENERAL PROVISIONS
Section 1. CORPORATE SEAL. The Board of Directors may adopt a corporate
seal, alter such seal at pleasure, and authorize it to be used by causing it or
a facsimile to be affixed or impressed or reproduced in any other manner.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
such period as may be fixed by the Board of Directors.
Section 3. EXECUTION OF INSTRUMENTS. The President, the Chief Executive
Officer or the Chief Financial Officer shall have power to execute and deliver
on behalf and in the name of the Corporation any instrument requiring the
signature of an officer of the Corporation, except as otherwise provided in
these by-laws, or where the execution and delivery of such an instrument shall
be expressly delegated by the Board of Directors to some other officer or agent
of the Corporation.
Section 4. WAIVER OF NOTICE. Whenever any notice whatsoever is required
to be given by law, by the certificate of incorporation or by these by-laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person or
by proxy, shall be deemed equivalent to such notice.
Section 5. VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as or appoint
any person or persons to act as, proxy or attorney fact for this Corporation
(with or without power of substitution) at, any meeting of shareholders or
shareholders of any other corporation or organization, the securities of which
may be held by this Corporation.
Section 6. EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
shareholders, directors, a committee or any officer or representative of the
Corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
Section 7. CERTIFICATE OF INCORPORATION. All references in these
by-laws to the certificate of incorporation shall be deemed to refer to the
certificate of incorporation of the Corporation, as amended and in effect from
time to time.
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<PAGE> 17
Section 8. SEVERABILITY. Any determination that any provision of these
by-laws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these By-Laws.
Section 9. PRONOUNS. All pronouns used in these by-laws shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE VIII
AMENDMENTS
Section 1. BY THE BOARD OF DIRECTORS. These by-laws may be altered,
amended or replaced or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present except when a different vote is
required by express provision of law, the certificate of incorporation or these
by-laws.
Section 2. BY THE SHAREHOLDERS. These by-laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares of the capital stock of the Corporation issued and
outstanding and entitled to vote at any regular meeting of shareholders, or at
any special meeting of shareholders, except when a different vote is required by
express provision of law, the certificate of incorporation or these by-laws,
provided notice of such alteration, amendment, repeal or adoption of new by-laws
shall have been stated in the notice of such special meeting.
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<PAGE> 1
AMERICAN ARBITRATION ASSOCIATION
NEW YORK, NEW YORK
- ---------------------------------------------X
HOSPITALITY WORLDWIDE SERVICES, INC.
Claimant,
- against - No. 13 180 00289 99
PRIME HOSPITALITY CORP.,
Respondent.
- ---------------------------------------------X
STIPULATION OF SETTLEMENT AND MUTUAL RELEASE
WHEREAS, Hospitality Worldwide Services, Inc. ("HWS") has commenced
and continued this action (the "Arbitration") against Prime Hospitality Corp.
("Prime"); and
WHEREAS, Prime has filed its answer to the claims of HWS and asserted
a counterclaim in the Arbitration; and
WHEREAS, the parties hereto have agreed to compromise and settle all
disputes, claims and causes of action between them to avoid further expense,
inconvenience and burden, and to put to rest all disputes between them,
including all claims which have been, could have been or could be asserted in
this action or elsewhere; and
IT IS HEREBY STIPULATED AND AGREED, by and between the undersigned
counsel for the parties, as follows:
1. Prime will pay HWS a total sum of $300,000 within 5 business
days of Prime's receipt of an executed copy of this Stipulation from HWS.
<PAGE> 2
2. MUTUAL RELEASE OF CLAIMS. In exchange for the promises made
herein and other good and valuable consideration:
(a) HWS and its present and former officers, agents,
directors, employees, partners, principals,
subsidiaries, affiliates, successors and assigns,
including, but not limited to, any person or entity
acting for on or behalf of, or claiming under, any of
the foregoing, and their heirs and representatives
(hereinafter "the HWS Releasors"), hereby remise,
release and forever discharge Prime and its present and
former officers, agents, directors, employees,
shareholders, partners, principals, subsidiaries,
affiliates, successors and assigns, and any person or
entity acting for or on behalf of, or claiming under,
any of the foregoing, and their respective heirs and
representatives from and against, and waive and
relinquish, all causes and rights of action, suits,
losses, debts, sums of money, accounts, contracts,
controversies, agreements, promises, awards, damages,
judgments, claims, liens, liabilities, obligations, and
demands whatsoever, whether asserted, unasserted or
threatened, whether hidden or concealed, whether
conditional or absolute, whether personal,
representative or derivative, whether known or unknown,
whether suspected or unsuspected, and whether now or
previously or hereafter recognized in law or in equity
or in contract on in tort, whether liquidated or
unliquidated, which the HWS Releasors had or may have
against Prime arising out of any act, event, matter,
omission, representation, or transaction involving or
related to the Arbitration; and
(b) Prime and its present and former officers, agents,
directors, employees, shareholders, partners,
principals, subsidiaries, affiliates, successors and
assigns, and any person or entity acting for or on
behalf of, or claiming under, any of the foregoing, and
their heirs and representatives (hereinafter "the Prime
Releasors"), hereby remise, release and forever
discharge HWS and its present and former officers,
agents, directors, employees, shareholders, partners,
principals, subsidiaries, affiliates, successors and
assigns, including, but not limited to, any person or
entity acting for or on behalf of, or claiming under,
any of the foregoing, and their respective heirs and
representatives from and against, and waive and
relinquish, all causes and rights of action, suits,
losses, debts, sums of money, accounts, contracts,
controversies, agreements, promises, awards, damages
judgments, claims, liens, liabilities, obligations, and
demands whatsoever, whether asserted, unasserted or
threatened, whether hidden or concealed, whether
conditional or absolute, whether personal,
-2-
<PAGE> 3
representative or derivative, whether known or unknown,
whether suspected or unsuspected, and whether now or
previously or hereafter recognized in law or in equity
or in contract or in tort, whether liquidated or
unliquidated, which the Prime Releasors had or may have
against HWS arising out of any act, event, matter,
omission, representation or transaction involving or
related to the Arbitration.
3. Each of the parties represents and warrants (a) that it
has full authority to execute this Stipulation and to perform
all of its obligations set forth herein: (b) that the
performance of such obligations shall not conflict with any
other agreement to which it is a party or by which it is bound;
and (c) that it intends this Stipulation to be legal, valid and
binding upon it.
4. The parties executing this Stipulation, individually or
in a representative capacity, acknowledge that they have read
this Stipulation, that they understand the Stipulation, that
they have been fully advised by counsel and that they intend to
be bound, either individually or in their representative
capacity, to the terms and conditions of this Stipulation.
5. The parties agree that this Stipulation contains the
full, complete and entire understanding and agreement between
them with respect to the matters referred to herein, and
supersedes and replaces any prior negotiations or agreements
between the parties, whether written or oral. This Stipulation
may not be amended, waived, altered, modified, changed,
rescinded or terminated except by an instrument in writing and
signed by both parties.
-3-
<PAGE> 4
6. This stipulation shall be governed, interpreted and
enforced by, and in accordance with, the laws of the State of
New York, without giving effect to the conflict of laws
principles thereof.
7. This Stipulation may be executed in one or more
counterparts. All executed counterparts and each of them shall
be deemed to be one and the same instrument.
Date: New York, New York
December 14, 1999
Hospitality Worldwide Services, Inc.
By: /s/ Douglas Parker
---------------------------------
Douglas Parker
The Chief Executive Officer
Prime Hospitality Corporation
By: /s/ A. F. Petrocelli
---------------------------------
A. F. Petrocelli
Title: President & Chief Executive
Officer
<PAGE> 1
HOSPITALITY WORLDWIDE SERVICES, INC.
1999 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This 1999 Stock Option Plan (the "Plan") is intended as an incentive,
to retain in the employ of and as directors, consultants and advisors to
Hospitality Worldwide Services, Inc., a New York corporation (the "Company") and
any Subsidiary of the Company, within the meaning of Section 424(f) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), persons of
training, experience and ability, to attract new employees, directors,
consultants and advisors whose services are considered valuable, to encourage
the sense of proprietorship and to stimulate the active interest of such persons
in the development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the
Plan shall constitute incentive stock options within the meaning of Section 422
of the Code (the "Incentive Options") while certain other options granted
pursuant to the Plan shall be nonqualified stock options (the "Nonqualified
Options"). Incentive Options and Nonqualified Options are hereinafter referred
to collectively as "Options."
The Company intends that the Plan meet the requirements of Rule 16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and that transactions of the type specified in
subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of
the Company pursuant to the Plan will be exempt from the operation of Section
16(b) of the Exchange Act. Further, the Plan is generally intended to satisfy
the performance-based compensation exception to the limitation on the Company's
tax deductions imposed by Section 162(m) of the Code. In all cases, the terms,
provisions, conditions and limitations of the Plan shall be construed and
interpreted consistent with the Company's intent as stated in this Section 1.
2. ADMINISTRATION OF THE PLAN.
The Board of Directors of the Company (the "Board") shall appoint and
maintain as administrator of the Plan a Committee (the "Committee") consisting
of two or more directors who are "Non-Employee Directors" (as such term is
defined in Rule 16b-3) and "Outside Directors" (as such term is defined in
Section 162(m) of the Code), which shall serve at the pleasure of the Board. The
Committee, subject to Sections 3 and 5 hereof, shall have full power and
authority to designate recipients of Options, to determine the terms and
conditions of respective Option agreements (which need not be identical) and to
interpret the provisions and supervise the administration of the Plan. The
Committee shall have the authority, without limitation, to designate which
Options granted under the Plan shall be Incentive Options and which shall be
Nonqualified Options. To the extent any Option does not qualify as an Incentive
Option, it shall constitute a separate Nonqualified Option.
<PAGE> 2
Subject to the provisions of the Plan, the Committee shall interpret
the Plan and all Options granted under the Plan, shall make such rules as it
deems necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defects or supply any omission or reconcile any inconsistency
in the Plan or in any Options granted under the Plan in the manner and to the
extent that the Committee deems desirable to carry into effect the Plan or any
Options. The act or determination of a majority of the Committee shall be the
act or determination of the Committee and any decision reduced to writing and
signed by all of the members of the Committee shall be fully effective as if it
had been made by a majority at a meeting duly held. Subject to the provisions of
the Plan, any action taken or determination made by the Committee pursuant to
this and the other Sections of the Plan shall be conclusive on all parties.
In the event that for any reason the Committee is unable to act or if
the Committee at the time of any grant, award or other acquisition under the
Plan of Options or Stock as hereinafter defined does not consist of two or more
directors who are "Non-Employee" and "Outside," or if there shall be no such
Committee, then the Plan shall be administered by the Board, and references
herein to the Committee (except in the proviso to this sentence) shall be deemed
to be references to the Board, and any such grant, award or other acquisition
may be approved or ratified in any other manner contemplated by subparagraph (d)
of Rule 16b-3; PROVIDED, HOWEVER, that options granted to the Company's Chief
Executive Officer or to any of the Company's other four most highly compensated
officers that are intended to qualify as performance-based compensation under
Section 162(m) of the Code may only be granted by the Committee.
3. DESIGNATION OF OPTIONEES.
The persons eligible for participation in the Plan as recipients of
Options (the "Optionees") shall include employees, officers and directors of (in
addition to what such director has received or may receive under Section 6 of
the Plan), and consultants and advisors to, the Company or any Subsidiary;
provided that Incentive Options may only be granted to employees of the Company
or any Subsidiary. In selecting Optionees, and in determining the number of
shares to be covered by each Option granted to Optionees, the Committee may
consider the office or position held by the Optionee or the Optionee's
relationship to the Company, the Optionee's degree of responsibility for and
contribution to the growth and success of the Company or any Subsidiary, the
Optionee's length of service, age, promotions, potential and any other factors
that the Committee may consider relevant. An Optionee who has been granted an
Option hereunder may be granted an additional Option or Options, if the
Committee shall so determine.
4. STOCK RESERVED FOR THE PLAN.
Subject to adjustment as provided in Section 8 hereof, a total of
2,500,000 shares of the Company's Common Stock, $0.01 par value per share (the
"Stock"), shall be subject to the Plan. The maximum number of shares of Stock
that may be subject to options granted under the Plan to any individual in any
calendar year shall not exceed 750,000, and the method of counting such shares
shall conform to any requirements applicable to performance-based compensation
under Section 162(m) of the Code. The shares of Stock subject to the Plan shall
consist of unissued shares
-2-
<PAGE> 3
or previously issued shares held by any Subsidiary of the Company, and such
amount of shares of Stock shall be and is hereby reserved for such purpose. Any
of such shares of Stock that may remain unsold and that are not subject to
outstanding Options at the termination of the Plan shall cease to be reserved
for the purposes of the Plan, but until termination of the Plan the Company
shall at all times reserve a sufficient number of shares of Stock to meet the
requirements of the Plan. Should any Option expire or be canceled prior to its
exercise in full or should the number of shares of Stock to be delivered upon
the exercise in full of an Option be reduced for any reason, the shares of Stock
theretofore subject to such Option may be subject to future Options under the
Plan, except where such reissuance is inconsistent with the provisions of
Section 162(m) of the Code.
5. TERMS AND CONDITIONS OF OPTIONS.
Options granted under the Plan shall be subject to the following
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The purchase price of each share of Stock
purchasable pursuant to an Incentive Option shall be determined by the Committee
at the time of grant, but shall not be less than 100% of the Fair Market Value
(as defined below) of such share of Stock on the date the Option is granted;
PROVIDED, HOWEVER, that with respect to an Optionee who, at the time an
Incentive Option is granted, owns (within the meaning of Section 424(d) of the
Code) more than 10% of the total combined voting power of all classes of stock
of the Company or of any Subsidiary, the purchase price per share of Stock shall
be at least 110% of the Fair Market Value per share of Stock on the date of
grant. The purchase price of each share of Stock purchasable under a
Nonqualified Option shall not be less than 75% of the Fair Market Value of such
share of Stock on the date the Option is granted; PROVIDED, HOWEVER, that if an
Option granted to the Company's Chief Executive Officer or to any of the
Company's other four most highly compensated officers is intended to qualify as
performance-based compensation under Section 162(m) of the Code, the exercise
price of such Option shall not be less than 100% of the Fair Market Value (as
such term is defined below) of such share of Stock on the date the Option is
granted. The exercise price for each Option shall be subject to adjustment as
provided in Section 8 below. "Fair Market Value" means the closing price of
publicly traded shares of Stock on the principal securities exchange on which
shares of Stock are listed (if the shares of Stock are so listed), or on the
NASDAQ Stock Market (if the shares of Stock are regularly quoted on the NASDAQ
Stock Market), or, if not so listed or regularly quoted, the mean between the
closing bid and asked prices of publicly traded shares of Stock in the
over-the-counter market, or, if such bid and asked prices shall not be
available, as reported by any nationally recognized quotation service selected
by the Company, or as determined by the Committee in a manner consistent with
the provisions of the Code. In no event shall the purchase price of a share of
Stock be less than the minimum price permitted under the rules and policies of
any national securities exchange on which the shares of Stock are listed.
Notwithstanding anything to the contrary in this Section 5(a), the purchase
price of each share of Stock purchasable pursuant to an Option granted to a
director under Section 6 of the Plan shall be the Fair Market Value of such
share of Stock on the date such Option is granted.
-3-
<PAGE> 4
(b) OPTION TERM. The term of each Option shall be fixed by the
Committee, however, no Option shall be exercisable more than ten years after the
date such Option is granted. Notwithstanding anything to the contrary in this
Section 5(b), in the case of an Incentive Option granted to an Optionee who, at
the time such Incentive Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, no such Option shall be
exercisable more than five years after the date such Option is granted; and in
the case of an Option granted to a director under Section 6 of the Plan, the
term of such Option shall be five years from the date of grant of such Option,
subject to earlier termination as provided in the Plan.
(c) EXERCISABILITY. Subject to Section 5(j) hereof, Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at the time of grant;
however, Options granted to directors under Section 6 of the Plan shall only be
exercisable in three equal installments commencing on the first anniversary of
the grant of such Option. Upon a Change of Control, the Committee may declare
all options granted under the Plan and then outstanding to be exercisable in
full at such time or times, and under such conditions, as the Committee shall
determine. A "Change of Control" shall mean: (i) the sale of all or
substantially all of the assets of the Company in one or a series of related
transactions to any person or entity or group of persons or entities acting in
concert or (ii) the merger or consolidation of the Company with or into another
corporation with the effect that the then existing stockholders of the company
hold less than 50% of the combined voting power of the then outstanding
securities of the surviving corporation of such merger or the corporation
resulting from such consolidation or (iii) the acquisition by any person or
entity or group of persons or entities acting in concert of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended) of 50% or more of the outstanding shares of the voting
stock of the Company or (iv) the adoption of a plan relating to the liquidation
or dissolution of the Company.
(d) METHOD OF EXERCISE. Options may be exercised, to the
extent then exercisable, in whole or in part at any time during the term of the
Option, by giving written notice to the Company specifying the number of shares
of Stock to be purchased, accompanied by payment in full of the purchase price,
in cash, or by check or such other instrument as may be acceptable to the
Committee. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may be made at the election of the Optionee
(i) in the form of Stock owned by the Optionee (based on the Fair Market Value
of the Stock on the trading day before the Option is exercised) which is not the
subject of any pledge or security interest, (ii) in the form of shares of Stock
withheld by the Company from the shares of Stock otherwise to be received with
such withheld shares of Stock having a Fair Market Value on the date of exercise
equal to the exercise price of the Option, or (iii) by a combination of the
foregoing, provided that the combined value of all cash and cash equivalents and
the Fair Market Value of any shares surrendered to the Company is at least equal
to such exercise price and except with respect to (ii) above, such method of
payment will not cause a disqualifying disposition of all or a portion of the
Stock received upon exercise of an Incentive Option. An Optionee shall have the
right to dividends and other rights of a stockholder with respect to shares of
Stock purchased upon exercise of an Option at such time as the Optionee has
given written notice of exercise and has paid in full for such shares and (ii)
has satisfied such conditions that may be imposed by the Company with respect to
the withholding of taxes.
-4-
<PAGE> 5
(e) NON-TRANSFERABILITY OF OPTIONS. Options are not
transferable and may be exercised solely by the Optionee during his lifetime or
after his death by the person or persons entitled thereto under his will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order. The Committee, in its sole discretion, may permit a transfer of a
Nonqualified Option to (i) a trust for the benefit of the Optionee, or (ii) a
member of the Optionee's immediate family (or a trust for his or her benefit).
Any attempt to transfer, assign, pledge or otherwise dispose of, or to subject
to execution, attachment or similar process, any Option contrary to the
provisions hereof shall be void and ineffective and shall give no right to the
purported transferee.
(f) DEATH. Unless otherwise determined by the Committee at the
time of grant, if any Optionee's employment with, retention by or service to the
Company or any Subsidiary (including that as a director of the Company)
terminates by reason of death, the Option may thereafter be exercised, to the
extent then exercisable (or on such accelerated basis as the Committee shall
determine at or after grant), by the legal representative of the estate or by
the legatee of the Optionee under the will of the Optionee, for a period of one
year after the date of such death or until the expiration of the stated term of
such Option as provided under the Plan, whichever period is shorter.
Notwithstanding anything to the contrary in this Section 5(f), in the case of
the death of a director holding Options granted under Section 6 of the Plan,
such Options shall become immediately exercisable.
(g) DISABILITY. Unless otherwise determined by the Committee
at the time of grant, if any Optionee's employment with, retention by or service
to the Company or any Subsidiary (including that as a director of the Company)
terminates by reason of total and permanent disability, any Option held by such
Optionee may thereafter be exercised, to the extent such Option was exercisable
at the time of termination due to such disability (or on such accelerated basis
as the Committee shall determine at or after grant), but may not be exercised
after 90 days of the date of such termination of employment or service or the
expiration of the stated term of such Option, whichever period is shorter;
PROVIDED, HOWEVER, that, if the Optionee dies within such 90-day period, any
unexercised Option held by such Optionee shall thereafter be exercisable to the
extent to which it was exercisable at the time of death for a period of one year
after the date of such death or for the stated term of such Option, whichever
period is shorter. Notwithstanding anything to the contrary in this Section
5(g), in the case of termination by reason of disability of a director holding
Options granted under Section 6 of the Plan, such Options may not be exercised
after one year of the date of such termination or the expiration of the stated
term of the Option, whichever period is shorter, PROVIDED, HOWEVER, that if such
a director dies within such one-year period, any unexercised Option held by such
director shall thereafter be exercisable to the extent to which it is
exercisable at the time of the death of such director for a period of one year
after the date of such death or for the stated term of such Option, whichever
period is shorter.
(h) RETIREMENT. Unless otherwise determined by the Committee
at the time of grant, if any Optionee's employment with, retention by or service
to the Company or any Subsidiary terminates by reason of Normal or Early
Retirement (as such terms are defined below), any Option held by such Optionee
may thereafter be exercised to the extent it was exercisable at the time of such
Retirement (or on such accelerated basis as the Committee shall determine at or
after grant), but may
-5-
<PAGE> 6
not be exercised after 90 days after the date of such termination of employment
or service or the expiration of the stated term of such Option, whichever period
is shorter; provided, however, that, if the Optionee dies within such 90-day
period, any unexercised Option held by such Optionee shall thereafter be
exercisable, to the extent to which it was exercisable at the time of death, for
a period of one year after the date of such death or for the stated term of such
Option, whichever period is shorter.
For purposes of this Section 5(h) "Normal Retirement" shall
mean retirement from active employment with the Company or any Subsidiary on or
after the normal retirement date specified in the applicable Company or
Subsidiary pension plan or if no such pension plan, age 65, and "Early
Retirement" shall mean retirement from active employment with the Company or any
Subsidiary pursuant to the early retirement provisions of the applicable Company
or Subsidiary pension plan or if no such pension plan, age 55.
(i) OTHER TERMINATION. Unless otherwise determined by the
Committee at the time of grant, if any Optionee's employment with, retention by
or service to the Company or any Subsidiary (including that as a director of the
Company) terminates for any reason other than death, disability, Normal
Retirement or Early Retirement, the Option shall thereupon terminate, except
that the portion of any Option that was exercisable on the date of such
termination of employment or service may be exercised for the lesser of 90 days
after the date of termination or the balance of such Option's term if the
Optionee's employment or service with the Company or any Subsidiary is
terminated by the Company or such Subsidiary without cause (the determination as
to whether termination was for cause to be made by the Committee). The transfer
of an Optionee from the employ of or service to the Company to the employ of or
service to a Subsidiary, or vice versa, or from one Subsidiary to another, shall
not be deemed to constitute a termination of employment or service for purposes
of the Plan.
(j) LIMIT ON VALUE OF INCENTIVE OPTION. The aggregate Fair
Market Value, determined as of the date the Incentive Option is granted, of
Stock for which Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan (and/or any other stock option
plans of the Company or any Subsidiary) shall not exceed $100,000.
(k) TRANSFER OF INCENTIVE OPTION SHARES. The stock option
agreement evidencing an Incentive Option granted under this Plan shall provide
that if the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or shares of
Stock issued to him upon exercise of an Incentive Option granted under the Plan
within the two-year period commencing on the day after the date of the grant of
such Incentive Option or within a one-year period commencing on the day after
the date of transfer of the share or shares to him pursuant to the exercise of
such Incentive Option, he shall, within 10 days after such disposition, notify
the Company thereof and immediately deliver to the Company any amount of United
States federal, state and local income tax withholding required by law.
-6-
<PAGE> 7
6. GRANTS TO NON-EMPLOYEE DIRECTORS.
Each Non-Employee Director who becomes a director of the Company after
December 15, 1999 shall automatically receive a grant of an Option to purchase
15,000 shares of Stock on the date that such Non-Employee director becomes a
director. Thereafter, to the extent that shares of Stock remain available for
the grant of Options under the Plan, each year on April 1, commencing April 1,
2000, each Non-Employee Director shall be granted an Option to purchase 10,000
shares of Stock
7. TERM OF PLAN.
No Option shall be granted pursuant to the Plan on or after November 4,
2009, but Options theretofore granted may extend beyond that date.
8. CAPITAL CHANGE OF THE COMPANY.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
9. PURCHASE FOR INVESTMENT.
Unless the Options and shares covered by the Plan have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Company has determined that such registration is unnecessary, each person
exercising an Option under the Plan may be required by the Company to give a
representation in writing that he or she is acquiring the shares for his or her
own account for investment and not with a view to, or for sale in connection
with, the distribution of any part thereof.
10. TAXES.
The Company may make such provisions as it may deem appropriate,
consistent with applicable law, in connection with any Options granted under the
Plan with respect to the withholding of any taxes or any other tax matters.
-7-
<PAGE> 8
11. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on November 4, 1999, provided however that
the Plan shall subsequently be approved by majority vote of the Company's
stockholders not later than November 3, 2000.
12. AMENDMENT AND TERMINATION.
The Board may amend, suspend or terminate the Plan, except that no
amendment shall be made that would impair the rights of any Optionee under any
Option theretofore granted without the Optionee's consent, and except that no
amendment shall be made which, without the approval of the stockholders of the
Company would:
(a) materially increase the number of shares that may be
issued under the Plan, except as is provided in Section 8;
(b) materially increase the benefits accruing to the Optionees
under the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less
than 100% of the Fair Market Value per share of Stock on the date of grant
thereof, decrease the exercise price of a Nonqualified Option to less than 75%
of the Fair Market Value per share of Stock on the date of grant thereof; or
decrease the exercise price of an Option granted to a director under Section 6
of the Plan, or
(e) extend the term of any Option beyond that provided for in
Section 5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without the Optionee's consent. The Committee may also substitute
new Options for previously granted Options, including options granted under
other plans applicable to the participant and previously granted Options having
higher option prices, upon such terms as the Committee may deem appropriate.
13. GOVERNMENT REGULATIONS.
The Plan, and the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies, national securities exchanges and interdealer
quotation systems as may be required.
-8-
<PAGE> 9
14. GENERAL PROVISIONS.
(a) CERTIFICATES. All certificates for shares of Stock
delivered under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange Commission, or other
securities commission having jurisdiction, any applicable Federal or state
securities law, any stock exchange or interdealer quotation system upon which
the Stock is then listed or traded and the Committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference to
such restrictions.
(b) EMPLOYMENT MATTERS. The adoption of the Plan shall not
confer upon any Optionee of the Company or any Subsidiary any right to continued
employment or, in the case of an Optionee who is a director, continued service
as a director, with the Company or a Subsidiary, as the case may be, nor shall
it interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of any of its employees, the service of any of its
directors or the retention of any of its consultants or advisors at any time.
(c) LIMITATION OF LIABILITY. No member of the Board or the
Committee, or any officer or employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action, determination
or interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Committee and each and any officer or employee of
the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(d) REGISTRATION OF STOCK. Notwithstanding any other provision
in the Plan, no Option may be exercised unless and until the Stock to be issued
upon the exercise thereof has been registered under the Securities Act and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration in the United States. The Company shall
not be under any obligation to register under applicable federal or state
securities laws any Stock to be issued upon the exercise of an Option granted
hereunder in order to permit the exercise of an Option and the issuance and sale
of the Stock subject to such Option, although the Company may in its sole
discretion register such Stock at such time as the Company shall determine. If
the Company chooses to comply with such an exemption from registration, the
Stock issued under the Plan may, at the direction of the Committee, bear an
appropriate restrictive legend restricting the transfer or pledge of the Stock
represented thereby, and the Committee may also give appropriate stop transfer
instructions with respect to such Stock to the Company's transfer agent.
HOSPITALITY WORLDWIDE SERVICES, INC.
November 4, 1999
-9-
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF HOTELWORKS.COM, INC.
The Leonard Parker Company
201 Alhambra Circle
Coral Gables, FL 33134
State of Incorporation: Florida
Leonard Parker Company
9 Temasek Blvd.
27-03 Suntec Tower Two
Singapore 038989
Incorporation: Singapore
Leonard Parker Company (Africa) (Proprietary) Limited
3 Sandown Valley Crescent
PO Box 786598
Sandton 2146 South Africa
Incorporation: South Africa
Leonard Parker Company Europe B.V.
Hessenbergweg 77
1101 CX Amsterdam
The Netherlands
Incorporation: Netherlands
Parker Reorder Online, Inc.
201 Alhambra Circle
Coral Gables, FL 33134
State of Incorporation: Florida
Bekins Distribution Services Co., Inc.
9362 Dielman Industrial Drive
St. Louis, MO 63132
State of Incorporation: Delaware
Hospitality Restoration and Builders, Inc.
201 Alhambra Circle
Coral Gables, FL 33134
State of Incorporation: New York
Hospitality Construction Corporation
201 Alhambra Circle
Coral Gables, FL 33134
State of Incorporation: Georgia
Hospitality Development Services Corporation
201 Alhambra Circle
Coral Gables, FL 33134
State of Incorporation: New York
<PAGE> 2
HWS Real Estate Advisory Group, Inc.
201 Alhambra Circle
Coral Gables, FL 33134
State of Incorporation: New York
Hospitality Software Systems, Inc.
201 Alhambra Circle
Coral Gables, FL 33134
State of Incorporation: New York
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
INTIRTERY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,560
<SECURITIES> 0
<RECEIVABLES> 30,157
<ALLOWANCES> 1,743
<INVENTORY> 0
<CURRENT-ASSETS> 45,282
<PP&E> 7,033
<DEPRECIATION> 1,838
<TOTAL-ASSETS> 61,781
<CURRENT-LIABILITIES> 61,237
<BONDS> 0
0
0
<COMMON> 147
<OTHER-SE> 329
<TOTAL-LIABILITY-AND-EQUITY> 61,781
<SALES> 220,114
<TOTAL-REVENUES> 220,114
<CGS> 208,641
<TOTAL-COSTS> 240,591
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,774
<INCOME-PRETAX> (21,349)
<INCOME-TAX> (3,104)
<INCOME-CONTINUING> (18,245)
<DISCONTINUED> (39,759)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58,004)
<EPS-BASIC> (1.35)
<EPS-DILUTED> (1.35)
</TABLE>
