-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H1J2VRJOe8QchxQoNZZ193R4ox/3zUDQU1U14PPCiLLtdEx5zpCbHmrNgAHJ0891 +r8PZH8pxehKg8nGM3x7nA== 0000950135-97-002726.txt : 19970619 0000950135-97-002726.hdr.sgml : 19970619 ACCESSION NUMBER: 0000950135-97-002726 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970618 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRIDGESTREET ACCOMMODATIONS INC CENTRAL INDEX KEY: 0001038078 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 043327773 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-26647 FILM NUMBER: 97625671 BUSINESS ADDRESS: STREET 1: 1896 GEORGETWON ROAD CITY: HUDSON STATE: OH ZIP: 44236 BUSINESS PHONE: 6172611600 MAIL ADDRESS: STREET 1: 67 BATTERYMARCH STREET SUITE 500 CITY: BOSTON STATE: MA ZIP: 02110 S-1/A 1 BRIDGESTREET ACCOMMODATIONS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997 REGISTRATION NO. 333-26647 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BRIDGESTREET ACCOMMODATIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 7021 04-3327773 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
1896 GEORGETOWN ROAD HUDSON, OH 44236 (216) 650-2425 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ WILLIAM N. HULETT, III BRIDGESTREET ACCOMMODATIONS, INC. 1896 GEORGETOWN ROAD HUDSON, OH 44236 (216) 650-2425 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES OF COMMUNICATIONS TO: CONSTANTINE ALEXANDER, ESQUIRE MARTIN CARMICHAEL, P.C. NUTTER, MCCLENNEN & FISH, LLP GOODWIN, PROCTOR & HOAR, LLP ONE INTERNATIONAL PLACE EXCHANGE PLACE BOSTON, MA 02110 BOSTON, MA 02109 (617) 439-2000 (617) 570-1000 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If the Form is a post-effective amendment filed pursuant to Rule 426(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JUNE 18, 1997 SHARES BRIDGESTREET ACCOMMODATIONS, INC. COMMON STOCK ------------------------ Of the shares of Common Stock offered hereby, shares are being issued and sold by BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company") and shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). See "Principal and Selling Stockholders." The Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholders. See "Use of Proceeds." Prior to this offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. Application has been made for quotation of the Common Stock on the Nasdaq National Market under the symbol "BEDS." SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. =======================================================================================================
Proceeds to Price to Underwriting Proceeds to Selling Public Discounts(1) Company(2) Stockholders - ------------------------------------------------------------------------------------------------------- Per Share.............................. $ $ $ $ - ------------------------------------------------------------------------------------------------------- Total.................................. $ $ $ $ =======================================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses of the Offering estimated at $2,160,000, payable by the Company. (3) The Company has granted to the Underwriters a 30-day option to purchase up to additional shares of Common Stock from the Company on the same terms and conditions as set forth above solely to cover over-allotments, if any. If the Underwriters exercise such option in full, the total Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, subject to their right to reject any order in whole or in part and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject offers in whole or in part. It is expected that delivery of certificates for the shares of the Common Stock will be made at the offices of Legg Mason Wood Walker, Incorporated, Baltimore, Maryland on or about , 1997. ------------------------ LEGG MASON WOOD WALKER INCORPORATED ------------------------ , 1997 3 [MAP AND PHOTOS TO COME] THE UNDERWRITERS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." ------------------------ The Company intends to furnish its stockholders with annual reports containing audited consolidated financial statements and an opinion thereon expressed by an independent public accounting firm, and with quarterly reports for the first three quarters of each fiscal year containing unaudited interim consolidated financial information. The Company has filed an application with the United States Patent and Trademark Office to register the service mark "BridgeStreet." 4 - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and pro forma and historical financial statements, including the notes thereto, appearing elsewhere in this Prospectus. BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company") was incorporated in 1996, and in January and March 1997 acquired by merger (the "Combination") five flexible accommodation service providers (the "Founding Companies"). See "Combination." Unless otherwise indicated, the information contained in this Prospectus (i) gives effect to the Combination and (ii) assumes that the Underwriters' over-allotment option will not be exercised. Investors should carefully consider the information set forth under the heading "Risk Factors." THE COMPANY BridgeStreet is a leading provider of flexible accommodation services, primarily for business people and professionals requiring lodging for one week to several months. The Company offers high-quality, fully-furnished apartments, townhouses, condominiums and, to a lesser extent, houses (collectively, "accommodations"). Together with the specialized amenities offered by the Company, these accommodations are intended to provide guests with a "home away from home." As of March 31, 1997, BridgeStreet had more than 2,100 units under lease in 16 metropolitan areas located in the Midwest and Mid-Atlantic regions of the United States, and an occupancy rate of approximately 90%. As a provider of flexible accommodation services, BridgeStreet leases substantially all of its accommodations on a short-term basis from property managers, and then rents them to its clients. This enables the Company to (i) adjust the quantity, mix and location of its accommodations as client needs dictate and local economic conditions warrant, (ii) expand and enter new markets without the costs and lead times associated with investing in "bricks and mortar" and (iii) avoid the fixed costs associated with ownership or long-term leasing of real estate. The Company also leases the furniture for its accommodations on a short-term basis from furniture rental companies. These furniture leasing arrangements enable BridgeStreet to maintain well-appointed, modern and attractive accommodations, upgrade and replace furniture as needed, and satisfy specific furnishing requests. BridgeSteet's leasing strategy distinguishes it from fixed-location lodging providers, such as all-suite or extended-stay hotels, that own their lodging facilities and furnishings or lease them on a long-term basis. Traditionally, travelers on extended trips have stayed in hotels and motels. According to industry sources, in 1995, guests staying four or more nights represented approximately 30% of total domestic hotel stays during that year. The Company believes that business travelers on extended trips increasingly desire alternatives to conventional hotel and motel rooms, which typically lack the spaciousness and amenities of home. The Company believes that this has been an important factor in the recent growth in the extended-stay segment of the lodging industry. Participants in this segment include flexible accommodation service providers, all-suite hotels and extended-stay hotels. By providing flexible accommodation services, the Company can satisfy client requests for accommodations in a variety of locations and neighborhoods, as well as requests for accommodations of specific types and sizes. The substantial majority of the Company's accommodations are located within high-quality property complexes that typically feature, among other things, in-unit washers and dryers, dedicated parking and access to fitness facilities (including, in many cases, pools, saunas and tennis courts). In addition, at a guest's request, BridgeStreet can upgrade an accommodation by providing specialized amenities such as office furniture, fax machines and computers. The Company's accommodations generally are priced competitively with all-suite and upscale extended-stay hotel rooms even though, on average, they are substantially larger. For example, BridgeStreet's one-bedroom unit averages approximately 750 square feet versus approximately 400 square feet for a one-bedroom unit at a typical all-suite or upscale extended-stay hotel. BridgeStreet was founded in August 1996, and in the first quarter of 1997 combined by merger five regional providers of flexible accommodation services. The Company has achieved significant growth in recent years. On a combined basis, consolidated units available for rent increased from 1,041 units on January 1, 1994 - -------------------------------------------------------------------------------- 3 5 - -------------------------------------------------------------------------------- to 1,936 units on December 31, 1996, representing a compound annual growth rate of 36%. In addition, combined net revenues increased from $18.9 million in 1994 to $37.6 million in 1996, representing a compound annual growth rate of 41%. The Company plans to achieve its goal of becoming a leading national provider of flexible accommodation services by implementing an aggressive acquisition program and a national operating strategy designed to increase internal revenue growth, cost efficiencies and profitability. Key elements of the Company's business strategy include: Growth through Acquisitions. The Company believes that the flexible accommodation services industry is highly fragmented, with over 400 geographically dispersed companies in the United States, few of which have more than a regional presence. BridgeStreet plans to take advantage of the fragmented nature of the industry by acquiring flexible accommodation service companies in major metropolitan areas frequented by business travelers. BridgeStreet intends to implement its business model at each acquired company as soon as practicable after the acquisition is completed. BridgeStreet's acquisition strategy is to: - Enter New Geographic Markets and Establish Nationwide Coverage. In each new market, the Company initially will target for acquisition one local or regional flexible accommodation services provider having the size and quality of operations suitable for serving as the Company's base for expansion in the market. Acquisitions in new markets will enable BridgeStreet to (i) gain local or regional market share rapidly, (ii) increase sales to existing clients by meeting their needs for accommodations in other regions, (iii) increase sales to the acquired company's clients by providing them with access to BridgeStreet's growing national network and (iv) establish the BridgeStreet brand name in new regions and enhance its nationwide recognition. - Expand Within Existing Markets. Once the Company has established operations in a new region, it may seek to expand its market share by acquiring other flexible accommodation service providers within that region. The Company believes that it can achieve operating efficiencies by incorporating the businesses of smaller acquired companies into the Company's operations without any significant increase in infrastructure. National Operating Strategy. The Company has begun to implement a national operating strategy with the following components: - Maximize Sales to Existing and New Clients. The Company plans to maximize sales to existing corporate clients and to obtain new clients through a national sales and marketing program which highlights the Company's expanding national network. Many of the Company's clients are Fortune 1000 companies with significant, national employee lodging requirements. These corporate clients generally have numerous key decision makers (such as human resource directors, relocation managers or training directors) who both establish and administer company travel and accommodation policies. The Company plans to obtain a greater share of each client's lodging requirements by establishing relationships with additional key decision makers and emphasizing the Company's expanding national presence. - Achieve Cost Efficiencies. The Company believes it should be able to reduce total operating expenses of the Founding Companies and any additional acquired companies by consolidating certain functions performed separately by such companies. In addition, the Company believes that as a large, national flexible accommodation services company, it should be able to achieve lower costs (as a percentage of revenues) compared to those of the individual Founding Companies and other acquired companies in such areas as leasing accommodations and furniture, purchasing certain hard and soft goods, and obtaining financing arrangements, employee benefits and insurance. - Adopt Best Practices. The Company will continue reviewing its operations at the local and regional operating levels in order to identify "best practices" that can be implemented throughout its operations. Areas where "best practices" may be utilized include accommodation pricing, occupancy management and cash flow management. BridgeStreet believes the implementation of these practices will enable the Company to provide superior customer service and maximize sales opportunities. - -------------------------------------------------------------------------------- 4 6 - -------------------------------------------------------------------------------- - Implement Management Information System. BridgeStreet intends to develop and implement a centrally-controlled, computerized management information system that will integrate the Company's customer contact, sales, marketing, finance, telephone, property management, internet access, lease management and reservation functions. BridgeStreet believes that the proposed system will enable it to deliver superior customer service, more efficiently manage its operations and achieve cost savings. The Company is a Delaware corporation. Its principal executive offices are located at 1896 Georgetown Road, Hudson, Ohio 44236 and its telephone number is (216) 650-2425. As used herein, unless the context otherwise requires, "BridgeStreet" or the "Company" refers to BridgeStreet Accommodations, Inc. and its wholly-owned subsidiaries. THE OFFERING Common Stock offered by the Company.......... shares Common Stock offered by the Selling Stockholders............................... shares Common Stock to be outstanding after the offering................................... shares (1) Use of proceeds.............................. To repay certain indebtedness, including indebtedness of the Founding Companies assumed by the Company in connection with the Combination, the outstanding principal amount under the Company's revolving credit facility and certain advances made to the Company by an affiliated party, to implement an enhanced management information system and for general corporate purposes, including working capital and future acquisitions. See "Use of Proceeds." Proposed Nasdaq National Market symbol....... BEDS
- --------------- (1) Excludes an aggregate of 1,100,000 shares of Common Stock reserved for issuance under the Company's 1997 Equity Incentive Plan and Stock Plan for Non-Employee Directors. Of this amount, 434,000 and 37,500 shares of Common Stock will be issuable upon exercise of outstanding options under the 1997 Equity Incentive Plan and Stock Plan for Non-Employee Directors, respectively. See "Management -- Director Compensation" and " -- Executive Compensation; Equity Incentive Plan." - -------------------------------------------------------------------------------- 5 7 - -------------------------------------------------------------------------------- SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND FOOTNOTE DATA) The following summary unaudited pro forma financial data presents certain data for the Company, as adjusted for (i) the effects of the Combination on a historical basis, (ii) the effects of certain pro forma adjustments to the historical financial statements of the Founding Companies and (iii) the consummation of this offering. See the Company's Unaudited Pro Forma Combined Financial Statements, each of the Founding Companies' financial statements and the notes thereto included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, 1996 ------------ PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA(1): Revenues.................................................................... $37,566 Operating income(2)......................................................... 2,115 Income before income taxes(3)............................................... 2,108 Net income(4)............................................................... $ 1,196 ======= Net income per share........................................................ $ ======= Weighted average shares outstanding.........................................
DECEMBER 31, 1996 --------------------------------- PRO FORMA PRO FORMA(1) AS ADJUSTED(5) -------------- -------------- PRO FORMA COMBINED BALANCE SHEET DATA: Working capital (deficit)...................................... $ (46) $10,718 Total assets................................................... 13,353 22,976 Long-term debt, net of current maturities...................... 1,087 -- Total stockholders' equity..................................... 7,682 19,298
- --------------- (1) The Pro Forma Combined Statement of Operations Data assumes that the Combination and this offering took place on January 1, 1996. The Pro Forma Combined Balance Sheet Data assumes that the Combination took place as of December 31, 1996. This data is not necessarily indicative of the results the Company would have had if these events actually then occurred or of the Company's future results. The Pro Forma Combined Statement of Operations Data excludes (i) any adjustments for the compensation to be paid in 1997 for services to be rendered in 1997 by the Company's Chief Executive Officer and Chief Financial Officer pursuant to their employment agreements, and (ii) non-recurring, non-cash compensation expense recorded in the first quarter of 1997 in connection with the accelerated vesting of restricted stock. The pro forma data presented herein is based on preliminary estimates, available information and certain assumptions that management deems appropriate and should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Prospectus. (2) Reflects (i) the reduction of $552,000 in salary and benefits to executives of the Founding Companies and (ii) the $172,000 amortization of goodwill to be recorded as a result of the Combination assuming a 35-year amortization period. (3) Reflects an interest expense reduction of $158,000 related to bank debt and notes payable to be repaid from the net proceeds of this offering. (4) Reflects an increase in the Company's historical provision for income taxes of $373,000 to account for the Company's estimated consolidated effective tax rate subsequent to the Combination, after considering nondeductible goodwill amortization. (5) Reflects the issuance of shares of Common Stock by the Company in this offering and the application of the net proceeds as described under "Use of Proceeds." - -------------------------------------------------------------------------------- 6 8 SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS) The following table presents summary data for each of the Founding Companies (including their respective affiliates, if any) for the three most recent fiscal years.
YEAR ENDED DECEMBER 31, ------------------------- 1994 1995 1996 ------ ------ ------- Temporary Corporate Housing Columbus, Inc. Revenues........................................................ $8,309 $9,754 $12,502 Operating income................................................ 206 336 1,087 Operating income, pro forma(1).................................. 156 390 1,170 Number of units at end of year.................................. 510 539 624 Corporate Lodgings, Inc. Revenues........................................................ $4,069 $6,067 $ 8,820 Operating income................................................ 87 39 195 Operating income, pro forma(1).................................. 76 184 255 Number of units at end of year.................................. 213 301 434 Exclusive Interim Properties, Ltd.(2) Revenues........................................................ $4,015 $5,521 $ 8,626 Operating income................................................ 104 300 213 Operating income, pro forma(1).................................. 166 490 344 Number of units at end of year.................................. 125 302 441 Home Again, Inc. Revenues........................................................ $ 532 $1,570 $ 4,035 Operating income................................................ 49 74 315 Operating income (loss), pro forma(1)........................... (77) (51) 200 Number of units at end of year.................................. 40 100 198 Temporary Housing Experts, Inc. Revenues........................................................ $2,000 $3,086 $ 3,583 Operating income (loss)......................................... 115 30 (73) Operating income, pro forma(1).................................. 161 194 148 Number of units at end of year.................................. 153 214 239
- --------------- (1) Reflects (i) an adjustment to the compensation of an executive of the Founding Company to reflect the compensation to be paid to such executive pursuant to an employment agreement signed in connection with the Combination and (ii) amortization of goodwill to be recorded as a result of the Combination, assuming a 35-year amortization period and the push-down of goodwill to the acquired entities. The adjustment increased (decreased) historical operating income for each Founding Company as follows:
YEAR ENDED DECEMBER 31, ------------------------ COMPANY 1994 1995 1996 -------------------------------------------------------- ---- ----- ----- Temporary Corporate Housing Columbus, Inc............... $(50) $ 54 $ 83 Corporate Lodgings, Inc................................. (11) 145 60 Exclusive Interim Properties, Ltd.(2)................... 62 190 131 Home Again, Inc......................................... (126) (125) (115) Temporary Housing Experts, Inc.......................... 46 164 221
(2) Prior to the Combination, Exclusive Interim Properties, Ltd.'s fiscal year end was March 31. The 1994 and 1995 data presents data for that company's fiscal years ended March 31, 1995 and 1996, respectively. The 1996 data presents 12 months of data derived from the unaudited three-month period ended March 31, 1996 and the audited nine-month period ended December 31, 1996. 7 9 RISK FACTORS The following factors should be considered, together with the other information in this Prospectus, in evaluating an investment in the Company. This Prospectus contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from the results discussed in the forward-looking statements as a result of any number of factors, including the risk factors set forth below and other factors discussed elsewhere in this Prospectus. LIMITED COMBINED OPERATING HISTORY BridgeStreet was founded in August 1996 to acquire flexible accommodation service providers and has only conducted combined operations since the Combination in the first quarter of 1997. Prior to the Combination, each of the Founding Companies operated (together with any affiliates) as a separate, independent entity. The Company intends to continue to operate the Founding Companies under their current management, although it will integrate some sales, marketing and customer service functions, implement centralized financial and management information systems and controls, and implement "best practices" throughout its operations. The Company's senior management group has been assembled only recently, and there can be no assurance that this group will be successful in these integration and implementation efforts, in managing the combined operations of the Founding Companies or in implementing the Company's business strategy. Any failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management." RISKS ASSOCIATED WITH ACQUISITION STRATEGY AND PLANNED RAPID EXPANSION As part of its strategy to establish a nationwide presence, BridgeStreet intends to grow in part through the acquisition of additional flexible accommodation service providers in major metropolitan markets throughout the United States. However, in cases where the Company seeks to enter a new market but is unable to acquire a suitable existing provider on terms the Company deems acceptable, the Company may elect to establish a new operation or strategic alliance in that market. The Company also intends to pursue rapid internal growth through expansion of existing and acquired operations. See "Business -- Growth Strategy" and "-- Acquisition Strategy." There can be no assurance that the Company will be able to identify, acquire or profitably manage additional businesses or successfully integrate any acquired businesses into the Company without substantial costs, delays or other operational or financial problems. Certain risks inherent in an acquisition strategy, such as increasing leverage and debt service requirements (to the extent that the Company elects to finance its acquisitions with debt) and combining disparate company systems and cultures, could adversely affect the Company's ability to integrate acquired businesses. The process of integrating acquired companies may involve unforeseen difficulties and may require a disproportionate amount of management's attention and financial and other resources. Moreover, increased competition for acquisition candidates may develop, in which event fewer acquisition opportunities may be available to the Company and acquisition costs for the opportunities that are available may be higher. There can be no assurance that any business acquired in the future will achieve anticipated revenues and earnings, and the size, timing and integration of such acquisitions may cause substantial fluctuations in the Company's operating results from quarter to quarter. To the extent that the Company chooses to enter particular markets by establishing new operations, its results may be adversely affected by the increased time required for such operations to achieve profitability. Future internal growth will depend on a number of factors, including the effective and timely initiation and development of client relationships, the availability of additional accommodations on acceptable terms, the maintenance of the high quality of services the Company provides to its guests, and the recruitment, training, motivation and retention of qualified employees. Sustaining the Company's growth and expansion will require substantial enhancements to the Company's operational and financial systems and controls as well as additional administrative, operational and financial resources. There can be no assurance that the Company will be able to manage its expanding operations 8 10 successfully or that it will be able to maintain or accelerate its growth, and any failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. RISKS RELATED TO ACQUISITION FINANCING The Company may choose to finance future acquisitions by issuing shares of Common Stock for a portion or all of the consideration to be paid. In the event that the Common Stock does not maintain a sufficient market value, or potential acquisition candidates otherwise are unwilling to accept Common Stock as part of the consideration for the sale of their businesses, the Company might not be able to utilize Common Stock as consideration for acquisitions and would be required to utilize more of its cash resources, if available, in order to maintain its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it could obtain additional capital through debt or equity financings. While the Company currently has a $10 million revolving credit facility to finance acquisitions, there can be no assurance that this credit facility will be sufficient for the Company's acquisition financing needs in the near term, or that additional financing will be available if and when needed or on terms acceptable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Combined." The inability of the Company to use its Common Stock as consideration for future acquisitions or to obtain additional financing for acquisitions could have a material adverse effect on the Company's business, financial condition and results of operations. MARKET ACCEPTANCE OF BRAND NAME BridgeStreet has yet to complete the integration of the Founding Companies and, as a result, has limited history upon which to gauge client acceptance of its combined operations. Further, the Company will compete against other companies with substantially greater brand name recognition, and there can be no assurance that the Company will be able to persuade clients of such competitors to use the Company's services. The failure of the Company to successfully promote and establish "BridgeStreet" as a recognized brand name capable of attracting sufficient numbers of clients, or the receipt of adverse publicity relating to the Company's brand name, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Sales and Marketing" and "-- Competition." DEPENDENCE ON THIRD PARTIES BridgeStreet generally leases its accommodations from residential property managers. The Company's profitability largely depends on its ability to lease accommodations on favorable terms, and local or regional declines in either vacancy rates or new apartment construction could lead to an increase in leasing costs or an inability to satisfy client demand. The Company also leases the furniture used in its accommodations from furniture rental companies, which may increase their prices, restrict the Company's flexibility in renting greater or lesser amounts of furniture, or otherwise impose unfavorable conditions on the Company's ability to customize the furnishings in its accommodations. The Company's reliance on third party vendors, assuming the occurrence of any of the events described above, would negatively affect the Company's operating margins and could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Properties" and " -- Accommodations and Services." MARKET CONDITIONS MAY AFFECT PROFITABILITY The Company's operating results depend primarily on the difference, or "spread," between the rental rates it charges its clients for accommodations and the lease amounts it pays to the owners or managers of such accommodations. The rates that the Company is able to charge its customers in a given market can be expected to fluctuate based in part on conditions existing within the lodging industry as a whole, including the occupancy rates of, and average daily rates being charged by, hotels and other competitors. To the extent competitors in a given market were to exert downward pressure on the rates that the Company is able to charge its clients, the Company's aggregate "spread" could decrease. In addition, while the Company seeks to manage the risks of fluctuating rates by "matching" its rental obligations with the length of its clients' stays through flexible lease arrangements, competitive rental market conditions could force the Company to enter 9 11 into longer-term, fixed rate leases in order to establish or protect its unit inventory. The fixed rates in such leases also might lead to a reduction in the Company's "spread" in the event of downward trends in lodging prices. A reduction in the Company's "spread," as a result of either lower average daily rates charged by competitors or longer-term leases entered into by the Company, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Industry Overview" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." FACTORS AFFECTING TRAVEL, SEASONALITY AND CYCLICALITY The Company's operations are subject to events generally affecting levels of business and leisure travel, including business cycles, political changes and technological advances. The Company cannot predict the likelihood of occurrence of any such events. To the extent any such event significantly reduces travel, there could be a material adverse effect on the Company's business, financial condition and results of operations. The Company typically experiences a decline in earnings during its first quarter due to a decrease in business travel following the holiday season and travel disruptions caused by winter weather. As a general matter, due to (i) the Company's reliance on corporate clients and (ii) the strong correlation between the lodging industry's performance and macroeconomic conditions, the Company may be subject to cyclical changes in revenues and profits in response to changes in the national economy or the economies of the regions in which it operates. See "Management's Discussion of Financial Condition and Results of Operations -- Seasonality." COMPETITION The lodging industry generally, and the flexible accommodation services industry in particular, is highly competitive. Providers of flexible accommodation services compete with each other and with traditional hotels, motels, and all-suite and extended-stay hotels, primarily on the basis of location, availability, price and quality of accommodations, brand name recognition, and quality and scope of service. The Company competes with other flexible accommodation service providers both for clients and for possible acquisitions. The Company expects its business to become more competitive as existing competitors expand and new competitors enter the industry. Moreover, because the financial barriers to entry are relatively low in the flexible accommodation services industry, entities that maintain a vendor-vendee relationship with companies in this industry, such as real estate managers or furniture rental businesses, have entered the industry and more such entities may decide to enter the industry in the future. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater financial resources than the Company. In particular, Oakwood Corporate Housing, Inc. ("Oakwood"), a flexible accommodation services provider which currently rents a substantially larger number of accommodations than the Company, is affiliated with R&B Realty Group, the nation's tenth largest apartment management company. This affiliation gives Oakwood access to apartment communities and capital that may be unavailable to the Company. Competitive market conditions could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Competition." DEPENDENCE ON KEY PERSONNEL BridgeStreet's day-to-day operations depend on the continuing efforts of its executive officers and the senior management of the Company's operating subsidiaries. In particular, the Company depends on: William N. Hulett, III, its President and Chief Executive Officer; Rocco A. Di Lillo, its Vice President and Chief Operating Officer; and Mark D. Gagne, its Chief Financial Officer and Treasurer. There can be no assurance that the Company will be able to retain the services of any of these individuals. If any of these individuals does not continue in his management role following this offering and if the Company is unable to attract and retain qualified replacements, there could be a material adverse effect on the Company's business, financial condition and results of operations. See "Management." LICENSING AND TAX ISSUES As a lessee of its accommodations, BridgeStreet believes that it and its employees are either outside the purview of, or exempted from, laws in the majority of jurisdictions in which the Company operates requiring 10 12 real estate brokers to hold licenses. However, there can be no assurance that the Company's position will be upheld if challenged or that any such jurisdiction will not amend its laws to specifically require the Company and/or one or more of its employees to be licensed brokers. Moreover, there can be no assurance that the Company will not operate in the future in jurisdictions requiring such licensing. If the Company were found to have failed to comply with brokerage licensing laws, there could be a material adverse effect upon the Company's business, financial condition and results of operations. The Company provides flexible accommodation services for extended periods in leased as opposed to fixed-location accommodations. As a result, in some of the jurisdictions in which the Company operates, the Company believes that it is exempt from sales and "bed" taxes that many jurisdictions require fixed-location lodging providers to charge their overnight guests. The imposition of a sales or "bed" tax requirement on the Company in the jurisdictions in which the Company operates and currently does not charge such taxes, or the pursuit by taxing authorities of arrearages and penalties with respect to prior periods during which the Company did not collect and remit such taxes, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Regulation and Tax." CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS Upon completion of this offering, the Company's directors, executive officers and principal stockholders, together with their affiliates, will beneficially own approximately % of the Company's outstanding shares of Common Stock (approximately % if the Underwriters exercise their over-allotment option in full). As a result, these stockholders, if acting together, will have the ability to influence the outcome of corporate actions requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as a merger or sale of substantially all of the Company's assets, irrespective of how other stockholders of the Company may vote. This concentration of ownership may have the effect of delaying or preventing a change in control of the Company. See "Management" and "Principal and Selling Stockholders." POSSIBLE FUTURE SALES OF SHARES Sales of substantial amounts of Common Stock in the public market after this offering under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or otherwise, or the perception that such sales could occur, may adversely affect prevailing market prices of the Common Stock and could impair the future ability of the Company to raise capital through an offering of its equity securities or to effect acquisitions using shares of its Common Stock. Prior to this offering, the Company had outstanding 5,475,000 shares of Common Stock, of which are being offered by the Selling Stockholders in this offering. The remaining shares are "restricted securities" within the meaning of Rule 144. Subject to the contractual lockup provisions discussed below and unless the resale of the shares is registered under the Securities Act, these shares may not be sold in the open market until after the first anniversary of the transaction in which they were acquired, and then only in compliance with the applicable requirements of Rule 144. See "Shares Eligible for Future Sale." The Company and each of its directors, executive officers and existing stockholders have agreed not to offer to sell, sell, contract to sell, grant any option to purchase, or otherwise dispose of, directly or indirectly, any shares of capital stock of the Company or securities convertible into or exchangeable for capital stock or warrants or other rights to acquire shares of capital stock of the Company which may now or in the future be beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by such persons (other than pursuant to employee stock option plans or in connection with other employee incentive compensation arrangements) prior to the expiration of 180 days from the date of this Prospectus, except (i) for shares of Common Stock offered hereby, (ii) with the prior written consent of Legg Mason Wood Walker, Incorporated, or (iii) with respect to the Company, in connection with acquisitions or upon the exercise of options, or the grant of options to purchase shares of Common Stock, pursuant to the Company's stock option plans. In connection with future acquisitions, the Company may issue shares of Common Stock which, if the Company also files a registration statement with respect to such shares, may be subject to immediate resale. See "Underwriting." 11 13 CERTAIN ANTI-TAKEOVER PROVISIONS The Company's Certificate of Incorporation and By-Laws as in effect upon the closing of this offering will require that any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing, and will require reasonable advance notice by a stockholder with respect to a proposal or director nomination such stockholder desires to present at any such meeting. Special meetings of stockholders may be called only by the President or Chairman of the Company or by the Board of Directors. In addition, the Board of Directors will have the authority, without further action by the stockholders, to fix the rights and preferences of, and issue up to 5,000,000 shares of, Preferred Stock. These provisions and other provisions of the Certificate of Incorporation and By-Laws may have the effect of deterring unsolicited acquisition proposals or hostile takeovers or delaying or preventing changes in control or management of the Company, including transactions in which stockholders might otherwise receive a premium for their shares of Common Stock over the then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. The Company also is subject to Section 203 of the Delaware General Corporation Law (the "DGCL") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder. See "Description of Capital Stock." NO PRIOR MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or continue after this offering. The initial public offering price of the Common Stock was determined by negotiations between the Company and the Representatives of the Underwriters, and may not be indicative of the market price for the Common Stock after this offering. See "Underwriting" for a description of the factors considered in determining the initial public offering price. From time to time after this offering, there may be significant volatility in the market price for the Common Stock. Quarterly operating results of the Company, changes in general conditions in the economy or the lodging industry, or other developments affecting the Company or the Company's competitors could cause the market price of the Common Stock to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have been unrelated to the operating performance of those companies. Any such fluctuations following completion of this offering may adversely affect the prevailing market price of the Common Stock. IMMEDIATE AND SUBSTANTIAL DILUTION The purchasers of the shares of Common Stock offered hereby will experience immediate and substantial dilution in the pro forma net tangible book value of their shares of Common Stock in the amount of $ per share, and may experience further dilution in that value from issuances of Common Stock in connection with future acquisitions. See "Dilution." ABSENCE OF DIVIDENDS The Company has never paid dividends on the Common Stock and does not anticipate paying any dividends in the foreseeable future. Declarations of dividends on the Common Stock will depend upon, among other things, future earnings, if any, the operating and financial condition of the Company, its capital requirements and general business conditions. The Company's credit facility currently prohibits dividend payments. See "Dividend Policy." 12 14 COMBINATION The Company was incorporated in August 1996 to become a leading national provider of flexible accommodation services. In the Combination, the Company acquired the Founding Companies through stock-for-stock mergers and issued 4,301,000 shares of Common Stock to their former stockholders. For a description of the transactions pursuant to which these companies were merged into BridgeStreet, see "Certain Transactions -- Organization of the Company; The Combination." Certain of such stockholders are Selling Stockholders in the offering. See "Principal and Selling Stockholders." Set forth below is a brief description of each of the Founding Companies: Temporary Corporate Housing Columbus, Inc.: Temporary Corporate Housing Columbus, Inc. (together with three affiliates, "TCH") was founded by Lynda Clutchey and Max Holzer in 1983. TCH is headquartered in Columbus, Ohio and, prior to its acquisition by the Company, operated its flexible accommodation services business in the following metropolitan areas: Cincinnati, Cleveland and Columbus, Ohio; and Pittsburgh, Pennsylvania. During its fiscal year ended December 31, 1996, TCH had combined revenues of approximately $12.5 million. Corporate Lodgings, Inc.: Corporate Lodgings, Inc. (together with four affiliates, "CLI") was founded by Rocco A. Di Lillo in 1987. CLI is headquartered in Hudson, Ohio and, prior to its acquisition by the Company, operated its flexible accommodation services business in the following metropolitan areas: Akron, Canton and Cleveland, Ohio; Lexington and Louisville, Kentucky; Minneapolis, Minnesota; Milwaukee, Wisconsin; Pittsburgh, Pennsylvania; and Detroit, Michigan. During its fiscal year ended December 31, 1996, CLI had combined revenues of approximately $8.8 million. Exclusive Interim Properties, Ltd.: Exclusive Interim Properties, Ltd. (together with an affiliate, "EIP") was founded by Melanie R. Sabelhaus in 1987. EIP is headquartered in Baltimore, Maryland and, prior to its acquisition by the Company, operated its flexible accommodation services business in the Baltimore, Maryland and District of Columbia metropolitan areas. During its 12 months ended December 31, 1996, EIP had combined revenues of approximately $8.6 million. Home Again, Inc.: Home Again, Inc. (together with two affiliates, "Home Again") was founded by Sandra A. Brown in 1993. Home Again is headquartered in Minneapolis, Minnesota and, prior to its acquisition by the Company, operated its flexible accommodation services business in the Minneapolis, Minnesota and Oklahoma City, Oklahoma metropolitan areas. During its fiscal year ended December 31, 1996, Home Again had combined revenues of approximately $4.0 million. Temporary Housing Experts, Inc.: Temporary Housing Experts, Inc. ("THEI") was founded in 1991 by Connie F. and Thomas W. O'Briant. THEI is headquartered in Memphis, Tennessee and, prior to its acquisition by the Company, operated its flexible accommodation services business in the Memphis, Tennessee and Jackson, Mississippi metropolitan areas. During its fiscal year ended December 31, 1996, THEI had revenues of approximately $3.6 million. 13 15 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby (assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions payable by the Company and estimated offering expenses of $2,160,000) are estimated to be approximately $11.7 million (approximately $15.0 million if the Underwriters' over-allotment option is exercised in full). The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders. The Company currently intends to use approximately (i) $1.6 million of the net proceeds to repay certain indebtedness of the Founding Companies assumed in connection with the Combination (which indebtedness bears interest at a weighted average interest rate of 7.8% and matures at various dates through December 2008) and (ii) $500,000 of the net proceeds to repay amounts the Company estimates will be outstanding under its revolving credit facility with Fleet Bank at the closing of this offering (which amounts bear interest at the bank's prime lending rate of interest, which was 8.5% as of April 8, 1997). The Company also intends to use approximately $1.5 million of the net proceeds to enhance its management information system capabilities. While the Company intends to repay all amounts borrowed under its revolving credit facility upon the closing of this offering, which amounts have been used to fund short-term working capital requirements, it will be able to continue to borrow funds from this facility following the offering, subject to the terms of the credit facility agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Combined." The expenses incurred by the Company in connection with this offering will be paid by American Business Partners, LLC ("ABP"), and the Company will reimburse ABP out of the proceeds of this offering. See "Certain Transactions -- Organization of the Company; ABP." The balance of the net proceeds from this offering, approximately $8.1 million, will be used for working capital and general corporate purposes, including possible acquisitions. Although the Company regularly reviews strategic acquisition opportunities, the Company at this time has no binding agreements with respect to any material acquisitions. Pending the use of the net proceeds of this offering for the purposes described above, the Company will invest such proceeds in short-term, interest-bearing, investment grade securities. DIVIDEND POLICY Following this offering, the Company intends to retain all earnings to finance the growth and development of its business and does not anticipate paying cash dividends on the Common Stock in the foreseeable future. Any future determination as to the payment of dividends on the Common Stock will be at the discretion of the Board of Directors and will depend upon, among other things, the Company's future earnings, if any, the operating and financial condition of the Company, its capital requirements, general business conditions and any other factors the Board of Directors of the Company may consider. The Company's revolving credit facility currently prohibits dividend payments. 14 16 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1996 (i) on a pro forma basis to reflect the Combination and (ii) on a pro forma as adjusted basis to reflect the amendment and restatement of the Company's Certificate of Incorporation on April 10, 1997, the sale of the shares of Common Stock offered by the Company hereby (at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company) and the application of the net proceeds therefrom as described under "Use of Proceeds." This table should be read in conjunction with the Company's Unaudited Pro Forma Combined Financial Statements and the related notes thereto included elsewhere in this Prospectus.
DECEMBER 31, 1996 ---------------------- PRO PRO FORMA FORMA AS ADJUSTED ------ ----------- (IN THOUSANDS) DEBT: Current maturities of long-term debt.................................. $ 175 $ -- ====== ======= Long-term debt, net of current maturities............................. $1,087 $ -- STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value: none authorized, pro forma; 5,000,000 shares authorized, none issued or outstanding, pro forma as adjusted........................................................... -- -- Common Stock, $.01 par value: 10,000,000 shares authorized, 5,475,000 shares issued and outstanding, pro forma; 35,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted(1)........................................................ 55 55 Additional paid-in capital............................................ 7,628 19,244 Accumulated deficit................................................... (1) (1) ------ ------- Total stockholders' equity......................................... 7,682 19,298 ------ ------- Total capitalization.......................................... $8,769 $19,298 ====== =======
- --------------- (1) Excludes an aggregate of 1,100,000 shares of Common Stock reserved for issuance under the Company's 1997 Equity Incentive Plan and Stock Plan for Non-Employee Directors. Of this amount, 434,000 and 37,500 shares of Common Stock will be issuable upon exercise of outstanding options under the 1997 Equity Incentive Plan and Stock Plan for Non-Employee Directors, respectively, as of the date of this Prospectus. See "Management -- Director Compensation" and " -- Executive Compensation; Stock Option Plan." 15 17 DILUTION The pro forma net tangible book value of the Company as of December 31, 1996, after giving effect to the Combination, was approximately $1,414,000, or $0.26 per share. Pro forma net tangible book value per share represents the book value of the Company's total tangible assets less total liabilities divided by the number of shares of Common Stock outstanding. After giving effect to the sale by the Company of shares of Common Stock in this offering at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company, the pro forma net tangible book value at December 31, 1996 would have been approximately $13.2 million, or $ per share. This represents an immediate increase in pro forma net tangible book value per share of $ to the existing stockholders, and an immediate dilution in pro forma net tangible book value per share of $ to new investors. The following table illustrates this per share dilution: Assumed initial public offering price............................... $ Pro forma net tangible book value before offering................. $0.26 Increase attributable to new investors............................ ----- Pro forma net tangible book value after offering.................... ------ Dilution to new investors........................................... $ ======
The following table sets forth, on a pro forma basis to give effect to the Combination as of December, 31, 1996, the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by the Company's existing stockholders and by investors purchasing shares of Common Stock offered hereby (assuming an initial offering price of $ per share and before deducting underwriting discounts and commissions and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE --------------------- ----------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ----------- ------- --------- Existing stockholders......... 5,475,000 % $ 1,414,000 8.7% $ 0.26 New investors................. 14,850,000 91.3 $ --------- ------ ----------- ------ Total............... 100.0% $16,264,000 100.0% ========= ====== =========== ======
16 18 SELECTED FINANCIAL AND OTHER DATA (IN THOUSANDS, EXCEPT PER SHARE AND FOOTNOTE DATA) For financial reporting purposes, TCH is presented as the acquiror of all of the other companies acquired by BridgeStreet in the Combination. Consequently, the Company's historical combined financial statements for periods ended on or before December 31, 1996 are the historical combined financial statements of TCH. The following selected historical financial data of TCH as of December 31, 1995 and 1996 and for each year in the three-year period ended December 31, 1996 has been derived from the audited financial statements of TCH included elsewhere herein. The remaining selected historical financial data of TCH has been derived from unaudited financial statements of TCH, which have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of that data.
HISTORICAL (TCH ONLY) ------------------------------------------- PRO FORMA(1) ------------ YEAR ENDED DECEMBER 31, YEAR ENDED ------------------------------------------- DECEMBER 31, 1992 1993 1994 1995 1996 1996 ------ ------ ------ ------ ------- ------------ STATEMENT OF OPERATIONS DATA: Revenues................................ $5,627 $6,803 $8,309 $9,754 $12,502 $ 37,566 Cost of services........................ 4,520 5,312 6,475 7,354 9,088 27,945 Selling, general and administrative expense.............................. 1,328 1,373 1,628 2,064 2,327 7,334(2) Goodwill amortization................... 172(3) ------ ------ ------ ------ ------- -------- Operating income........................ (221) 118 206 336 1,087 2,115 Interest and other income (expense), net.................................. 11 5 21 53 89 (7)(4) ------ ------ ------ ------ ------- -------- Income (loss) before provision for income taxes......................... (210) 123 227 389 1,176 2,108 Provision for income taxes.............. (84) 49 114 178 512 912(5) ------ ------ ------ ------ ------- -------- Net income (loss)....................... $ (126) $ 74 $ 113 $ 211 $ 664 $ 1,196 ====== ====== ====== ====== ======= ======== Net income per share.................... $ Weighted average shares outstanding..... ========
HISTORICAL (TCH ONLY) ---------------------------------------- DECEMBER 31, DECEMBER 31, 1996 ---------------------------------------- ----------------------------- 1992 1993 1994 1995 1996 PRO FORMA(1) AS ADJUSTED(6) ---- ------ ------ ------ ------ ------------ -------------- BALANCE SHEET DATA: Working capital (deficit).... $499 $ 592 $ 496 $ 563 $ 986 $ (46) $ 10,718 Total assets................. 901 1,209 1,672 2,510 2,013 13,353 22,976 Long-term debt, less current maturities................ 16 10 67 -- -- 1,087 -- Total stockholders' equity... 471 545 658 869 1,184 7,682 19,298
- --------------- (1) The Pro Forma Combined Statement of Operations Data assumes that the Combination and this offering took place on January 1, 1996. The Pro Forma Combined Balance Sheet Data assumes that the Combination took place as of December 31, 1996. This data is not necessarily indicative of the results the Company would have had if these events actually then occurred or of the Company's future results. The Pro Forma Combined Statement of Operations Data excludes (i) any adjustments for the compensation to be paid in 1997 for services to be rendered in 1997 by the Company's Chief Executive Officer and Chief Financial Officer pursuant to their employment agreements, and (ii) non-recurring, non-cash compensation expense recorded in the first quarter of 1997 in connection with the accelerated vesting of restricted stock. The pro forma data presented herein is based on preliminary estimates, available information and certain assumptions that management deems appropriate and should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Prospectus. 17 19 (2) Reflects the reduction of $552,000 in salary and benefits to principals of the Founding Companies. (3) Reflects the $172,000 amortization of goodwill to be recorded as a result of the Combination assuming a 35-year amortization period. (4) Reflects an interest expense reduction of $158,000 related to bank debt and notes payable to be repaid from the net proceeds of this offering. (5) Reflects an increase in the Company's historical provision for income taxes of $373,000 to account for the Company's estimated consolidated effective tax rate subsequent to the Combination, after considering nondeductible goodwill amortization. (6) Reflects the issuance of shares of Common Stock by the Company in this offering and the application of the net proceeds as described under "Use of Proceeds." 18 20 SELECTED INDIVIDUAL FOUNDING COMPANY FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS) The selected historical and pro forma financial data presented below for the individual Founding Companies (including their respective affiliates, if any) is derived from, and should be read in conjunction with, their respective audited financial statements and related notes thereto appearing elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ------------------------- 1994 1995 1996 ------ ------ ------- Temporary Corporate Housing Columbus, Inc. Revenues........................................................ $8,309 $9,754 $12,502 Operating income................................................ 206 336 1,087 Operating income, pro forma(1).................................. 156 390 1,170 Number of units at end of year.................................. 510 539 624 Corporate Lodgings, Inc. Revenues........................................................ $4,069 $6,067 $ 8,820 Operating income................................................ 87 39 195 Operating income, pro forma(1).................................. 76 184 255 Number of units at end of year.................................. 213 301 434 Exclusive Interim Properties, Ltd.(2) Revenues........................................................ $4,015 $5,521 $ 8,626 Operating income................................................ 104 300 213 Operating income, pro forma(1).................................. 166 490 344 Number of units at end of year.................................. 125 302 441 Home Again, Inc. Revenues........................................................ $ 532 $1,570 $ 4,035 Operating income................................................ 49 74 315 Operating income (loss), pro forma(1)........................... (77) (51) 200 Number of units at end of year.................................. 40 100 198 Temporary Housing Experts, Inc. Revenues........................................................ $2,000 $3,086 $ 3,583 Operating income (loss)......................................... 115 30 (73) Operating income, pro forma(1).................................. 161 194 148 Number of units at end of year.................................. 153 214 239
- --------------- (1) Reflects (i) an adjustment to the compensation of an executive of the Founding Company to reflect the compensation to be paid to such executive pursuant to an employment agreement signed in connection with the Combination and (ii) amortization of goodwill to be recorded as a result of the Combination, assuming a 35-year amortization period and the push-down of goodwill to the acquired entities. The adjustment increased (decreased) historical operating income for each Founding Company as follows:
YEAR ENDED DECEMBER 31, -------------------- COMPANY 1994 1995 1996 ------------------------------------------------------------ ---- ----- ----- Temporary Corporate Housing Columbus, Inc................... $(50) $ 54 $ 83 Corporate Lodgings, Inc..................................... (11) 145 60 Exclusive Interim Properties, Ltd.(2)....................... 62 190 131 Home Again, Inc............................................. (126) (125) (115) Temporary Housing Experts, Inc.............................. 46 164 221
(2) Prior to the Combination, Exclusive Interim Properties, Ltd.'s fiscal year end was March 31. The 1994 and 1995 data presents data for that company's fiscal years ended March 31, 1995 and 1996, respectively. The 1996 data presents 12 months of data derived from the unaudited three-month period ended March 31, 1996 and the audited nine-month period ended December 31, 1996. 19 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's Unaudited Pro Forma Combined Financial Statements and the Founding Companies' Financial Statements and the related notes thereto appearing elsewhere in this Prospectus. INTRODUCTION BridgeStreet was incorporated in August 1996 with the goal of becoming a leading national provider of flexible accommodation services. The Company plans to achieve this goal by implementing an aggressive acquisition program and a national operating strategy designed to increase internal revenue growth, cost efficiencies and profitability. In the first quarter of 1997, BridgeStreet acquired by merger the five Founding Companies in the Combination. The Company's revenues are derived primarily from renting accommodations to guests for extended periods. Revenues depend on the number of accommodations the Company has available under lease, the occupancy rate and the rate charged. The rate charged is a function of, among other factors, (i) the type, size and location of the accommodation being rented, (ii) the rental period and (iii) any additional amenities made available to the guest during his or her stay. Cost of services consists primarily of lease payments for accommodations and their furnishings, and expenses associated with cleaning, maintaining and providing utilities to accommodations. Selling, general and administrative expense consists primarily of compensation and related benefits for management and key employees, administrative salaries and benefits, office rents and utilities, professional fees and advertising. Prior to their acquisition by BridgeStreet, the Founding Companies were managed as independent private businesses. As such, their historical results of operations reflect different tax structures (i.e., S corporations and C corporations) which have influenced, among other things, their historical levels of owners' compensation and benefits. Certain Founding Company owners agreed to reductions in their compensation and benefits in connection with the Combination. BridgeStreet currently is in the process of integrating the Founding Companies and their operations and administrative functions. This integration process may present opportunities to (i) enhance revenues through the geographic cross-sell capabilities that each of the Founding Companies can provide to its existing clients and (ii) reduce costs through, among other things, the elimination of duplicative functions and the receipt of greater volume discounts from vendors. However, integration also will necessitate additional costs and expenditures related to corporate management and administration, public company operations, systems integration and facilities expansion. As a result of these possible cost savings and various additional costs, historical operating results may not be comparable to, or indicative of, future performance. There can be no assurance that the Company's integration efforts will be successful. See "Risk Factors -- Limited Combined Operating History." For financial reporting purposes, Temporary Corporate Housing Columbus, Inc. (together with its three affiliates) is presented as the acquiror of the other Founding Companies. Consequently, the Company's historical financial statements for periods ended on or before December 31, 1996 are the historical financial statements of TCH. RESULTS OF OPERATIONS -- COMBINED The Combined Founding Company Statements of Operations data for the years ended December 31, 1994, 1995 and 1996 do not purport to present the combined Founding Companies in accordance with generally accepted accounting principles, but represent merely a summation of the data of the individual Founding Companies on a historical basis and do not include the effects of pro forma adjustments. This data will not be comparable to and may not be indicative of the Company's post-Combination results of operations because (i) the Founding Companies historically were not under common control or management and had different tax structures during the periods presented, (ii) the Company used the purchase method of 20 22 accounting to reflect the Combination and (iii) the Founding Companies were not all acquired at the same time. The following table sets forth certain unaudited combined data of the Founding Companies and that data as a percentage of revenues on a historical basis and excludes the effects of pro forma adjustments for the periods indicated (dollars in thousands):
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1994 1995 1996(1) ----------------- ----------------- ----------------- Revenues..................... $18,925 100.0% $25,998 100.0% $37,566 100.0% Cost of services............. 14,048 74.2 19,121 73.5 27,944 74.4 Selling, general and administrative expense..... 4,413 23.3 6,099 23.5 7,884 21.0 ------- ----- ------- ----- ------- ----- Operating income............. $ 464 2.5% $ 778 3.0% $ 1,738 4.6% ======= ===== ======= ===== ======= =====
- --------------- (1) Data for the period ending December 31, 1996 includes data derived from EIP's unaudited three-month period ended March 31, 1996 and the audited nine-month period ended December 31, 1996. Data for 1995 and 1994 includes data for EIP's fiscal years ended March 31, 1996 and March 31, 1995, respectively. 1996 Compared to 1995 Revenues. Revenues increased $11.6 million, or 44.5%, from $26.0 million in 1995 to $37.6 million in 1996. Revenues for each of the Founding Companies increased during this period. The increase primarily was a result of an increase in the number of accommodations rented during the year, both in existing markets and in new markets. Cost of Services. Cost of services increased $8.8 million, or 46.1%, from $19.1 million in 1995 to $27.9 million in 1996. Cost of services as a percentage of revenues increased slightly from 73.5% in 1995 to 74.4% in 1996. The dollar increase in cost of services resulted primarily from an increase in the number of accommodations leased during the year. Cost of services as a percentage of revenues was adversely affected by certain pricing practices at one of the Founding Companies, which since have been discontinued, as well as higher leasing and maintenance costs and lower occupancy rates resulting from the entry by another Founding Company into new markets. Selling, General and Administrative Expense. Selling, general and administrative expense increased $1.8 million, or 29.3%, from $6.1 million in 1995 to $7.9 million in 1996, primarily as a result of an increase in staffing required to support the increased number of accommodations, higher compensation paid to owners of the Founding Companies and increased overhead costs associated with entering new markets. Selling, general and administrative expense decreased as a percentage of revenues from 23.5% in 1995 to 21.0% in 1996, generally as a result of spreading the fixed costs of the Founding Companies' operations over a larger revenue base. 1995 Compared to 1994 Revenues. Revenues increased $7.1 million, or 37.4%, from $18.9 million in 1994 to $26.0 million in 1995. Revenues for each of the Founding Companies increased during this period. The increase primarily was a result of an increase in the number of accommodations rented during the year, both in existing markets and in new markets. In addition, Home Again initiated operations in mid-1993, and as a result did not have its operations fully implemented during 1994. Cost of Services. Cost of services increased $5.1 million, or 36.1%, from $14.0 million in 1994 to $19.1 million in 1995 as a result of the increase in the number of accommodations leased during the year. Cost of services as a percentage of revenues decreased slightly from 74.2% in 1994 to 73.5% in 1995. 21 23 Selling, General and Administrative Expense. Selling, general and administrative expense increased $1.7 million, or 38.2%, from $4.4 million in 1994 to $6.1 million in 1995, and increased slightly as a percentage of revenues from 23.3% in 1994 to 23.5% in 1995. The increase both in dollars and as a percentage of revenues primarily was a result of an increase in staffing required to support the increased number of accommodations, higher compensation paid to certain owners of the Founding Companies and increased overhead costs associated with entering new markets. LIQUIDITY AND CAPITAL RESOURCES -- COMBINED On a combined basis, the Founding Companies generated $1.6 million and $700,000 of net cash from operating activities during 1995 and 1996, respectively. Net cash used in investing activities by the Founding Companies was $791,000 during each of 1995 and 1996. Cash used in investing activities primarily was for the purchase of operating stock and property and equipment. Net cash used in financing activities by the Founding Companies on a combined basis was approximately $150,000 and $350,000 during 1995 and 1996, respectively. Net cash used in financing activities primarily was for the repayment of notes to stockholders, payment of long-term debt and distributions to stockholders. The combined cash and cash equivalents of the Founding Companies decreased by $400,000, from $1.4 million in 1995 to $1.0 million in 1996. At December 31, 1996, three of the Founding Companies had a working capital deficit aggregating approximately $700,000. Prior to the closing of this offering, the Company will pay approximately $191,000 to the former stockholder of Home Again. This payment is expected to be funded from cash provided by operating activities. Upon the closing of this offering, BridgeStreet intends to repay an aggregate of approximately $2.0 million of indebtedness and other obligations both assumed from the Founding Companies and incurred by it in connection with the Combination. See "Use of Proceeds." The Company has entered into a revolving credit facility with Fleet National Bank. The facility provides the Company with a revolving line of credit of up to $10.0 million, secured by guarantees by certain material subsidiaries of the Company and a pledge of the capital stock of all of the Company's wholly-owned operating subsidiaries. The credit facility may be used for refinancing of Founding Company indebtedness, post-offering acquisitions and working capital. Loans made under the credit facility bear interest at the Company's option of either the bank's prime lending rate or 1.25% above the Eurodollar rate. The credit facility will terminate on March 31, 2002, or sooner at the discretion of the Company, and all amounts outstanding thereunder (if any) will be due upon such termination. The credit facility (i) prohibits the payment of dividends and other distributions by the Company, (ii) generally will not permit the Company to incur or assume other indebtedness and (iii) requires the Company to comply with certain financial covenants. While there can be no assurance, management believes that cash flow from operations, funds from the Company's credit facility and the net proceeds to the Company from this offering will be adequate to meet the Company's capital requirements for the next 12 months, depending on the size and methods of financing potential acquisitions. IMPACT OF INFLATION Due to the low levels of inflation experienced in 1994, 1995 and 1996, inflation did not have a significant effect on the combined results of the Founding Companies in those years. SEASONALITY Quarterly earnings may be affected by the timing of certain holidays, business and vacation patterns, weather conditions, economic factors and other considerations affecting travel. Corporate relocation activity peaks in the summer months and declines significantly during the first part of the first quarter. Long-term consulting activity tends to follow a similar pattern, but not to the same extent. The Company expects to realize lower revenues, operating income and net income during the first quarter. 22 24 INDIVIDUAL FOUNDING COMPANIES RESULTS OF OPERATIONS -- TEMPORARY CORPORATE HOUSING 1996 Compared to 1995 and 1995 Compared to 1994 Revenues. Revenues increased $2.7 million, or 28.2%, from $9.8 million in 1995 to $12.5 million in 1996. This increase was a result of an increase in the number of accommodations rented during the year, an improvement in the occupancy rate and an increase in the rates realized by TCH. Revenues increased $1.4 million, or 17.4%, from $8.3 million in 1994 to $9.8 million in 1995. This increase was a result of an increase in the number of accommodations rented during the year, an improvement in the occupancy rate and an increase in the rates realized by TCH. Cost of Services. Cost of services increased $1.7 million, or 23.6%, from $7.4 million in 1995 to $9.1 million in 1996, primarily as a result of an increase in the number of accommodations leased and the cost of furnishing such accommodations during the year. Cost of services as a percentage of revenues decreased from 75.4% in 1995 to 72.7% in 1996 as a result of an improved occupancy rate and an increase in the rates realized by TCH. Cost of services increased $879,000, or 13.6%, from $6.5 million in 1994 to $7.4 million in 1995, primarily as a result of an increase in the number of accommodations leased and the cost of furnishing such accommodations during the year. Cost of services as percentage of revenues decreased from 77.9% in 1994 to 75.4% in 1995 as a result of an improved occupancy rate and an increase in the rates realized by TCH. Selling, General and Administrative Expense. Selling, general and administrative expense increased $263,000, or 12.7%, from $2.1 million in 1995 to $2.3 million in 1996, primarily as a result of increased compensation to the stockholders, administrative payroll and sales commissions. Selling, general and administrative expense as a percentage of revenues decreased from 21.2% in 1995 to 18.6% in 1996, primarily as a result of spreading the fixed costs of the company's operations over a larger revenue base. Selling, general and administrative expense increased $436,000, or 26.8%, from $1.6 million in 1994 to $2.1 million in 1995. Selling, general and administrative expense increased as a percentage of revenues increased from 19.6% in 1994 to 21.2% in 1995. This increase both in dollars and as a percentage of revenues primarily was a result of increased compensation to the stockholders, administrative payroll and sales commissions. LIQUIDITY AND CAPITAL RESOURCES -- TEMPORARY CORPORATE HOUSING For the three years ended December 31, 1996, TCH generated $873,000 in net cash flow from operating activities. Increases in cash flow primarily were generated from net income plus depreciation and amortization of $1.2 million, while reductions in cash flow were due to increases in accounts receivable balances of $401,000 attributable to TCH's increased sales levels. TCH also expended $374,000 during this period, primarily for purchases of operating stock and property and equipment. Cash used in financing activities was $432,000 during this period and primarily was attributable to loans to stockholders and a dividend to stockholders of $349,000. At December 31, 1996, TCH had working capital of $986,000. TCH historically has funded its operations from cash provided by operating activities. At December 31, 1996, TCH had cash and cash equivalents of $598,000 with no outstanding indebtedness. RESULTS OF OPERATIONS -- CORPORATE LODGINGS 1996 Compared to 1995 and 1995 Compared to 1994 Revenues. Revenues increased $2.7 million, or 45.4%, from $6.1 million in 1995 to $8.8 million in 1996. This increase was a result of an increase in the number of accommodations rented during the year, an improvement in the occupancy rate and an increase in the rates realized by CLI. Revenues increased $2.0 million, or 49.1%, from $4.1 million in 1994 to $6.1 million in 1995. This increase was a result of an increase in the number of accommodations rented during the year and an increase in the rates realized by CLI. Cost of Services. Cost of services increased $2.1 million, or 50.9%, from $4.0 million in 1995 to $6.1 million in 1996. Cost of services as percentage of revenues also increased, from 66.7% in 1995 to 69.2% in 23 25 1996. The increase both in dollars and as a percentage of revenues primarily was a result of an increase in the cost to lease, furnish and clean a unit. Cost of services increased $1.3 million, or 47.4%, from $2.7 million in 1994 to $4.0 million in 1995, primarily as a result of an increase in the number of accommodations leased and the cost of furnishing such accommodations during the year. Cost of services as percentage of revenues decreased from 67.5% in 1994 to 66.7% in 1995 primarily as a result of an increase in the rates realized by CLI. Selling, General and Administrative Expense. Selling, general and administrative expense increased $537,000, or 27.1%, from $2.0 million in 1995 to $2.5 million in 1996, primarily as a result of increased compensation to the majority stockholder, increased sales and administrative payroll, and general office expenses. Selling, general and administrative expense as a percentage of revenues decreased from 32.7% in 1995 to 28.6% in 1996, primarily as a result of spreading the fixed costs of the company's operations over a larger revenue base. Selling, general and administrative expense increased $745,000, or 60.2%, from $1.2 million in 1994 to $2.0 million in 1995. The increase both in dollars and as a percentage of revenues primarily was a result of costs associated with entering the Milwaukee, Wisconsin market and expansion within the Lexington, Kentucky market. RESULTS OF OPERATIONS -- EXCLUSIVE INTERIM PROPERTIES Twelve Months Ended December 31, 1996 Compared to Fiscal Year Ended March 31, 1996 and Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31, 1995 Revenues. Revenues increased $3.1 million, or 56.2%, from $5.5 million in the fiscal year ended March 31, 1996 to $8.6 million in the 12 months ended December 31, 1996. This increase was a result of an increase in the number of accommodations rented. Revenues increased $1.5 million, or 37.5%, from $4.0 million in the fiscal year ended March 31, 1995 to $5.5 million in the fiscal year ended March 31, 1996, as a result of an increase in the number of accommodations rented during the year. Cost of Services. Cost of services increased $2.8 million, or 65.8%, from $4.2 million in the fiscal year ended March 31, 1996 to $7.0 million in the 12 months ended December 31, 1996, primarily as a result of an increase in the number of accommodations leased. Cost of services as a percentage of revenues increased from 76.9% in the fiscal year ended March 31, 1996 to 81.6% in the 12 months ended December 31, 1996. The increase in cost of services as a percentage of revenues primarily was attributable to the effect of certain pricing practices, which since have been discontinued. Cost of services increased $1.2 million, or 40.8%, from $3.0 million in the fiscal year ended March 31, 1995 to $4.2 million in the fiscal year ended March 31, 1996, as a result of an increase in the number of accommodations leased during the year. Selling, General and Administrative Expense. Selling, general and administrative expense increased $399,000, or 40.9%, from $975,000 in the fiscal year ended March 31, 1996 to $1.4 million in the 12 months ended December 31, 1996. Selling, general and administrative expense as a percentage of revenues decreased from 17.7% in the fiscal year ended March 31, 1996 to 15.9% in the 12 months ended December 31, 1996, primarily as a result of spreading the fixed costs of the company's operations over a larger revenue base. Selling, general and administrative expense increased $80,000, or 8.9%, from $895,000 in the fiscal year ended March 31, 1995 to $975,000 in the fiscal year ended March 31, 1996. Selling, general and administrative expense as a percentage of revenues decreased from 22.3% in the fiscal year ended March 31, 1995 to 17.7% in the fiscal year ended March 31, 1996, primarily as a result of spreading the fixed costs of the company's operations over a larger revenue base. RESULTS OF OPERATIONS -- HOME AGAIN 1996 Compared to 1995 Revenues. Revenues increased $2.5 million, or 157.0%, from $1.6 million in 1995 to $4.0 million in 1996. This increase was a result of an increase in the number of accommodations rented during the year. Cost of Services. Cost of services increased $1.9 million, or 144.1%, from $1.3 million in 1995 to $3.1 million in 1996, as a result of an increase in the number of accommodations leased during the year. Cost of 24 26 services as percentage of revenues decreased from 81.8% in 1995 to 77.7% in 1996, primarily as a result of spreading the fixed costs of the company's operations over a larger revenue base. Selling, General and Administrative Expense. Selling, general and administrative expense increased $374,000, or 176.4%, from $212,000 in 1995 to $586,000 in 1996. The increase both in dollars and as a percentage of revenues primarily was a result of increased compensation to the stockholder and an increase in administrative payroll. RESULTS OF OPERATIONS -- TEMPORARY HOUSING EXPERTS 1996 Compared to 1995 Revenues. Revenues increased $500,000, or 16.1%, from $3.1 million in 1995 to $3.6 million in 1996. This increase was a result of an increase in the number of accommodations rented during the year. Cost of Services. Cost of services increased $388,000, or 17.7%, from $2.2 million in 1995 to $2.6 million in 1996. The increase both in dollars and as a percentage of revenues primarily was a result of an increase in the number of accommodations leased during the year and a lower occupancy rate due to entering a new market in August 1995. Selling, General and Administrative Expense. Selling, general and administrative expense increased $212,000, or 24.5%, from $866,000 to 1995 to $1.1 million in 1996. The increase both in dollars and as a percentage of revenues primarily was a result of increased compensation to the stockholders and an increase in administrative payroll. 25 27 BUSINESS OVERVIEW BridgeStreet is a leading provider of flexible accommodation services, primarily for business people and professionals requiring lodging for one week to several months. The Company offers high-quality, fully-furnished apartments, townhouses, condominiums and, to a lesser extent, houses (collectively, "accommodations"). Together with the specialized amenities offered by the Company, these accommodations are intended to provide guests with a "home away from home." As of March 31, 1997, BridgeStreet had more than 2,100 units under lease in 16 metropolitan areas located in the Midwest and Mid-Atlantic regions of the United States, and an occupancy rate of approximately 90%. As a provider of flexible accommodation services, BridgeStreet leases substantially all of its accommodations on a short-term basis from property managers, and then rents them to its clients. This enables the Company to (i) adjust the quantity, mix and location of its accommodations as client needs dictate and local economic conditions warrant, (ii) expand and enter new markets without the costs and lead times associated with investing in "bricks and mortar" and (iii) avoid the fixed costs associated with ownership or long-term leasing of real estate. The Company also leases the furniture for its accommodations on a short-term basis from furniture rental companies. These furniture leasing arrangements enable BridgeStreet to maintain well-appointed, modern and attractive accommodations, upgrade and replace furniture as needed, and satisfy specific furnishing requests. BridgeSteet's leasing strategy distinguishes it from fixed-location lodging providers, such as all-suite or extended-stay hotels, that own their lodging facilities and furnishings or lease them on a long-term basis. Traditionally, travelers on extended trips have stayed in hotels and motels. According to industry sources, in 1995, guests staying four or more nights represented approximately 30% of total domestic hotel stays during that year. The Company believes that business travelers on extended trips increasingly desire alternatives to conventional hotel and motel rooms, which typically lack the spaciousness and amenities of home. The Company believes that this has been an important factor in the recent growth in the extended-stay segment of the lodging industry. Participants in this segment include flexible accommodation service providers, all-suite hotels and extended-stay hotels. By providing flexible accommodation services, the Company can satisfy client requests for accommodations in a variety of locations and neighborhoods, as well as requests for accommodations of specific types and sizes. The substantial majority of the Company's accommodations are located within high-quality property complexes that typically feature, among other things, in-unit washers and dryers, dedicated parking and access to fitness facilities (including, in many cases, pools, saunas and tennis courts). In addition, at a guest's request, BridgeStreet can upgrade an accommodation by providing specialized amenities such as office furniture, fax machines and computers. The Company's accommodations generally are priced competitively with all-suite and upscale extended-stay hotel rooms even though, on average, they are substantially larger. For example, BridgeStreet's one-bedroom unit averages approximately 750 square feet versus approximately 400 square feet for a one-bedroom at a typical all-suite or upscale extended-stay hotel. BridgeStreet was founded in August 1996, and in the first quarter of 1997 combined by merger five regional providers of flexible accommodation services. The Company has achieved significant growth in recent years. On a pro forma basis, consolidated units available for rent increased from 1,041 units on January 1, 1994 to 1,936 units on December 31, 1996, representing a compound annual growth rate of 36%. In addition, pro forma net revenues increased from $18.9 million in 1994 to $37.6 million in 1996, representing a compound annual growth rate of 41%. GROWTH STRATEGY The Company plans to achieve its goal of becoming a leading national provider of flexible accommodation services by implementing an aggressive acquisition program and a national operating strategy designed to 26 28 increase internal revenue growth, cost efficiencies and profitability. Key elements of the Company's business strategy include: Growth through Acquisitions. The Company believes that the flexible accommodation services industry is highly fragmented, with over 400 geographically dispersed companies in the United States, few of which have more than a regional presence. BridgeStreet plans to take advantage of the fragmented nature of the industry by acquiring flexible accommodation service companies in major metropolitan areas frequented by business travelers. BridgeStreet intends to implement its business model at each acquired company as soon as practicable after the acquisition is completed. BridgeStreet's acquisition strategy is to: - Enter New Geographic Markets and Establish Nationwide Coverage. In each new market, the Company initially will target for acquisition one local or regional flexible accommodation services provider having the size and quality of operations suitable for serving as the Company's base for expansion in the market. Acquisitions in new markets will enable BridgeStreet to (i) gain local or regional market share rapidly, (ii) increase sales to existing clients by meeting their needs for accommodations in other regions, (iii) increase sales to the acquired company's clients by providing them with access to BridgeStreet's growing national network and (iv) establish the BridgeStreet brand name in new regions and enhance its nationwide recognition. - Expand Within Existing Markets. Once the Company has established operations in a new region, it may seek to expand its market share by acquiring other flexible accommodation service providers within that region. The Company believes that it can achieve operating efficiencies by incorporating the businesses of smaller acquired companies into the Company's operations without any significant increase in infrastructure. National Operating Strategy. The Company has begun to implement a national operating strategy with the following components: - Maximize Sales to Existing and New Clients. The Company plans to maximize sales to existing corporate clients and to obtain new clients through a national sales and marketing program which highlights the Company's expanding national network. Many of the Company's clients are Fortune 1000 companies with significant, national employee lodging requirements. These corporate clients generally have numerous key decision makers (such as human resource directors, relocation managers or training directors) who both establish and administer company travel and accommodation policies. The Company plans to obtain a greater share of each client's lodging requirements by establishing relationships with additional key decision makers and emphasizing the Company's expanding national presence. - Achieve Cost Efficiencies. The Company believes it should be able to reduce total operating expenses of the Founding Companies and any additional acquired companies by consolidating certain functions performed separately by such companies. In addition, the Company believes that as a large, national flexible accommodation services company, it should be able to achieve lower costs (as a percentage of revenues) compared to those of the individual Founding Companies and other acquired companies in such areas as leasing accommodations and furniture, purchasing certain hard and soft goods, and obtaining financing arrangements, employee benefits and insurance. - Adopt Best Practices. The Company will continue reviewing its operations at the local and regional operating levels in order to identify "best practices" that can be implemented throughout its operations. Areas where "best practices" may be utilized include accommodation pricing, occupancy management and cash flow management. BridgeStreet believes the implementation of these practices will enable the Company to provide superior customer service and maximize sales opportunities. - Implement Management Information System. BridgeStreet intends to develop and implement a centrally-controlled, computerized management information system that will integrate the Company's customer contact, sales, marketing, finance, telephone, property management, internet access, lease management and reservation functions. BridgeStreet believes that the proposed system will enable it to deliver superior customer service, more efficiently manage its operations and achieve cost savings. 27 29 ACQUISITION STRATEGY Given the highly fragmented nature of the flexible accommodation services industry, the Company believes that there are numerous potential acquisition targets both within markets currently served by the Company and in other major metropolitan areas. The Company intends to implement an aggressive acquisition program aimed at (i) expanding into major metropolitan markets not currently served by the Company and (ii) acquiring other flexible accommodation service providers in its existing markets to enhance its market position. In new markets, the Company will target for acquisition one or more leading local or regional flexible accommodation service providers. Generally, these companies will be run by successful entrepreneurs, whom BridgeStreet will endeavor to retain after the acquisitions, and will be of sufficient size to provide the basis for the Company's future expansion within the new markets. Each of the Company's acquisition candidates will be expected to demonstrate potential for increased revenues and profitability. The Company also will evaluate certain qualitative characteristics of acquisition candidates, including their reputations in their respective geographic regions, the size and strength of their customer bases, the quality and experience levels of their operational management, and their operating histories. In existing markets, the Company will seek to acquire flexible accommodation service providers that meet the Company's criteria with respect to reputation, customer base, management and operating history. Some of the companies acquired within existing markets will be large enough to retain much of their own operating and management infrastructures. Other, generally smaller acquired companies will be combined with BridgeStreet's existing operations to eliminate redundant functions and improve profitability. Acquisitions in existing markets should improve revenues and profitability by enhancing regional brand name recognition and leveraging the economies of scale associated with a larger business enterprise. The Company believes that acquisition by BridgeStreet will be attractive to many smaller independent operators because of (i) the Company's strategy to create a large, professionally-managed company with national brand name recognition and a reputation for quality service and customer satisfaction, (ii) the experience of its officers with industry consolidations, (iii) the Company's decentralized operating strategy, (iv) the Company's increased visibility and access to financial resources as a public company, (v) the potential for increased profitability due to centralized administrative functions, enhanced systems capabilities and access to increased marketing resources, (vi) the ability of the acquired companies to participate in the Company's growth and expansion, and (vii) the strong desire of the owners of many privately-held companies for liquidity and a return on their investments in their companies. Based on BridgeStreet's experience in the Combination, BridgeStreet believes the senior executives of the Founding Companies will be instrumental in establishing new markets for BridgeStreet and in identifying and completing future acquisitions. Prior to the Combination, the Founding Companies' senior executives led their companies' successful expansion into 11 new markets. Many of these executives had leadership roles in founding and directing the National Interim Housing Network ("NIHN"), the flexible accommodation services industry's leading trade association. The Company believes that the visibility of these individuals within NIHN and within the industry in general will increase the industry's awareness of the Company and its acquisition program, thereby attracting interest from owners of other flexible accommodation service companies. As consideration for future acquisitions, the Company intends to use various combinations of cash, notes and Common Stock. The consideration paid for each future acquisition will depend on such factors as the acquired company's historical operating results and future prospects and the ability of the acquired company's business to complement the services offered by the Company. The Company currently has no binding acquisition agreements. The timing, size and success of the Company's acquisition efforts and the associated capital commitments cannot be readily predicted. In the event that no suitable acquisition candidates exist in a given market, the Company is prepared to enter a market by establishing a new operation or strategic alliance. 28 30 ACCOMMODATIONS AND SERVICES Accommodations BridgeStreet offers high-quality, fully-furnished one-, two- and three-bedroom accommodations that, together with the specialized amenities offered by the Company, are intended to provide guests with a "home away from home." BridgeStreet selects its accommodations based on location, general condition and basic amenities, with the goal of providing accommodations that meet each guest's particular needs. As a flexible accommodation services provider, the Company can satisfy client requests for accommodations in a variety of locations and neighborhoods, including requests for proximity to an office, school or area attraction, as well as requests for accommodations of specific types and sizes. The substantial majority of the Company's accommodations are located within high-quality property complexes that typically feature in-unit washers and dryers, dedicated parking, and access to fitness facilities (including, in many cases, pools, saunas and tennis courts). Standard furnishings typically include, among other things, cable televisions, answering machines and clock radios. BridgeStreet also is able to customize its accommodations at a guest's request with items such as office furniture, fax machines and computers. The Company's accommodations generally are priced competitively with all-suite or upscale extended-stay hotel rooms even though, on average, they are substantially larger. For example, BridgeStreet's one-bedroom unit averages approximately 750 square feet versus approximately 400 square feet for a one-bedroom unit at a typical all-suite or upscale extended-stay hotel. The Company believes it generally is able to price its accommodations competitively due to (i) the high quality of its accommodations, (ii) its relatively low operating cost structure and (iii) its ability to lease accommodations in accordance with demand and leave unfavorable markets quickly. The length of a guest's stay can range from a few nights to a few years, with the typical stay ranging from 30 to 45 days. Corporate Client Services The Company believes that it provides valuable, cost-effective services to its corporate clients, many of which have human resource directors, relocation managers or training directors with significant, national employee lodging requirements. In particular, the Company aims to relieve its clients of the administrative burden often associated with relocating employees and/or providing them with temporary housing. In addition to providing clients with a diverse range of accommodation types and sizes in a variety of locations, the Company believes it satisfies its clients' needs for (i) a high degree of local market knowledge, (ii) special accommodation requests (such as last-minute location switches), (iii) accurate, customized billing options and (iv) other ancillary services such as assistance in locating permanent housing and school systems. The Company believes that existing and potential clients will increasingly turn to outside providers such as BridgeStreet to satisfy their employee lodging requirements as their awareness of BridgeStreet and the flexible accommodation services industry increases. Guest Services The Company strives to provide the highest quality of customer service by coordinating in advance all aspects of a guest's lodging experience. Prior to a guest's arrival, BridgeStreet arranges to have keys and directions sent to the guest, along with other information relating to the guest's interests (as discerned through prior communications), such as literature on local golf courses or other forms of entertainment. The Company makes at least one follow-up telephone call to the guest before the guest moves in to ensure that the guest will feel comfortable in his or her new accommodation from the moment of arrival. Immediately prior to the guest's arrival, BridgeStreet's professional housekeeping staff cleans and inventories the accommodation to ensure that it is prepared for the guest. During a guest's stay, BridgeStreet keeps in touch with the guest to confirm that he or she is satisfied, and to encourage the guest to call whenever the Company can be of assistance. In addition, the Company maintains a representative in each city in which it operates to be responsive to guests' needs. The Company's guest services department offers guests comprehensive information services before and during their stays to help guests acclimate themselves to their new surroundings. A guest can obtain information concerning, 29 31 among other things, local schools, day care providers and area playgrounds, by placing a single telephone call. Similarly, the guest services department can identify local entertainment and cultural events, and help coordinate automobile rentals, grocery shopping and other miscellaneous activities. BridgeStreet also oversees the moving-out process. The guest is asked either to mail the keys to the Company in a self-addressed, stamped envelope or simply to leave the keys in the accommodation. The guest also is asked to complete a form evaluating his or her stay, and is encouraged to contact the Company whenever the guest needs accommodations in other locations where BridgeStreet provides services. The guest's evaluation form is thoroughly reviewed, and (if applicable) a copy is sent to the corporate client. CLIENT BASE BridgeStreet has a diverse client base composed primarily of domestic Fortune 1000 corporations, business professionals and professional firms. Among the Company's clients are Ameritech Corp., Andersen Consulting, members of the Baltimore Orioles, Cargill Inc., Ernst & Young LLP, KPMG Peat Marwick LLP, Maybelline, Inc. and United Healthcare Corporation. The Company's guests include corporate employees, consultants, legal and accounting professionals, sales representatives, traveling health care workers, visiting professors, professional athletes, artistic performers, medical patients and their relatives, and people between homes. No client accounted for more than 5% of the Company's pro forma 1996 revenues. SALES AND MARKETING BridgeStreet focuses primarily on business-to-business selling. At the local level, each of the Company's operating subsidiaries has corporate account specialists that call on local companies (including local branches of regional or national companies) to solicit business. The account specialist focuses his or her efforts on the key decision makers at each company responsible for establishing and administering travel and accommodation policies, typically human resource directors, relocation managers or training directors. By aggressively pursuing relationships with potential clients and expanding services to existing clients, BridgeStreet seeks to become each client's primary or sole provider of flexible accommodation services nationwide. As its operations expand, BridgeStreet increasingly will market its nationwide capabilities to its local corporate clients. The Company tailors its marketing strategy to the needs of particular clients. For example, BridgeStreet markets itself to a corporation with relocating employees by focusing on its ability to situate large families in houses and apartments with three or more bedrooms, its access to accommodations in both metropolitan and suburban settings, and its access to accommodations that allow pets. In contrast, when marketing to a potential corporate client having consultants in need of short-term housing, the Company emphasizes its flexible lease terms and its ability to customize an accommodation with amenities such as office equipment (including computers), additional telephone lines and other work-related items. The Company intends to implement an advertising program designed to enhance the "BridgeStreet" name both inside and outside the flexible accommodation services industry and broaden its client base. In addition, the Company intends to promote its brand name by advertising in trade publications, Chamber of Commerce listings, local visitor magazines and telephone directories, on the radio and the Internet, and through periodic direct mail campaigns. LEASING AGREEMENTS BridgeStreet leases substantially all of its accommodations through flexible, short-term leasing arrangements in order to match its supply of accommodations with client demand. The Company believes that its flexible leasing strategy allows it to react quickly to changes in market demand for particular geographic locations and types of accommodations. The Company's strategy also provides it flexibility to address cyclicality in particular markets. At March 31, 1997, BridgeStreet's occupancy rate was approximately 90%. The Company seeks to maintain high occupancy rates by staggering its lease expiration dates within a geographic area, allowing it to adjust its inventory of accommodations in a given market to reflect fluctuations in overall demand and demand for particular types of accommodations. 30 32 The Company strives to develop strong relationships with property managers to ensure that it has a reliable supply of high-quality, conveniently-located accommodations. The Company believes that it can provide property managers with numerous direct benefits, including (i) higher overall occupancy levels, (ii) simplified lease agreements (with one lease often covering numerous individual units), (iii) convenient, timely payment (with one check for all units under lease in a complex) and (iv) maintenance by BridgeStreet of the accommodations it leases. BridgeStreet leases the furniture for its accommodations on a short-term basis ordinarily from major furniture rental companies. Furniture leases range from three to 18 months, but may be terminated by the Company prior to expiration. Through its short-term furniture leasing approach, the Company is able to maintain well-appointed, modern and attractive accommodations, upgrade and replace furniture as needed and satisfy specific furnishing requests. PROPERTIES BridgeStreet leases all of its accommodations (with the exception of 19 condominium units which are owned). The Company has no plans to purchase or own any additional properties. The Company's accommodations include one-, two- and three-bedroom apartments, condominiums, townhouses, and, to a lesser extent, houses. As of March 31, 1997, the Company had approximately 2,100 accommodations under lease, with lease terms generally ranging from one to 18 months. The following table indicates as of that date the number of units under lease in each metropolitan area in which BridgeStreet operates:
50 OR FEWER 51 TO 150 GREATER THAN 150 - --------------------- --------------------- ---------------------------- Canton, OH Akron, OH Baltimore, MD Detroit, MI* Cincinnati, OH Cleveland, OH Oklahoma City, OK* Jackson, MS Columbus, OH Lexington, KY Minneapolis/St. Paul, MN** Louisville, KY Pittsburgh, PA** Memphis, TN Washington, DC Milwaukee, WI
- --------------- * BridgeStreet has operated in this metropolitan area for less than 12 months. ** The operations of two Founding Companies have been integrated in this metropolitan area. INDUSTRY OVERVIEW United States Lodging Industry Overview In 1996, the United States lodging industry posted record profits of approximately $11 billion and hotel occupancies reached 67%, representing their highest level since 1982. The United States lodging industry is estimated to have generated approximately $76.0 billion in annual room revenues in 1996 and had overall supply of approximately 3.4 million rooms at December 31, 1996. The Company believes that the domestic lodging industry has benefited from a gradually improving supply and demand balance, evidenced by increasing average daily room and occupancy rates in recent years. Room supply growth in the lodging industry slowed in the early 1990s and has rebounded in recent years, but demand nonetheless continues to grow faster than supply. According to industry reports, supply growth was 0.3% in 1993, 1.0% in 1994, 1.2% in 1995 and 2.1% in 1996. This slow supply growth, coupled with 1.7%, 3.0%, 1.7% and 2.3% increases in demand (measured by occupied rooms) in 1993, 1994, 1995 and 1996, respectively, reflects an improved supply and demand balance in the industry. According to Smith Travel Research, although consumers prefer new hotel rooms, more than two-thirds of all hotel rooms in the United States are at least 15 years old. The Company believes that new hotels and lodging concepts are emerging to compete with older hotels by offering newer and more contemporary 31 33 facilities. New concepts in the lodging industry are focusing more closely on customer needs and are offering modern amenities such as microwave ovens, voice mail and computers. Lodgings for Stays of Four Nights or Longer According to D. K. Shifflet & Associates, in 1995 guests staying four or more consecutive nights in a hotel accounted for more than 30% of all hotel rooms rented. Based on 1995 room demand of 3.4 million rooms, this data shows an implied demand of nearly one million rooms for such stays. According to industry statistics, extended-stay hotels currently offer approximately 100,000 rooms. The demand for guest stays of four or more consecutive nights has resulted in the following accommodation concepts: All-Suite Hotels. All-suite hotels constitute a relatively new segment of the lodging industry, having developed largely over the past 10 years. All-suite hotels were developed partially in response to the increasing number of corporate relocations, transfers and temporary assignments, and principally are oriented toward business travelers willing to pay rates in the mid- to upper-price levels. All-suite hotel rooms are larger than traditional hotel rooms and, in some cases, contain efficiency kitchens. All-suite hotels typically offer discounts to guests staying for extended periods. Extended-Stay Hotels. Extended-stay hotels are an extension of the all-suites concept, generally providing more space, rooms and "home-like" conveniences to the traveler. Extended-stay hotel units typically are larger than traditional hotel rooms and, in some cases, include kitchen facilities with a stove, refrigerator and microwave, a work desk, laundry facilities, and a separate bedroom. From 1991 through 1996, the compound annual growth rate in occupied rooms in extended-stay hotels was approximately 11.1%, compared to approximately 2.1% for the overall domestic lodging industry, while the compound annual growth rate in room supply in such hotels was approximately 9.9%, compared to approximately 1.1% for the overall domestic lodging industry. Flexible Accommodation Service Providers. Flexible accommodation service providers utilize a substantially different business model than fixed-location providers (such as all-suite and extended-stay hotels) with respect to sourcing of inventory (i.e., accommodations and furnishings), unit economics, and sales and marketing. Companies in the flexible accommodation services industry typically do not own real estate but instead lease apartments, condominiums, townhouses and even houses on a short-term basis. These companies then rent the leased accommodations, primarily for business travelers. The Company believes that growth in the flexible accommodation services industry is attributable to an increased demand by travelers on extended trips for accommodations that better approximate their everyday living environment. Accommodations in this segment typically are the most "home-like" in the lodging industry, offering full-sized, fully-equipped kitchens, bedrooms, bathrooms and living rooms. Flexible accommodation service providers focus primarily on employees in the corporate workforce, from entry-level to executive. Due to their short-term leasing strategy, flexible accommodation service providers are less capital- and labor-intensive, and have a more variable cost structure, than fixed-location providers. COMPETITION Flexible accommodation service providers compete primarily on the basis of location, availability, price and quality of accommodations, quality and scope of service and brand name recognition. The Company believes that, while it currently competes against all lodging providers, in the future its primary competition will come from other flexible accommodation service providers and, to a lesser extent, all-suite hotels and upscale extended-stay hotels. The Company intends to compete by maintaining a loyal customer base and offering a client-oriented approach with convenient locations, large and high-quality customized accommodations, and personalized customer service. The Company expects its business to become more competitive as existing competitors expand and additional companies enter the flexible accommodation services industry. The Company believes that the largest providers of flexible accommodation services currently are Oakwood, Gables Corporate Accommoda- 32 34 tions, Accommodations America, Inc., ExecuStay, Inc. and Globe Furniture Rentals, Inc., some of which are larger (in terms of number of available accommodations) than BridgeStreet. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater resources than the Company. In particular, Oakwood is affiliated with R&B Realty Group, the nation's tenth largest apartment management company. This affiliation gives Oakwood access to apartment communities and capital that may be unavailable to the Company. See "Risk Factors -- Competition." REGULATION AND TAX The Company is subject to employment laws, including minimum wage, overtime, working condition and work permit requirements. The Company believes that it is in compliance with all applicable employment laws, and intends to continue to comply with such laws. In addition, the Company is subject to the Americans with Disabilities Act (the "ADA") as a private entity providing public accommodations. All public accommodations are required to meet certain federal requirements related to access and use by disabled persons. While the Company believes that all of the units it leases are substantially in compliance with these requirements, a determination that such units are not in compliance with the ADA could result in the imposition of fines or an award of damages to private litigants. As a lessee of its accommodations, BridgeStreet believes that it and its employees are either outside the purview of, or exempted from, laws in the majority of jurisdictions in which the Company operates requiring real estate brokers to hold licenses. However, there can be no assurance that the Company's position would be upheld if challenged or that any such jurisdiction will not amend its laws to require the Company and/or one or more of its employees to be licensed brokers. Moreover, there can be no assurance that the Company will not operate in the future in jurisdictions requiring such licensing. See "Risk Factors -- Licensing and Tax Issues." In some of the jurisdictions in which the Company operates, the Company believes that it is not required to charge the sales and "bed" taxes that are applicable to overnight guests in fixed-location lodgings. There can be no assurance, however, that the tax laws in particular jurisdictions will not change or that a tax collection agency will not successfully challenge the Company's position regarding the applicability of such taxes. See "Risk Factors - -- Licensing and Tax Issues." INSURANCE The Company purchases general liability, comprehensive property damage, automobile, workers' compensation and other insurance coverages that management considers adequate for the protection of the Company's assets and operations, although there can be no assurance that the coverage limits of such policies will be adequate. A successful claim against the Company beyond the scope of its insurance coverage or in excess of its limits could have a material adverse effect on the Company's business, financial condition and results of operations. Claims against the Company, regardless of their merit or outcome, also may have an adverse effect on the Company's reputation and business. INTELLECTUAL PROPERTY The Company has filed an application with the United States Patent and Trademark Office to register the service mark "BridgeStreet." HEADQUARTERS AND REGIONAL OFFICES The Company's corporate headquarters is located in Hudson, Ohio and is occupied pursuant to a lease that expires in October 1998. In addition, the Company currently leases regional offices in Columbus, Ohio; Baltimore, Maryland; Memphis, Tennessee; and Minneapolis, Minnesota. 33 35 EMPLOYEES As of March 31, 1997 the Company had approximately 200 full-time employees and approximately 40 part-time employees. BridgeStreet expects that it will increase the number of its employees as it expands its business. The Company's employees are not subject to any collective bargaining agreements, and management believes that its relationship with its employees is good. LEGAL PROCEEDINGS The Company is from time to time a party to litigation arising in the ordinary course of business. There can be no assurance that the Company's insurance coverage will be adequate to cover all liabilities arising out of such litigation. Management believes that any liability that the Company might incur upon the resolution of any existing litigation will not have a material adverse effect upon the Company's business, financial condition and results of operations. 34 36 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information as of May 1, 1997 concerning the Company's current directors and executive officers:
NAME AGE CURRENT POSITIONS ---------------------------------------------------- --- ---------------------------- William N. Hulett, III.............................. 53 President, Chief Executive Officer and Director Rocco A. Di Lillo................................... 45 Vice President, Chief Operating Officer and Director Mark D. Gagne, CPA.................................. 36 Chief Financial Officer and Treasurer Paul M. Verrochi.................................... 48 Chairman of the Board Lynda D. Clutchey................................... 39 Director Connie F. O'Briant.................................. 38 Director Melanie R. Sabelhaus................................ 48 Director
William N. Hulett, III has been President, Chief Executive Officer and a director of the Company since January 1997. He also is Chief Executive Officer and sole director of each of the Company's wholly-owned subsidiaries. Mr. Hulett's career in the hotel industry has spanned 33 years, from 1960 to 1993. During 21 years with Westin Hotels (from 1960 to 1981), Mr. Hulett managed some of the finest hotels in America, including the St. Francis in San Francisco and The Mayflower in Washington, D.C., served as the Managing Director for all Westin Hotels in Hawaii, and also served as Vice President for Operations and Development, during which time he built the Westin in Cincinnati and the Westin O'Hare in Chicago. In 1981, Mr. Hulett joined the Nestle Corporation as President of the Stouffer Hotel Company ("Stouffer"). During his 12 years as President of Stouffer, he built, acquired or joint ventured over 35 hotels. In 1993, when Stouffer was sold, he devoted his time to fund raising and building the Rock and Roll Hall of Fame and Museum, which opened in Cleveland, Ohio in 1995. He served as its Chairman and Chief Executive Officer until joining BridgeStreet in 1997. Mr. Hulett is a director of the Travel Industry Association of America and of Developers Diversified Realty Corporation, and has served the American Hotel and Motel Association in various capacities, including Vice Chairman of its Educational Institute. Rocco A. Di Lillo has been Vice President, Chief Operating Officer and a director of the Company, and President and Chief Operating Officer of one of the Company's five operating subsidiaries, since January 1997. Mr. Di Lillo also is President of City Visitor Publications, Inc., a leading publisher of travel and visitor guides in the Midwest. Until the Combination in January 1997, Mr. Di Lillo was President and sole director of CLI, which he founded in March 1987, and which expanded into 10 Midwest cities in six states. CLI was named to the "Weatherhead 100," which honors the 100 fastest-growing companies in Northeast Ohio, in both 1995 and 1996. Mr. Di Lillo is a charter member of NIHN, the flexible accommodation services industry's leading trade association. Mark D. Gagne, CPA, has been Chief Financial Officer and Treasurer of the Company since January 1997. From January 1996 until January 1997, Mr. Gagne was a consultant to ABP. Previously, from February 1992 to December 1995, Mr. Gagne was Chief Financial Officer and Treasurer of CMG Information Services Inc. and subsidiaries, a publicly traded group of direct marketing services, fulfillment services and information/internet technologies companies. From April 1988 to January 1992, Mr. Gagne was Vice President and Chief Financial Officer of the Trodella Companies, three privately held construction services companies. From 1982 to 1988, Mr. Gagne served in a number of positions as a Certified Public Accountant for Kennedy & Lehan, P.C. and Arthur Andersen LLP. Paul M. Verrochi has been Chairman of the Board of Directors of the Company since August 1996. In 1992, Mr. Verrochi co-founded American Medical Response, Inc. ("AMR"), which prior to its acquisition 35 37 was a publicly held company and the largest national provider of ambulance services. From August 1992 to January 1996, Mr. Verrochi served as AMR's President and Chief Executive Officer, and until January 1997 he also served as the Chairman of the Board of Directors. Mr. Verrochi was selected as the 1995 National Entrepreneur of the Year for Emerging Growth Companies by Inc. Magazine. Mr. Verrochi serves as an advisory board member to numerous charitable foundations, including the New England Aquarium and the Boston Symphony Orchestra. Mr. Verrochi also is Chairman of ABP and a director of Coach USA, Inc., a publicly held company. Lynda Clutchey has been a director of the Company, and President and Chief Operating Officer of one of the Company's five operating subsidiaries, since January 1997. Until January 1997, Ms. Clutchey was President and a director of TCH, which she co-founded in August 1983. Prior to co-founding TCH, Ms. Clutchey served in the United States Peace Corps, working with an agricultural marketing cooperative in the Philippines. Ms. Clutchey is a charter member of NIHN and served on its Board of Directors from its inception in 1990 through 1994. Connie F. O'Briant has been a director of the Company, and President and Chief Operating Officer of one of the Company's five operating subsidiaries, since January 1997. Until January 1997, Ms. O'Briant was President and a director of THEI, which she co-founded in May 1991. Active in civic and relocation industry efforts, THEI is involved in the Executive Newcomer's Committee, the Memphis Area Chamber of Commerce and the Mid-South Relocation Council. THEI received the Memphis Business Journal's "Memphis Business of the Year" Small Business Award in 1994. Ms. O'Briant is a member of the President's Council of United American Bank and an investment partner of Junior Achievement. Ms. O'Briant also is a member of NIHN and served on its Board of Directors from 1995 to 1996. Melanie R. Sabelhaus has been a director of the Company, and President and Chief Operating Officer of one of the Company's five operating subsidiaries, since January 1997. Until January 1997, Ms. Sabelhaus was President and a director of EIP, which she founded in June 1987. Prior to founding EIP, Ms. Sabelhaus spent 17 years in various sales and management positions at IBM. Ms. Sabelhaus was listed in the Women's Top 100 of Maryland 1996, and also was honored by the Baltimore Business Journal in 1995 for operating one of the top 25 women-owned businesses in that city. Ms. Sabelhaus is a charter member of NIHN. COMMITTEES OF THE BOARD OF DIRECTORS Upon or prior to the closing of this offering, the Company will establish an Audit Committee and Compensation Committee. The Audit Committee, a majority of which will be independent directors, will make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans for and results of the Company's annual audit, approve professional services provided by and the independence of the independent public accountants, consider the range of audit and non-audit fees and review the adequacy of the Company's internal accounting controls. The Compensation Committee, a majority of which will be independent directors, will establish a general compensation policy for the Company, approve increases in directors' fees and salaries paid to officers and senior employees of the Company, administer the Company's 1997 Equity Incentive Plan and Stock Plan for Non-Employee Directors, and determine, subject to the provisions of the Company's employee benefit plans, the directors, officers and employees of the Company eligible to participate in any of the plans, the extent of such participation and terms and conditions under which benefits may be vested, received or exercised. DIRECTOR COMPENSATION Members of the Board of Directors who also serve as officers of the Company or its subsidiaries do not receive compensation for serving on the Board. Each other member of the Board will receive a fee of $2,000 for each Board of Directors meeting attended and an additional fee of $1,000 for each committee meeting attended, except that $500 will be paid for each committee meeting attended on the same date as a Board meeting. All directors will receive reimbursement of reasonable expenses incurred in attending Board and committee meetings and otherwise carrying out their duties. 36 38 The Company's Board of Directors has adopted the Stock Plan for Non-Employee Directors (the "Directors' Plan"). Subject to adjustment for stock splits and similar events, a total of 100,000 shares of Common Stock are reserved for issuance under the Directors' Plan. Pursuant to the Directors' Plan, on the date of this Prospectus, each director who is neither an employee of the Company or one of its subsidiaries nor a holder of five percent or more of the Company's Common Stock (a "non-employee director") will receive an option to purchase 12,500 shares of Common Stock with a per-share exercise price equal to the initial public offering price. Thereafter, each such non-employee director will be granted, on every third anniversary of this Prospectus (provided he or she still is a non-employee director at such time), an option to acquire an additional 7,500 shares of Common Stock. Each non-employee director initially elected following this offering will be granted upon such election an option to purchase 7,500 shares of Common Stock, and thereafter will be granted, immediately following every third anniversary of such election provided he or she still is a non-employee director at such time (or third annual meeting at which such non-employee director is reelected, if the director initially was elected at an annual meeting) an option to acquire an additional 7,500 shares of Common Stock. The exercise price of options granted following this offering will be the fair market value of the Common Stock on the date of grant. Each option will be non-transferable except upon death (unless otherwise approved by the Board), will expire 10 years after the date of grant and will become exercisable with respect to one-third of the shares of Common Stock issuable thereunder on each of the first three anniversaries of the date of grant if the individual is a director at such time. If the director dies or otherwise ceases to be a director prior to the expiration of an option, the option (if exercisable) will remain exercisable for a period of one year (following death) or three months (following other termination of the individual's status as a director), but in no event beyond the tenth anniversary of the date of grant. The Board of Directors may at any time or times amend the Directors' Plan for any purpose that at the time may be permitted by law. As of the date of this Prospectus, options to purchase 37,500 shares of Common Stock have been granted under the plan. EXECUTIVE COMPENSATION The Company did not pay any compensation to its executive officers in 1996. Equity Incentive Plan The Company has adopted the 1997 Equity Incentive Plan (the "Equity Incentive Plan"), which provides for the award ("Award") of up to 1,000,000 shares of Common Stock in the form of incentive stock options ("ISOs"), non-qualified stock options, stock appreciation rights, performance shares, restricted stock or stock units. All directors and employees of, and all consultants and advisors to, the Company (including its subsidiaries) are eligible to participate in the Equity Incentive Plan. The Equity Incentive Plan will be administered by the Compensation Committee (the "Committee"), which determines who shall receive Awards from those individuals eligible to participate in the Equity Incentive Plan, the type of Award to be made, the number of shares of Common Stock that may be acquired pursuant to the Award and the specific terms and conditions of each Award, including the purchase price, term, vesting schedule, restrictions on transfer and any other conditions and limitations applicable to the Awards or their exercise. Options that are ISOs may be exercisable for not more than 10 years after the date the option is awarded. The Committee may at any time accelerate the exercisability of all or any portion of an option. In the event of a merger or consolidation in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding shares of capital stock, or in the event of the sale or transfer of substantially all of the Company's assets, if the Committee so determines, all outstanding Awards will terminate, provided that on or before 20 days prior to the proposed effective date of any such transaction, the Committee either (i) makes all outstanding Awards exercisable prior to the consummation of the transaction or (ii) arranges for the surviving or acquiring corporation, if any, to grant to participants replacement Awards. 37 39 The Equity Incentive Plan may be amended from time to time by the Board of Directors or terminated in its entirety; however, no amendment may be made without stockholder approval if such approval is necessary to comply with any applicable tax or regulatory requirement. Options to Purchase Shares of Common Stock Messrs. Hulett, Di Lillo and Gagne have been awarded options under the Equity Incentive Plan, effective as of the date of this Prospectus, to purchase 150,000, 75,000 and 75,000 shares of Common Stock, respectively. Each option (i) has a per share exercise price equal to the initial public offering price, (ii) becomes exercisable with respect to one-third of the shares issuable thereunder on each of the first three anniversaries of the closing of this offering and (iii) expires 10 years from the date of grant. With respect to Messrs. Hulett and Gagne, upon the effectiveness of a change in control (as defined in their employment contracts), the stock option granted to each of them will become exercisable in full. In addition, if the Company fails to continue Mr. Hulett's employment following the term of his employment contract for a reason other than for cause (as defined) or disability, then all options held by Mr. Hulett at such time will become exercisable in full. See "--Employment Contracts." In addition to the options granted to Messrs. Hulett, Di Lillo and Gagne, the Company has awarded options under the Equity Incentive Plan, effective as of the date of this Prospectus, to purchase an aggregate of 134,000 shares of Common Stock, with each such option having a per share exercise price equal to the initial public offering price. Employment Contracts Mr. Hulett has a three-year employment contract beginning June 1, 1997 and ending May 31, 2000 to serve as the Company's Chief Executive Officer and President. Under this contract, Mr. Hulett will receive a base salary of $200,000, subject to discretionary increases and also subject to specified increases if the Company achieves budgeted net earnings per share. Mr. Hulett also may receive a bonus of up to 50% of his base salary based on performance goals and other criteria. Mr. Hulett has agreed not to compete with the Company for a period of two years following termination of his employment. From January through May 1997, Mr. Hulett served as a consultant to the Company pursuant to a consulting agreement. Mr. Gagne has an employment contract ending May 31, 2000 to serve as the Company's Chief Financial Officer. Under this contract, Mr. Gagne will receive a base salary of $125,000, subject to discretionary increases, and a bonus of up to 40% of his base salary based on performance goals and other criteria. Under certain circumstances, Mr. Gagne will receive as severance three months' salary, six months' benefits and a pro rata portion of his bonus payment, if payable. In the event of a change in control (as defined), Mr. Gagne may terminate the contract and receive one year's salary and a pro rata portion of his bonus, if payable. Mr. Gagne has agreed not to compete with the Company for a period of two years following termination of his employment. Mr. Di Lillo has an employment contract ending January 2, 2000. Under this contract, Mr. Di Lillo will receive a base salary of $125,000, subject to discretionary increases, and a bonus of up to 40% of his base salary based on performance goals and other criteria. The contract may be terminated by the Company without cause upon the approval of two-thirds of the Company's Board of Directors. Mr. Di Lillo is subject to the non-competition provisions described in "Certain Transactions--Organization of the Company; The Combination." LIMITATION OF CERTAIN LIABILITY OF OFFICERS AND DIRECTORS As permitted by the DGCL, the Company's Certificate of Incorporation provides for the elimination, subject to certain conditions, of the personal liability of directors of the Company for monetary damages for breach of their fiduciary duties. The directors, however, remain subject to equitable remedies. The Company's Certificate of Incorporation also provides that the Company will indemnify its directors and officers. In addition, the Company maintains an indemnification insurance policy covering all directors and officers of the Company. In general, the Company's Certification of Incorporation and the indemnification insurance policy 38 40 attempt to provide the maximum protection permitted by Delaware law with respect to indemnification of directors and officers. Under the indemnification provisions of the Company's Certificate of Incorporation and the indemnification insurance policy, the Company will repay certain expenses incurred by a director or officer in connection with any civil or criminal action or proceeding, and specifically including actions by or in the name of the Company (derivative suits), where the individual's involvement is by reason of the fact that he or she is or was a director or officer of the Company. Such indemnifiable expenses include, to the maximum extent permitted by law, attorney's fees, judgments, civil or criminal fines, settlement amounts, and other expenses customarily incurred in connection with legal proceedings. A director or officer will not receive indemnification if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. 39 41 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock, as of May 1, 1997 and as adjusted to reflect the sale of shares of Common Stock by the Selling Stockholders, of (i) each director of the Company, (ii) certain executive officers of the Company, (iii) all directors and executive officers as a group, (iv) each person or entity known to the Company to beneficially own more than 5% of the outstanding Common Stock and (v) the Selling Stockholders. Except as indicated in the footnotes below, the persons named in this table have sole investment and voting power with respect to the shares beneficially owned by them.
SHARES BENEFICIALLY SHARES TO BE OWNED PRIOR SHARES TO BENEFICIALLY OWNED TO OFFERING(1) BE SOLD AFTER OFFERING(1) ----------------------- IN --------------------- NUMBER PERCENT OFFERING NUMBER PERCENT --------- ------- --------- --------- ------- William N. Hulett, III............... 175,000 3.2% -- 175,000 % Rocco A. Di Lillo(2)................. 810,851 14.8 Mark D. Gagne........................ 81,400 1.5 -- 81,400 Paul M. Verrochi(2).................. 300,500(3) 5.5 -- 300,500 Sandra A. Brown(2)(4)................ 475,000 8.7 Lynda D. Clutchey(2)................. 1,537,285(5) 28.1 (6) Connie F. O'Briant(2)................ 391,408(7) 7.1 Melanie R. Sabelhaus(2).............. 1,001,805(8) 18.3 SLD Partnership(9)................... 1,489,395 27.2 All directors and executive officers as a group (7 persons)............. 4,298,249(10) 78.5
- --------------- * Less than 1% (1) Percentages are based upon 5,475,000 shares of Common Stock outstanding on May 1, 1997 and shares of Common Stock outstanding as of the closing of this offering, respectively. (2) The stockholder's address is c/o BridgeStreet Accommodations, Inc., 1896 Georgetown Road, Hudson, Ohio 44236. (3) Includes 150,250 shares of Common Stock held in a trust for the benefit of Mr. Verrochi's children, with respect to which Mr. Verrochi disclaims beneficial ownership. (4) Ms. Brown is President and Chief Operating Officer of one of the Company's operating subsidiaries. Prior to the Combination, she was a senior executive officer of Home Again. (5) Consists of (i) 47,890 shares of Common Stock held jointly with Ms. Clutchey's spouse and (ii) 1,489,395 shares of Common Stock held by SLD Partnership, an Ohio general partnership, with respect to which Ms. Clutchey shares voting and investment power. Ms. Clutchey and each of two of her siblings owns a one-third interest in SLD Partnership. (6) Represents Ms. Clutchey's one-third interest in the shares of Common Stock being offered by SLD Partnership in this offering. (7) Includes 191,790 shares of Common Stock held by Ms. O'Briant's spouse, as to which shares Ms. O'Briant disclaims beneficial ownership. (8) Includes 18,250 shares of Common Stock held by Ms. Sabelhaus' spouse, as to which shares Ms. Sabelhaus disclaims beneficial ownership. (9) The address of SLD Partnership is 1515 Bethel Road, Columbus, Ohio 43220. (10) See Notes 3, 5, 7 and 8 above. 40 42 CERTAIN TRANSACTIONS ORGANIZATION OF THE COMPANY Start-Up Funding The Company was initially capitalized in August 1996 with an aggregate of $2,000 provided by Messrs. Verrochi, Donald W. Glazer, Joseph E. Palmer, Dominic J. Puopolo and Michael L. Stark. As a result of a 499-for-1 stock split in November 1996 (and following certain subsequent transfers), these individuals currently beneficially own 818,140 shares of Common Stock in the aggregate. ABP Mr. Verrochi, Chairman of the Company, is a principal and Chairman of ABP, and Mr. Glazer, Secretary of the Company, is a principal of ABP. ABP has advanced interest-free funds on behalf of the Company for various expenses incurred by the Company in connection with the Combination and this offering. The Company will repay such funds from the proceeds of this offering. See "Use of Proceeds." ABP has also agreed to assist the Company to complete future acquisitions if the Company so requests. Under the agreement between the parties, which is terminable at will by either party, ABP will receive from the Company in cash 1% of the transaction value of acquisitions for which ABP at the Company's request provides assistance. ABP also will be reimbursed for all direct expenses incurred by ABP in connection with such acquisitions. The Combination In connection with the Combination, the Company acquired all of the issued and outstanding capital stock of the Founding Companies. See "Combination." The aggregate consideration paid by the Company in the Combination was 4,301,000 shares of Common Stock. Of this amount, individuals who are executive officers and/or directors of the Company received the following: Mr. Di Lillo, 835,901 shares; Ms. Sabelhaus, 1,001,805 shares (including shares issued to her spouse); Ms. O'Briant, 391,408 shares (including shares issued to her spouse); and Ms. Clutchey, 1,537,285 shares (including shares issued to a general partnership in which each of Ms. Clutchey and two of her siblings holds a one-third interest). See "Principal and Selling Stockholders." Pursuant to the terms of the agreements by which their Founding Companies were merged into the Company, each of Mr. Di Lillo, Ms. Sabelhaus, Ms. O'Briant and Ms. Clutchey were designated directors of the Company. Each of Ms. Sabelhaus, Ms. O'Briant and Ms. Clutchey has entered into an employment agreement with the Company which provides for an initial base salary of $100,000, subject to upward adjustment in the sole discretion of the Company's Board of Directors, and participation in the Company's bonus and benefit plans. The employment agreements expire on January 2, 2000 but may be terminated earlier in the event of disability, for cause (as defined) or without cause by the approval of two-thirds of the Company's Board of Directors. Mr. Di Lillo also entered into an employment agreement in connection with the Combination. See "Management -- Executive Compensation; Employment Contracts." Each of Mr. Di Lillo, Ms. Sabelhaus, Ms. O'Briant and Ms. Clutchey has agreed not to compete with the Company until January 2, 2002 or, if later, three years from the date of termination of employment by the Company (regardless of the reason therefor). TRANSACTIONS INVOLVING OFFICERS AND DIRECTORS As a result of the Combination, the Company assumed the obligations of TCH under a three-year contract, effective January 1, 1996, with Saturn Enterprises, Inc. ("Saturn"), a corporation of which David Clutchey III is the sole stockholder. Mr. Clutchey is the husband of Lynda Clutchey, a director of BridgeStreet. Pursuant to the contract, TCH leased from Saturn on a non-exclusive basis televisions, VCRs, and microwave ovens. In 1994, 1995 and 1996, TCH paid or accrued expenses under this contract of 41 43 approximately $11,200, $47,400 and $107,300, respectively. The Company has no obligation to lease equipment under the contract, but may continue to do so. BridgeStreet believes that the terms of this contract are no less favorable than could be obtained from non-affiliated parties. The Company also assumed TCH's obligations under an exclusive lease agreement with Integrity Furniture, Inc., a company which is 49% owned by SLD Partnership, an Ohio general partnership in which Ms. Clutchey and two of her siblings each have a one-third interest. The agreement was entered into on September 12, 1995, has a five-year term and provides that the lessor has the exclusive right to furnish all of the Company's leased accommodations in Pittsburgh, Pennsylvania at agreed-upon prices. The initial unit lease terms are for minimum three-month periods that then are renewable monthly. The Company believes that the lease terms are no less favorable than could be obtained from non-affiliated parties. The rental amounts under this contract totalled approximately $213,000 during 1996. Stephen and David Holzer performed consulting services for TCH from June 1992 until November 1996. For such services, each earned $48,000 per year during 1994, 1995 and 1996. The Holzers are brothers of Ms. Clutchey and general partners of SLD Partnership. The consulting agreements were terminated in November 1996. CLI performed certain general and administrative services (e.g., accounting services) for City Visitor, an entity which publishes a travel magazine and is 100% owned by Mr. Di Lillo. For services during 1994, 1995 and 1996, City Visitor paid CLI approximately $42,000, $51,000 and $15,000, respectively. City Visitor sold advertising space in its magazine to CLI during these years, and was paid, respectively, approximately $34,000, $22,000 and $31,000. Following this offering, the Company intends to continue purchasing advertising space from City Visitor from time to time. However, the Company has neither entered into a contract with, nor made any commitment with respect to the amounts of advertising purchases from, City Visitor. The Company believes that the prices currently paid to City Visitor for advertising are no less favorable than could be obtained from non-affiliated third parties. COMPANY POLICY The Company's policy is that any future transactions with directors, officers, employees or affiliates of the Company be approved in advance by a majority of the Company's Board of Directors, including a majority of disinterested directors, and be on terms no less favorable to the Company than the Company could obtain from non-affiliated parties. 42 44 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 35,000,000 shares of Common Stock, $.01 par value per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share. The following summary of the Common Stock and the Preferred Stock is qualified by reference to the Company's Amended and Restated Certificate of Incorporation and By-laws included as exhibits to the Registration Statement of which this Prospectus is a part. COMMON STOCK The Company had outstanding immediately prior to this offering 5,475,000 shares of Common Stock and options to purchase an aggregate of 471,500 shares of Common Stock. A total of 1,000,000 shares of Common Stock are reserved for issuance under the Equity Incentive Plan and a total of 100,000 shares of Common Stock are reserved for issuance under the Directors' Plan. Holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors of the Company out of funds legally available therefor. See "Dividend Policy." All outstanding shares of Common Stock are, and the shares to be sold in this offering when issued and paid for will be, fully paid and nonassessable, and the holders thereof will have no preferences or conversion, exchange or pre-emptive rights. In the event of any liquidation, dissolution or winding-up of the affairs of the Company, holders of Common Stock will be entitled to share ratably in the assets of the Company remaining after payment or provision for payment of all of the Company's debts and obligations and after liquidation payments to holders of outstanding shares of Preferred Stock, if any. PREFERRED STOCK The Preferred Stock, if issued, would have priority over the Common Stock with respect to dividends and other distributions, including the distribution of assets upon liquidation. The Board of Directors has the authority, without further stockholder authorization, to issue from time to time shares of Preferred Stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series. In addition to having a preference with respect to dividends or liquidation proceeds, the Preferred Stock, if issued, may be entitled to the allocation of capital gains from the sale of the Company's assets. Although the Company has no present plans to issue any shares of Preferred Stock following the closing of this offering, the issuance of shares of Preferred Stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of Common Stock, could adversely affect the rights and powers, including voting rights, of the Common Stock, and could have the effect of delaying, deterring or preventing a change in control of the Company or an unsolicited acquisition proposal. ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF DIRECTORS The By-laws establish an advance notice procedure with regard to the nomination by the stockholders of the Company of candidates for election as directors and with regard to other matters to be brought by stockholders before a meeting of stockholders of the Company. These procedures require that a stockholder seeking to nominate a director or propose business at an annual meeting give written notice of such nomination or proposal, delivered to or mailed and received by the Secretary of the Company at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting. Detailed requirements as to the form, timing and substance of that notice are specified in the By-laws. No persons shall be eligible for election as a director of the Company nor shall any business matter be conducted unless nominated or proposed, as the case may be, in strict accordance with the procedures set forth in the Company's By-laws, as determined by the President of the Company. Although the By-laws do not give the Board of Directors any power to approve or disapprove stockholder nominations for the election of directors or of any other business desired by stockholders to be conducted at an annual or any other meeting, the By-laws (i) may have the effect of precluding nominations for the election of 43 45 directors or precluding the conduct of business at a particular annual meeting if the proper procedures are not followed or (ii) may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company, even if the conduct of such solicitation or such attempt might be beneficial to the Company and its stockholders. OTHER PROVISIONS Special Meetings of the Stockholders of the Company. The Company's By-laws provide that a special meeting of the stockholders of the Company only may be called by the President, the Chairman of the Board or by order of the Board of Directors. The By-laws do not authorize the stockholders to call a special meeting of stockholders, potentially limiting the stockholders' ability to offer proposals between annual meetings if no special meetings are otherwise called by the President, Chairman or the Board. Amendment of the By-laws. The Company's Certificate of Incorporation provides that the By-laws may be amended only by a majority vote of the Board of Directors or by a vote of at least 75% of the outstanding shares of the Company's stock entitled to vote in the election of directors. No Action by Written Consent. The Company's Certificate of Incorporation does not permit the Company's stockholders to act by written consent. As a result, any action to be taken by the Company's stockholders must be taken at a duly called meeting of the stockholders. DELAWARE ANTI-TAKEOVER STATUTE The Company is subject to Section 203 of the DGCL which, with certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and officers and (b) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer or (iii) on or after such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. An "interested stockholder" is defined as any person that is (i) the owner of 15% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. TRANSFER AGENT The transfer agent and registrar for the Company will be selected prior to the closing of this offering. 44 46 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have shares of Common Stock issued and outstanding, and 471,500 shares of Common Stock issuable upon the exercise of outstanding options. Of these shares, shares sold pursuant to this offering (or shares, if the Underwriters' over-allotment option is exercised in full) will be freely tradeable without restriction under the Securities Act, except any shares purchased by an "affiliate" (as that term is defined under the rules and regulations of the Securities Act) of the Company, which shares will be subject to the resale limitations of Rule 144 of the Securities Act. The remaining shares outstanding upon completion of this offering will be subject to the resale limitations of Rule 144. In general, under Rule 144, if a period of at least one year has elapsed between the later of the date on which restricted securities were acquired from the Company and the date on which they were acquired from an affiliate, then the holder of such restricted securities (including an affiliate) is entitled to sell that number of shares within any three-month period that does not exceed the greater of (i) one percent of the then outstanding shares of Common Stock or (ii) the average weekly reported volume of trading of Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 also are subject to certain requirements pertaining to the manner of sales, notices of sales and the availability of current public information concerning the Company. Any shares not constituting restricted securities sold by affiliates must be sold in accordance with the foregoing volume limitations and other requirements but without regard to the one year holding period. Under Rule 144(k), if a period of at least two years has elapsed from the later of the date on which restricted securities were acquired from the Company and the date on which they were acquired from the affiliate, a holder of such restricted securities who is not an affiliate at the time of the sale and has not been an affiliate for at least three months prior to the sale would be entitled to sell the shares immediately without regard to the volume limitations and other conditions described above. The Company and each of its directors, executive officers and existing stockholders has agreed not to offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock or securities convertible into or exchangeable for Common Stock or warrants or other rights to acquire shares of Common Stock which may now or in the future be beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such persons (other than pursuant to employee stock option plans or in connection with other employee incentive compensation arrangements) prior to the expiration of 180 days from the date of this Prospectus, except (i) for shares of Common Stock offered hereby, (ii) with the prior written consent of Legg Mason Wood Walker, Incorporated or (iii) with respect to the Company, in connection with acquisitions or upon the exercise of options, or the grant of options to purchase shares of Common Stock, pursuant to the Equity Incentive Plan and the Directors' Plan. An additional 100,000 shares of Common Stock are reserved for issuance under the Directors' Plan and 1,000,000 shares are reserved for issuance under the Equity Incentive Plan. The Company presently intends to file a registration statement under the Securities Act to register Common Stock to be issued pursuant to exercise of options granted or to be granted under the Directors' Plan and Equity Incentive Plan. Common Stock issued after the effective date of such registration statement upon exercise of such options would be available for immediate resale in the open market, subject to compliance with Rule 144 in the case of affiliates. Prior to this offering, there has been no public market for the Common Stock of the Company, and no predictions can be made of the effect, if any, that the availability of shares for sale or the actual sale of shares will have on market prices prevailing from time to time. 45 47 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part, the Underwriters named below have agreed, severally and not jointly, through Legg Mason Wood Walker, Incorporated, the Representative of the Underwriters, to purchase from the Company and the Selling Stockholders, and the Company and the Selling Stockholders have agreed to sell to the Underwriters, the number of shares of Common Stock set forth opposite the name of the respective Underwriter at the Price to Public less the Underwriting Discount set forth on the cover page of this Prospectus.
UNDERWRITER NUMBER OF SHARES ----------- ---------------- Legg Mason Wood Walker, Incorporated......................... --------- Total.............................................. =========
The Underwriting Agreement provides that the obligations of the Underwriters to purchase the shares listed above are subject to certain conditions. The Underwriting Agreement also provides that the Underwriters are committed to purchase, and the Company is obligated to sell, all of the shares offered by this Prospectus, if any of the shares being sold pursuant to the Underwriting Agreement are purchased (without consideration of any shares that may be purchased through the exercise of the Underwriters' over-allotment option). The Representative has advised the Company that the Underwriters propose to offer the shares to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession to other dealers not in excess of $ per share. After the initial public offering of the shares, the public offering price, the concessions to selected dealers and the reallowance to other dealers may be changed by the Representative. The Company has granted to the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an additional shares of Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less underwriting discounts and commissions. The Underwriters may exercise such option only to cover over-allotments, if any, incurred in the sale of the shares. To the extent the Underwriters exercise such option, each of the Underwriters will become obligated, subject to certain conditions, to purchase the percentage of such additional shares of Common Stock that is approximately equal to the percentage of shares it is obligated to purchase as shown in the table set forth above. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. The Company and each of its directors, executive officers and existing stockholders have agreed not to offer to sell, sell, contract to sell, grant any option to purchase or otherwise dispose of, directly or indirectly, any shares of capital stock of the Company or securities convertible into or exchangeable for capital stock or warrants or other rights to acquire shares of capital stock of the Company which may now or in the future be beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such persons (other than pursuant to employee stock option plans or in connection with other employee incentive compensation arrangements) prior to the expiration of 180 days from the date of this Prospectus, except (i) for shares of Common Stock offered hereby, (ii) with the prior written consent of Legg Mason Wood Walker, Incorpo- 46 48 rated, and (iii) with respect to the Company, in connection with acquisitions or upon the exercise of options, or the grant of options to purchase shares of Common Stock, pursuant to the Equity Incentive Plan and the Directors' Plan. At the request of the Company, the Underwriters have reserved for sale, at the initial public offering price, up to shares offered hereby for officers, employees, business associates and related persons of the Company who have expressed an interest in purchasing Common Stock. The number of shares of Common Stock available for sale to the general public will be reduced to the extent such persons purchase reserved shares. Any reserved shares that are not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. The Representative has informed the Company and the Selling Stockholders that the Underwriters do not expect sales to discretionary accounts to exceed 5% of the total number of shares offered hereby and that the Underwriters do not intend to confirm sales of shares to any account over which they exercise discretionary authority. Prior to this offering, there has been no public market for the Common Stock of the Company. The proposed initial public offering price has been determined by negotiations among the Company, the Selling Stockholders and the Representative. Among the factors considered in determining the initial public offering price, in addition to prevailing market conditions, were certain financial information of the Company, the history of, and prospects for, the Company and the industry in which it competes, an assessment of the Company's management, its past and present operations, the prospects for, and timing of, future revenues of the Company, the present state of the Company's development, and the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to the Company. The initial public offering price set forth on the cover page of this Prospectus should not, however, be considered an indication of the actual value of the Common Stock. Such price is subject to change as a result of market conditions and other factors. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to this offering at or above the initial public offering price. Until the distribution of the Common Stock is completed, rules of the Securities and Exchange Commission may limit the ability of the Representative to bid for and purchase the Common Stock. As an exception to these rules, the Representative is permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the Representative creates a short position in the Common Stock in connection with the offering, i.e., if it sells more shares of Common Stock than are set forth on the cover page of this Prospectus, the Representative may reduce that short position by purchasing shares of Common Stock in the open market. The Representative may also elect to reduce any short position by exercising all or part of the over-allotment option described above. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. Neither the Company nor the Representative makes any representation or prediction as to the direction or magnitude of any effect that the transaction described above might have on the price of the Common Stock. In addition, neither the Company nor the Representative makes any representation that the Representative will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Under the rules of the National Association of Securities Dealers, Inc. (the "NASD"), when a NASD member participates in the distribution of equity securities of a company with which an affiliate of such member has a conflict of interest, the public offering price can be no higher than the price recommended by a "qualified independent underwriter" (as defined in NASD Rule 2720) (a "QIU"). The NASD requires that a QIU (i) be a NASD member experienced in the securities or investment banking business, (ii) not be an affiliate of the issuer of the securities, and (iii) agree to undertake the responsibilities and liabilities of an underwriter under the Securities Act. Mr. Robert G. Sabelhaus, an Executive Vice President and Director of 47 49 Sales of Legg Mason Wood Walker, Incorporated, is the husband of Melanie R. Sabelhaus, a director of the Company. Together, the Sabelhauses currently own, and following completion of the offering will continue to own, 10% or more of the Common Stock of the Company. See "Principal and Selling Stockholders." In accordance with the Rules of the NASD, , has agreed to serve as QIU in this offering and to recommend an initial public offering price for the Common Stock in compliance with Rule 2720 of the NASD, , in its role as QIU, has performed due diligence investigations and reviewed and participated in the preparation of the Prospectus and the Registration Statement of which the Prospectus forms a part, although, in such capacity, it will receive no additional compensation in connection with this offering. LEGAL MATTERS The validity of the shares offered will be passed upon for the Company by Nutter, McClennen & Fish, LLP, Boston, Massachusetts. Certain legal matters will be passed upon for the Underwriters by Goodwin, Procter & Hoar, LLP. EXPERTS The financial statements and schedule included in this Prospectus and elsewhere in the Registration Statement, to the extent of and for the periods indicated in the reports, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act and the rules and regulations promulgated thereunder, with respect to the Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement, and reference is made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the Common Stock offered hereby. Statements contained in this Prospectus concerning the provisions or contents of any contract, agreement or any other document referred to herein are not necessarily complete with respect to each such contract, agreement or document filed as an exhibit to the Registration Statement, and reference is made to such exhibit for a more complete description of the matters involved, and each such statement shall be deemed qualified by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement or any part thereof may be obtained from such office, upon payment of the fees prescribed by the Commission. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that submit electronic filings to the Commission. 48 50 INDEX TO FINANCIAL STATEMENTS
PAGE ---- UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS Basis of Presentation............................................................... F-3 Pro Forma Combined Balance Sheet as of December 31, 1996 (unaudited)................ F-4 Pro Forma Combined Statement of Operations for the Year Ended December 31, 1996 (unaudited)...................................................................... F-5 Notes to Unaudited Pro Forma Combined Financial Statements.......................... F-6 HISTORICAL FINANCIAL STATEMENTS BRIDGESTREET ACCOMMODATIONS, INC. Report of Independent Public Accountants......................................... F-7 Balance Sheet.................................................................... F-8 Statement of Operations.......................................................... F-9 Statement of Stockholders' Equity................................................ F-10 Statement of Cash Flows.......................................................... F-11 Notes to Financial Statements.................................................... F-12 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. Report of Independent Public Accountants......................................... F-15 Combined Balance Sheets.......................................................... F-16 Combined Statements of Operations................................................ F-17 Combined Statements of Stockholders' Equity...................................... F-18 Combined Statements of Cash Flows................................................ F-19 Notes to Combined Financial Statements........................................... F-20 CORPORATE LODGINGS, INC. Report of Independent Public Accountants......................................... F-26 Combined Balance Sheets.......................................................... F-27 Combined Statements of Operations................................................ F-28 Combined Statements of Stockholders' Equity (Deficit)............................ F-29 Combined Statements of Cash Flows................................................ F-30 Notes to Combined Financial Statements........................................... F-31 EXCLUSIVE INTERIM PROPERTIES, LTD. Report of Independent Public Accountants......................................... F-36 Combined Balance Sheets.......................................................... F-37 Combined Statements of Operations................................................ F-38 Combined Statements of Stockholders' Equity...................................... F-39 Statements of Cash Flows......................................................... F-40 Notes to Combined Financial Statements........................................... F-41
F-1 51
PAGE ---- HOME AGAIN, INC. Report of Independent Public Accountants......................................... F-46 Combined Balance Sheets.......................................................... F-47 Combined Statements of Operations................................................ F-48 Combined Statements of Stockholder's Equity...................................... F-49 Combined Statements of Cash Flows................................................ F-50 Notes to Combined Financial Statements........................................... F-51 TEMPORARY HOUSING EXPERTS, INC. Report of Independent Public Accountants......................................... F-54 Balance Sheets................................................................... F-55 Statements of Operations......................................................... F-56 Statements of Stockholders' Equity............................................... F-57 Statements of Cash Flows......................................................... F-58 Notes to Financial Statements.................................................... F-59
F-2 52 BRIDGESTREET ACCOMMODATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS BASIS OF PRESENTATION The following unaudited pro forma combined financial statements give effect to the acquisitions by BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company"), through stock-for-stock mergers (the "Combination"), of the following providers of flexible accommodation services: (i) Temporary Corporate Housing Columbus, Inc. and three affiliates ("TCH"), (ii) Exclusive Interim Properties, Ltd. and an affiliate ("EIP"), (iii) Corporate Lodgings, Inc. and four affiliates ("CLI"), (iv) Home Again, Inc. and two affiliates ("Home Again") and (v) Temporary Housing Experts, Inc. ("THEI") (collectively, the "Founding Companies"). The acquisitions have been accounted for using the purchase method of accounting, and TCH has been identified as the acquiror for financial presentation purposes. The unaudited pro forma combined financial statements also give effect to this offering and the use of proceeds from this offering as described under "Use of Proceeds." These financial statements are based on the historical financial statements of the Founding Companies included elsewhere in this Prospectus and the estimates and assumptions set forth herein. The unaudited pro forma combined balance sheet gives effect to the Combination, and the payment of the related purchase prices for the Founding Companies, as if the Combination had occurred on December 31, 1996. The allocation of the purchase price to the assets acquired and the liabilities assumed initially has been assigned and recorded based on estimates of their fair value, and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. The purchase price represents a fair market valuation of the acquired entities as determined by an independent investment banking firm based on specific information regarding each of the Founding Companies, which included historical financial statements, tax returns and detailed discussions with each company's management as to operations, financial condition and future prospects. Other valuation factors included published industry information and certain financial analyses. The unaudited pro forma combined statement of operations for the year ended December 31, 1996 gives effect to the Combination as if it had occurred on January 1, 1996. The historical results of operations for EIP represents 12 months derived from the unaudited three months ended March 31, 1996 and the audited nine months ended December 31, 1996. In the opinion of management, all adjustments necessary to present fairly the pro forma financial statements have been made. The unaudited pro forma combined financial information presented herein does not purport to represent what the Company's financial position and results of operations actually would have been had such events occurred on the dates noted above, or to project the Company's financial position or results of operations for any future period or the future results of the Founding Companies. The unaudited pro forma combined financial statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Prospectus. F-3 53 BRIDGESTREET ACCOMMODATIONS, INC. AND FOUNDING COMPANIES PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 1996 (IN THOUSANDS)
HOME PRO FORMA TCH CLI THEI EIP AGAIN BRIDGESTREET ADJUSTMENTS ------ ------ ---- ------ ---- ------------ ----------- ASSETS Current Assets: Cash and cash equivalents............................ $ 598 $ 180 $ 52 $ -- $146 $ 6 $ -- Investments in short-term marketable securities...... 152 -- -- -- -- -- -- Accounts receivables, net............................ 795 604 99 418 108 -- -- Security deposits held by landlords.................. -- -- 24 151 8 -- -- Deferred tax asset................................... 129 28 71 167 -- 1 -- Prepaid expense & other.............................. 34 126 26 -- 218 -- -- ------- ------- ----- ------- ----- ----- --- ----- Total current assets............................... 1,708 938 272 736 480 7 -- Operating stock........................................ 268 -- 146 580 196 -- -- Property and equipment................................. 27 118 57 1,392 143 -- -- Other assets........................................... -- 1 -- 8 -- 412 (176)(d) Notes receivable-stockholders related party............ 10 -- Goodwill............................................... -- -- -- -- -- -- 6,031(c) ------- ------- ----- ------- ----- ----- --- ----- Total assets................................... $2,013 $1,057 $475 $2,716 $819 $419 $ 5,855 ========== ========== ======== ========== ======== ======== ===== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt................. $ -- $ 10 $ 19 $ 137 $ 9 $ -- $ -- Due to stockholders and affiliates................... -- 28 -- 93 191 417 -- Accounts payable and accrued expenses................ 622 440 58 584 366 -- -- Accrued income taxes................................. 100 76 16 -- -- -- -- Deferred income...................................... -- 428 34 155 31 -- -- Refundable deposits.................................. -- -- 50 260 60 -- -- ------- ------- ----- ------- ----- ----- --- ----- Total current liabilities.......................... 722 982 177 1,231 657 417 -- Long-term debt, net of current maturities.............. -- -- 12 1,049 26 -- -- Deferred income taxes.................................. 107 -- 58 233 -- -- -- Stockholders' Equity (Deficit): Common stock......................................... 31 5 1 -- 3 12 3(d) Additional paid in capital........................... -- 180 -- 76 -- (9) 7,382(d) Treasury stock....................................... (4) -- -- -- -- -- 4(d) Retained earnings (deficit).......................... 1,157 (110) 227 127 133 (1) 1,534(d) ------- ------- ----- ------- ----- ----- --- ----- Total stockholders' equity......................... 1,184 75 228 203 136 2 5,855 ------- ------- ----- ------- ----- ----- --- ----- Total liabilities and stockholders' equity..... $2,013 $1,057 $475 $2,716 $819 $419 $ 5,855 ========== ========== ======== ========== ======== ======== ===== PRO FORMA PRO FORMA ADJUSTMENTS AS ADJUSTED --------- ----------- ----------- < ASSETS Current Assets: Cash and cash equivalents............................ $ 982 $ 9,858(a) $10,840 Investments in short-term marketable securities...... 152 -- 152 Accounts receivables, net............................ 2,024 -- 2,024 Security deposits held by landlords.................. 183 -- 183 Deferred tax asset................................... 395 -- 395 Prepaid expense & other.............................. 404 -- 404 ------ -------- --- -------- --- Total current assets............................... 4,140 9,858 13,998 Operating stock........................................ 1,190 -- 1,190 Property and equipment................................. 1,737 -- 1,737 Other assets........................................... 245 (235)(e) 10 Notes receivable-stockholders related party............ 10 -- 10 Goodwill............................................... 6,031 -- 6,031 ------ -------- --- -------- --- Total assets................................... $13,353 $ 9,623 $22,976 ====== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt................. $ 175 $ (175)(b) $ -- Due to stockholders and affiliates................... 731 (731)(b) -- Accounts payable and accrued expenses................ 2,070 -- 2,070 Accrued income taxes................................. 192 -- 192 Deferred income...................................... 648 -- 648 Refundable deposits.................................. 370 -- 370 ------ -------- --- -------- --- Total current liabilities.......................... 4,186 (906) 3,280 Long-term debt, net of current maturities.............. 1,087 (1,087)(b) -- Deferred income taxes.................................. 398 -- 398 Stockholders' Equity (Deficit): Common stock......................................... 55 --(e) 55 Additional paid in capital........................... 7,628 11,616(e) 19,244 Treasury stock....................................... -- -- -- Retained earnings (deficit).......................... (1) -- (1) ------ -------- --- -------- --- Total stockholders' equity......................... 7,682 11,616 19,298 ------ -------- --- -------- --- Total liabilities and stockholders' equity..... $13,353 $ 9,623 $22,976 ====== =========== ===========
See accompanying notes to pro forma financial statements. F-4 54 BRIDGESTREET ACCOMMODATIONS, INC. AND FOUNDING COMPANIES PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDING DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
HOME TCH CLI THEI EIP AGAIN BRIDGESTREET ADJUSTMENTS(J) PRO FORMA ----------- ---------- ---------- ---------- ---------- ------------ -------------- ----------- Revenues........ $ 12,502 $ 8,820 $ 3,583 $ 8,626 $ 4,035 $ -- $ -- $ 37,566 Cost of services....... 9,088 6,106 2,578 7,039 3,134 -- $ -- 27,945 Selling, general and administrative expense........ 2,327 2,519 1,078 1,374 586 2 (552)(f) 7,334 Goodwill amortization... -- -- -- -- -- -- 172(g) 172 ----------- ---------- ---------- ---------- ---------- ---------- ------- -------- Operating income (loss)......... 1,087 195 (73) 213 315 (2) 380 2,115 Other income (expenses)..... 89 (206) 5 (130) 77 -- 158(h) (7) ----------- ---------- ---------- ---------- ---------- ---------- ------- -------- Income (loss) before provision for income taxes.......... 1,176 (11) (68) 83 392 (2) 538 2,108 Provision (benefit) for income taxes... 513 9 (23) 41 -- (1) 373(i) 912 ----------- ---------- ---------- ---------- ---------- ---------- ------- -------- Net income (loss)......... $ 663 $ (20) $ (45) $ 42 $ 392 $ (1) $ 165 $ 1,196 =========== ========== ========== ========== ========== ========== ======= ======== Pro forma net income per share.......... $ ======== Shares used in computing pro forma net income per share..........
See accompanying notes to pro forma financial statements. F-5 55 NOTES TO PRO FORMA FINANCIAL STATEMENTS 1. BACKGROUND BridgeStreet was incorporated in August 1996 with the objective of becoming a leading national provider of flexible accommodation services. During the first quarter of 1997, the Company acquired all of the outstanding stock of the Founding Companies in exchange for 4,301,000 shares of Common Stock of the Company. The Company conducted no operations prior to January 2, 1997 except in connection with this offering and the Combination. For financial reporting purposes, TCH has been designated as the accounting acquiror, and its acquisition of the remaining four Founding Companies has been accounted for using the purchase method of accounting. 2. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) (a) Records the net increase to cash from the net proceeds of this offering of shares of Common Stock at an assumed offering price of $ per share, less underwriters' discounts and other offering costs, and less the use of proceeds to pay down approximately $1,262 of bank debt and $731 payable to stockholders and affiliates. (b) Records the assumed repayment of bank debt and amounts payable to stockholders and affiliates. (c) Records the goodwill resulting from the acquisition of four of the Founding Companies by TCH. The goodwill is calculated as follows: Appraised value of the four Founding Companies................... $ 5,630 Transaction costs................................................ 1,042 ---------- Total purchase price............................................. 6,672 Less: fair market value of net assets acquired................... 641 ---------- Goodwill......................................................... $ 6,031 ==========
(d) Increase in stockholders' equity to record fair market value of shares issued to acquire Founding Companies other than TCH, record transaction fees paid in Company stock and eliminate in consolidation the Founding Companies' equity sections. Also allocates to paid-in capital $176 of deferred merger costs. (e) Records net proceeds of this offering assuming an offering price of $ per share less underwriters' commissions and other offering costs of $3,000. Also allocates to paid-in capital $235 of deferred offering costs. 3. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (f) Compensation to certain executives of the Founding Companies has been adjusted to reflect the compensation to be paid pursuant to employment agreements signed in connection with the Combination. (g) Amortization of goodwill over 35 years. (h) Interest expense related to the bank debt and notes payable to stockholders has been eliminated because it is assumed to have been repaid at the beginning of the period. (i) Pro forma provision for income taxes has been adjusted to reflect the Company's estimated consolidated effective tax rate subsequent to the Combination, after considering nondeductible goodwill amortization. (j) The pro forma combined statement of operations excludes any adjustments for the compensation to be paid in 1997 for services to be rendered in 1997 by the Company's Chief Executive Officer and Chief Financial Officer pursuant to their employment agreements. The statement also excludes approximately $563 of non-recurring non-cash compensation expense recorded in the first quarter of 1997 in connection with the vesting of restricted stock. F-6 56 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of BridgeStreet Accommodations, Inc.: We have audited the accompanying balance sheet of BridgeStreet Accommodations, Inc. as of December 31, 1996, and the related statement of operations, stockholders' equity and cash flows from Inception (August 19, 1996) through December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements arc 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 BridgeStreet Accommodations, Inc. as of December 31, 1996, and the results of its operations and its cash flows from inception through December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts April 10, 1997 F-7 57 BRIDGESTREET ACCOMMODATIONS, INC. BALANCE SHEET
DECEMBER 31, 1996 ------------ ASSETS Current Assets: Cash and cash equivalents..................................................... $ 5,804 Deferred income taxes......................................................... 890 -------- Total current assets....................................................... 6,694 Deferred offering and merger costs.............................................. 411,783 Organization costs.............................................................. 449 -------- Total assets.......................................................... $418,926 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Due to affiliate.............................................................. $417,546 Stockholders' Equity: Capital stock................................................................. 11,740 Additional paid-in capital.................................................... (9,024) Accumulated deficit........................................................... (1,336) -------- Total stockholders' equity................................................. 1,380 -------- Total liabilities and stockholders' equity............................ $418,926 ========
The accompanying notes are an integral part of these financial statements. F-8 58 BRIDGESTREET ACCOMMODATIONS, INC. STATEMENT OF OPERATIONS
INCEPTION (AUGUST 19, 1996) THROUGH DECEMBER 31, 1996 ----------------- Revenues..................................................................... $ -- Selling, general and administrative expense.................................. 2,226 ------- Loss before benefit for income taxes......................................... (2,226) Benefit for income taxes..................................................... (890) ------- Net loss..................................................................... $(1,336) =======
The accompanying notes are an integral part of these financial statements. F-9 59 BRIDGESTREET ACCOMMODATIONS, INC. STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TOTAL --------------------- PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY --------- ------- ---------- ----------- ------------- Balance, inception, August 19, 1996............................ -- $ -- $ -- $ -- $ -- Shares issued................... 1,174,000 11,740 (9,024) -- 2,716 Net loss........................ -- -- -- (1,336) (1,336) ------- ------ ------- ------- ------- Balance, December 31, 1996........ 1,174,000 $11,740 $ (9,024) $(1,336) $ 1,380 ======= ====== ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-10 60 BRIDGESTREET ACCOMMODATIONS, INC. STATEMENT OF CASH FLOWS
INCEPTION (AUGUST 19, 1996) THROUGH DECEMBER 31, 1996 ----------------- Cash Flows From Operating Activities: Net loss................................................................... $(1,336) Adjustments to reconcile net loss to net cash used in operating activities -- Change in assets and liabilities -- Deferred income taxes................................................. (890) ------- Net cash used in operating activities.............................. (2,226) Cash Flows Used in Investing Activities: Organization costs......................................................... (449) Cash Flows From Financing Activities: Advances from affiliate.................................................... 5,763 Issuance of common stock................................................... 2,716 ------- Net cash provided by financing activities.......................... 8,479 ------- Net increase in cash and cash equivalents.................................... 5,804 Cash and cash equivalents, beginning of period..................... -- ------- Cash and cash equivalents, end of period........................... $ 5,804 =======
The accompanying notes are an integral part of these financial statements. F-11 61 BRIDGESTREET ACCOMMODATIONS, INC. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION BridgeStreet Accommodations, Inc. ("BridgeStreet" or "the Company") was incorporated on August 19, 1996 to create a leading national provider of flexible accommodation services through the acquisition and consolidation of the operations of flexible accommodation service companies. During the first quarter of 1997 the Company acquired, through stock-for-stock transactions, five flexible accommodation service providers (the "Combination"). BridgeStreet intends to complete an initial public offering (the "Offering") of its common stock and subsequent to the Offering continue to acquire, through merger or purchase, similar companies to expand its national and regional operations. BridgeStreet's primary assets at December 31, 1996 are cash and deferred offering and merger costs. BridgeStreet's only operations to date have related to the Combination and the Offering. Funding for the deferred offering and merger costs has been provided by American Business Partners, LLC ("ABP"). See Note 4. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of these financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Stock Based Compensation Plans The Company intends to account for its stock-based compensation plans under Statement of Financial Accounting Standards ("SFAS") No. 123, and to elect the disclosure only provisions for stock options as permitted by SFAS No. 123. 3. INCOME TAXES The Company records income taxes pursuant to SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred income taxes of a change in tax rates is recognized as income in the period that includes the enactment. At December 31, 1996 the Company has recorded as an asset deferred income taxes of $890. 4. RELATED PARTY TRANSACTIONS Funding for the deferred Offering and merger costs has been provided by ABP. Certain shareholders of BridgeStreet are principals of ABP including the Company's Chairman. In addition, the Chief Financial Officer of the Company was a consultant to ABP from January 1996 through December 1996, and the Chief F-12 62 BRIDGESTREET ACCOMMODATIONS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Executive Officer of the Company was a consultant to ABP from October 31, 1996 through December 31, 1996. At December 31, 1996 ABP has provided aggregate funding of $417,546. Upon completion of the Offering the Company will pay ABP for the funding it provided. The Company also has a consulting agreement with ABP in which ABP will perform services for the Company in connection with its acquisition program. In exchange for such services, ABP will be paid a fee of 1% of the transaction value for each acquisition by the Company after the closing of the Offering for which ABP provides assistance. ABP also will be reimbursed for all direct expenses incurred by ABP in connection with such acquisitions. The Company is not obligated to utilize ABP's services in connection with its acquisition program. 5. CAPITAL STOCK: The Company's authorized capital stock consists of 35,000,000 (increased on April 10, 1997, from 10,000,000 at December 31, 1996) shares of Common Stock, $0.01 par value per share, and 5,000,000 shares of Preferred Stock, $0.01 par value per share. Common Stock. BridgeStreet effected a 499-for-one stock split in November 1996 of its Common Stock for each share of Common Stock then outstanding. The effects of the stock split have been retroactively reflected on the balance sheet and in the accompanying notes. At December 31, 1996 there were 1,174,000 shares of Common Stock outstanding. Holders of Common Stock are entitled to one vote for each share held of record on all matters to be submitted to a vote of the stockholders, and do not have cumulative voting rights. In the event of any liquidation, dissolution or winding-up of the affairs of the Company, holders of Common Stock will be entitled to share ratably in the assets of the Company remaining after payment or provision for payment of all of the Company's debts and obligations and after liquidation payments to holders of outstanding shares of Preferred Stock, if any. Preferred Stock. At December 31, 1996 there were no shares of Preferred Stock outstanding. Holders of Preferred Stock would have priority over the holders of Common Stock with respect to dividends, and to other distributions, including the distribution of assets upon liquidation. The Board of Directors has the authority, without stockholder authorization, to issue shares of Preferred Stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations as among series. 6. STOCK OPTION PLANS The Company has adopted the 1997 Equity Incentive Plan (the "Equity Incentive Plan") which provides for the award of incentive stock options ("ISOs"), non-qualified stock options, stock appreciation rights, performance shares, restricted stock or stock units to all directors and employees of (including directors and employees of the Founding Companies) and consultants and advisors to the Company. The number of shares authorized and reserved for issuance under the Equity Incentive Plan is 1,000,000. In general, the terms of awards granted under the Equity Incentive Plan (including vesting schedules) will be established by the Compensation Committee of the Company's Board of Directors. As of April 10, 1997 the Company had awarded options to purchase 334,000 shares of Common Stock under the Equity Incentive Plan effective as of the date of the final Prospectus used in connection with the Offering. Of this amount, options to purchase 300,000 shares were granted pursuant to employment agreements. Each option will have a per-share exercise price equal to the Offering price. The Company has adopted the Stock Plan for Non-Employee Directors (the "Directors' Plan"). Pursuant to the Directors' Plan, on the date of the final Prospectus used in connection with the Offering, each director who is not an employee of the Company or one of its subsidiaries (a "non-employee director") and neither is a holder of five percent or more of the Company's Common Stock nor was a stockholder of the Company prior to the Offering will receive options to purchase 12,500 shares of Common Stock with a per- F-13 63 BRIDGESTREET ACCOMMODATIONS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) share exercise price equal to the Offering price. Thereafter, each such non-employee director will be granted, on every third anniversary of the final Prospectus (provided he or she still is a non-employee director at such time), an option to acquire an additional 7,500 shares of Common Stock, and each non-employee director initially elected following the Offering also will be granted an option to purchase 7,500 shares of Common Stock having a per-share exercise price equal to the fair market value of the Common Stock on the date of such grant. The number of shares authorized and reserved for issuance under the Directors Plan is 100,000. No options have been granted under the plan as of April 10, 1997. 7. COMMITMENTS Subsequent to December 31, 1996 the Company entered into three year employment contracts with three officers requiring minimum base salaries aggregating $450,000 per year. The contracts also provide severance benefits of up to 12 months' pay for two of the officers. 8. RESTRICTED STOCK COMPENSATION In 1996, the CEO and CFO purchased 225,000 shares of restricted Common Stock, which vested when the restrictions were removed on March 31, 1997. In connection with this vesting, the Company recognized non-recurring, non-cash compensation expense of approximately $563,000, which will be charged to operations with an offsetting credit to Additional paid-in capital in the first quarter of 1997. The compensation charge of approximately $563,000 represented the difference between the value of the stock issued and the amount paid by the officers, measured by an independent appraisal as of the date the individuals were appointed to be the CEO and CFO. 9. SUBSEQUENT EVENTS During the first quarter of 1997, the Company acquired through stock-for-stock mergers five flexible accommodation service providers. The aggregate consideration paid by the Company was 4,301,000 shares of Common Stock. The companies acquired were Temporary Corporate Housing Columbus, Inc. (together with its three affiliates), Corporate Lodgings, Inc. (together with its four affiliates), Exclusive Interim Properties, Ltd. (together with its affiliate), Home Again, Inc. (together with its two affiliates) and Temporary Housing Experts, Inc. During the first quarter of 1997 the Company entered into a credit agreement with a bank to provide up to $10 million of revolving credit. The revolving credit, secured by the capital stock of the Company's operating subsidiaries, extends to March 31, 2002. Interest is payable at the prime rate or 1.25% above the Eurodollar rate. A commitment fee is payable on the average unused credit at a rate of 0.375%. The revolving credit agreement contains certain restrictive covenants with which the Company must comply. F-14 64 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Temporary Corporate Housing Columbus, Inc.: We have audited the accompanying combined balance sheets of Temporary Corporate Housing Columbus, Inc. as of December 31, 1995 and 1996, and the related combined statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Temporary Corporate Housing Columbus, Inc. as of December 31, 1995 and 1996, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 28, 1997 F-15 65 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. COMBINED BALANCE SHEETS
DECEMBER 31, ------------------------- 1995 1996 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents......................................... $ 834,615 $ 597,939 Investment in short-term marketable securities.................... 219,300 152,253 Accounts receivable, less allowance for doubtful accounts of $45,000 in 1996............................................. 755,649 794,445 Deferred income taxes............................................. 255,217 129,200 Refundable taxes.................................................. -- 33,927 Other current assets.............................................. 36,883 -- ----------- ----------- Total current assets........................................... 2,101,664 1,707,764 Operating stock, net of accumulated amortization.................... 220,251 268,086 Property and equipment, net of accumulated depreciation............. 33,482 26,961 Notes receivable -- stockholder/related party....................... 154,602 10,568 ----------- ----------- Total assets.............................................. $2,509,999 $2,013,379 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.................................................. $ 208,712 $ 218,407 Accrued expenses -- Payroll and employee benefits.................................. 391,420 61,201 Other.......................................................... 371,880 342,413 Accrued income taxes.............................................. 501,520 100,000 Due to stockholder................................................ 64,844 -- ----------- ----------- Total current liabilities...................................... 1,538,376 722,021 Deferred income taxes............................................... 102,500 107,744 Commitments and contingencies Stockholders' Equity: Common stock...................................................... 31,000 31,000 Treasury stock.................................................... (4,185) (4,185) Retained earnings................................................. 842,308 1,156,799 ----------- ----------- Total stockholders' equity..................................... 869,123 1,183,614 ----------- ----------- Total liabilities and stockholders' equity................ $2,509,999 $2,013,379 =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-16 66 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------------- 1994 1995 1996 ---------- ---------- ----------- Revenues.............................................. $8,308,840 $9,754,222 $12,501,885 Operating Expenses: Cost of services.................................... 6,474,548 7,353,552 9,087,689 Selling, general and administrative expense......... 1,628,406 2,064,463 2,326,772 ---------- ---------- ----------- Total operating expenses......................... 8,102,954 9,418,015 11,414,461 ---------- ---------- ----------- Operating income................................. 205,886 336,207 1,087,424 Other Income (Expense): Interest income..................................... 9,586 25,592 47,093 Interest expense.................................... (2,957) (6,914) (107) Other income........................................ 14,024 34,537 41,941 ---------- ---------- ----------- Other income, net................................ 20,653 53,215 88,927 ---------- ---------- ----------- Income before provision for income taxes.............. 226,539 389,422 1,176,351 Provision for income taxes............................ 113,116 178,269 512,627 ---------- ---------- ----------- Net income............................................ $ 113,423 $ 211,153 $ 663,724 ========== ========== ===========
The accompanying notes are an integral part of these combined financial statements. F-17 67 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK TOTAL ------------------ TREASURY RETAINED STOCKHOLDERS' SHARES AMOUNT STOCK EARNINGS EQUITY ------ ------- -------- ---------- ------------- Balance, December 31, 1993............ 2,056 $31,000 $ (4,185) $ 517,732 $ 544,547 Net income.......................... -- -- -- 113,423 113,423 ----- ------- ------- ---------- ---------- Balance, December 31, 1994............ 2,056 31,000 (4,185) 631,155 657,970 Net income.......................... -- -- -- 211,153 211,153 ----- ------- ------- ---------- ---------- Balance, December 31, 1995............ 2,056 31,000 (4,185) 842,308 869,123 Net income.......................... -- -- -- 663,724 663,724 Cash dividend....................... -- -- -- (349,233) (349,233) ----- ------- ------- ---------- ---------- Balance, December 31, 1996............ 2,056 $31,000 $ (4,185) $1,156,799 $ 1,183,614 ===== ======= ======= ========== ==========
The accompanying notes are an integral part of these combined financial statements. F-18 68 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------- 1994 1995 1996 --------- --------- --------- Cash Flows From Operating Activities: Net income............................................ $ 113,423 $ 211,153 $ 663,724 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization...................... 66,652 78,684 60,333 Gain on sale of assets............................. -- -- (500) Change in operating assets and liabilities -- Accounts receivable.............................. (207,780) (154,680) (38,796) Other assets..................................... 572 (30,978) 36,883 Accounts payable................................. (25,488) 53,404 9,695 Accrued expenses................................. 280,353 560,967 (761,206) Deferred income taxes............................ (42,338) (98,307) 97,334 --------- --------- --------- Net cash provided by operating activities..... 185,394 620,243 67,467 --------- --------- --------- Cash Flows From Investing Activities: Purchases of investments in short-term marketable securities......................................... (134,501) (194,925) (330,887) Sales of investments in short-term marketable securities......................................... 27,888 151,076 397,934 Proceeds from sale of assets.......................... -- -- 4,507 Purchases of operating stock.......................... (76,610) (24,591) (77,642) Purchases of property and equipment................... (30,341) (57,798) (28,012) --------- --------- --------- Net cash used in investing activities......... (213,564) (126,238) (34,100) --------- --------- --------- Cash Flows From Financing Activities: Due to stockholders................................... 5,154 (1,920) (64,844) Cash dividend......................................... -- -- (349,233) Payments of notes payable............................. (10,318) -- -- Collections on notes receivable....................... -- -- 144,034 Additions to notes receivable......................... -- (154,602) -- --------- --------- --------- Net cash used in financing activities......... (5,164) (156,522) (270,043) --------- --------- --------- Net (decrease) increase in cash and cash equivalents................................. (33,334) 337,483 (236,676) Cash and cash equivalents, beginning of year............ 530,466 497,132 834,615 --------- --------- --------- Cash and cash equivalents, end of year.................. $ 497,132 $ 834,615 $ 597,939 ========= ========= ========= Supplemental cash flow information: Cash paid for interest........................ $ 2,957 $ 6,914 $ 107 ========= ========= ========= Cash paid for income taxes.................... $ 25,264 $ 33,348 $ 828,618 ========= ========= =========
The accompanying notes are an integral part of these combined financial statements. F-19 69 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION The accompanying combined financial statements include the accounts of Temporary Corporate Housing Columbus, Inc. and three affiliated entities in the same business (collectively, "TCH" or the "Company"), substantially all of which are commonly owned through a general partnership, the general partners of which are all family members. The affiliated entities are Temporary Corporate Housing Cincinnati, Inc., Temporary Corporate Housing Cleveland, Inc. and Temporary Corporate Housing Pittsburgh, Inc. The Company was founded in 1983, and provides fully-furnished apartments, townhouses, condominiums and, to a lesser extent, homes (collectively, "accommodations") to individuals in need of flexible accommodations. The Company has offices in four cities: Columbus, Cleveland and Cincinnati, Ohio; and Pittsburgh, Pennsylvania. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of these combined financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Combination The accompanying combined financial statements include the accounts of Temporary Corporate Housing Columbus, Inc. and three affiliated entities. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The fair market value of the Company's financial instruments approximates their financial statement carrying value. Investments in Available-for-Sale Marketable Securities Investments in available-for-sale short-term marketable securities are stated at cost, which approximates market value. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is recorded in the combined statement of operations. Depreciation is determined using the straight-line method for financial F-20 70 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) reporting and income tax reporting purposes over the estimated useful lives of the respective assets. Estimated useful lives are as follows:
ESTIMATED USEFUL ASSET CLASSIFICATION LIFE ------------------------------------------------------- ---------- Computer equipment..................................... 1-5 Years Office furniture and equipment......................... 5 Years Automobiles............................................ 5 Years
Repairs and maintenance are charged to expense as incurred. General and administrative costs associated with the opening of new Company offices are expenses as incurred. Revenue Recognition The Company recognizes revenues on the rentals of accommodations to its clients on a pro rata basis over the length of the client's stay. Concentration of Credit Risk Concentration of credit risk is limited to accounts receivable. The Company does not require collateral or other security to support their receivables. The Company conducts periodic reviews of its clients' financial condition and payment practices to minimize collection risks on accounts receivable. Operating Stock Operating stock to furnish new units, including linen, glassware, silverware, utensils and minor appliances, is capitalized as it is purchased and amortized over a three year period to a residual value of 50% of the original cost. Additional purchases of operating stock for units already established is expensed as incurred. Accommodation and Furniture Leases The Company leases substantially all of its accommodations on a short-term basis with lease terms ranging from three months to one year. Furniture for the accommodations is leased on a monthly basis from various furniture rental companies, including a related party. (See Note 6) 3. INCOME TAXES The Company records income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized as income in the period that includes the enactment date. F-21 71 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for income taxes consists of the following:
YEAR ENDED DECEMBER 31, ----------------------------------- 1994 1995 1996 -------- -------- --------- Current -- City and state.......................... $ 12,360 $ 13,964 $ 112,447 Federal................................. 58,418 65,998 531,441 -------- -------- --------- 70,778 79,962 643,888 -------- -------- --------- Deferred -- City and state.......................... 7,394 17,168 (22,923) Federal................................. 34,944 81,139 (108,338) -------- -------- --------- 42,338 98,307 (131,261) -------- -------- --------- Total provision for income taxes......................... $113,116 $178,269 $ 512,627 ======== ======== =========
A reconciliation between the provision for income taxes computed at the statutory rates and the amount reflected in the accompanying combined statements of operations is as follows:
YEAR ENDED DECEMBER 31, ---------------------------------- 1994 1995 1996 -------- -------- -------- Computed expected federal tax provision for the three years ended December 31, 1994, 1995 and 1996............................ $ 77,023 $132,403 $399,959 Increase in taxes resulting from -- City and state income taxes.............. 16,297 28,015 84,627 Other.................................... 19,796 17,851 28,041 -------- -------- -------- Provision for income taxes....... $113,116 $178,269 $512,627 ======== ======== ========
Deferred tax assets (liabilities) consist of the following:
DECEMBER 31, --------------------- 1995 1996 -------- -------- Tax assets -- Accruals not yet deductible for tax purposes...... $255,217 $129,200 Net operating loss carryforward................... 17,391 -- Less -- valuation allowance............................ (17,391) -- -------- -------- 255,217 129,200 -------- -------- Tax liabilities Operating stock and prepaid supplies expensed for tax purposes.................................... 102,500 107,744 -------- -------- Net deferred tax assets...................... $152,717 $ 21,456 ======== ========
The Company had no net operating loss ("NOL") carryforwards as of December 31, 1996. At December 31, 1995, the valuation allowance related to uncertainty concerning the Company's ability to realize the NOL. F-22 72 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT; OPERATING STOCK Property and equipment, and operating stock, consist of the following:
DECEMBER 31, ---------------------- 1995 1996 -------- --------- Computer equipment............................................. $183,201 $169,577 Furniture and office equipment................................. 89,252 80,738 Automobiles.................................................... 62,084 57,584 -------- -------- Total property and equipment......................... 334,537 307,899 Less -- accumulated depreciation............................... 301,055 280,938 -------- -------- Property and equipment, net.......................... $ 33,482 $26,961 ======== ======== Operating stock................................................ $398,570 $476,212 Less -- accumulated amortization............................... 178,319 208,126 -------- -------- Operating stock, net................................. $220,251 $268,086 ======== ========
5. LEASE COMMITMENTS The Company leases administrative offices, accommodations and furniture at several locations through August 31, 1999. Rent expense for the fiscal years ended December 31, 1994, 1995 and 1996 was $4,965,215, $5,642,868 and $6,998,444, respectively. Minimum future rental payments on noncancelable leases at December 31, 1996 are as follows:
OPERATING LEASES ---------- 1997..................................................................... $ 969,826 1998..................................................................... 796,825 1999..................................................................... 806,518 2000..................................................................... 301,523 -------- Total.......................................................... $2,874,692 ========
6. RELATED PARTY TRANSACTIONS For the period from November 1, 1992 until October 31, 1995, the Company leased office space for its corporate headquarters located in Columbus, Ohio, from a former owner of the Company and spouse of one the general partners of SLD Partnership ("SLD"), an Ohio general partnership that owns substantially all of the outstanding capital stock of the Company. The lease term and annual rental amounts were comparable to the current lease agreement for the same premises that the Company entered into, effective November 1, 1995, with an unaffiliated entity. Rent expense related to this office space for the years ended December 31, 1994, 1995 and 1996 was $9,720, $10,200 and $11,378, respectively. The Company has entered into an exclusive furniture lease agreement with Integrity Furniture, Inc., which is 49% owned by SLD. The agreement was entered into on September 12, 1995, has a five year period and provides that the lessor will have the exclusive right to furnish all of the Company's leased accommodations in Pittsburgh, Pennsylvania at agreed-upon prices. The initial unit lease terms are for minimum three-month periods that then are renewable monthly. In management's opinion, the lease terms and rental amounts are comparable to other agreements that the Company has entered into with unaffiliated entities. F-23 73 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) On October 15, 1995, the Company loaned to SLD $45,000 (included in related party notes receivable as of December 31, 1995), at an annual interest rate of 7% beginning November 1995. Also in 1995 SLD borrowed $109,602 from the Company. Both of these notes were repaid in full during 1996. The Company leases televisions, VCRs and microwave ovens from Saturn Enterprises, Inc. ("Saturn"), which is owned by the spouse of one of the general partners of SLD. The original agreement commenced on January 1, 1989, and was renewed on December 28, 1995 for a three-year period beginning on January 1, 1996. These items are rented at rates that are comparable to those charged by unaffiliated companies. Included in accounts payable at December 31, 1995 and 1996 are amounts owed to Saturn of approximately $47,000 and $17,500, respectively. For the period from June 1992 until November 1996, the Company received consulting services from two of the general partners of SLD. The cost incurred for these services was $96,000 in each of 1994, 1995 and 1996. The consulting contracts with the two general partners of SLD were terminated in November 1996. 7. PROFIT SHARING PLAN Eligible employees of the Company participated in a profit sharing plan (the "Plan") sponsored by the Company. This defined contribution plan provides that the Company will make contributions to the Plan in its sole discretion. The Company's contributions to the Plan amounted to approximately $43,523 in 1995. The Plan was terminated by the Company on December 31, 1995. In accordance with the provisions of the Plan agreement, all plan assets were distributed to the participants during 1996. 8. CONTINGENCIES The Company is a party to litigation in the ordinary course of business. The Company does not anticipate an unfavorable result in any such litigation or believe that an unfavorable result, if it occurred, would have a material adverse effect on its business, financial condition and results of operations. 9. STOCKHOLDERS' EQUITY Combined stockholders' equity includes the following common stock accounts as of December 31, 1995 and 1996 (no par value for all classes of stock):
OUTSTANDING SHARES AMOUNT ----------- ------- Temporary Corporate Housing Columbus, Inc. -- Class A common stock -- Voting common stock authorized -- 500 shares.............. 500 $25,000 Class B common stock -- Nonvoting common stock authorized -- 500 shares........... 56 -- Temporary Corporate Housing Cleveland, Inc. -- Voting common stock authorized -- 500 shares.............. 500 500 Temporary Corporate Housing Cincinnati, Inc. -- Voting common stock authorized -- 500 shares.............. 500 5,000 Temporary Corporate Housing Pittsburgh, Inc. -- Voting common stock authorized -- 500 shares.............. 500 500 ----- ------- 2,056 $31,000 ===== =======
The treasury stock in the combined financial statements represents 40 shares of TCH Class B common stock purchased for $4,185. F-24 74 TEMPORARY CORPORATE HOUSING COLUMBUS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 10. ACCRUED EXPENSES -- OTHER Accrued expenses -- other includes an accrual for sales and use taxes of $125,000 and $200,000 as of December 31, 1995 and 1996, respectively. 11. SALE OF COMPANY Effective on January 2, 1997, the Company was acquired, through a stock for stock merger, by Bridgestreet Accommodations, Inc. The stockholders of the Company received 1,596,350 shares of Bridgestreet Accommodations, Inc.'s common stock in exchange for all of the outstanding common stock of the Company. F-25 75 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Corporate Lodgings, Inc.: We have audited the accompanying combined balance sheets of Corporate Lodgings, Inc., as of December 31, 1995 and 1996, and the related combined statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Corporate Lodgings, Inc. as of December 31, 1995 and 1996, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 28, 1997 F-26 76 CORPORATE LODGINGS, INC. COMBINED BALANCE SHEETS
DECEMBER 31, ------------------------- 1995 1996 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents......................................... $ 343,231 $ 179,795 Accounts receivable -- trade, less allowance for doubtful accounts of $29,689 and $43,172 in 1995, and 1996, respectively......... 376,317 604,098 Deferred income taxes............................................. 78,734 28,215 Prepaid expenses and other current assets......................... 217,793 126,116 ---------- ---------- Total current assets...................................... 1,016,075 938,224 Property and equipment, net of accumulated depreciation........... 117,777 117,906 Notes receivable -- stockholder................................... 30,034 -- Other assets...................................................... 1,752 1,249 ---------- ---------- Total assets.............................................. $1,165,638 $1,057,379 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable.................................................. $ 186,859 $ 282,436 Accrued expenses -- Payroll, bonuses and related items............................. 275,007 65,238 Other.......................................................... 59,566 92,631 Accrued income taxes.............................................. 125,104 76,093 Current portion of notes payable.................................. 28,893 9,720 Notes payable -- stockholder...................................... 194,015 28,493 Deferred income................................................... 371,283 427,987 ---------- ---------- Total current liabilities................................. 1,240,727 982,598 Notes payable....................................................... 9,720 -- Commitments and contingencies Stockholders' Equity (Deficit): Common stock...................................................... 5,000 5,000 Additional paid-in capital........................................ 800 179,797 Accumulated deficit............................................... (90,609) (110,016) ---------- ---------- Total stockholders' equity (deficit)........................... (84,809) 74,781 ---------- ---------- Total liabilities and stockholders' equity (deficit)...... $1,165,638 $1,057,379 ========== ==========
The accompanying notes are an integral part of these combined financial statements. F-27 77 CORPORATE LODGINGS, INC. COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------- 1994 1995 1996 ---------- ---------- ---------- Revenues............................................... $4,069,094 $6,067,389 $8,820,039 ---------- ---------- ---------- Operating Expenses: Cost of services..................................... 2,744,916 4,046,624 6,105,473 Selling, general and administrative expense.......... 1,237,403 1,981,852 2,519,435 ---------- ---------- ---------- Total operating expenses.......................... 3,982,319 6,028,476 8,624,908 ---------- ---------- ---------- Operating income.................................. 86,775 38,913 195,131 Other Income (Expense): Interest income...................................... 1,992 1,646 1,284 Interest expense..................................... (6,851) (14,615) (26,625) Other income (expense), net.......................... (2,491) 504 (180,449) ---------- ---------- ---------- Other expense, net................................ (7,350) (12,465) (205,790) ---------- ---------- ---------- Income (loss) before provision for income taxes... 79,425 26,448 (10,659) Provision for income taxes............................. 50,454 47,463 8,748 ---------- ---------- ---------- Net income (loss)...................................... $ 28,971 $ (21,015) $ (19,407) ========== ========== ==========
The accompanying notes are an integral part of these combined financial statements. F-28 78 CORPORATE LODGINGS, INC. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TOTAL COMMON STOCK ADDITIONAL STOCKHOLDERS' --------------------- PAID-IN ACCUMULATED EQUITY SHARES AMOUNT CAPITAL DEFICIT (DEFICIT) --------- --------- ---------- ----------- ------------- Balance, December 31, 1993............ 1,450 $3,000 $ 800 $ (98,565) $(94,765) Net income.......................... -- -- -- 28,971 28,971 Issuance of stock................... 100 1,000 -- -- 1,000 ----- ------ -------- --------- -------- Balance, December 31, 1994............ 1,550 4,000 800 (69,594) (64,794) Net loss............................ -- -- -- (21,015) (21,015) Issuance of stock................... 100 1,000 -- -- 1,000 ----- ------ -------- --------- -------- Balance, December 31, 1995............ 1,650 5,000 800 (90,609) (84,809) Net loss............................ -- -- -- (19,407) (19,407) Capital contribution................ -- -- 178,997 -- 178,997 ----- ------ -------- --------- -------- Balance, December 31, 1996............ 1,650 $5,000 $179,797 $(110,016) $ 74,781 ===== ====== ======== ========= ========
The accompanying notes are an integral part of these combined financial statements. F-29 79 CORPORATE LODGINGS, INC. COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------ 1994 1995 1996 -------- --------- --------- Cash Flows From Operating Activities: Net (loss) income...................................... $ 28,971 $ (21,015) $ (19,407) Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities -- Depreciation and amortization....................... 16,376 36,496 52,970 Change in operating assets and liabilities -- Accounts receivable............................... (43,184) (145,204) (227,781) Deferred income taxes............................. (1,346) (36,580) 50,519 Prepaid expenses and other current assets......... (10,206) (141,831) 91,677 Accounts payable.................................. (67,939) 98,767 95,577 Accounts payable -- stockholder................... 72,468 (11,544) -- Accrued expenses.................................. 47,090 209,822 (176,704) Accrued income taxes.............................. 20,217 76,525 (49,011) Deferred income................................... 16,665 151,041 56,704 Other............................................. (379) (434) -- -------- --------- --------- Net cash provided by (used in) operating activities................................... 78,733 216,043 (125,456) -------- --------- --------- Cash Flows From Investing Activities: Purchases of property and equipment.................... (26,159) (94,032) (53,953) Other.................................................. -- -- 1,357 -------- --------- --------- Net cash used in investing activities.......... (26,159) (94,032) (52,596) -------- --------- --------- Cash Flows From Financing Activities: Cash received from notes receivable -- stockholder..... 1,648 5,576 30,034 Issuance (payments) of notes payable, net.............. 13,642 11,303 (15,418) Issuance (payments) of notes payable -- stockholder.... -- 112,000 -- Issuance of common stock............................... 1,000 1,000 -- -------- --------- --------- Net cash provided by financing activities...... 16,290 129,879 14,616 -------- --------- --------- Net (decrease) increase in cash and cash equivalents..... 68,864 251,890 (163,436) Cash and cash equivalents, beginning of year............. 22,477 91,341 343,231 -------- --------- --------- Cash and cash equivalents, end of year................... $ 91,341 $ 343,231 $ 179,795 ======== ========= ========= Supplemental cash flow information: Cash paid for interest......................... $ 6,851 $ 14,615 $ 25,675 ======== ========= ========= Cash paid for income taxes..................... $ 31,583 $ 7,518 $ 14,726 ======== ========= =========
Non-Cash Transaction: In 1996 the stockholder contributed to capital a note payable to the stockholder for $178,977. The accompanying notes are an integral part of these combined financial statements. F-30 80 CORPORATE LODGINGS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION The accompanying combined financial statements include the accounts of Corporate Lodgings, Inc., a C corporation, and four S corporations which all are owned substantially by the same individual and operate similar businesses (collectively, the "Company"). The four S corporations are Corporate Lodgings, Pennsylvania Inc.; Corporate Lodgings, Minnesota Inc.; Corporate Lodgings, Kentucky Inc.; and Corporate Lodgings, Wisconsin Inc. The Company was founded in 1987 and provides fully-furnished apartments, townhouses, condominiums and, to a lesser extent, homes (collectively, "accommodations") to individuals in need of flexible accommodations. The Company has offices in: Ohio, Pennsylvania, Minnesota, Kentucky and Wisconsin. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of these combined financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Combination The accompanying combined financial statements include the accounts of Corporate Lodgings, Inc. and four affiliated entities which are under common control of and management by a single shareholder. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The fair market value of the Company's financial instruments approximates their financial statement carrying value. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is recorded in the combined statements of operations. Depreciation is determined using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes over the estimated useful lives of the respective assets. Estimated useful lives are as follows:
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE ------------------------------------------------------------------ ----------- Computer equipment................................................ 3 Years Office furniture and equipment.................................... 5 Years
Repairs and maintenance are charged to expense as incurred. General and administrative costs associated with the opening of new company offices are expensed as incurred. F-31 81 CORPORATE LODGINGS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company recognizes revenues on the rentals of accommodations for its clients on a pro rata basis over the length of the clients' stay. Concentration of Credit Risk Concentration of credit risk is limited to accounts receivable. The Company does not require collateral or other security to support their receivables. The Company conducts periodic reviews of its clients' financial condition and payment practices to minimize collection risk on accounts receivable. Operating Stock The Company leases operating stock such as linens, small appliances, glassware, silverware, dishes, etc. Accommodation and Furniture Leases The Company leases substantially all of its accommodations on a short-term basis with lease terms that range from three months to one year. Furniture for the accommodations is leased on a monthly basis from various furniture rental companies. 3. INCOME TAXES The Company records income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized as income in the period that includes the enactment date. The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31, --------------------------------- 1994 1995 1996 ------- -------- -------- Current provision (benefit) -- State............................................. $10,403 $ 16,142 $ (3,189) Federal........................................... 38,897 61,501 (12,311) ------- -------- -------- 49,300 77,643 (15,500) ------- -------- -------- Deferred provision (benefit) -- State............................................. 171 (4,463) 3,586 Federal........................................... 983 (25,717) 20,662 ------- -------- -------- 1,154 (30,180) 24,248 ------- -------- -------- Total provision for income taxes.......... $50,454 $ 47,463 $ 8,748 ======= ======== ========
F-32 82 CORPORATE LODGINGS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation between the provision for income taxes computed at the statutory rates and the amount reflected in the accompanying combined statements of operations is as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1995 1996 ------- ------- ------- Computed expected federal tax provision (benefit)..... $27,005 $ 8,992 $(3,624) Increase (decrease) in taxes resulting from -- Impact of S corporation not taxable................. 13,908 29,699 4,470 State income taxes, net of federal benefit.......... 5,141 2,547 (4,355) Other............................................... 4,400 6,225 12,257 ------- ------- ------- Provision for income taxes.................. $50,454 $47,463 $ 8,748 ======= ======= =======
Deferred tax assets (liabilities) consist of the following:
DECEMBER 31, ----------------------- 1995 1996 --------- --------- Tax Assets: Accruals................................................... $ 117,550 $ 152,152 Other...................................................... 63,750 178,641 --------- --------- 181,300 330,793 --------- --------- Tax Liabilities: Receivables................................................ (73,016) (251,205) Other...................................................... (29,550) (51,373) --------- --------- (102,566) (302,578) --------- --------- Net deferred tax asset............................. $ 78,734 $ 28,215 ========= =========
4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, --------------------- 1995 1996 -------- -------- Computer equipment............................................. $127,281 $159,835 Furniture and office equipment................................. 48,734 65,555 -------- -------- Total property and equipment......................... 176,015 225,390 Less -- accumulated depreciation............................... 58,238 107,484 -------- -------- Property and equipment, net.......................... $117,777 $117,906 ======== ========
5. NOTES PAYABLE As of December 31, 1995 and 1996, the Company had $38,613 and $9,720, respectively, of notes payable outstanding, related in part to the purchase of computer equipment. The notes bear interest at rates ranging from 6.75% to 9.75% and are secured by all business assets. All such outstanding notes mature in 1997. F-33 83 CORPORATE LODGINGS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 6. RELATED PARTY TRANSACTIONS Notes Receivable -- Stockholder As of December 31, 1995, the Company held notes receivable from the majority stockholder of $30,034. All of such notes are non-interest-bearing with the exception of one, which bears interest at 5.69%. Included in the accompanying statements of operations is $1,114, $1,023 and $854 of interest income related to these notes for the years ended December 31, 1994, 1995 and 1996, respectively. These notes were repaid in 1996. Notes Payable -- Stockholder As of December 31, 1995 and 1996, the Company had $194,015 and $28,493 respectively, of notes payable due to the majority stockholder. The notes bear interest at rates ranging from 6.75% and 9.75% and are payable on demand. Interest expense for the fiscal years ended December 31, 1994, 1995 and 1996 of $3,873, $10,943 and $24,168, respectively, related to these notes is included in the accompanying statements of operations. Contingent Liabilities During 1995, the Company entered into an agreement to guarantee a promissory note of the majority stockholder. As of December 31, 1995 and 1996, there was $25,000 outstanding on the note. In addition, during December 1995, the Company pledged the inventory, accounts receivable, contract rights, equipment and general intangibles of one of the affiliated companies to secure a $200,000 promissory note between the majority stockholder and a bank. As of December 31, 1995 and 1996, there was $137,000 and $109,000, respectively, outstanding on the promissory note. City Visitor The Company purchases advertising space from City Visitor Publications, Inc. ("City Visitor"), an entity which publishes a travel magazine and is 100% owned by the majority stockholder of the Company. Included in the accompanying statements of operations is $34,048, $21,780 and $31,356 of advertising expense paid to City Visitor in 1994, 1995, and 1996, respectively. In addition, the Company will from time to time pay expenses on behalf of City Visitor which are subsequently repaid to the Company by City Visitor. Included in accounts payable in the accompanying balance sheet is approximately $866 and $1,790 as of December 31, 1995 and 1996, respectively. In addition, the Company performed certain general and administrative functions, such as accounting and finance, on behalf of City Visitor. In connection with these services, the Company billed City Visitor approximately $42,200, $51,000 and $14,500 for the years ended December 31, 1994, 1995 and 1996, respectively. 7. LEASE COMMITMENTS The Company leases administrative offices, accommodations and furniture at several locations through January 1998. The terms of the leases of accommodations are typically less than one year. Rent expense for the fiscal years ended December 31, 1994, 1995 and 1996 was $1,575,031, $2,317,274 and $3,518,705, respectively. Minimum future rental payments at December 31, 1996 are as follows:
OPERATING LEASES --------- 1997...................................................... $ 78,583 1998...................................................... 61,558 1999...................................................... 3,834 --------- Total..................................................... $143,975 ========
F-34 84 CORPORATE LODGINGS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 8. PENSION PLAN Eligible employees of the Company participate in a defined contribution profit sharing plan sponsored by the Company. The plan provides that the Company may make discretionary contributions to the plan. For the years ended December 31, 1994, 1995 and 1996, the Company did not make any discretionary contributions to the plan. 9. STOCKHOLDERS' EQUITY Combined stockholders' equity includes the following common stock accounts as of December 31, 1995 and 1996.
OUTSTANDING SHARES AMOUNT ----------- ------ Corporate Lodgings, Inc.: No par value, voting common stock, 1,750 shares authorized.... 1,250 $1,000 Corporate Lodgings, Pennsylvania: No par value, voting common stock, 750 shares authorized... 100 1,000 Corporate Lodgings, Minnesota: No par value, voting common stock, 750 shares authorized... 100 1,000 Corporate Lodgings, Kentucky: No par value, voting common stock, 750 shares authorized... 100 1,000 Corporate Lodgings, Wisconsin: No par value, voting common stock, 750 shares authorized... 100 1,000 ----- ------ 1,650 $5,000 ===== ======
10. CONTINGENCIES Various lawsuits have arisen in the ordinary course of the Company's business. The Company does not anticipate an unfavorable result in any such litigation or believe that an unfavorable result, if it occurred, would have a material adverse effect on its business, financial condition and results of operations. 11. OTHER INCOME (EXPENSE), NET Included in other income (expense) for the year ended December 31, 1996 is approximately $160,000 for services rendered by an outside consultant related to the sale of the Company. 12. SALE OF COMPANY Effective on January 2, 1997, the Company was acquired, through a stock for stock merger, by BridgeStreet Accommodations, Inc. The stockholders of the Company received 836,437 shares of BridgeStreet Accommodations, Inc.'s common stock in exchange for all of the outstanding common stock of the Company. F-35 85 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Exclusive Interim Properties, Ltd.: We have audited the accompanying combined balance sheets of Exclusive Interim Properties, Ltd. as of March 31, 1996 and as of December 31, 1996, and the related combined statements of operations, stockholders' equity and cash flows for each of the two years in the period ended March 31, 1996 and for the nine month period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Exclusive Interim Properties, Ltd. as of March 31, 1996 and December 31, 1996, and the combined results of their operations and their cash flows for each of the two years in the period ended March 31, 1996 and for the nine month period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts March 11, 1997 F-36 86 EXCLUSIVE INTERIM PROPERTIES, LTD. COMBINED BALANCE SHEETS
DECEMBER MARCH 31, 31, 1996 1996 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents......................................... $ 32,284 $ -- Accounts receivable -- trade less allowance for doubtful accounts of $25,191 and $107,191 at March 31, 1996 and December 31, 1996, 158,664 405,244 respectively.................................................. Other receivables................................................. 23,913 12,384 Security deposits held by landlord................................ 85,473 150,614 Deferred income taxes............................................. 143,058 166,650 ---------- ---------- Total current assets........................................... 443,392 734,892 Operating stock, net of accumulated amortization.................... 381,852 580,394 Land, property and equipment, net of accumulated depreciation....... 1,367,371 1,391,834 Other assets........................................................ 10,504 7,950 ---------- ---------- Total assets................................................... $2,203,119 $2,715,070 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.................................................. $ 296,444 $ 366,004 Accrued expenses Payroll, bonuses and related items............................. 18,852 15,308 Other.......................................................... 98,750 202,575 Deferred revenue.................................................. 123,138 155,313 Security deposits due to customers................................ 117,475 260,443 Current portion of long-term debt................................. 70,080 136,579 Notes payable-stockholder......................................... 110,549 94,655 ---------- ---------- Total current liabilities...................................... 835,288 1,230,877 Deferred income taxes............................................... 152,741 232,168 Long-term debt, net of current maturities........................... 1,113,921 1,049,038 Commitments and contingencies Stockholders' Equity: Common stock...................................................... 20 20 Additional paid in capital........................................ 50,200 75,801 Retained earnings................................................. 50,949 127,166 ---------- ---------- Total stockholders' equity..................................... 101,169 202,987 ---------- ---------- Total liabilities and stockholders' equity................ $2,203,119 $2,715,070 ========== ==========
The accompanying notes are an integral part of these combined financial statements. F-37 87 EXCLUSIVE INTERIM PROPERTIES, LTD. COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS YEAR ENDED MARCH 31, ENDED ------------------------- DECEMBER 31, 1995 1996 1996 ---------- ---------- ------------ Revenues.............................................. $4,014,541 $5,521,373 $7,136,843 Operating Expenses: Cost of services.................................... 3,015,261 4,246,342 5,789,975 Selling, general and administrative expense......... 895,109 975,186 1,110,249 ---------- ---------- ---------- Total operating expenses......................... 3,910,370 5,221,528 6,900,224 ---------- ---------- ---------- Operating income................................. 104,171 299,845 236,619 Other Income (Expense): Interest income..................................... 3,195 -- 29 Interest expense.................................... (110,726) (133,025) (95,974) ---------- ---------- ---------- Other expense, net............................... (107,531) (133,025) (95,945) ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes............................................... (3,360) 166,820 140,674 Provision (benefit) for income taxes.................. (18,466) 57,723 64,457 ---------- ---------- ---------- Net income............................................ $ 15,106 $ 109,097 $ 76,217 ========== ========== ==========
The accompanying notes are an integral part of these combined financial statements. F-38 88 EXCLUSIVE INTERIM PROPERTIES, LTD. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS' ----------------- PAID-IN EARNINGS EQUITY SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT) ------ ------ ---------- -------- ------------- Balance, March 31, 1994................ 2,000 $20 $ 40,500 $(73,254) $(32,734) Contributions........................ -- -- 2,600 -- 2,600 Net income........................... -- -- -- 15,106 15,106 ----- --- -------- -------- -------- Balance, March 31, 1995................ 2,000 20 43,100 (58,148) (15,028) Contributions........................ -- -- 50,000 -- 50,000 Withdrawals.......................... -- -- (42,900) -- (42,900) Net income........................... -- -- -- 109,097 109,097 ----- --- -------- -------- -------- Balance, March 31, 1996................ 2,000 20 50,200 50,949 101,169 Contributions........................ -- -- 56,100 -- 56,100 Withdrawals.......................... -- -- (30,499) -- (30,499) Net income........................... -- -- -- 76,217 76,217 ----- --- -------- -------- -------- Balance, December 31, 1996............. 2,000 $20 $ 75,801 $127,166 $202,987 ===== === ======== ======== ========
The accompanying notes are an integral part of these combined financial statements. F-39 89 EXCLUSIVE INTERIM PROPERTIES, LTD. COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS YEAR ENDED MARCH 31, ENDED ------------------------- DECEMBER 31, 1995 1996 1996 ----------- --------- ------------ Cash Flows From Operating Activities: Net income.......................................... $ 15,106 $ 109,097 $ 76,217 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization.................... 70,149 118,131 116,218 Provision for bad debts.......................... -- 25,191 82,000 Change in operating assets and liabilities Accounts receivable............................ (19,981) (145,513) (317,051) Security deposits held by landlord............. (32,230) (32,753) (65,141) Accounts payable............................... (22,061) 196,063 69,560 Deferred revenue............................... 71,172 23,988 32,175 Security deposits due to customers............. 10,100 29,150 142,968 Accrued expenses............................... 59,803 21,194 100,281 Other.......................................... 20,769 58,306 55,836 ----------- --------- --------- Net cash provided by operating activities... 172,827 402,854 293,063 ----------- --------- --------- Cash Flows From Investing Activities: Purchases of operating stock........................ (37,782) (323,287) (278,487) Purchases of property and equipment................. (1,377,093) (10,164) (58,183) ----------- --------- --------- Net cash used in investing activities....... (1,414,875) (333,451) (336,670) ----------- --------- --------- Cash Flows From Financing Activities: Due to stockholder.................................. 82,265 (11,716) (15,894) Proceeds from long-term debt........................ 1,191,600 -- 71,266 Principal payments of long-term debt................ -- (69,266) (69,650) Capital contributions............................... 2,600 50,000 56,100 Distributions to stockholder........................ -- (42,900) (30,499) ----------- --------- --------- Net cash provided by (used in) financing activities................................ 1,276,465 (73,882) 11,323 ----------- --------- --------- Net (decrease) increase in cash and cash equivalents......................................... 34,417 (4,479) (32,284) Cash and cash equivalents, beginning of period........ 2,346 36,763 32,284 ----------- --------- --------- Cash and cash equivalents, end of period.............. $ 36,763 $ 32,284 $ -- =========== ========= ========= Supplemental Cash Flow Information: Cash paid for interest...................... $ 99,726 $ 133,025 $ 92,391 =========== ========= ========= Cash paid for income taxes.................. $ -- $ 1,273 $ -- =========== ========= =========
The accompanying notes are an integral part of these combined financial statements. F-40 90 EXCLUSIVE INTERIM PROPERTIES, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION The accompanying combined financial statements include the accounts of Exclusive Interim Properties, Ltd., which is owned by a sole stockholder, and Haus Account, LLC (the "LLC") and an individual condominium unit, each of which are owned by the sole stockholder of EIP and her spouse (collectively, the "Company"). These entities and the condominium unit are involved in the same business. The Company was founded in 1987 and provides fully-furnished apartments, townhouses, condominiums and, to a lesser extent, homes (collectively, "accommodations") to individuals in need of flexible accommodations. The Company has offices in Baltimore, Maryland; and Washington, D.C. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of these combined financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Combination The accompanying combined financial statements include the accounts of Exclusive Interim Properties, Ltd. and one affiliated entity. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The fair market value of the Company's financial instruments approximates their financial statement carrying value. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is recorded in the combined statements of operations. Depreciation is computed on the straight-line method over estimated useful lives for financial reporting purposes. For income tax reporting purposes, depreciation on equipment is determined using the double-declining balance method. Condominiums are depreciated using the straight-line method for financial reporting and income tax reporting purposes over the estimated useful life of the units. Estimated useful lives are as follows:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE ---------------------------------------------------------- --------------------- Computer equipment........................................ 3 years Office furniture and equipment............................ 7 years Condominiums.............................................. 39 years Vehicles.................................................. 5 years Leasehold improvements.................................... Lease life
Repairs and maintenance are charged to expense as incurred. General and administrative costs associated with the opening of new company offices are expensed as incurred. F-41 91 EXCLUSIVE INTERIM PROPERTIES, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company recognizes revenues on the rentals of accommodations to its clients on a pro-rata basis over the length of the guest's stay. Concentration of Credit Risk Concentration of credit risk is limited to accounts receivable. The Company does not require collateral or security to support their receivables. The Company conducts periodic reviews of its clients' financial condition and payment practices to minimize collection risk on accounts receivable. Operating Stock Operating stock to furnish new apartment units, including linens, glassware, silverware, utensils, and small appliances, is capitalized as it is purchased and amortized over a three-year period to a residual value of 50% of its original cost. Additional purchases of operating stock for apartment units already established is expensed as incurred. Accommodation and Furniture Leases The Company leases substantially all of its accommodations on a short-term basis with lease terms ranging from three months to one year. Furniture for the accommodations is leased on a monthly basis from various furniture rental companies. 3. INCOME TAXES The Company records income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized as income in the period that includes the enactment date. The provision (benefit) for income taxes consists of the following:
YEAR ENDED MARCH 31, -------------------- DECEMBER 31, 1995 1996 1996 -------- -------- ------------ Total provision (benefit) for income taxes: State............................................ $ (7,673) $ 13,294 $ 14,390 Federal.......................................... (56,467) 97,833 105,902 -------- -------- -------- (64,140) 111,127 120,292 -------- -------- -------- Deferred State............................................ 5,464 (6,389) (6,679) Federal.......................................... 40,210 (47,015) (49,156) -------- -------- -------- 45,674 (53,404) (55,835) -------- -------- -------- Total provision (benefit) for income taxes.................................. $(18,446) $ 57,723 $ 64,457 ======== ======== ========
Income taxes are not provided on the portion of income related to the LLC because those taxes are paid by the partners. F-42 92 EXCLUSIVE INTERIM PROPERTIES, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation between the provision for income taxes computed at the statutory rates and the amount reflected in the accompanying combined statements of operations for the two years ended March 31, 1996 and the nine months ended December 31, 1996 is as follows:
YEAR ENDED MARCH 31, -------------------- DECEMBER 31, 1995 1996 1996 -------- -------- ------------ Computed expected federal tax provision............ $ (1,142) $ 56,719 $ 47,829 Increase (decrease) in taxes resulting from: State income taxes............................... (222) 11,010 9,284 Deductions taken for books not allowed for tax purposes...................................... 3,941 4,053 3,400 LLC income not taxable........................... (14,996) (11,531) (4,373) Other............................................ (6,047) (2,528) 8,317 -------- -------- -------- Provision (benefit) for income taxes..... $(18,466) $ 57,723 $ 64,457 ======== ======== ========
The Company uses the cash basis method for its tax returns. Deferred tax (assets) liabilities consist of the following:
MARCH 31, 1996 DECEMBER 31, 1996 -------------- ----------------- Tax assets: Payables and accruals not yet deducted for tax purposes......................................... 214,874 295,680 Net operating loss carry forwards................... -- 39,638 -------- -------- 214,874 335,318 -------- -------- Tax liabilities: Accounts receivable not yet reported for tax purposes......................................... (63,466) (162,098) Operating stock expensed for tax purposes........... (152,741) (232,158) Other............................................... (8,350) (6,580) -------- -------- (224,557) (400,836) -------- -------- Net deferred tax liabilities................ (9,683) (65,518) ======== ========
The Company has net operating loss carryforwards of $99,000 as of December 31, 1996. 4. LAND, PROPERTY AND EQUIPMENT; OPERATING STOCK Land, property and equipment, and operating stock consist of the following:
MARCH 31, 1996 DECEMBER 31, 1996 -------------- ----------------- Land.................................................. $ 266,235 $ 266,235 Condominiums.......................................... 1,166,700 1,166,700 Leasehold improvements & vehicles..................... -- 30,992 Computer equipment.................................... 37,392 64,582 Furniture and office equipment........................ 66,266 66,266 ---------- ---------- Total land, property and equipment.......... 1,536,593 1,594,775 Less -- accumulated depreciation...................... 169,222 202,941 ---------- ---------- Land, property and equipment, net........... $1,367,371 $1,391,834 ========== ========== Operating stock....................................... $ 535,583 $ 814,070 Less -- accumulated amortization...................... 153,731 233,676 ---------- ---------- Operating stock, net........................ $ 381,852 $ 580,394 ========== ==========
F-43 93 EXCLUSIVE INTERIM PROPERTIES, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT A summary of long-term debt is as follows:
MARCH 31, 1996 DECEMBER 31, 1996 -------------- ----------------- Mortgage note -- LLC.................................. $ 975,520 $ 962,935 Installment note -- LLC............................... 150,000 100,000 Mortgage notes -- stockholder......................... 58,481 56,182 Revolving lines of credit............................. -- 49,817 Automobile loan....................................... -- 16,683 ---------- ---------- Total....................................... 1,184,001 1,185,617 Less-current maturities............................... 70,080 136,579 ---------- ---------- Total long-term debt........................ $1,113,921 $1,049,038 ========== ==========
Mortgage Note -- LLC On May 12, 1994, the LLC entered into a Mortgage note agreement with a bank, under which the bank provided cash of $1,005,000 in exchange for a $1,005,000 Mortgage note (the "Mortgage"). The Mortgage is secured by substantially all assets of the LLC, including 18 condominiums owned by the LLC. The Mortgage calls for monthly principal payments of $1,340 through June 1, 1999 at which time all outstanding borrowings are due. The Mortgage bears interest at bank's prime rate plus 1.5%. The interest rates at both March 31, 1996 and December 31, 1996 were 9.75%. Interest is payable monthly, in arrears. Installment Note -- LLC On May 12, 1994, the LLC entered into an agreement with a bank, pursuant to which the bank provided the LLC with cash of $200,000 in exchange for a $200,000 installment note (the "Installment Note"). The Installment Note calls for annual principal payments of $50,000, from May 1, 1995 through May 1, 1998. The Installment Note bears interest at the highest prime rate published in the Wall Street Journal on the last day of the immediately prior calendar month plus 1.5%. The interest rate at both March 31, 1996 and December 31, 1996 was 9.75%. Interest is payable monthly, in arrears. Mortgage -- Stockholder On October 22, 1993, the principal stockholder of the Company entered into a mortgage note agreement for $65,000. The mortgage is secured by a condominium owned by the stockholder located in Baltimore, Maryland. The mortgage calls for monthly payments of principal and interest in the amount of $590. The mortgage bears interest at a fixed rate of 7.0%. The mortgage and the condominium were contributed by the stockholder to the Company. Revolving Lines of Credit At December 31, 1996, the Company had a line of credit agreement expiring February 15, 1997 which provided for borrowings of up to $50,000 and bore interest at 8.25% on such date. At December 31, 1996, the Company's advances on this line of credit were $49,817. Automobile Loan In April 1996, the Company entered into a note payable agreement for $21,000 with Chrysler Financial Group. The note calls for monthly payments of principal and interest of $570 through April 1999. The note bears interest at a fixed rate of 8.55%. F-44 94 EXCLUSIVE INTERIM PROPERTIES, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The following is a schedule of required debt payments as of December 31, 1996:
YEAR AMOUNT --------------------------------------------------------- ---------- 1997..................................................... $ 136,579 1998..................................................... 70,080 1999..................................................... 935,300 2000..................................................... 4,000 2001..................................................... 4,000 Thereafter............................................... 35,658 ---------- Total.......................................... $1,185,617 ==========
6. LEASE COMMITMENTS The Company leases administrative offices, accommodations and furniture at several locations through August 31, 1999. Rent expense for the fiscal years ended March 31, 1995 and 1996 and for the nine months ended December 31, 1996 was $2,183,491, $3,240,935 and $4,102,087, respectively. Minimum future rental payments at December 31, 1996 are as follows:
OPERATING LEASES --------- 1997...................................................... $ 57,212 1998...................................................... 56,522 1999...................................................... 48,526 2000...................................................... 50,088 2001...................................................... 41,741 -------- Total........................................... $254,089 ========
7. CONTINGENCIES Various lawsuits have arisen in the ordinary course of the Company's business. The Company does not anticipate an unfavorable result in any such litigation or believe that an unfavorable result, if it occurred, would have a material adverse effect on its business, financial condition and results of operations. 8. SALE OF COMPANY Effective on January 2, 1997, the Company was acquired, through a stock for stock merger, by BridgeStreet Accommodations, Inc. The stockholders of the Company received 1,001,805 shares of BridgeStreet Accommodations, Inc.'s common stock in exchange for all of the outstanding common stock of and equity interests in the Company. F-45 95 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholder of Home Again, Inc.: We have audited the accompanying combined balance sheets of Home Again, Inc. as of December 31, 1995 and 1996, and the related combined statements of operations, stockholder's equity and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 combined 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 combined financial position of Home Again, Inc. as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts March 21, 1997 F-46 96 HOME AGAIN, INC. COMBINED BALANCE SHEETS
DECEMBER 31, --------------------- 1995 1996 -------- -------- ASSETS Current Assets: Cash and cash equivalents............................................ $ 14,210 $145,140 Accounts receivable.................................................. 68,905 109,167 Security deposits held by landlords.................................. 6,801 7,553 Prepaid expenses..................................................... 131,325 217,172 Other current assets................................................. 1,774 1,293 -------- -------- Total current assets.............................................. 223,015 480,325 Operating stock, net of accumulated amortization....................... 35,966 196,015 Property and equipment, net of accumulated depreciation................ 68,759 142,508 -------- -------- Total assets................................................. $327,740 $818,848 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable..................................................... $191,119 $300,755 Accrued expenses -- Payroll and employee benefits..................................... 6,977 290 Other............................................................. 42,500 64,750 Deferred revenue..................................................... 20,850 30,880 Security deposits due to customers................................... -- 60,460 Due to stockholder................................................... 2,812 191,404 Current portion of long-term debt.................................... -- 8,595 -------- -------- Total current liabilities......................................... 264,258 657,134 Long-term debt, net of current maturities.............................. -- 25,608 Commitments and Contingencies Stockholder's Equity: Common stock......................................................... 30 30 Additional paid-in capital........................................... 2,970 2,970 Retained earnings.................................................... 60,482 133,106 -------- -------- Total stockholder's equity........................................ 63,482 136,106 -------- -------- Total liabilities and stockholder's equity................... $327,740 $818,848 ======== ========
The accompanying notes are an integral part of these combined financial statements. F-47 97 HOME AGAIN, INC. COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------- 1995 1996 ---------- ---------- Revenues............................................................ $1,569,502 $4,034,905 Operating Expenses: Cost of services.................................................. 1,283,752 3,133,900 Selling, general and administrative expense....................... 212,242 586,339 ---------- ---------- Total operating expenses....................................... 1,495,994 3,720,239 ---------- ---------- Operating income............................................... 73,508 314,666 Other Income: Interest income................................................... 362 1,202 Other income...................................................... 33,042 75,702 ---------- ---------- Other income, net.............................................. 33,404 76,904 ---------- ---------- Net income.......................................................... $ 106,912 $ 391,570 ========== ==========
The accompanying notes are an integral part of these combined financial statements. F-48 98 HOME AGAIN, INC. COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
TOTAL COMMON STOCK ADDITIONAL RETAINED STOCKHOLDER'S --------------- PAID-IN EARNINGS EQUITY SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT) ------ ------ ---------- --------- ------------ Balance, December 31, 1994..................... 1,000 $ 10 $ 990 $ (46,430) $ (45,430) Issuance of stock............................ 2,000 20 1,980 -- 2,000 Net income................................... -- -- -- 106,912 106,912 ----- ---- ------ --------- ---------- Balance, December 31, 1995..................... 3,000 30 2,970 60,482 63,482 Distributions to stockholder................. -- -- -- (318,946) (318,946) Net income................................... -- -- -- 391,570 391,570 ----- ---- ------ --------- ---------- Balance, December 31, 1996..................... 3,000 $ 30 $2,970 $ 133,106 $ 136,106 ===== ==== ====== ========= ==========
The accompanying notes are an integral part of these combined financial statements. F-49 99 HOME AGAIN, INC. COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------- 1995 1996 -------- --------- Cash Flows From Operating Activities: Net income.......................................................... $106,912 $ 391,570 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization.................................... 23,518 101,045 Change in operating assets and liabilities -- Accounts receivable............................................ (54,407) (40,262) Security deposits held by landlords............................ (783) (752) Prepaid expenses............................................... (96,119) (85,847) Other current assets........................................... (999) 481 Accounts payable............................................... 171,759 109,636 Advanced rent.................................................. 5,132 10,030 Security deposits due customers................................ -- 60,460 Accrued expenses............................................... 19,789 15,563 -------- --------- Net cash provided by operating activities................... 174,802 561,924 -------- --------- Cash Flows From Investing Activities: Purchases of operating stock........................................ (43,159) (200,689) Purchases of property and equipment................................. (55,918) (134,154) -------- --------- Net cash used in investing activities....................... (99,077) (334,843) -------- --------- Cash Flows From Financing Activities: Due to stockholder.................................................. (64,179) 188,592 Proceeds from issuance of stock..................................... 2,000 -- Payments of long-term debt.......................................... -- (4,411) Proceeds from long-term debt........................................ -- 38,614 Distribution to stockholder......................................... -- (318,946) -------- --------- Net cash used in financing activities....................... (62,179) (96,151) -------- --------- Net increase in cash and cash equivalents............................. 13,546 130,930 Cash and cash equivalents, beginning of year.......................... 664 14,210 -------- --------- Cash and cash equivalents, end of year................................ $ 14,210 $ 145,140 ======== ========= Supplemental Cash Flow Information: Cash paid for interest...................................... $ 362 $ 1,202 ======== =========
The accompanying notes are an integral part of these combined financial statements. F-50 100 HOME AGAIN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION The accompanying combined financial statements include the accounts of Home Again, Inc. and two affiliated entities in the same business (collectively, "Home Again" or the "Company"), all of which are S corporations owned by the same stockholder. The Company was founded in 1994 and provides fully-furnished apartments, townhouses, condominiums and, to a lesser extent, homes (collectively, "accommodations") to individuals in need of flexible accommodations. The Company has offices in Minneapolis, Minnesota; and Oklahoma City, Oklahoma. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of these financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The fair market value of the Company's financial instruments approximates their financial statement carrying value. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Leasehold improvements are capitalized and charged to expense through depreciation. Upon sale or retirements, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is recorded in the statement of operations. Depreciation is determined using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes over the estimated useful lives of the respective assets. Estimated useful lives are as follows:
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE ----------------------------------------------------------------- ----------- Computer equipment............................................... 3-5 years Office furniture and equipment................................... 5 years Leasehold improvements........................................... 7 years Vehicles......................................................... 5 years
Repairs and maintenance are charged to expense as incurred. General and administrative costs associated with the opening of new company offices are expenses as incurred. Revenue Recognition The Company recognizes revenues on the sublease of accommodations for its clients as services are provided. F-51 101 HOME AGAIN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Concentration of Credit Risk Concentration of credit risk is limited to accounts receivable. The Company does not require collateral or other security to support their receivables. The Company conducts periodic reviews of its clients' financial conditions and payment practices to minimize collection risks on accounts receivable. Operating Stock Operating stock to furnish new apartment units, including linen, glass and silver, and minor appliances is capitalized as it is purchased and amortized over a three-year period to a residual value of 50% of the original cost. Additional purchases of operating stock for apartment units established is expensed as incurred. Apartment and Furniture Leases The Company leases substantially all of its accommodations under lease terms ranging from one to two years. Furniture for the accommodations is leased on a monthly basis from various furniture rental companies. 3. INCOME TAXES The Company, with the consent of its stockholder, elected to be recognized as an S corporation under the appropriate federal and state tax codes beginning June 8, 1993. In lieu of corporate income taxes, the stockholders of an S corporation are taxed on their proportionate shares of the Company's taxable income. As a result, the recognition of current and deferred income taxes is not needed in the accompanying combined financial statements. 4. PROPERTY AND EQUIPMENT; OPERATING STOCK Property and equipment and operating stock consist of the following:
DECEMBER 31, -------------------- 1995 1996 ------- -------- Computer equipment.............................................. $18,542 $ 35,171 Furniture and office equipment.................................. 71,405 146,787 Vehicles........................................................ -- 42,143 ------- -------- Total property and equipment............................... 89,947 224,101 Less -- accumulated depreciation................................ 21,188 81,593 ------- -------- Property and equipment, net........................... $68,759 $142,508 ======= ======== Operating stock................................................. $43,159 $243,848 Less -- accumulated amortization................................ 7,193 47,833 ------- -------- Operating stock, net.................................. $35,966 $196,015 ======= ========
5. DEBT Long-term debt consist of the following:
DECEMBER 31, 1996 ------------ Note payable to a bank, interest rate of 8.75%, due in 48 equal installments through October 2000, secured by an automobile purchased with the proceeds from the note........................... $ 18,031 Note payable to a bank, interest rate of 9.5%, due in 48 equal installments through March 2000; secured by an automobile purchased with the proceeds from the note..................................... 16,172 -------- 34,203 Less -- current maturities............................................ 8,595 -------- Total long-term debt.................................................. $ 25,608 ========
F-52 102 HOME AGAIN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The following is a schedule of required debt payments as of December 31, 1996: 1997....................................................................... $ 8,595 1998....................................................................... 9,641 1999....................................................................... 10,561 2000....................................................................... 5,406 ------- Total............................................................ $34,203 =======
6. LEASE COMMITMENTS The Company leases administrative offices, apartment units and furniture at several locations through 1998. Rent expense for the fiscal years ended December 31, 1995 and 1996 was $989,203 and $2,592,965 respectively. Minimum future rental payments on long-term leases at December 31, 1996 are as follows:
OPERATING LEASES ---------------- 1997.......................................... $ 59,793 1998.......................................... 57,078 1999.......................................... 53,340 2000.......................................... 51,070 2001.......................................... 50,247 Thereafter.................................... 111,168 -------- Total............................... $382,696 ========
7. DISTRIBUTION TO STOCKHOLDER The Company declared a distribution to the stockholder during December 1996 in the amount of $191,404, related to 1996 earnings, to be paid in 1997. 8. CONTINGENCIES Various lawsuits have arisen in the ordinary course of the Company's business. The Company does not anticipate an unfavorable result in any such litigation or believe that an unfavorable result, if it occurred, would have a material adverse effect on its business, financial condition and results of operations. 9. STOCKHOLDERS' EQUITY Combined stockholder's equity includes the following common stock accounts as of December 31, 1995 and 1996 (.01 par value and voting for all classes of common stock).
OUTSTANDING SHARES AMOUNT ----------- ------ Home Again, Inc. Authorized--1,000,000................................................ 1,000 $ 10 Home Again, Corporate Housing, Inc. Authorized--100,000.................................................. 1,000 $ 10 Home Again, Amenities, Inc. Authorized--100,000.................................................. 1,000 $ 10
10. SALE OF COMPANY Effective on March 31, 1997, the Company was acquired, through a stock for stock merger, by Bridgestreet Accomodations, Inc. The stockholder of the Company received 475,000 shares of Bridgestreet Accomodations, Inc.'s common stock in exchange for all of the outstanding common stock of the Company. F-53 103 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Temporary Housing Experts, Inc.: We have audited the accompanying balance sheets of Temporary Housing Experts, Inc. as of December 31, 1995 and 1996, and the related statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 Temporary Housing Experts, Inc. as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Memphis, Tennessee March 21, 1997 F-54 104 TEMPORARY HOUSING EXPERTS, INC. BALANCE SHEETS
DECEMBER 31, --------------------- 1995 1996 -------- -------- ASSETS Current Assets: Cash and cash equivalents............................................ $213,845 $ 51,536 Accounts receivable, less allowance for doubtful accounts of $1,311 in 1995 and 1996.................................................. 77,481 99,487 Deferred income taxes................................................ 46,300 70,794 Prepaid expenses..................................................... -- 25,504 Security deposits held by landlord complexes......................... 18,566 24,244 -------- -------- Total current assets.............................................. 356,192 271,565 Operating stock, net of accumulated amortization....................... 141,680 145,086 Property and equipment, net of accumulated depreciation................ 82,265 58,450 -------- -------- Total assets................................................. $580,137 $475,101 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt................................. $ 15,669 $ 18,745 Accounts payable..................................................... 1,257 6,046 Security deposits due to customers................................... 51,087 50,548 Deferred revenue..................................................... 3,363 34,347 Accrued expenses..................................................... 115,750 51,875 Accrued income taxes................................................. 48,287 15,895 -------- -------- Total current liabilities......................................... 235,413 177,456 Long-term debt, net of current maturities.............................. 15,669 11,873 Deferred income taxes.................................................. 56,671 58,033 Stockholders' Equity: Common stock......................................................... 1,000 1,000 Retained earnings.................................................... 271,384 226,739 -------- -------- Total stockholders' equity........................................ 272,384 227,739 -------- -------- Total liabilities and stockholders' equity................... $580,137 $475,101 ======== ========
The accompanying notes are an integral part of these financial statements. F-55 105 TEMPORARY HOUSING EXPERTS, INC. STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------- 1995 1996 ---------- ---------- Revenues............................................................ $3,085,736 $3,582,924 Operating Expenses: Cost of services.................................................. 2,190,252 2,578,247 Selling, general and administrative expense....................... 865,689 1,077,568 ---------- ---------- Total operating expenses....................................... 3,055,941 3,655,815 ---------- ---------- Operating income (loss)........................................ 29,795 (72,891) Other Income (Expense): Interest expense.................................................. (1,018) (977) Other income (expense)............................................ (3,649) 6,197 ---------- ---------- Other income (expense), net.................................... (4,667) 5,220 ---------- ---------- Income (loss) before provision for income taxes..................... 25,128 (67,671) Benefit for income taxes............................................ (1,923) (23,026) ---------- ---------- Net income (loss)................................................... $ 27,051 $ (44,645) ========== ==========
The accompanying notes are an integral part of these financial statements. F-56 106 TEMPORARY HOUSING EXPERTS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK TOTAL ----------------- RETAINED STOCKHOLDERS' SHARES AMOUNT EARNINGS EQUITY ------ ------ -------- ------------- Balance, December 31, 1994......................... 1,000 $1,000 $244,333 $ 245,333 Net income....................................... -- -- 27,051 27,051 ----- ------ -------- --------- Balance, December 31, 1995......................... 1,000 1,000 271,384 272,384 Net loss......................................... -- -- (44,645) (44,645) ----- ------ -------- --------- Balance, December 31, 1996......................... 1,000 $1,000 $226,739 $ 227,739 ===== ====== ======== =========
The accompanying notes are an integral part of these financial statements. F-57 107 TEMPORARY HOUSING EXPERTS, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------- 1995 1996 --------- --------- Cash Flows From Operating Activities: Net (loss) income................................................ $ 27,051 $ (44,645) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities -- Depreciation and amortization................................. 41,044 59,507 Provision for bad debts....................................... (1,359) -- Gain on sale of property and equipment........................ -- (6,197) Change in operating assets and liabilities -- Accounts receivable......................................... 740 (26,547) Prepaid expenses and deposits............................... 1,247 (31,182) Accounts payable............................................ (12,131) 4,789 Accrued expenses............................................ 102,745 (96,267) Deferred revenue............................................ (4,615) 30,984 Refundable customer deposits................................ 17,584 (539) Loans made to employees..................................... (1,676) -- Loan payments from employees................................ -- 4,541 Deferred income taxes....................................... (23,512) (23,132) --------- --------- Net cash provided by (used in) operating activities...... 147,118 (128,688) --------- --------- Cash Flows from Investing Activities: Purchases of operating stock..................................... (54,534) (23,250) Purchases of property and equipment.............................. (83,521) (33,553) Proceeds from sale of property and equipment..................... -- 23,901 --------- --------- Net cash used in investing activities.................... (138,055) (32,902) --------- --------- Cash Flows from Financing Activities: Proceeds from notes payable...................................... 31,338 17,100 Payments of notes payable........................................ (14,251) (17,819) Advances from stockholder........................................ -- 50,000 Repayments to stockholder........................................ -- (50,000) --------- --------- Net cash provided by (used in) financing activities...... 17,087 (719) --------- --------- Net (decrease) increase in cash and cash equivalents............... 26,150 (162,309) Cash and cash equivalents, beginning of year....................... 187,695 213,845 --------- --------- Cash and cash equivalents, end of year............................. $ 213,845 $ 51,536 ========= ========= Supplemental Cash Flow Information: Cash paid for interest................................... $ 979 $ 969 ========= ========= Cash paid for income taxes............................... $ 17,800 $ 27,564 ========= =========
The accompanying notes are an integral part of these financial statements. F-58 108 TEMPORARY HOUSING EXPERTS, INC. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Temporary Housing Experts, Inc. (the "Company") was founded in 1993, and provides fully-furnished apartments, townhouses, condominiums and, to a lesser extent, homes (collectively "accommodations") to individuals in need of flexible accommodations. The Company has offices in: Memphis, Tennessee; and Jackson, Mississippi. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of these financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The fair market value of the Company's financial instruments approximates their financial statement carrying value. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Leasehold improvements are capitalized and charged to expense through depreciation. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is recorded in the statement of operations. Depreciation is determined using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes over the estimated useful lives of the respective assets. Estimated useful lives are as follows:
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE ---------------------------------------------------------------- ----------- Computer equipment.............................................. 3 Years Office furniture and equipment.................................. 5 Years Leasehold improvements.......................................... 7 Years Vehicles........................................................ 5 Years
Revenue Recognition The Company recognizes revenues on the rentals of accommodations to its clients on a pro rata basis over the length of the client's stay. Concentration of Credit Risk Concentration of credit risk is limited to accounts receivable. The Company does not require collateral or other security to support their receivables. The Company conducts periodic reviews of its clients' financial condition and payment practices to minimize collection risks on accounts receivable. F-59 109 TEMPORARY HOUSING EXPERTS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Operating Stock Operating stock to furnish new units, including linen, glassware, silverware and minor appliances is capitalized as it is purchased and amortized over a three-year period to a residual value of 50% of the original cost. Additional purchases of operating stock for apartment units already established is expensed as incurred. Accommodation and Furniture Leases The Company leases substantially all of its accommodations under lease terms ranging from one to two years. Furniture for the accommodations is leased on a monthly basis from various furniture rental companies. 3. INCOME TAXES The Company records income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized as income in the period that includes the enactment date. The provision (benefit) for income taxes consists of the following:
YEAR ENDED DECEMBER 31, --------------------- 1995 1996 -------- -------- Current -- State........................................................ $ 5,009 $ 106 Federal...................................................... 16,580 -- --------- --------- 21,589 106 --------- --------- Deferred -- State........................................................ $ (1,881) $ (2,891) Federal...................................................... (21,631) (20,241) --------- --------- (23,512) (23,132) --------- --------- Total benefit for income taxes....................... $ (1,923) $(23,026) ========= =========
A reconciliation between the benefit for income taxes computed at the statutory rates and the amount reflected in the accompanying statements of operations for the two years ended is as follows:
YEAR ENDED DECEMBER 31, --------------------- 1995 1996 -------- -------- Computed expected federal tax provision (benefit).............. $ 3,769 $(23,008) Increase (decrease) in taxes resulting from: State income taxes, net of federal benefit................... 829 (4,060) Other........................................................ (6,521) 4,042 ------- -------- Benefit for income taxes............................. $(1,923) $(23,026) ======= ========
F-60 110 TEMPORARY HOUSING EXPERTS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995 1996 --------- --------- Deferred tax assets (liabilities) consist of the following: Tax assets -- Accruals not yet deductible for tax purposes................. $ 46,300 $ 20,750 Net operating loss carryforward.............................. -- 50,044 -------- ------- 46,300 70,794 Tax liabilities -- Operating stock expensed for tax purposes.................... (56,671) (58,033) -------- -------- Net deferred tax asset (liability)................... $(10,371) $ 12,761 -------- --------
4. PROPERTY AND EQUIPMENT; OPERATING STOCK Property and equipment and operating stock consist of the following:
DECEMBER 31, -------------------- 1995 1996 --------- -------- Leasehold improvements.......................................... $ 1,987 $ 1,987 Computer equipment.............................................. 26,298 42,602 Furniture and office equipment.................................. 28,429 23,204 Vehicles........................................................ 80,258 65,296 --------- -------- Total property and equipment.......................... 136,972 133,089 Less -- accumulated depreciation................................ 54,707 74,639 --------- -------- Property and equipment, net........................... $ 82,265 $ 58,450 ========= ======== Operating stock................................................. $ 203,244 $226,494 Less -- accumulated amortization................................ 61,564 81,408 --------- -------- Operating stock, net.................................. $ 141,680 $145,086 ========= ========
5. DEBT Long-term obligations consist of the following:
DECEMBER 31, ------------------- 1995 1996 -------- -------- Notes payable to financial institutions, interest ranging from 0% to 7.99% maturing at various dates through March 2001: secured by certain automobiles purchased with the proceeds from the notes.......................................................... $ 31,338 $ 30,618 Less -- current maturities....................................... (15,669) (18,745) -------- -------- $ 15,669 $ 11,873 ======== ========
6. LEASE COMMITMENTS The Company leases administrative offices, accommodations and furniture at several locations through 1998. Rent expense for the fiscal years ended December 31, 1995 and 1996 was $1,890,967 and $2,164,855, respectively. Minimum future rental payments on long-term leases at December 31, 1996 are as follows:
OPERATING LEASES ---------------- 1997................................................ $709,278 1998................................................ 65,825 -------- Total..................................... $775,103 ========
F-61 111 TEMPORARY HOUSING EXPERTS, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. PENSION PLAN Eligible employees of the Company participate in a profit sharing plan sponsored by the Company. This defined contribution plan was effective on January 1, 1995 and provides that the Company will match participant contributions within specific limitations. The Company's contributions to the plan amounted to approximately $28,000 in 1995. There was no contribution to the plan in 1996. 8. CONTINGENCIES Various lawsuits have arisen in the ordinary course of the Company's business. The Company does not anticipate an unfavorable result in any such litigation or believe that an unfavorable result, if it occurred, would have a material adverse effect on its business, financial condition and results of operations. 9. SALE OF COMPANY Effective on January 2, 1997, the Company was acquired, through a stock for stock merger, by BridgeStreet Accommodations, Inc. The stockholders of the Company received 391,408 shares of BridgeStreet Accommodations, Inc.'s common stock in exchange for all of the outstanding common stock of the Company. F-62 112 ================================================================================ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS Prospectus Summary......................... 3 Risk Factors............................... 8 Combination................................ 13 Use of Proceeds............................ 14 Dividend Policy............................ 14 Capitalization............................. 15 Dilution................................... 16 Selected Financial and Other Data.......... 17 Selected Individual Founding Company Financial and Other Data................. 19 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 20 Business................................... 26 Management................................. 35 Principal and Selling Stockholders......... 40 Certain Transactions....................... 41 Description of Capital Stock............... 43 Shares Eligible for Future Sale............ 45 Underwriting............................... 46 Legal Matters.............................. 48 Experts.................................... 48 Additional Information..................... 48 Index to Financial Statements.............. F-1
------------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ ================================================================================ SHARES BRIDGESTREET ACCOMMODATIONS, INC. COMMON STOCK ------------------------ PROSPECTUS ------------------------ LEGG MASON WOOD WALKER INCORPORATED ------------------------ , 1997 ================================================================================ 113 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered, other than underwriting discounts and commissions. All of the amounts shown are estimated except the Securities and Exchange Commission registration fee. SEC registration fee..................................................... $ 10,910 NASD filing fee.......................................................... 3,536 Blue Sky fees and expenses............................................... 5,000 Nasdaq listing fee....................................................... 37,313 Printing and engraving expenses.......................................... 150,000 Legal fees and expenses.................................................. 750,000 Accounting fees and expenses............................................. 750,000 Transfer agent and registrar fees........................................ 4,000 Premium for directors' and officers' insurance........................... 80,000 Miscellaneous............................................................ 369,241 ---------- Total.......................................................... $2,160,000 =========
ABP will bear all of the foregoing fees and expenses, and the Company will reimburse ABP for such fees and expenses out of the proceeds of this offering. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company is a Delaware corporation. Reference is made to Section 145 of the DGCL, as amended, which provides that a corporation may indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe his or her conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite an adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. The Company's Certificate of Incorporation further provides that the Company shall indemnify its directors and officers to the full extent permitted by the law of the State of Delaware. The Company's Certificate of Incorporation provides that the Company's directors shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the II-1 114 extent that exculpation from liability is not permitted under the DGCL as in effect at the time such liability is determined. The Certificate of Incorporation also provides that each person who was or is made a party to, or is involved in, any action, suit, proceeding or claim by reason of the fact that he or she is or was a director, officer or employee of the Registrant (or is or was serving at the request of the Registrant as a director, officer, trustee employee or agent of any other enterprise including service with respect to employee benefit plans) shall be indemnified and held harmless by the Registrant, to the full extent permitted by Delaware law, as in effect from time to time, against all expenses (including attorneys' fees and expenses), judgments, fines, penalties and amounts to be paid in settlement incurred by such person in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim. The rights to indemnification and the payment of expenses provided by the Certificate of Incorporation do not apply to any action, suit, proceeding or claim initiated by or on behalf of a person otherwise entitled to the benefit of such provisions. Any person seeking indemnification under the Certificate of Incorporation shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. Any repeal or modification of such indemnification provisions shall not adversely affect any right or protection of a director or officer with respect to any conduct of such director or officer occurring prior to such repeal or modification. The Company maintains an indemnification insurance policy covering all directors and officers of the Company and its subsidiaries. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In connection with the Combination, in January and March 1997, the Company issued to the stockholders of the Founding Companies an aggregate of 4,301,000 shares of Common Stock in exchange for all of the issued and outstanding stock of such companies. Prior to the Combination, in August 1996, the Company issued to the promoters of the Company an aggregate of 2,000 shares of Common Stock at a purchase price of $1.00 per share. In August and November 1996, the Company issued 150 and 350 shares of restricted Common Stock, respectively, at a purchase price of $1.00 per share, to two individuals upon their agreement to become executive officers of the Company in January 1997. The restrictions since have lapsed. In November 1996, the Company issued 66 shares of Common Stock to a consultant at a purchase price of $1.00 per share. A 499-for-1 stock dividend (the "Stock Dividend") was declared by the Company with respect to all shares of Common Stock that were outstanding as of November 28, 1996. All such issuances of Common Stock (other than the Stock Dividend) have been made in reliance upon the exemption from registration afforded by Section 4(2) under the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS (a) EXHIBITS. Unless otherwise indicated, the following exhibits will be filed by amendment to this Registration Statement.
SEQUENTIAL EXHIBIT DESCRIPTION PAGE NO. - ------- ------------------------------------------------------------------------- ---------- 1 Form of Underwriting Agreement........................................... *3.1 Certificate of Incorporation of the Company.............................. 3.2 By-laws of the Company................................................... 4.1 Specimen Stock Certificate............................................... 5 Opinion of Nutter, McClennen & Fish, LLP................................. *10.1 Agreement and Plan of Merger dated as of December 30, 1996 by and among BridgeStreet International Inc., EIP Acquisition Corp., Exclusive Interim Properties, Ltd. and Melanie R. Sabelhaus................................
II-2 115
SEQUENTIAL EXHIBIT DESCRIPTION PAGE NO. - ------- ------------------------------------------------------------------------- ---------- *10.2 Agreement and Plan of Merger dated as of December 30, 1996 by and among BridgeStreet International Inc., THEI Acquisition Corp., Temporary Housing Experts, Inc., Connie F. O'Briant and Thomas W. O'Briant......... *10.3 Agreement and Plan of Merger dated as of December 30, 1996 by and among BridgeStreet International Inc., TCHI Acquisition Corp., Temporary Corporate Housing Columbus, Inc., Temporary Corporate Housing Cleveland, Inc., Temporary Corporate Housing Cincinnati, Inc., Temporary Corporate Housing Pittsburgh, Inc., SLD Partnership, Lynda Clutchey, David Clutchey III, Beth Holzer and David Holzer........................................ *10.4 Agreement and Plan of Merger dated as of December 30, 1996 by and among BridgeStreet International Inc., CL Acquisition Corp., Corporate Lodgings, Inc., Corporate Lodgings of Kentucky, Inc., Corporate Lodgings of Minnesota, Inc., Corporate Lodgings of Pennsylvania, Inc., Corporate Lodgings of Wisconsin, Inc. and Rocco A. Di Lillo........................ *10.5 Agreement and Plan of Merger dated as of March 31, 1997 by and among BridgeStreet International Inc., HAI Acquisition Corp., Home Again, Inc., Home Again Amenities, Inc., Home Again Corporate Housing, Inc. and Sandra A. Brown................................................................. 10.6 1997 Equity Incentive Plan............................................... 10.7 Stock Plan for Non-Employee Directors.................................... *10.8 Employment Agreement dated December 30, 1996, between CL Acquisition Corp. and Rocco A. Di Lillo.............................................. *10.9 Employment Agreement dated December 30, 1996, between EIP Acquisition Corp. and Melanie R. Sabelhaus........................................... *10.10 Employment Agreement dated December 30, 1996 between THEI Acquisition Corp. and Connie F. O'Briant............................................. *10.11 Employment Agreement dated December 30, 1996, between TCHI Acquisition Corp. and Lynda Clutchey................................................. 10.12 Employment Agreement dated as of January 2, 1997, between BridgeStreet International Inc. and Mark D. Gagne..................................... 10.13 Employment Agreement dated as of March 31, 1997, between BridgeStreet International Inc. and William N. Hulett, III............................ *10.14 Revolving Credit Agreement. Dated as of March 31, 1997 between BridgeStreet International Inc., as Borrower, and Fleet National Bank and the Other Lending Institutions listed on Schedule 1 thereto and Fleet National Bank as Agent................................................... *10.15 Revolving Credit Note for the principal balance of $10,000,000, dated March 31, 1997........................................................... 10.16 Rental Agreement between Saturn Enterprises Inc. and Temporary Corporate Housing Inc. dated December 28, 1995..................................... 10.17 Exclusive Lease Agreement between Integrity Furniture, Inc. and Temporary Corporate Housing Pittsburgh, Inc. dated September 12, 1995.............. *21 Subsidiaries of the Registrant........................................... +23.1 Consent of Arthur Andersen, LLP.......................................... +23.2 Consent of Arthur Andersen, LLP.......................................... 23.3 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5)........ *24 Power of Attorney (contained in the signature page to this Registration Statement)............................................................... *27 Financial Data Schedule..................................................
- --------------- * Previously filed. + Filed herewith. II-3 116 (b) FINANCIAL STATEMENT SCHEDULES The following Financial Statement Schedule is filed herewith as part of this Registration Statement: Schedule II -- Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A under the Securities Act and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 117 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, the Commonwealth of Massachusetts, on the 18th day of June 1997. BRIDGESTREET ACCOMMODATIONS, INC. By: /s/ MARK D. GAGNE ----------------------------------- Mark D. Gagne Chief Financial Officer and Principal Accounting Officer POWER OF ATTORNEY PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - --------------------------------------------- -------------------------------- --------------- /s/ WILLIAM N. HULETT, III* President, Chief Executive June 18, 1997 - --------------------------------------------- Officer and Director William N. Hulett, III /s/ MARK D. GAGNE Chief Financial Officer and June 18, 1997 - --------------------------------------------- Principal Accounting Officer Mark D. Gagne /s/ PAUL M. VERROCHI* Chairman of the Board June 18, 1997 - --------------------------------------------- Paul M. Verrochi /s/ ROCCO A. DI LILLO* Vice President, Chief Operating June 18, 1997 - --------------------------------------------- Officer and Director Rocco A. Di Lillo /s/ LYNDA D. CLUTCHEY* Director June 18, 1997 - --------------------------------------------- Lynda D. Clutchey /s/ CONNIE F. O'BRIANT* Director June 18, 1997 - --------------------------------------------- Connie F. O'Briant /s/ MELANIE R. SABELHAUS* Director June 18, 1997 - --------------------------------------------- Melanie R. Sabelhaus
*By: /s/ MARK D. GAGNE -------------------------------- Mark D. Gagne Attorney-in-Fact Powers of Attorney have been filed with this Registration Statement II-5 118 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of BridgeStreet Accommodations, Inc. We have audited, in accordance with generally accepted auditing standards, the combined financial statements of Temporary Corporate Housing Columbus, Inc. included in BridgeStreet Accommodations, Inc.'s Form S-1 and have issued our report thereon dated February 28, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Temporary Corporate Housing Columbus, Inc.'s Schedule of Valuation and Qualifying Accounts, included in Schedule II on page S-2, is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic combined financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic combined financial statements and, in our opinion, fairly states in all material respects the combined financial data required to be set forth therein in relation to the basic combined financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts February 28, 1997 S-1 119 SCHEDULE II TEMPORARY CORPORATE HOUSING COLUMBUS, INC. VALUATION AND QUALIFYING ACCOUNTS
PROVISION BALANCE AT CHARGED ACCOUNTS BALANCE BEGINNING TO ACCOUNTS WRITTEN AT END OF YEAR EXPENSE RECOVERED OFF OF YEAR ---------- --------- --------- -------- ------- Year Ended December 31, 1996 Allowance for Doubtful Accounts....... $ -- $ 45,000 $ -- $ -- $45,000 Year Ended December 31, 1995 Allowance for Doubtful Accounts....... $ -- $ -- $ -- $ -- $ -- Year Ended December 31, 1994 Allowance for Doubtful Accounts....... $ -- $ -- $ -- $ -- $ --
S-2 120 EXHIBIT INDEX
SEQUENTIAL EXHIBIT DESCRIPTION PAGE NO. - ------ ------------------------------------------------------------------------- ---------- 1 Form of Underwriting Agreement........................................... *3.1 Certificate of Incorporation of the Company.............................. 3.2 By-laws of the Company................................................... 4.1 Specimen Stock Certificate............................................... 5 Opinion of Nutter, McClennen & Fish, LLP................................. *10.1 Agreement and Plan of Merger dated as of December 30, 1996 by and among BridgeStreet International Inc., EIP Acquisition Corp., Exclusive Interim Properties, Ltd. and Melanie R. Sabelhaus................................ *10.2 Agreement and Plan of Merger dated as of December 30, 1996 by and among BridgeStreet International Inc., THEI Acquisition Corp., Temporary Housing Experts, Inc., Connie F. O'Briant and Thomas W. O'Briant......... *10.3 Agreement and Plan of Merger dated as of December 30, 1996 by and among BridgeStreet International Inc., TCHI Acquisition Corp., Temporary Corporate Housing Columbus, Inc., Temporary Corporate Housing Cleveland, Inc., Temporary Corporate Housing Cincinnati, Inc., Temporary Corporate Housing Pittsburgh, Inc., SLD Partnership, Lynda Clutchey, David Clutchey III, Beth Holzer and David Holzer........................................ *10.4 Agreement and Plan of Merger dated as of December 30, 1996 by and among BridgeStreet International Inc., CL Acquisition Corp., Corporate Lodgings, Inc., Corporate Lodgings of Kentucky, Inc., Corporate Lodgings of Minnesota, Inc., Corporate Lodgings of Pennsylvania, Inc., Corporate Lodgings of Wisconsin, Inc. and Rocco A. Di Lillo........................ *10.5 Agreement and Plan of Merger dated as of March 31, 1997 by and among BridgeStreet International Inc., HAI Acquisition Corp., Home Again, Inc., Home Again Amenities, Inc., Home Again Corporate Housing, Inc. and Sandra A. Brown................................................................. 10.6 1997 Equity Incentive Plan............................................... 10.7 Stock Plan for Non-Employee Directors.................................... *10.8 Employment Agreement dated December 30, 1996, between CL Acquisition Corp. and Rocco A. Di Lillo.............................................. *10.9 Employment Agreement dated December 30, 1996, between EIP Acquisition Corp. and Melanie R. Sabelhaus........................................... *10.10 Employment Agreement dated December 30, 1996 between THEI Acquisition Corp. and Connie F. O'Briant............................................. *10.11 Employment Agreement dated December 30, 1996, between TCHI Acquisition Corp. and Lynda Clutchey 10.12 Employment Agreement dated as of January 2, 1997, between BridgeStreet International Inc. and Mark D. Gagne..................................... 10.13 Employment Agreement dated as of March 31, 1997, between BridgeStreet International Inc. and William N. Hulett, III............................ *10.14 Revolving Credit Agreement. Dated as of March 31, 1997 between BridgeStreet International Inc., as Borrower, and Fleet National Bank and the Other Lending Institutions listed on Schedule 1 thereto and Fleet National Bank as Agent................................................... *10.15 Revolving Credit Note for the principal balance of $10,000,000, dated March 31, 1997........................................................... 10.16 Rental Agreement between Saturn Enterprises Inc. and Temporary Corporate Housing Inc. dated December 28, 1995..................................... 10.17 Exclusive Lease Agreement between Integrity Furniture, Inc. and Temporary Corporate Housing Pittsburgh, Inc. dated September 12, 1995..............
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SEQUENTIAL EXHIBIT DESCRIPTION PAGE NO. - ------ ------------------------------------------------------------------------- ---------- *21 Subsidiaries of the Registrant........................................... +23.1 Consent of Arthur Andersen, LLP.......................................... +23.2 Consent of Arthur Andersen, LLP.......................................... 23.3 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5)........ *24 Power of Attorney (contained in the signature page to this Registration Statement)............................................................... *27 Financial Data Schedule..................................................
- --------------- * Previously filed. + Filed herewith. EX-23.1 2 CONSENT OF ARTHUR ANDERSEN, LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS To BridgeStreet Accommodations, Inc. As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) for BridgeStreet Accommodations, Inc. dated April 10, 1997, for Temporary Corporate Housing Columbus, Inc. dated February 28, 1997, for Corporate Lodgings, Inc. dated February 28, 1997, for Exclusive Interim Properties, Ltd. dated March 11, 1997, and for Home Again, Inc. dated March 21, 1997, included in or made part of this registration statement. /S/ ARTHUR ANDERSEN LLP Boston, Massachusetts June 16, 1997 EX-23.2 3 CONSENT OF ARTHUR ANDERSEN, LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To BridgeStreet Accommodations, Inc. As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) for Temporary Housing Experts, Inc., dated March 21, 1997, included in or made part of this registration statement. /S/ ARTHUR ANDERSEN LLP Memphis, Tennessee June 16, 1997 -----END PRIVACY-ENHANCED MESSAGE-----