NEW YORK Ray French and Paul Coulson, who are waging a proxy contest for election to the board of Suburban Lodges of America, said today that they have serious questions about the limited disclosures that have been made regarding the companys expenditures on the HotelTools Internet start-up. According to French and Coulson, at the outset of the HotelTools investment, the current board and management of Suburban Lodges elected to structure the companys investment in the Internet startup as a loan-plus-warrant rather than as a 100%-owned subsidiary.
This structure resulted in an accounting treatment under which the significant losses generated by HotelTools have not appeared on the Suburban Lodges income statement, according to French and Coulson. However, HotelTools funding requirements are met entirely by Suburban Lodges, and Suburban Lodges holds a warrant which if exercised (for a nominal amount) would give the company ownership of between 99-100% of HotelTools equity, before the exercise of employee stock options.
Further, French and Coulson assert that his accounting treatment has also greatly reduced the public disclosures Suburban Lodges is required to make regarding its dealings with relating to how the $10.19 million loaned to HotelTools has been spent. As disclosed only recently by the company, five senior executives of Suburban Lodges, including the companys CEO, have personally been issued a total of 450,000 options in HotelTools, French and Coulson said.
According to a recent shareholder conference call, HotelTools incurred approximately $8 million in losses in 2000. Since Suburban Lodges year 2000 pre-tax income was $8,483,000, virtually all of the companys net income would have been wiped out if the company had been consolidated with HotelTools. (5/11/01)