SB Hotels Corporation (SB) is a privately-owned corporation that operates three large mid-scale hotels, one in each of the three largest cities in Canada: Montreal, Toronto, and Vancouver. The corporation was founded by the Tiawari family in the late 1980s. The company's first hotel was built near the Toronto international airport and opened in early 1990. SB expanded quickly, opening a hotel in downtown Montreal in 1991 and in the suburbs of Vancouver in 1992. The hotels are branded as SB Hotels, e.g. "SB Toronto Hotel." Each hotel has 280 or more guest rooms and two or three banquet rooms. The banquet rooms are used for special events with 50-300 attendees, such as conferences, wedding receptions, and seminars. Small meetings can be accommodated by removing bedroom furniture from a guest room and adding tables and chairs. Until 1996, Arthur Tiawari managed the company. Satisfied with the operations of the hotels, Tiawari retired and Andrew Mayd was hired in 1996 to manage SB. The hotels developed a good reputation for service and have been reasonably successful for the past 10 years. The SB Montreal Hotel has benefited from the popularity of Montreal as a conference and tourist centre. Montreal is close to several major U.S. cities and costs are reasonable. As well, travellers regard Montreal as a little foreign and exotic, but safer than many other major cities. In 2003, the Montreal Tourist Magazine bestowed the best mid-scale independent hotel award to the SB Montreal Hotel. Toronto, which is Canada's most populous city and Ontario's economic centre, has seen significant growth since 1990. SB's head office and central booking centre is located in the Toronto hotel building. In 2003, business at the Toronto hotel suffered significantly as a result of the SARS outbreak in Toronto. Over the past three years, business has returned to previous levels. Vancouver has seen great changes over the last 15 years, including the growth in the cruise industry. Although the Vancouver hotel does not receive much business from the cruise industry (i.e. passengers usually stay at upscale and luxury hotels before and after cruises), the general strengthening of the economy and tourism in British Columbia have generated increased business. In 2004, the Vancouver hotel was named the best independent mid-scale hotel by the Lower Mainland Tourist Association. The Industry The accommodation industry thrives on strategically located and efficiently managed establishments, as well as the tourism industry in general. Worldwide, the industry is huge, with estimated annual revenues in excess of $124 billion. In Canada, many municipal and provincial tourism agencies promote Canadian cities as attractive travel destinations and thus provide business to the local accommodation industry. World events (e.g. terrorist attacks, SARS outbreak) caused the Canadian tourism industry to decline from 2001 to 2003, and the occupancy rate of hotels in Canada reached an all-time low. In 2004, the industry rebounded and tourism grew at a faster rate than the rest of the economy. By the end of 2006, there were more than 15,000 travel accommodation establishments in Canada, generating in excess of $13 billion in operating revenues (see Exhibit 1). Airport hotels experienced the largest gains in demand, followed closely by downtown hotels. The average occupancy rate for large hotels (i.e. those with more than 200 guest rooms) reached 70% in 2006 and the average daily room rate for these hotels reached $138 (see Exhibit 2). A four-scale system is used to classify hotels: 1) Economy - Basic accommodation provided with few or no amenities and guest services, and the only facility provided is usually a swimming pool. 2) Mid-scale - Basic accommodation provided with some amenities, but limited guest services and facilities (e.g. breakfast service, selected business services, fitness centre). 3) Upscale - More comfortable and attractive accommodations provided with a broad range of facilities, amenities, and services (e.g. spa, business centre, concierge, recreational facilities). 4) Luxury - Highest standard of accommodation that offers an extensive range of amenities, guest services, and facilities (e.g. first-class restaurant, extensive entertainment facilities). In general, business travellers tend to stay at upscale and luxury hotels, as well as the better mid-scale hotels. Leisure travellers tend to stay mainly at mid-scale and economy hotels. The Internet's increased popularity has had a major impact on the tourism and accommodation industry over a relatively short period of time. Major on-line travel sites (e.g. Expedia.com, Travelocity.com) offer Internet-savvy consumers booking options that go beyond simple transactions such as point-to-point air and hotel reservations. The "book-it-yourself" traveller is becoming more prevalent. Consumers are taking greater control over their travel plans by using the Internet to not only gather information, but also to compare prices and options to locate the best deals available, make reservations directly, and arrange for payment directly. Another industry trend is the increase in hotels that are associated with a brand name chain (e.g. franchises). Industry reports show that these hotels perform better than hotels that are not part of a chain. Associated hotel chains generally have more rooms, charge higher daily room rates, and have higher occupancy rates than independently owned hotels. A major contributing factor for this superior performance is the use of a central reservation system (i.e. a guest booking system using a centralized computer and/or telephone answering service). As well, many hotel chains of all sizes offer frequent guest or other points programs to generate repeat business. Certain government regulations impact hotels in Canada. These regulations cover such areas as real estate zoning, food preparation, liquor licensing, elevator safety, and property taxes. Management and Organizational Structure The company's current summarized organizational chart is found in Exhibit 3. The structure involves a head office management group and the management of each hotel. The President and CEO of SB is Andrew Mayd. He was hired in 1996 by the board of directors to replace Arthur Tiawari after an extensive search by a well known executive recruitment firm. Mayd is a hotel industry veteran. After graduating from college with a major in hospitality management 29 years ago, he gained experience working for three major hotel chains and one independent hotel, beginning at the front desk and working his way up to his current position with SB. Walter Rames is the company's Vice-President, Bookings & Promotion. He worked in sales and marketing with several different organizations before joining SB last year. His responsibilities include promotion and advertising for all SB hotels, as well as the central booking system. Caly Leblanc is the Vice-President, Services & People. She holds an MBA from a prestigious university and has worked her entire career in the hotel industry. Leblanc is responsible for overseeing the service levels at all three hotels, focussing on generating and implementing new ideas for improvement. She also provides overall human resource management. Matt Gleeson is the Vice-President, Facilities. He held positions with a number of property management companies before joining SB in 1990. Gleeson is in charge of maintenance and improvements of the three hotel buildings, properties, and facilities. As well, he is responsible for the purchasing function for all three hotels. Manny Bluenose, Vice-President, Finance, joined SB in 2000 as the controller and was promoted to the vice-president position in 2005. He has a B.Comm. with an accounting major. Prior to joining SB, Bluenose worked for four years as a senior financial analyst with a community college. His current responsibilities at SB include overseeing both the finance and information technology functions. Each of the vice-presidents is paid a base salary of $100,000 plus a bonus if corporate pre-tax income exceeds $2 million. They also receive other incentive benefits if personal objectives for the year are met. The other key people in SB's management structure are the three hotel general managers: Luc Lavioli - Montreal hotel; Sue Sutton - Toronto hotel; and Chan Chin - Vancouver hotel. The hotel general managers are responsible for all hotel operations, including the front desk, housekeeping services, banquet services, restaurant, gift shop, and facilities. Lavioli started working at the SB Montreal Hotel in 1992 as a general labourer in the restaurant while he was attending college. After graduating with a three-year business administration diploma, he worked his way up through almost every department of the hotel until he was promoted to his current position in 2006. Sutton is a hotel industry veteran who joined SB in 1998. Chin has extensive experience at Asian hotels and joined SB in 1992 shortly after immigrating to Canada. Each hotel general manager receives the same base salary of $85,000, plus a bonus equal to 0.3% of the pre-tax income of their respective hotel. Central functions, such as purchasing and bookings, require the hotel general managers and their staff to work closely with the head office staff. For example, the hotel general managers work together with the booking department staff to set the hotel rates for their individual hotels. At each hotel, all hotel staff report directly to the hotel general manager for on-site accountability and indirectly to the respective functional vice-president at the head office. For example, the head chef at the Vancouver hotel restaurant reports directly to Chin and indirectly to Leblanc, and the facilities manager reports indirectly to Gleeson. Promotion & Booking SB advertises in the Montreal, Toronto, and Vancouver telephone directory yellow pages and airports, as well as in certain national tourist magazines. SB also purchases pop-up advertising on the Internet with google.com at a cost of pennies per view, where the SB advertisement pops up when a person uses the GoogleTM search engine to find a hotel in Montreal, Toronto, or Vancouver. These advertisements are capped, so that once the authorized limit for the month is reached, SB advertisements stop. Some billboard advertising is used within two kilometres of the hotels, each of which has good highway access. The company maintains a simple, user-friendly website, which allows on-line bookings at a small discount, as well as a central booking phone line at the head office. Table 1 describes the various modes that guests at SB hotels use to make bookings

In 2006, SB polled all guests with regard to their purpose of travelling and staying at SB hotels. The poll revealed that approximately 65% of guests were staying at the hotel for pleasure and 35% for business. Of the business guests, 3% were attending conferences held in the hotel. The poll also revealed that the average length of stay of all guests was three days. Board of Directors and Shareholders The board of directors of SB is comprised of five individuals. Three are Tiawari family members: Arthur (who founded the company), his eldest son Arthur Jr., and his eldest daughter Genevieve. The other two members of the board are Mark Welly and Julie Saab. Arthur Tiawari is a wealthy individual who owns a number of commercial and residential real estate properties through various corporations, in addition to the SB hotels. He serves on the boards of directors of the companies but is no longer directly involved in their operations. Both Arthur Jr. and Genevieve Tiawari were active in running SB from its inception until 1996, when they retired at the same time as their father. Arthur Jr. currently enjoys a life of leisure and Genevieve is a philanthropist in the area of children's learning disabilities. Mark Welly, who retired in 1998, was the first general manager for the SB Toronto Hotel. Julie Saab is a longtime friend of the Tiawari family and a lawyer. The board meets at least every second month to review progress reports, financial results, and major proposals presented by Mayd and selected members of the management group. In early 2006, the board conducted an environmental scan and prepared formal vision and mission statements (see Exhibit 4). Table 2 provides a list of the shareholders, who are all members or friends of the Tiawari family

Description of Operations The company has a December 31 fiscal year end. The first quarter of the year is the weakest and the third quarter is the strongest. SB hotels strive to provide guests with as many small customer "touches" that a mid-scale hotel can afford. Although valet parking is not provided, each hotel has ample guest parking and bell staff are available to help carry luggage. Upon checking in at the front desk, each guest is asked for their preferences in terms of such things as room location relative to elevators and floor, room dcor, and smoking versus non-smoking (smoking is permitted on a few designated floors in each hotel). When possible, such preferences are accommodated. In addition to standard hotel room furnishings (bed, desk, chairs, television, clock-radio, etc.), each guest room has a coffee maker, free coffee and related supplies, a hair dryer, an iron, and an ironing board. In each bathroom, complimentary soap, shampoo, and hair conditioner are provided. Each evening, two complimentary fresh cookies from the hotel's restaurant are placed in each occupied guest room. SB hotels do not have a concierge, but special inquiries (e.g. recommendations for nearby restaurants, shows, etc.) can be made at the front desk. Although dry cleaning services are not offered by SB hotels, guests who require dry cleaning are directed to a local dry cleaning depot located within two blocks of the hotel. Express checkout service is provided, whereby the guest's invoice/receipt is placed under the guest room door at 2 a.m. on the last day of the guest's stay. The total invoiced amount is automatically charged to the guest's credit card, removing the need for the guest to check out at the busy front desk in the morning. If the guest does not agree with any of the itemized charges on the invoice, the guest must visit the front desk where hotel staff will make the appropriate inquiries and adjustments. Each hotel has one restaurant and a very small gift shop. Approximately 80% of the revenues generated at the restaurants and stores are from hotel guests and 20% from local walk-in customers. The restaurants, like the hotel, are value-oriented, providing basic family-style meals from 6:30 a.m. to 9:00 p.m. at reasonable prices. Although they do not provide room service for the guest rooms, the restaurants offer catering services for the events held in the banquet rooms. The purchasing department negotiates bulk purchases of supplies (e.g. hotel furnishings, linens, towels, toiletries, stationery, room card keys, maintenance, food, and other supplies) for all three hotels and the head office. Occasionally, mutually beneficial special arrangements are made with suppliers. For example, in early 2006, an arrangement was made with a foreign consumer products manufacturer that was introducing its inexpensive products in the Canadian market. The foreign company would supply SB with free soap, shampoo, and hair conditioner for the guest rooms and, in return, SB hotels would provide free advertising for these products by placing a flyer in the guest rooms that would indicate where these items could be purchased (e.g. Wal-Mart) and their retail prices. This arrangement worked successfully in 2006 and negotiations are taking place for a similar arrangement for 2007. Competition The Canadian and international hotel industries are very competitive. Competition within each of the four classes is based on numerous factors, such as ease of booking, room rates, location, room quality, housekeeping services, food and beverage quality and service, availability of additional facilities and services, and attitude of the hotel staff. The first quarter of the calendar year is generally the weakest across the industry in North America. Toronto, Vancouver, and Montreal all have a plethora of competing accommodation alternatives in all four hotel classes. Some of the mid-range hotel chains that compete directly with SB are Wonderful Inns, Budget Hotels, and Home-Away-From-Home Hotels. SB has at total of 332 full-time equivalent employees. Many are long-term, loyal staff and the average length of service is 12 years. SB management has always followed the philosophy that keeping employees happy will result in their providing better service to guests. One practice used is to automatically give employees raises of 2.5% to 3% per year. Another is to use mainly full-time staff and limited part-time staff. As a result of these factors, employee turnover is lower than the industry norm. Total salaries and benefits in 2006 are approximately $11 million, by far the largest operating cost. Employees have various backgrounds, with those in higher positions holding diplomas in hospitality disciplines from community colleges. Salaries are higher in Toronto and Vancouver than Montreal due to market factors and the cost of living. All staff, including the executives, take vacations only during the slow periods of the year.