<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996.
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HOMEGATE HOSPITALITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7011 75-0511313
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S.
JURISDICTION OF CLASSIFICATION CODE NUMBER) EMPLOYER
INCORPORATION OR IDENTIFICATION
ORGANIZATION) NO.)
2001 BRYAN STREET, SUITE 2300
DALLAS, TEXAS 75201
(214) 863-1777
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT A. FAITH
CHIEF EXECUTIVE OFFICER
HOMEGATE HOSPITALITY, INC.
2001 BRYAN STREET, SUITE 2300
DALLAS, TEXAS 75201
(214) 863-1777
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DEREK R. MCCLAIN L. STEVEN LESHIN
VINSON & ELKINS L.L.P. JENKENS & GILCHRIST,
3700 TRAMMELL CROW CENTER A PROFESSIONAL CORPORATION
2001 ROSS AVENUE 1445 ROSS AVENUE, SUITE 3200
DALLAS, TEXAS 75201 DALLAS, TEXAS 75202
TELEPHONE: (214) 220-7700 TELEPHONE: (214) 855-4500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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(c) 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 this Form is a post-effective amendment filed pursuant to Rule 462(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. [_]____________
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share.......................... $ $51,750,000 $17,845
</TABLE>
===============================================================================
(1) Includes shares as to which the Company has granted the Underwriters
an option to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee.
----------------
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.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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, DATED AUGUST 30, 1996
PROSPECTUS
[LOGO] SHARES
HOMEGATE HOSPITALITY, INC.
COMMON STOCK
-----------------
All of the shares of Common Stock, $.01 par value (the "Common Stock"),
offered hereby (the "Offering") are being sold by Homegate Hospitality, Inc.
(the "Company"). Prior to the Offering, there has been no public market for the
Common Stock of the Company, and no assurance can be given that an active
trading market for the Common Stock will develop after the Offering. It is
currently anticipated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of the factors to
be considered in determining the initial public offering price. The Company has
applied to include the Common Stock for quotation on The Nasdaq National Market
under the symbol "HMGT."
ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
-----------------
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.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
- --------------------------------------------------------------------------------
Total(3)........................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional shares of Common Stock on the same terms as the Common
Stock offered hereby, solely to cover over-allotments, if any (the "Over-
Allotment Option"). If the Over-Allotment Option is exercised in full, the
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
the Company will be $ , $ , and $ , respectively. See "Underwriting."
-----------------
The shares of Common Stock are offered, subject to prior sale, when, as, and
if delivered to and accepted by the Underwriters, and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about , 1996,
at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York
10167.
-----------------
BEAR, STEARNS & CO. INC. MONTGOMERY SECURITIES
, 1996.
<PAGE>
[PICTURES]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited financial
statements for each of the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET
SYSTEM, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this prospectus
(this "Prospectus"). Unless otherwise indicated, the information in this
Prospectus assumes (i) the completion of the formation of the Company and
related transactions (the "Formation," as more specifically defined under "The
Formation Transaction"), (ii) no exercise of the Over-Allotment Option, and
(iii) an initial public offering price of $ per share (which represents the
midpoint of the range on the cover page of this Prospectus and which affects
the number of shares to be received by the parties in the Formation and the
calculation of the proceeds from the Offering). See "The Formation
Transaction," "Underwriting" and "Principal Stockholders." Unless the context
suggests otherwise, references in this Prospectus to (i) the "Company" mean
Homegate Hospitality, Inc. and its predecessors, (ii) the "Crow Family" include
various descendants of Mr. and Mrs. Trammell Crow and various corporations,
partnerships, trusts and other entities beneficially owned or controlled by
such persons, (iii) "TCR" mean Trammell Crow Residential Company and its
affiliates, (iv) "Greystar" mean Greystar Capital Partners, L.P. and its
affiliates, (v) "Crow" mean Crow Realty Investors, L.P. d/b/a Crow Investment
Trust and its affiliates, and (vi) "Wyndham" mean Wyndham Hotel Corporation and
its predecessors and affiliates. "Homegate Studios & Suites" and "Homegate
Studios" are service marks of the Company.
THE COMPANY
Homegate Hospitality, Inc.'s goal is to become a national provider of high
quality extended-stay hotels in strategically selected markets located
throughout the United States. The Company plans to rapidly develop a chain of
midprice extended-stay hotels under the Homegate Studios & Suites brand name to
capitalize on what management believes is a large and underserved market of
guests who desire extended-stay accommodations. This market includes business
travelers, professionals on temporary work assignments, persons between
domestic situations, and persons relocating or purchasing a home, who often
desire accommodations for an extended duration. As of the time of the Offering,
the Company expects to own six hotels, to have seven hotels under development,
and to have agreements, letters of intent, contracts or other arrangements to
purchase 10 additional development sites. Of the seven hotels under
development, three are currently under construction and four are expected to be
under construction by December 31, 1996. The Company's objective is to have
approximately 65 extended-stay hotels open or under construction by December
31, 1998 (the "Initial Hotel Program").
The Company was recently founded by management and by affiliates of the
following three entities: Trammell Crow Residential Company, one of the
nation's leading developers of multi-family housing units with 22 regional
offices; Greystar Capital Partners, L.P., a private investment company with
substantial multi-family housing development and construction expertise; and
Crow Investment Trust, the real estate investment arm of the Crow Family. In
TCR, Greystar and Crow, the Company brings together extensive experience in
developing, constructing and managing properties on a national scale and in
structuring, financing and executing national real estate investment programs.
The Company has entered into a master development agreement with a partnership
(the "Developer Partnership"), comprised of TCR and Greystar (the "Developer
Affiliates"), to provide site selection, construction and development services
for the Company's Initial Hotel Program. Management believes the Developer
Affiliates' expertise and local market presence will significantly enhance the
Company's ability to execute its Initial Hotel Program.
As of the time of the Offering, the Company will also have entered into a
master management assistance agreement (the "Management Agreement") with a
subsidiary of Wyndham Hotel Corporation, which owns, operates or franchises
over 70 hotels in North America, to manage the Company's hotels pursuant to 10-
year management contracts. Management believes that Wyndham's experience in
managing and operating one of the nation's leading hotel chains will facilitate
the Company's ability to provide consistently high quality
3
<PAGE>
accommodations and services to its guests, and that access to Wyndham's
resources will minimize the Company's overhead expenses during its initial
phase of operations. Although Wyndham owns no Common Stock in the Company, over
48% of Wyndham's stock is owned by the Crow Family. See "Certain Transactions"
and "Risk Factors--Reliance upon Affiliated Companies." Upon completion of the
Offering, TCR, Greystar, Crow and their affiliates will own % of the
outstanding Common Stock. See "Risk Factors--Control of the Company by
Management and Principal Stockholders" and "Principal Stockholders."
The Company's product strategy is to develop a well-recognized national brand
under the Homegate Studios & Suites name by offering high quality
accommodations in a standard format, providing much of the value offered by
limited service hotels with many of the added features and comforts of
apartment living. Homegate Studios & Suites hotels will feature three
functional room configurations, each with a fully equipped kitchen, upscale
residential-quality finishes and accessories, separation between the cooking,
living, and sleeping areas, and other amenities, including weekly maid service,
twice-weekly linen service, resident laundry facilities, direct dial telephone
service with voice mail messaging and dataport capabilities, cable TV, a
business center and exercise facility. See "Business--Product Concept."
The extended-stay category (defined as hotel suites with full kitchens) is
one of the most rapidly growing sectors of the U.S. lodging industry. From 1990
through 1995, the compounded annual growth rate in occupied rooms in dedicated
extended-stay hotels was 7.2% compared to 2.1% for the overall U.S. lodging
industry, while the compounded annual growth rate in room supply was 5.3%
compared to 1.0% for the overall U.S. lodging industry. However, the vast
majority of dedicated extended-stay rooms developed during this time period
were in the upscale segment of the extended-stay category. Average occupancy
rates for extended-stay hotel chains have exceeded such rates in the overall
U.S. lodging industry for each of the previous six years, and extended-stay
hotel chains have achieved an 80% or greater occupancy level during each of the
past three years. The Company believes that the size of the demand for
extended-stay lodging compares favorably to the limited supply of dedicated
extended-stay rooms, and that this is especially true in the midprice segment
of the extended-stay category. In 1995, extended-stay guests (defined as those
guests staying five or more nights) who were accommodated at hotels accounted
for a total of 137.8 million room nights, or 15.9%, of the approximately 867.7
million room nights occupied in hotel accommodations in the United States. Of
these 137.8 million room nights, only six to nine percent (8.3 million to 12.4
million) were accommodated by extended-stay hotel chains, which management
believes was due in part to the limited number of dedicated extended-stay
facilities in operation in 1995. Of the approximately 3.3 million total
available rooms in the U.S. lodging industry at the end of 1995, 51,100, or
only 1.5%, were extended-stay rooms at approximately 445 dedicated extended-
stay facilities. Of these 445 facilities, only 25, or 5.6%, operated in the
midprice segment of the extended-stay category. As a result, management
believes that there exist favorable growth opportunities in the extended-stay
category in the near term.
Management believes that the Company's affiliations with TCR, Greystar and
Wyndham will provide significant competitive advantages in achieving its growth
and operating objectives and distinguish the Company from many of its
competitors in the extended-stay market.
DEVELOPMENT, CONSTRUCTION AND LOCAL SITE SELECTION EXPERTISE. TCR and
Greystar have constructed an aggregate of approximately 115,000 multi-
family housing units over the last 14 years, and have extensive experience
in the development of standardized properties nationwide. Management
believes that the construction of multi-family housing units is similar to
construction of the Company's hotels. TCR and Greystar's combined regional
office network will provide the Company with local market knowledge and
site selection, development and construction expertise. As the partners of
the Developer Partnership, TCR and Greystar will identify and evaluate
potential development sites in the markets targeted by the Company. Once
sites are approved by Company management, either TCR or Greystar will
manage site acquisition, development and construction of the property. The
Company believes its relationships with TCR and Greystar will produce
significant competitive advantages and cost efficiencies, and will minimize
the Company's development and administrative overhead costs during the
Initial Hotel Program.
4
<PAGE>
The Developer Partnership has entered into a master development agreement
to develop and construct up to 60 extended-stay facilities for the Company
by December 31, 1998. Unless extended, the master development agreement
will terminate upon the earlier of the commencement of the 60th project or
December 31, 1998. The Developer Partnership will own 1,090,836 shares of
Common Stock, constituting % of the Common Stock outstanding after the
Offering, and will distribute a portion of these shares as each project is
completed to the Developer Affiliate that is responsible for the completed
project. The Developer Affiliates have agreed to accept below-market
development fees in exchange for these equity interests in the Company.
Management believes this distribution mechanism will provide the Developer
Affiliates the necessary incentives to assist the Company in achieving its
Initial Hotel Program. See "Certain Transactions," "Risk Factors--Reliance
upon Affiliated Companies" and "Business--Growth Strategy."
HOTEL MANAGEMENT CAPABILITIES. Pursuant to the Management Agreement,
Wyndham will agree to manage up to 60 Company hotels, each under a 10-year
management contract, and to provide the Company market research, assistance
with interior and exterior design, a preferred vendor program, a
proprietary property management software package and national and local
marketing services. See "Certain Transactions" and "Risk Factors--Reliance
upon Affiliated Companies." Management believes that being able to utilize
Wyndham's expertise will be a competitive advantage and will produce cost
efficiencies in the Company's buying, marketing and development programs.
Unless extended, the Management Agreement will terminate upon the earlier
of the signing of a management contract for the 60th hotel or December 31,
1998. Wyndham has agreed, subject to certain exceptions, not to compete
with Company hotels that it manages. See "Certain Transactions."
SUPERIOR PRICE/VALUE RELATIONSHIP. Based on its expected average weekly
rates of $280 to $350, the quality of its interior design elements and
finishes, the separation between cooking, living and sleeping areas and the
available amenities, management believes that its hotels will offer a
superior price/value relationship and appeal to extended-stay guests of
both upscale and economy extended-stay facilities. The Company has
carefully designed its product and marketing programs to (i) attract guests
who ordinarily patronize higher priced/comparable quality or comparably
priced/lower quality extended-stay or traditional hotel chains in markets
in which the Company competes, and (ii) educate extended-stay guests who
have typically stayed in traditional hotels of the value offered by the
Company's extended-stay facilities.
The Company's first property, which it acquired while under construction, is
located in Grand Prairie, Texas near the Dallas/Fort Worth International
Airport. This 139-unit facility opened on June 17, 1996, under the name "Studio
Suites," and will be renamed "Homegate Studios." The Company has entered into
an agreement to acquire beneficial ownership of five extended-stay hotels
currently operated under the name "Westar Suites" (the "Westar Transaction").
See "The Formation Transaction." The Westar hotels are located in Texas in the
cities of San Antonio (2), El Paso, Amarillo and Irving. Collectively, the
Westar hotels contain an aggregate of 622 units, all of which are similar to
the prototype developed by the Company for its guest rooms. The Company expects
this acquisition to close in September 1996. The Westar facilities will be
renovated at an anticipated cost of approximately $4 million in order to
conform to the quality standards of the Homegate Studios & Suites prototype,
and will be operated under the Homegate Studios & Suites brand name.
As of the time of the Offering, the Company expects to have begun
construction of three extended-stay hotels--a 139-unit facility in Phoenix,
Arizona, a 143-unit facility in Denver, Colorado and a 117-unit facility in
Lenexa, Kansas, and expects each of these hotels to be operational in the
second or third quarter of 1997. The Company also owns development sites in
Overland Park, Kansas, Salt Lake City, Utah, Dallas, Texas and an additional
site in Phoenix, Arizona, and expects to begin construction of hotels on each
of these sites during the fourth quarter of 1996.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company...... shares
Common Stock to be outstanding after the
Offering(1)............................. shares
Use of Proceeds.......................... To finance the development of
additional extended-stay hotels and
other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol... HMGT
</TABLE>
- --------
(1) Excludes shares issuable upon exercise of options to be granted as of
the completion of the Offering under the Company's 1996 Plan (as defined
below), with an exercise price equal to the initial public offering price
shown on the cover page of this Prospectus.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
--------------------------
EXTENDED STAY
LIMITED
PARTNERSHIP COMPANY
HISTORICAL(1) PRO FORMA(2)
------------- ------------
<S> <C> <C>
OPERATING DATA:
Revenue............................................. $ 26 $ 3,970
Property operating expenses......................... 30 2,504
Corporate operating expenses........................ 204 541
Depreciation and amortization....................... 10 454
Interest expense.................................... 21 934
------- ---------
Net loss............................................ $ (239) $ (463)
======= =========
Net loss per share.................................. $ (0.07)
Weighted average number of shares of common stock
outstanding........................................ 6,400,000
OTHER DATA:
EBITDA(3)........................................... $ (208) $ 925
======= =========
Cash flows provided by (used in):
Operating activities.............................. $ 313 $ 1,110
Investing activities.............................. (8,264) (8,290)
Financing activities.............................. 9,225 9,167
</TABLE>
<TABLE>
<CAPTION>
EXTENDED STAY
LIMITED COMPANY
PARTNERSHIP COMPANY PRO FORMA, AS
HISTORICAL PRO FORMA(4) ADJUSTED(5)
------------- ------------ -------------
<S> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............. $1,274 $ 2,912 $44,262
Property and equipment, net........... 8,201 38,100 38,100
Total assets.......................... 9,725 41,457 82,807
Total debt............................ 2,869 20,896 20,896
Total partners' capital (stockholders'
equity pro forma and as adjusted).... 6,156 19,761 61,111
</TABLE>
- --------
(1) From inception (February 9, 1996) through June 30, 1996. Extended Stay
Limited Partnership ("ESLP") is the predecessor to the Company. The Company
was incorporated on August 16, 1996. Immediately prior to or simultaneously
with the completion of the Offering, ESLP will merge into the Company. See
"The Formation Transaction."
(2) Giving pro forma effect to the Formation, the Westar Transaction and the
acquisition of five development sites as if such transactions had occurred
as of January 1, 1995. See the pro forma financial statements and notes
thereto contained elsewhere herein.
(3) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles ("GAAP"), is not to be considered as an alternative
to net income or any other GAAP measurement as a measure of operating
performance and is not necessarily indicative of cash available to fund
cash needs. The Company has included EBITDA herein because the Company
believes that it is one measure used by certain investors to determine
operating cash flow. EBITDA, as calculated above, may not be comparable to
other similarly titled measures of other companies.
(4) Giving pro forma effect to the Formation, the Westar Transaction and the
acquisition of five development sites as if such acquisitions had occurred
on June 30, 1996. See the pro forma financial statements and notes thereto
contained elsewhere herein.
(5) Giving pro forma effect to the Formation, the Westar Transaction, the
acquisition of five development sites, and the Offering at an assumed
initial public offering price of $ per share as if such transactions had
occurred on June 30, 1996. See the pro forma financial statements and notes
thereto contained elsewhere herein.
7
<PAGE>
RISK FACTORS
Any investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should read this entire Prospectus carefully and
should consider, among other things, the risks and the speculative factors
inherent in and affecting the Company's business described below and
throughout this Prospectus. This Prospectus contains forward-looking
statements that involve risk and uncertainty. Actual results and the timing of
certain events could differ materially from those projected in the forward-
looking statements as a result of the risk factors set forth below and other
factors discussed elsewhere in this Prospectus. See "Special Note Regarding
Forward-Looking Statements."
LIMITED OPERATING HISTORY AND COSTS ASSOCIATED WITH EXPANSION
The Company acquired its first extended-stay hotel in May 1996. In addition,
as of the completion of the Offering, the Company expects to have seven hotels
under development (three of which will be under construction) and to have
acquired beneficial ownership of five additional hotels in the Westar
Transaction. The Company has a limited operating history upon which investors
may evaluate the Company's performance. The Company has incurred losses to
date, and there can be no assurance that the Company will be profitable in the
future. Given the start-up nature of the Company's operations, it expects to
have net losses for the foreseeable future.
DEVELOPMENT RISKS
The Company intends to grow primarily by developing additional extended-stay
hotels. Development involves substantial risks, including, among others, the
risk that development costs will exceed budgeted or contracted amounts, the
risk of delays in completion of construction, the risk of failing to obtain
all necessary zoning and construction permits, the risk that financing might
not be available on favorable terms, the risk that developed properties will
not achieve desired revenue or profitability levels once opened, the risk of
competition for suitable development sites from competitors which have greater
financial resources than the Company, the risk of incurring substantial costs
in the event a development project must be abandoned prior to completion, the
risk of changes in governmental rules, regulations, and interpretations
(including interpretations of the requirements of the Americans with
Disabilities Act), and the risk of downturns in general economic and business
conditions. Although the Company intends to manage development to reduce such
risks, for example by obtaining guaranties for certain development cost
overruns from individuals who are affiliated with the Developer Affiliates and
by not acquiring development properties until all necessary zoning and
construction permits are reasonably likely to be obtained, there can be no
assurance that present or future developments will proceed in accordance with
the Company's expectations. In addition, the development cost overrun
guaranties will be business asset guaranties (i.e., recourse will be limited
to the individual guarantor's interests in TCR or Greystar, as appropriate,
and some of their affiliates). There can be no assurance that such assets will
be sufficient to fund the costs of any specific development cost overrun.
The Company currently owns one extended-stay hotel, and has an agreement to
acquire beneficial ownership of five additional extended-stay hotels in the
Westar Transaction, which will be closed prior to the completion of the
Offering. The Company's objective is to have approximately 65 hotels open or
under construction by December 31, 1998. There can be no assurance, however,
that the Company will complete the development and construction of the hotels,
or will acquire each of the planned properties and complete development of a
Company-owned hotel thereon, or that any such developments will be completed
in a timely manner or within budget.
RISKS ASSOCIATED WITH RAPID GROWTH
The Company intends to pursue an aggressive growth strategy through the
development of Homegate Studios & Suites hotels; its objective is to have
approximately 65 hotels open or under construction by December 31, 1998. The
Company's development plans will require the implementation of specialized
operational and financial systems and will require additional management,
operational, and financial resources. There can be no
8
<PAGE>
assurance that the Company will be able to manage its expanding operations
effectively. See "--Reliance upon Affiliated Companies" and "--New
Management."
The Company has only recently developed its product strategy, which includes
the design of what will be its prototypical hotel and available amenities. As
of the time of the Offering, the first three hotels embodying its product
strategy will be under construction. The Company has no history upon which it
can gauge consumer acceptance of its facilities, and there can be no assurance
that the Company's hotels will be readily accepted by the guests looking for
extended-stay hotel accommodations. Further, the Company's hotels will compete
against other facilities with substantially greater brand recognition.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
Operating Risks. The extended-stay industry in which the Company operates
may be adversely affected by changes in national or local economic conditions
and other local market conditions, such as an oversupply of hotel space or a
reduction in demand for hotel space in a geographic area, corporate
relocations or downsizing that may produce a reduced demand for local hotel
space, changes in travel patterns, extreme weather conditions, the recurring
need for renovation, refurbishment and improvement of lodging properties,
changes in governmental regulations which influence or determine wages,
prices, or construction or maintenance costs, changes in interest rates, the
availability of financing for operating or capital needs, and changes in real
estate tax rates and other operating expenses. In addition, due in part to the
strong correlation between the lodging industry's performance and economic
conditions, the lodging industry is subject to cyclical change in revenues and
profits. There can be no assurance that downturns or prolonged adverse
conditions in real estate or capital markets or in national or local economies
will not have a material adverse impact on the Company.
Competition in the Lodging Industry. The U.S. lodging industry is highly
competitive. Competition in the U.S. lodging industry is based generally on
convenience of location, price, range of services and available amenities, and
quality of customer service. Each of the Company's hotels will be located in a
developed area that includes competing lodging facilities. The Company
believes the location of its hotels, the high quality of its accommodations,
the reasonableness of its room rates, and the services and guest amenities
provided by it will be among the most important factors in its business.
Demographic or other changes in one or more of the Company's markets could
impact the convenience or desirability of the sites of certain hotels, which
would adversely affect their operations.
The Company anticipates that competition within the extended-stay industry
segment will increase substantially in the foreseeable future. In the midprice
category of the extended-stay industry segment, a number of other lodging
chains and developers have recently announced plans to develop or are
currently developing extended-stay hotels which may compete with the Company's
hotels. The Company may compete for guests and for new development sites with
certain of these established entities and other entities which have greater
financial resources and brand awareness than the Company and better
relationships with lenders and real estate sellers. Further, there can be no
assurance that new or existing competitors, including traditional hotels with
nationally recognized brand names, will not significantly lower rates or offer
greater convenience, services, or amenities or significantly expand or improve
facilities in a market in which the Company's hotels compete, thereby
adversely affecting the Company's operations. See "Business--Competition."
Seasonality. The lodging industry is seasonal in nature. Quarterly earnings
may be adversely affected by events beyond the Company's control, such as poor
weather conditions, economic factors and other considerations affecting
travel. In addition, occupancy rates and room revenues typically decline
during the fourth calendar quarter as business travel decreases during the
holiday season. The timing of openings of new properties could also lead to
fluctuations in the Company's quarterly earnings.
REAL ESTATE INVESTMENT RISKS
General Risks. The Company's investments will be subject to varying degrees
of risk generally incident to the ownership of real property. The underlying
value of the Company's real estate investments depends
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significantly upon the Company's ability to operate its properties in a manner
sufficient to maintain or increase cash provided by operations. Income from
the properties, and the value of the properties, may be adversely affected by
adverse changes in national economic conditions, adverse changes in local
market conditions due to changes in general or local economic conditions and
neighborhood characteristics, competition from other lodging properties,
changes in real property tax rates and in the availability, cost and terms of
financing, the impact of present or future environmental legislation and
compliance with environmental laws, the continuing need for capital
improvements, changes in operating expenses, adverse changes in governmental
rules and fiscal policies, civil unrest, acts of God, including earthquakes
and other natural disasters (which may result in uninsured losses), acts of
war, adverse changes in zoning laws, and other factors which are beyond the
Company's control.
Illiquidity of Real Estate. Real estate investments are relatively illiquid.
The Company's ability to vary its portfolio in response to changes in economic
and other conditions will be limited. There can be no assurance that the
Company will be able to dispose of an investment when it finds disposition
advantageous or necessary or that the sale price of any disposition will
recoup or exceed the amount of the Company's investment.
Losses in Excess of Insurance Coverage. The Company intends to maintain
comprehensive insurance on each of its properties, including liability, fire
and extended coverage, in the types and amounts customarily obtained by an
owner and operator in the Company's industry. Nevertheless, there are certain
types of losses, generally of a catastrophic nature, such as hurricanes,
earthquakes and floods, that may be uninsurable or not economically insurable.
The Company intends to use its discretion in determining amounts, coverage
limits and deductibility provisions of insurance, with a view to obtaining
appropriate insurance on the Company's properties at a reasonable cost and on
suitable terms. This may result in insurance coverage that in the event of a
loss would not be sufficient to pay the full current market value or current
replacement value of the Company's lost investment. Inflation, changes in
building codes and ordinances, environmental considerations and other factors
might also make it infeasible to use insurance proceeds to replace a hotel
after it has been damaged or destroyed.
RELIANCE UPON AFFILIATED COMPANIES
The Company's success will depend, in large part, upon the efforts of TCR,
Greystar, Crow, and Wyndham, on which the Company will rely to develop,
construct, and manage its extended-stay hotels. The Company has entered into
various agreements with each of these companies which the Company believes
will enable it to successfully achieve its growth objectives. The Company's
ability to control and direct these companies in their performance under such
agreements, however, will be limited. If any of these parties fails to meet
its obligations to the Company, that failure could have a material adverse
effect on the Company's ability to achieve its growth objectives. See "--New
Management."
As of the time of the Offering, the Company will have entered into the
Management Agreement with Wyndham, pursuant to which the Company will have the
right to enter into property-specific management contracts with Wyndham to
manage up to 60 Company hotels. Pursuant to this agreement, Wyndham will also
provide the Company market research, assistance with interior and exterior
design, a preferred vendor program, a proprietary property management software
package and national and local marketing services. Unless extended, the
Management Agreement will terminate upon the earlier of the signing of a
management contract with respect to the 60th hotel or December 31, 1998. In
addition, each property-specific management agreement will be terminable by
the Company if Wyndham fails to meet certain performance criteria for that
specific hotel, or without cause upon the payment by the Company of a
cancellation fee if the Company desires to manage its hotels internally. See
"Certain Transactions." While there is significant common ownership of the
Company and Wyndham (over 48% of the outstanding common stock of Wyndham is
owned by the Crow Family), there can be no assurance that Wyndham will enter
into future management contracts or continue to provide the Company market
research, design and other support services after the Management Agreement has
terminated. During the term of the Management Agreement, the Company is
restricted from engaging any other third party to manage its hotels.
Similarly, the Company has entered into a master development agreement with
the Developer Partnership, pursuant to which the Company and the Developer
Partnership have agreed to enter into property-specific
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development agreements for up to 60 Company hotels. Construction of each
development project will be managed by one of the Developer Affiliates in
exchange for a cash fee that the Company believes is less than the market rate
typically charged by third party developers. Upon the earlier of the
commencement of the 60th facility or December 31, 1998, this agreement will
terminate. Each property-specific development agreement will be terminable by
the Company if the applicable Developer Affiliate fails to meet certain
performance standards at that specific development site. See "Certain
Transactions." While there is significant common ownership of the Company and
the Developer Affiliates, and the Developer Affiliates will own a significant
portion of the outstanding Common Stock, there can be no assurance that the
Company and the Developer Partnership or the Developer Affiliates will enter
into new development agreements that are acceptable to Company management after
the master development agreement has terminated.
DEALINGS WITH AFFILIATES/CONFLICTS OF INTEREST
Dealings with Affiliates. The Company has engaged and expects to continue to
engage in numerous transactions with affiliates, including the development and
construction of hotels through the Developer Partnership and the management of
hotels through Wyndham. See "--Reliance upon Affiliated Companies," "Business--
Growth Strategy," "--Operations," and "Certain Transactions." The Developer
Partnership will own % of Common Stock outstanding after the Offering. While
Wyndham does not own any of the outstanding Common Stock, over 48% of Wyndham's
outstanding common stock is owned by the Crow Family. Additionally, each of the
Crow Family and Ron Terwilliger own approximately 20% of the interests in TCR,
Leonard Wood owns zero to 30% of various divisions of TCR, and a majority of
the interests in Greystar is owned by Robert Faith. Mr. Wood and Mr.
Terwilliger are both stockholders of the Company, Mr. Wood serves as a Director
of the Company and Mr. Terwilliger is an Advisor to the Company. Mr. Faith is
the Chairman of the Board, President, and Chief Executive Officer of the
Company. In addition, James Carreker is a Director of the Company, and is the
President and Chairman of the Board of Wyndham. The Crow Family, through Crow,
will also own a significant percentage of the Common Stock outstanding after
the Offering. See "Principal Stockholders."
While many future transactions with affiliates will be effected pursuant to
existing contracts, the Company may expand its relationships with certain
affiliates to take advantage of such affiliates' capabilities. Although the
Company believes that its transactions with affiliates have been and will
continue to be on terms no less favorable to the Company than those that could
have been obtained from third parties with similar capabilities, there can be
no assurance that its affiliates will continue to transact business with the
Company or that they will not attempt to use their ownership positions in the
Company to influence the terms on which they transact business with the Company
in the future.
Policy with Respect to Related Party Transactions. The Company has
implemented a policy requiring any material transaction (or series of related
transactions) between the Company and related parties to be approved by a
majority of the directors who have no beneficial or economic interest in such
related party (the "Disinterested Directors"), upon such directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could have been obtained from unrelated third parties.
The policy defines a material related party transaction (or series of related
transactions) as one involving a purchase, sale, lease or exchange of property
or assets or the making of any investment with a value to the Company in excess
of $1.0 million or a service agreement (or series of related agreements) with a
value in excess of $1.0 million in any fiscal year. There can be no assurance
that this policy will always be successful in eliminating the influence of
conflicts of interest. See "Management--Directors and Executive Officers" and
"Certain Transactions--Policy with Respect to Related Party Transactions."
NEW MANAGEMENT
Since its formation in February 1996, the Company has recruited a management
team, none of whom have had prior experience in the extended-stay business in
which the Company is engaged. Similarly, neither TCR, Greystar nor Wyndham have
prior experience in the development or management of extended-stay facilities.
The Company's success will depend upon the ability of management, TCR, Greystar
and Wyndham to develop expertise in developing and managing the extended-stay
lodging business. See "Management--Directors and Executive Officers."
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RISK OF BORROWING
The Company expects to incur substantial borrowings in connection with its
expansion. Pursuant to a $30 million mortgage loan facility (the "Mortgage
Facility") with Bank One Arizona, N.A. ("BOA") described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," the Company may currently borrow up to $30
million to finance its acquisition and construction of properties. This
compares to total equity of $61.1 million, assuming net proceeds from the
Offering of $41.4 million based on an assumed initial public offering price of
$ per share. The Company's borrowings under the Mortgage Facility will be
secured by mortgages on the Company's properties and various accounts and other
assets. The Company will be required to procure substantial additional capital
over time to complete its Initial Hotel Program, including additional
construction loans to finance the construction of additional extended-stay
facilities. See "--Need for Additional Capital." Leverage increases the risks
to the Company of any variations in its results, construction cost overruns, or
any other factors affecting its cash flow or liquidity. In addition, the
Company's interest costs could increase as the result of general increases in
interest rates. The principal and interest amounts to be borrowed under the
Mortgage Facility will be due two years from the date of borrowing, but the
term of such loans may be extended for an additional three years if certain
conditions are met. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
In addition, Westar (as defined below), which the Company will own upon
completion of the Westar Transaction, will have approximately $18 million of
mortgage indebtedness as of the time of the Offering. This indebtedness is
secured by the five Westar facilities and Westar's various accounts and other
assets, and is due in monthly installments through January 11, 2021.
NEED FOR ADDITIONAL CAPITAL
Although the Company has access to financing under the Mortgage Facility, the
Company will need to procure substantial additional financing over time to
complete its Initial Hotel Program, the amount of which will depend upon a
number of factors including the number of properties the Company constructs or
acquires and the cash flow generated by its properties. Upon completion of the
Offering and including the funds that may be available under the Mortgage
Facility, the Company believes that it will have access to sufficient resources
to fund the development or acquisition of approximately 20 of the hotels
contemplated by the Initial Hotel Program (including the six existing
facilities to be owned upon completion of the Offering), based on expected
development or acquisition costs. The Company's Initial Hotel Program calls for
the Company to have 65 hotels open or under construction by December 31, 1998.
There can be no assurance regarding the availability or terms of additional
financing the Company may be able to procure over time. The failure of the
Company to obtain the required additional financing needed to complete the
Initial Hotel Program would adversely affect the Company's ability to implement
its growth strategy and would have a material adverse effect on the Company's
earnings and results of operations. In addition, future financing facilities
may restrict the ability of the Company to incur additional debt in the future.
The Mortgage Facility and any future debt financings or issuances of preferred
stock by the Company will be senior to the rights of the holders of Common
Stock, and any future issuances of Common Stock will result in the dilution of
the then-existing stockholders' proportionate equity interests in the Company.
IMPACT OF ENVIRONMENTAL REGULATIONS
The Company's operating costs may be affected by its obligations to pay for
the cost of complying with existing environmental laws, ordinances, and
regulations. Under various federal, state, and local environmental laws,
ordinances, and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. In addition, the presence
of contamination from hazardous or toxic substances, or the failure to properly
remediate such contaminated property, may adversely affect the owner's ability
to borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain
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environmental laws and common law principles could be used to impose liability
for releases of hazardous materials, including asbestos-containing materials
("ACMs"), into the environment, and third parties may seek recovery from owners
or operators of real properties for personal injury associated with exposure to
released ACMs or other hazardous materials. Environmental laws also may impose
restrictions on the manner in which property may be used or transferred or in
which businesses may be operated, and these restrictions may require
expenditures. In addition, in the event any future legislation is adopted, the
Company may, from time to time, be required to make significant capital and
operating expenditures in response to such legislation. In connection with the
ownership of its properties, the Company may be potentially liable for any such
costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially and adversely affect the Company's results of operations and
financial condition.
The Company attempts to minimize its exposure to potential environmental
liability through its site-selection procedures. The Company typically secures
an option to purchase land subject to certain contingencies. Prior to
exercising such option and purchasing the property, the Company conducts a
Phase I environmental assessment ("Phase I Surveys"), which generally involves
a physical inspection and database search, but not soil or groundwater
analyses. To date, the Phase I Surveys have not revealed any environmental
liability or compliance concern that the Company believes would have a material
adverse effect on the Company's business, assets, results of operations, or
liquidity, nor is the Company aware of any such liability or concern.
Nevertheless, it is possible that Phase I Surveys will not reveal all
environmental liabilities or compliance concerns or that there will be material
environmental liabilities or compliance concerns of which the Company will not
be aware. Moreover, no assurances can be given that (i) future laws,
ordinances, or regulations will not impose any material environmental
liability, or (ii) the current environmental condition of the Company's
existing and future properties will not be affected by the condition of the
neighboring properties (such as the presence of leaking underground storage
tanks) or by third parties unrelated to the Company. Thus, there can be no
assurance that the Company will not incur environmental costs which could have
a material adverse effect on the Company.
GOVERNMENT REGULATION AND COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
The lodging industry is subject to numerous federal, state and local
government regulations including those relating to building and zoning
requirements. A number of states also regulate the licensing of hotels by
requiring registration, disclosure statements, and compliance with specific
standards of conduct. In addition, the Company is subject to employment laws,
including minimum wage requirements, overtime, working conditions and work
permit requirements. Recent amendments to the minimum wage laws will go into
effect in October 1996, and will increase the Company's labor costs. The
Company believes that the Studio Suites hotel and each of the Westar hotels
have the necessary permits, approvals and licenses to operate its respective
business and that collectively they comply with the applicable employment laws,
and the Company intends to continue to comply with such laws and regulations. A
change in such building, zoning, or licensing requirements or a further
increase in the minimum wage rate, employee benefit costs or other costs
associated with employees could materially and adversely affect the Company.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that its
existing hotel and the Westar hotels are substantially in compliance with these
requirements, a determination that the Company is not in compliance with the
ADA could result in the imposition of fines or an award of damages to private
litigants. In addition, changes in governmental rules and regulations or
enforcement policies affecting the use and operation of the facilities,
including changes to building codes and fire and life-safety codes, may occur.
If the Company were required to make substantial modifications at its
facilities to comply with the ADA or other changes in governmental rules and
regulations, the Company's financial condition and ability to develop new
hotels could be materially and adversely affected.
MARKET CONCENTRATION
The Company's existing hotel is located in Grand Prairie, Texas, and each of
the five hotels to be acquired in the Westar Transaction is located in the
state of Texas. See "The Formation Transaction" and "Business--
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Growth Strategy." While the Company will be constructing hotels in Phoenix,
Arizona, Denver, Colorado and Lenexa, Kansas as of the time of the Offering
and intends to continue to build hotels throughout the United States, adverse
events or conditions which affect Texas particularly (such as natural
disasters or adverse changes in local economic conditions) could have a more
pronounced negative impact on the operations of the Company until such
diversification of local market risks is in fact achieved. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
PROPERTY TAX AND INSURANCE RATE FLUCTUATIONS
Each of the Company's properties is subject to real property taxes. Real
property taxes may increase as property tax rates change and as the properties
are assessed or reassessed by taxing authorities. Also, each of the Company's
properties is covered by property and casualty insurance. Property and
casualty insurance rates may increase depending upon claims experience,
insurance market conditions and the replacement value of the hotels.
RISKS ASSOCIATED WITH ACQUISITIONS
Although the Company expects that the construction and development of new
extended-stay hotels will be its primary means of expansion, the Company may,
as part of its growth strategy, consider making future acquisitions (in
addition to the pending Westar Transaction) of existing extended-stay hotels
or other properties that are suitable for conversion to the Company's
extended-stay concept. The Company is not presently engaged in negotiations
regarding any acquisitions other than the Westar Transaction, and there can be
no assurance that the Company will be able to acquire other extended-stay
hotels on terms favorable to the Company. If the Company does make any such
acquisitions, it will encounter various associated risks, including possible
environmental and other regulatory costs, diversion of management's attention,
unanticipated problems in converting such properties to the quality standards
of the Company's prototype and unanticipated liabilities, some or all of which
could have a material adverse effect on the Company's earnings and operations.
RELIANCE ON KEY PERSONNEL
The Company's success will depend to a significant extent upon the efforts
and abilities of its senior management and key employees, particularly Robert
A. Faith, the Chairman of the Board, President and Chief Executive Officer,
and John C. Kratzer, the Executive Vice President and Chief Operating Officer.
The loss of the services of any of these individuals could have a material
adverse effect upon the Company. See "Management--Directors and Executive
Officers." The Company does not have employment or consulting agreements with
any of its officers other than Mr. Kratzer, nor does it carry key man life
insurance on any of its officers. See "Management--Other Compensation
Arrangements--Employment Agreements."
CONTROL OF THE COMPANY BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
It is expected that after the completion of the Offering, the officers and
Directors of the Company and TCR, Greystar and Crow and their affiliates will
beneficially own approximately % of the outstanding shares of Common Stock.
By reason of such holdings, such stockholders acting as a group will be able
to control the affairs and policies of the Company and will be able to elect a
sufficient number of Directors to control the Company's Board of Directors. In
addition, such stockholders acting as a group will be able to approve or
disapprove most matters submitted to a vote of the stockholders. See
"Principal Stockholders." Crow and Greystar have entered into a Stockholders
Agreement by which they have agreed to act in concert with respect to the
election of Company Directors. For information with respect to the voting
agreement, see "Description of Capital Stock--Stockholders Agreement."
ANTI-TAKEOVER CONSIDERATIONS
Staggered Board. The Board of Directors is divided into three classes
serving staggered terms. The terms of the directors will expire in 1997, 1998,
and 1999. The staggered terms of Directors may limit the ability of holders of
Common Stock to change control of the Company even if a change of control were
in such stockholders' best interests. See "Description of Capital Stock--Anti-
takeover Provisions." The foregoing may discourage offers or other bids for
the Common Stock at a premium over the market price thereof.
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Certificate of Incorporation and Bylaws. The ownership positions of the
officers and directors of the Company and of TCR, Greystar, and Crow and their
affiliates, together with the anti-takeover effect of certain provisions of
the Company's Certificate of Incorporation and Bylaws, may have the effect of
delaying, deterring or preventing a takeover of the Company that stockholders
purchasing shares in the Offering may consider to be in their best interest.
The Company's Certificate of Incorporation requires that any merger or other
business combination involving the Company be approved by at least 66 2/3% of
the shares of Common Stock outstanding, that all stockholder actions must be
effected at a duly-called annual or special meeting of the stockholders, and
that stockholders follow an advance notification procedure for certain
stockholder nominations of candidates for the Board of Directors and for
certain other business to be conducted at any stockholders' meeting. In
addition, the Company's Certificate of Incorporation authorizes the Board of
Directors to issue up to 5,000,000 shares of preferred stock, having such
rights, preferences and privileges as designated by the Board of Directors,
without stockholder approval. The issuance of such preferred stock could
inhibit a change of control. See "Description of Capital Stock--Anti-takeover
Provisions."
Delaware Anti-takeover Statute. Section 203 of the Delaware General
Corporation Law, which is applicable to the Company, contains provisions that
restrict certain business combinations with interested stockholders upon
acquiring 15% or more of the Common Stock. This statute may have the effect of
inhibiting a non-negotiated merger or other business combination involving the
Company, even if such event would be beneficial to the then-existing
stockholders. See "Description of Capital Stock--Anti-takeover Provisions."
Stockholders' Agreement. Pursuant to a Stockholders' Agreement, each of Crow
and Greystar has certain rights of first refusal with respect to shares of
Common Stock held by the other. In addition, Crow and Greystar have agreed to
act in concert with respect to the election of Company Directors. These
provisions may have the effect of inhibiting a change in control of the
Company. See "Description of Capital Stock--Anti-takeover Provisions--
Stockholders Agreement."
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF MARKET PRICE
Prior to the Offering, there has been no public market for shares of the
Common Stock, and there can be no assurance that an active trading market will
develop or, if developed, will be sustained. The Company has been informed by
each of the representatives of the Underwriters that it intends to make a
market in the Common Stock following the Offering, although there can be no
assurance that such representatives will make such a market. The initial
public offering price of the Common Stock will be determined through
negotiations with the representatives of the Underwriters, and there can be no
assurance that future market prices for the Common Stock will equal or exceed
such public offering price. See "Underwriting" for the factors to be
considered in determining the initial public offering price of the shares of
Common Stock in the Offering. After completion of the Offering, the market
price of the Common Stock could be subject to significant fluctuations due to
variations in quarterly operating results and other factors, such as changes
in general conditions in the economy, the financial markets or the lodging
industry, natural disasters or other developments affecting the Company or its
competitors. In addition, the securities markets have experienced significant
price and volume fluctuations from time to time in recent years. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to their operating performance,
and these broad fluctuations may materially and adversely affect the market
price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 6,400,000 shares of Common Stock will become eligible for sale
in the public market at various times after the completion of the Offering,
subject to compliance with an exemption from the registration requirements of
the Securities Act of 1933 (the "Securities Act"), such as Rule 144 or Rule
144A. The holders of these shares have agreed that they will not sell any
shares of Common Stock held by them for a period of 360 days from the date of
this Prospectus without the consent of Bear, Stearns & Co. Inc., one of the
representatives of the Underwriters. Such holders have certain rights,
beginning one year after the date of the completion of the Offering, to
request the Company to file a registration statement under the Securities Act
with respect to the
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resale by such stockholders of all of the shares of Common Stock owned at that
time by such stockholders. Shares so registered could be sold in the public
market by such stockholders at any time on or after the date such registration
statement is declared effective. No predictions can be made as to the effect,
if any, that market sales of such shares or the availability of such shares
for sale will have on the market price for shares of Common Stock prevailing
from time to time. Sales of substantial amounts of shares of Common Stock in
the public market following the Offering could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of equity securities. See "Shares Eligible
for Future Sale."
DILUTION
Investors purchasing shares of Common Stock in the Offering will experience
immediate and substantial dilution in the net tangible book value per share of
the Common Stock from the initial public offering price. Based on an assumed
initial public offering price of $ per share, as of June 30, 1996 such
dilution, on a pro forma basis, would have been equal to $ per share with
respect to shares purchased in the Offering. See "Dilution."
ABSENCE OF DIVIDENDS
The Company intends to retain its earnings to finance its growth and for
general corporate purposes and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, future financing agreements
may contain limitations on the payment of cash dividends or other
distributions of assets. See "Dividend Policy" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including without limitation statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: adverse changes in national or local economic
conditions, competition from other lodging properties, changes in real
property tax rates and in the availability, cost and terms of financing, the
impact of present or future environmental legislation and compliance with
environmental laws, the ongoing need for capital improvements, changes in
operating expenses, adverse changes in governmental rules and fiscal policies,
civil unrest, acts of God, including earthquakes and other natural disasters
(which may result in uninsured losses), acts of war, adverse changes in zoning
laws, and other factors referenced in this Prospectus. Certain of these
factors are discussed in more detail elsewhere in this Prospectus, including,
without limitation, under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
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THE FORMATION TRANSACTION
The Company was incorporated on August 16, 1996 to succeed to the business
of ESLP, which was formed by TCR, Greystar and Crow in February 1996.
Immediately prior to, or simultaneously with, the completion of the Offering,
the current capital partners of ESLP will contribute in cash any amounts
remaining due on their initial obligations to contribute $20 million to ESLP,
and the Company will succeed to all of the assets and liabilities of ESLP as a
result of the merger of ESLP with and into the Company. In consideration
thereof, the Company will issue 6,400,000 shares of Common Stock to the
current partners of ESLP. As a result of such transaction, affiliates of
Greystar and Crow will acquire and shares of Common Stock,
respectively, which will constitute in the aggregate % of the Common Stock
outstanding after the Offering. See "Principal Stockholders." The Developer
Partnership will receive 1,090,836 shares of Common Stock, constituting % of
the Common Stock outstanding after the Offering, in exchange for its interest
in ESLP which the Developer Partnership received as consideration for its
agreement to provide the services under the master development agreement. See
"Certain Transactions." The Developer Partnership will distribute a portion of
these shares as each project is completed to the Developer Affiliate that is
responsible for the completed project. See "Certain Transactions."
ESLP currently owns the 139-unit Studio Suites hotel (which the Company
intends to rename "Homegate Studios") in Grand Prairie, Texas, and will, as of
the time of the Offering, have begun construction of a 139-unit hotel in
Phoenix, Arizona, a 143-unit hotel in Denver, Colorado, and a 117-unit hotel
in Lenexa, Kansas. ESLP expects each of these hotels to be operational by the
second or third quarter of 1997. ESLP also will have acquired development
sites in Overland Park, Kansas, Salt Lake City, Utah, Dallas, Texas and an
additional site in Phoenix, Arizona, on each of which it expects to begin
construction of an extended-stay hotel during the fourth quarter of 1996. The
Company has entered into agreements, letters of intent, contracts or other
arrangements to acquire 10 other development sites. The Company's hotels,
current development sites and proposed acquisitions are located in nine
states. As of June 30, 1996, ESLP had incurred indebtedness under the Mortgage
Facility of approximately $2,869,000, which is payable over two years with
interest at the BOA prime rate plus 0.5% per annum.
In addition, ESLP has entered into an agreement to acquire beneficial
ownership of five extended-stay hotels currently operated under the name of
"Westar Suites" from the constituent partners of VPS I, L.P., an unaffiliated
Delaware limited partnership (which, together with its subsidiary
partnerships, is hereinafter referred to as "Westar"). The hotels are located
in Texas in the cities of San Antonio (2), El Paso, Amarillo and Irving, and
contain 622 rooms in the aggregate, all of which are similar to the prototype
developed by the Company for its hotels. In connection with this acquisition,
ESLP will acquire all of the outstanding stock of VPS, Inc., a Delaware
corporation and the sole general partner of Westar, and all of the limited
partnership interests in Westar. The aggregate purchase price of the stock and
the partnership interests will be approximately $7 million (with $1.5 million
of such consideration allocable to the termination of a 20-year management
contract to which the hotels are currently subject). In addition, Westar has
approximately $18 million of mortgage indebtedness. This debt is payable in
monthly installments through January 11, 2021, with an interest rate of 9.71%
per annum through January 11, 2011 (at which time the annual interest rate
will increase by at least 5% and the loan will become prepayable in full at
the borrower's discretion). ESLP will close the Westar Transaction prior to
its merger into the Company. The Westar hotels will be renovated at an
anticipated cost of approximately $4 million in order to conform to the
quality standards of the Homegate Studios & Suites prototype, and will be
operated under the Homegate Studios & Suites brand name.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $41.4 million ($47.6 million if the Over-Allotment Option is
exercised in full) assuming an initial public offering price of $ per share
and after deduction of the estimated underwriting discounts and commissions and
other offering expenses. The Company intends to use substantially all of such
net proceeds to expand its business by developing additional extended-stay
hotels and for other general corporate purposes. The Company may also consider
future acquisitions of existing extended-stay hotels or other properties that
are suitable for conversion to the Company's extended-stay concept, although
there are no such acquisitions pending other than the Westar Transaction.
Pending use of the proceeds as set forth above, they will be invested in short-
term investment-grade, interest bearing investments.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock. The Board of
Directors intends to retain earnings to finance its growth and for general
corporate purposes and, therefore, does not anticipate paying any such
dividends in the foreseeable future. In addition, the Company's future
financing agreements may contain net worth and other covenants and limitations
on payment of any cash dividends or other distributions of assets, which
covenants and limitations could restrict the Company's ability to pay
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
18
<PAGE>
DILUTION
As of June 30, 1996, the net tangible book value of the Company, giving pro
forma effect to the Formation, the Westar Transaction, and the other
transactions (other than the Offering) described in the notes to the pro forma
balance sheet contained elsewhere herein, was approximately $ , or $ per
share of Common Stock. "Net tangible book value" per share is determined by
dividing the Company's tangible net worth (the Company's assets, excluding
intangible assets, less total liabilities) by the number of shares of Common
Stock outstanding. After giving effect to the sale of shares of Common Stock in
the Offering (at an assumed initial public offering price of $ per share),
and before estimated expenses and underwriting discounts and commissions, the
pro forma net tangible book value of the Company at June 30, 1996 would have
been approximately $ , or $ per share, based on shares outstanding
after the Offering. This represents an immediate increase in net tangible book
value of $ per share to the existing stockholders of the Company, and an
immediate dilution in net tangible book value to new investors of $ per
share. The following table illustrates the per share dilution as of June 30,
1996:
<TABLE>
<S> <C> <C>
Initial public offering price..................................... $
----
Pro forma net tangible book value per share before the Offering. $
----
Increase in pro forma net tangible book value per share
attributable to purchase by new stockholders in the
Offering(1)....................................................
----
Pro forma net tangible book value per share after the Offering....
----
Dilution per share to new stockholders............................ $
====
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996, the
difference between the existing stockholders and the new investors with respect
to the number of shares of Common Stock purchased, the total consideration paid
and the average price per share paid (assuming an initial public offering price
of $ per share):
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(2) CONSIDERATION PAID AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE(2)
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 6,400,000 % $20,000,000 30.77% $3.13
New stockholders in the
Offering...................... % $45,000,000 69.23% $
--------- --- ----------- ----- -----
Total........................ 100% $65,000,000 100% $
========= === =========== ===== =====
</TABLE>
- --------
(1) Before deducting underwriting discount and estimated expenses of the
Offering.
(2) Excludes shares of Common Stock issuable upon exercise of options to be
granted as of the completion of the Offering under the Company's 1996 Plan,
with an exercise price equal to the initial public offering price shown on
the cover page of this Prospectus.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of ESLP as of June 30,
1996, the capitalization of the Company as of June 30, 1996, as adjusted to
give pro forma effect to the Formation, the Westar Transaction and the other
transactions (except for the Offering) described in the notes to the pro forma
balance sheet contained elsewhere herein, and the capitalization of the
Company as of June 30, 1996, as adjusted to give pro forma effect to the
Offering at an assumed initial public offering price of $ per share, less
estimated expenses and underwriting discounts and commissions. This table
should be read in conjunction with the selected financial data, the pro forma
financial statements of the Company, the historical financial statements of
ESLP and the combined historical financial statements of Westar, and the
related notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------------------
EXTENDED STAY
LIMITED COMPANY
PARTNERSHIP COMPANY PRO FORMA, AS
HISTORICAL(1) PRO FORMA(2) ADJUSTED(3)
------------- ------------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Total debt............................ $2,869 $20,896 $20,896
Partners' capital/stockholders'
equity:
Stockholders' equity:
Preferred Stock, par value $.01
per share, 5,000,000 shares
authorized; no shares issued and
outstanding...................... -- -- --
Common Stock, par value $.01 per
share, 20,000,000 shares
authorized; 6,400,000 shares
issued and outstanding on a pro
forma basis; shares issued
and outstanding on a pro forma
basis, as adjusted for the
Offering......................... -- 64 --
Additional paid-in capital........ -- 19,697 --
Partners' capital................... 6,156 -- --
------ ------- -------
Total partners'
capital/stockholders' equity... 6,156 19,761 61,111
------ ------- -------
Total capitalization............ $9,025 $40,657 $82,007
====== ======= =======
</TABLE>
- --------
(1) ESLP is the predecessor to the Company. The Company was incorporated on
August 16, 1996. Immediately prior to or simultaneously with the
consummation of the Offering, ESLP will merge into the Company. See "The
Formation Transaction."
(2) Giving pro forma effect to the Formation, the Westar Transaction, and the
acquisition of five development sites as if such transactions had occurred
as of June 30, 1996. See the pro forma financial statements and notes
thereto contained elsewhere herein.
(3) Giving pro forma effect to the Formation, the Westar Transaction, the
acquisition of five development sites, and the Offering at an assumed
initial public offering price of $ per share as if such transactions
had occurred as of June 30, 1996. See the pro forma financial statements
and notes thereto contained elsewhere herein.
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The selected financial data set forth below has been derived from the pro
forma financial statements of the Company, from the historical financial
statements of ESLP and from the historical combined financial statements of
Westar. The historical financial statements of the Company as of August 22,
1996 and ESLP as of June 30, 1996 and for the period from inception (February
9, 1996) through June 30, 1996 have been audited by Ernst & Young LLP,
independent auditors, whose reports thereon appear elsewhere herein. The
financial data for such period is not necessarily indicative of results for
subsequent periods or the full year. The historical combined financial
statements of Westar for the three years ended December 31, 1993, 1994 and
1995, have been audited by Ernst & Young LLP, independent auditors, whose
report thereon appears elsewhere herein. The pro forma data is unaudited but,
in the opinion of management, all pro forma adjustments necessary to reflect
the effects of these transactions have been made. The selected financial data
of Westar set forth below for the years ended December 31, 1991 and 1992 and
for the six month periods ended June 30, 1995 and 1996 have been derived from
Westar's unaudited combined financial statements and reflect all adjustments
consisting of normal recurring accruals, which management considers necessary
for a fair presentation of the financial position and the results of
operations for these periods.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the pro forma financial statements and related notes thereto of the Company
and the historical financial statements and related notes thereto of ESLP and
Westar contained elsewhere herein.
THE COMPANY
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
--------------------------
EXTENDED
STAY LIMITED
PARTNERSHIP COMPANY
HISTORICAL(1) PRO FORMA(2)
------------- ------------
<S> <C> <C>
OPERATING DATA:
Revenue............................................. $ 26 $ 3,970
Property operating expenses......................... 30 2,504
Corporate operating expenses........................ 204 541
Depreciation and amortization....................... 10 454
Interest expense.................................... 21 934
------ ---------
Net loss............................................ $ (239) $ (463)
====== =========
Net loss per share.................................. $ (.07)
Weighted average number of shares of common stock
outstanding ....................................... 6,400,000
OTHER DATA:
EBITDA(3)........................................... $ (208) $ 925
====== =========
Cash flows provided by (used in):
Operating activities.............................. $ 313 $ 1,110
Investing activities.............................. (8,264) (8,290)
Financing activities.............................. 9,225 9,167
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXTENDED STAY
LIMITED COMPANY
PARTNERSHIP COMPANY PRO FORMA, AS
HISTORICAL PRO FORMA(4) ADJUSTED(5)
------------- ------------ -------------
<S> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............. $1,274 $ 2,912 $44,262
Property and equipment, net........... 8,201 38,100 38,100
Total assets.......................... 9,725 41,457 82,807
Total debt............................ 2,869 20,896 20,896
Total partners' capital (stockholders'
equity pro forma and as adjusted).... 6,156 19,761 61,111
</TABLE>
WESTAR
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue................. $7,667 $8,294 $8,761 $8,584 $8,439 $ 4,303 $ 3,944
Property operating
expenses............... 4,330 4,896 4,922 5,136 5,126 2,372 2,357
Corporate operating
expenses............... 627 709 538 930 875 214 337
Depreciation and
amortization........... 696 648 592 611 662 296 305
Interest expense........ 2,625 2,570 2,455 2,375 2,609 1,038 1,210
------ ------ ------ ------ ------ -------- --------
Income (loss) before
extraordinary item..... $ (611) $ (529) $ 254 $ (468) $ (833) $ 383 $ (265)
====== ====== ====== ====== ====== ======== ========
OTHER DATA:
EBITDA(3)............... $2,710 $2,689 $3,301 $2,518 $2,438 $ 1,717 $ 1,250
====== ====== ====== ====== ====== ======== ========
Cash flows provided by
(used in):
Operating activities.. $ $ $ 943 $ 861 $ 213 $ 1,211 $ 616
Investing activities.. (366) (910) (640) (262) (26)
Financing activities.. (482) (202) 673 (812) (58)
</TABLE>
- --------
(1) From inception (February 9, 1996) through June 30, 1996.
(2) Giving pro forma effect to the Formation, the Westar Transaction, and the
acquisition of five development sites as if such transactions had occurred
as of January 1, 1995. See the pro forma financial statements and notes
thereto contained elsewhere herein.
(3) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, is not to be
considered as an alternative to net income or any other GAAP measurement
as a measure of operating performance and is not necessarily indicative of
cash available to fund cash needs. The Company has included EBITDA herein
because the Company believes that it is one measure used by certain
investors to determine operating cash flow. EBITDA, as calculated above,
may not be comparable to other similarly titled measures of other
companies.
(4) Giving pro forma effect to the Formation, the Westar Transaction, and the
acquisition of five development sites as if such transactions had occurred
on June 30, 1996. See the pro forma financial statements and notes thereto
contained elsewhere herein.
(5) Giving pro forma effect to the Formation, the Westar Transaction, the
acquisition of five development sites, and the Offering at an assumed
initial public offering price of $ per share as if such transactions
had occurred as of June 30, 1996. See the pro forma financial statements
and notes thereto contained elsewhere herein.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company was incorporated in August 1996 and, as a result of the
Formation, will succeed to the business of ESLP, which was organized in
February 1996 to become a provider of high quality, midprice extended-stay
hotels. Prior to the Formation (which is expected to occur immediately prior
to, or simultaneously with, the completion of the Offering), all business
activities of the Company have been and will be conducted by ESLP. See "The
Formation Transaction."
During the period from its inception through June 30, 1996, ESLP hired its
initial employees, engaged in concept and product design, market study and
site selection activities, and acquired its first properties. On May 31, 1996,
ESLP purchased Studio Suites, a 139-unit extended-stay facility located in
Grand Prairie, Texas. The property was in the final stages of construction
when acquired and was opened for business on June 17, 1996. Prior to June 30,
1996, ESLP also purchased development sites in Phoenix, Arizona and Denver,
Colorado.
Subsequent to June 30, 1996, ESLP entered into a contract to purchase
beneficial ownership of five hotels from the constituent partners of Westar.
The transaction is expected to close prior to consummation of the Offering.
See "The Formation Transaction." The hotels are located in Texas in the cities
of San Antonio (2), El Paso, Amarillo and Irving. The hotels contain a
combined total of 622 units and will be renovated to conform to the quality
standards of the Homegate Studios & Suites prototype. The Westar facilities
will then be operated under the Homegate Studio & Suites brand name.
Also, as of the time of the Offering, ESLP will have commenced construction
of hotels on its Phoenix, Arizona (139 units) and Denver, Colorado (143 units)
sites and on a Lenexa, Kansas (117 units) site acquired subsequent to June 30,
1996. The Company currently owns additional development sites in Overland
Park, Kansas, Salt Lake City, Utah, Dallas, Texas and a second site in
Phoenix, Arizona, on each of which it expects to begin construction of an
extended-stay hotel by the fourth quarter of 1996. At August 23, 1996, ESLP
had agreements, letters of intent, contracts or other arrangements to acquire
10 other development sites. See "Business-Growth Strategy."
RESULTS OF OPERATIONS
Property Operations
ESLP's results of operations from inception through June 30, 1996 reflect
only 13 days of hotel operations. Occupancy averaged 44.5%. Weekly room rates
averaged $199, reflecting an "opening day" promotion. Property operating
expenses include salaries and benefits, repairs and maintenance, energy,
property taxes and insurance. A management fee of 3% of gross revenues was
paid to Wyndham to manage the property.
The following is a summary of certain historical operating information for
Westar which is expected to be acquired by the Company (dollars in thousands,
except for average daily room rate):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average occupancy rate............ 76.0% 74.5% 74.6% 82.9% 83.1%
Average daily room rate........... $ 49.18 $ 49.27 $ 48.54 $ 52.41 $ 50.56
Room revenue...................... 8,466 8,299 8,193 4,222 3,871
Total revenue..................... 8,761 8,584 8,439 4,303 3,944
Property operating expenses....... 4,922 5,136 5,126 2,372 2,357
Property operating expenses as a
percentage of total revenue...... 56.2% 59.8% 60.7% 55.1% 59.8%
</TABLE>
23
<PAGE>
The Westar hotels have not been operated historically as extended-stay
facilities, and therefore the average room rates shown above are daily rates
rather than weekly rates. Room revenue decreased by 2.0% from 1993 to 1994, by
1.3% from 1994 to 1995 and by 8.3% from the six month period ended June 30,
1995 to the comparable period in 1996. Property operating expenses increased
by 4.3% from 1993 to 1994 and decreased by 0.2% from 1994 to 1995. Such
expenses decreased by 0.6% from the six months ended June 30, 1995 to the
comparable period in 1996.
Partnership/Corporate Operations
Partnership/corporate expenses consisted primarily of salaries and benefits,
travel, office supplies, market research and data processing and ESLP
formation costs.
Interest expense of $21,457 was recorded by ESLP for the period on the
borrowings under the Mortgage Facility.
LIQUIDITY AND CAPITAL RESOURCES
ESLP had cash balances of $1,274,000 as of June 30, 1996. In addition,
certain capital partners were obligated to make additional capital
contributions in the aggregate amount of $13,605,000. These contributions will
be made prior to or simultaneously with the completion of the Offering.
After the closing of the Westar Transaction, the borrower will continue to
owe indebtedness of approximately $18 million on a 9.71% secured promissory
note. This debt is payable on a fixed 25-year amortization schedule in monthly
installments through January 11, 2021, and will be paid from Westar's
operations.
The Company has a $30 million Mortgage Facility with BOA, which provides the
Company with construction financing for new extended-stay hotels. The Company
is permitted to borrow under the Mortgage Facility through November 30, 1997.
Each project may be funded under the Mortgage Facility through a separate
loan, with all loans being cross-collateralized and cross-defaulted.
Initially, such loans will be advanced as construction loans, payable over
twenty-four months (the "Construction Term") with interest at the lesser of
the BOA prime rate plus 0.5% or LIBOR plus 2.5%. The Company must make
interest payments on each construction loan for the first twelve months of the
loan, followed by principal and interest payments based upon a fifteen-year
amortization schedule for the remaining twelve months of the loan. The Company
may elect to extend each loan for three additional years (the "Mini-perm
Term") if certain conditions are met and upon payment of a specified extension
fee. If the Company elects to extend the loan as a mini-permanent financing,
the Company will continue to make principal and interest payments on a
fifteen-year amortization schedule during each year of the three-year
extension period, and the interest rate may, in certain circumstances, be
reduced. During the Construction Term, the amount of any loan may not exceed
55% of the total project costs of the related project. During the Mini-perm
Term, the loan amount to costs-of-project ratio may be increased to 65% if
certain conditions are met. BOA will have full recourse against the Company
for the loans, including environmental indemnities.
As of June 30, 1996, ESLP had outstanding indebtedness of $2,869,000 under
the Mortgage Facility. This debt is due June 1, 1998, bears interest at the
BOA prime rate plus 0.5% per annum, and may be extended for an additional
three years as described above.
Although the Company has access to financing under the Mortgage Facility,
the Company will need to procure substantial additional financing over time to
complete its Initial Hotel Program, the amount of which financing will depend
upon a number of factors including the number of properties the Company
constructs or acquires and the cash flow generated by its properties. Upon
completion of the Offering and including the funds that may be available under
the Mortgage Facility, the Company believes that it will have access to
sufficient resources to fund the development or acquisition of approximately
20 of the hotels contemplated by the Initial Hotel Program (including the six
existing facilities to be owned at the time of the Offering), based on
expected
24
<PAGE>
development or acquisition costs. The Company's Initial Hotel Program calls
for 65 hotels to be open or under construction by December 31, 1998. There can
be no assurance regarding the availability or terms of additional financing
the Company may be able to procure over time. In addition, future financing
facilities may restrict the ability of the Company to incur additional debt in
the future. The failure of the Company to obtain the required additional
financing needed to complete the Initial Hotel Program would adversely affect
the Company's ability to implement its growth strategy and would have a
material adverse effect on the Company's earnings and operations. The Mortgage
Facility and any future debt financings or issuances of preferred stock by the
Company will be senior to the rights of the holders of Common Stock, and any
future issuances of Common Stock will result in the dilution of the then-
existing stockholders' proportionate equity interests in the Company. See
"Risk Factors--Development Risks" and "--Need for Additional Capital."
SEASONALITY
The lodging industry is seasonal in nature. Quarterly earnings may be
adversely affected by events beyond the Company's control, such as poor
weather conditions, economic factors and other considerations affecting
travel. In addition, occupancy rates and room revenues typically decline
during the fourth calendar quarter as business travel decreases during the
holiday season. The timing of openings of new properties could also lead to
fluctuations in the Company's quarterly earnings.
INFLATION
The rate of inflation as measured by changes in the consumer price index has
not had a material effect on the revenue or operating results of the Company.
There can be no assurance, however, that inflation will not affect future
operating or construction costs. See "Risk Factors--Development Risks."
25
<PAGE>
BUSINESS
OVERVIEW
Homegate Hospitality, Inc.'s goal is to become a national provider of high
quality extended-stay hotels in strategically selected markets located
throughout the United States. The Company plans to rapidly develop a chain of
midprice extended-stay hotels under the Homegate Studios & Suites brand name
to capitalize on what management believes is a large and underserved market
for extended-stay accommodations. This market includes business travelers,
professionals on temporary work assignments, persons between domestic
situations, and persons relocating or purchasing a home, who often desire
accommodations for an extended duration. As of the time of the Offering, the
Company expects to own six hotels, to have seven hotels under development, and
to have agreements, letters of intent, contracts or other arrangements to
purchase 10 additional development sites. Of the seven hotels under
development, three are currently under construction and four are expected to
be under construction by December 31, 1996. The Company's objective is to have
approximately 65 extended-stay hotels open or under construction by December
31, 1998.
The Company was recently founded by management and by affiliates of the
following three entities: Trammell Crow Residential Company, one of the
nation's leading developers of multi-family housing units with 22 regional
offices; Greystar Capital Partners, L.P., a private investment company with
substantial multi-family housing development and construction expertise; and
Crow Investment Trust, the real estate investment arm of the Crow Family. In
TCR, Greystar and Crow, the Company brings together extensive experience in
developing, constructing and managing properties on a national scale and in
structuring, financing and executing national real estate investment programs.
The Company has entered into a master development agreement with the Developer
Partnership to provide site selection, construction and development services
for the Company's Initial Hotel Program. Management believes the Developer
Affiliates' expertise and local market presence will significantly enhance the
Company's ability to execute its Initial Hotel Program, while minimizing the
Company's development costs and administrative overhead.
As of the time of the Offering, the Company will also have entered into the
Management Agreement with a subsidiary of Wyndham Hotel Corporation, which
owns, operates or franchises over 70 hotels in North America, to manage the
Company's hotels pursuant to 10-year management contracts. Management believes
that Wyndham's experience in managing and operating one of the nation's
leading hotel chains will facilitate the Company's ability to provide
consistently high quality accommodations and services to its guests, and that
access to Wyndham's resources will reduce the Company's overhead expenses
during its initial phase of operations. Although Wyndham owns no Common Stock
in the Company, over 48% of Wyndham's stock is owned by the Crow Family. See
"Certain Transactions" and "Risk Factors--Reliance upon Affiliated Companies."
Upon completion of the Offering, TCR, Greystar, Crow and their affiliates will
own % of the outstanding Common Stock. See "Risk Factors--Control of the
Company by Management and Principal Stockholders" and "Principal
Stockholders."
The Company's product strategy is to develop a well-recognized national
brand under the Homegate Studios & Suites name by offering consistent, high
quality accommodations in a standard format, providing much of the value
offered by limited service hotels with many of the added features and comforts
of apartment living. Homegate Studios & Suites hotels will feature three
functional room configurations, each with a fully equipped kitchen, upscale
residential-quality finishes and accessories, separation between the cooking,
living, and sleeping areas, and other amenities, such as weekly maid service,
twice-weekly linen service, resident laundry facilities, direct telephone
service with voice mail messaging and dataport capabilities, cable TV, a
business center and exercise facility. See "--Product Concept."
The Company was incorporated in August 1996 as a Delaware corporation to
succeed to the business of a predecessor partnership. See "The Formation
Transaction." Its executive offices are located at 2001 Bryan Street, Suite
2300, Dallas, Texas 75201, and its telephone number is (214) 863-1777.
GROWTH STRATEGY
The Company's growth strategy is to rapidly develop a chain of high quality,
midprice extended-stay hotels by leveraging its relationships with TCR,
Greystar, Crow, and Wyndham. Although the Company expects
26
<PAGE>
that the construction and development of new extended-stay hotels will be its
primary means of expansion, the Company may consider, as part of its growth
strategy, franchising opportunities or future acquisitions (in addition to the
Westar Transaction) of existing extended-stay hotels or other properties that
are suitable for conversion to the Company's extended-stay concept.
Pursuant to the master development agreement, the Developer Partnership has
agreed to develop up to 60 Homegate Studios & Suites hotels, and that neither
it, its partners, nor their respective affiliates will own, operate or develop
a competing extended-stay facility, subject to certain exceptions,within the
continental United States during the duration of such agreement. This agreement
will terminate upon the earlier of the commencement of the 60th facility or
December 31, 1998. Pursuant to this agreement, the Developer Affiliates'
regional offices will, under the Company's direction, provide site sourcing,
obtain entitlements and building permits, and provide construction,
architectural and engineering oversight. In addition, individual affiliates of
the Developer Affiliates will provide business asset guaranties for
construction cost overruns on each project. The Company believes its
utilization of the regional office network will produce competitive advantages
and cost efficiencies in its site selection, development and construction
operations, by providing local expertise and minimizing the Company's
development and administrative overhead costs.
The Company's development plan calls for identification of multiple markets
in which construction can occur within the Company's targeted time frame and
budget. The Company has developed a list of target markets and submarkets based
upon local hotel market conditions, the availability of development sites and
local construction capabilities, the existence of development barriers to
entry, the overall health and growth trends of the local economies, and the
presence of multiple corporate, residential and leisure travel demand
generators. Having identified its target markets, the Company reviews each
market to determine if it can achieve operational efficiencies by either
locating its hotels in proximity to existing Wyndham-managed hotels or by
clustering two or more Company hotels within the market.
In selecting sites within its targeted markets, the Company will consider
demographic analysis, including surrounding population and employment data. The
prototypical site includes the following attributes:
. located close to an employment center (Fortune 500 companies and
corporate headquarters preferred) and to a freeway or major traffic
thoroughfare with good visibility;
. located in a clean, accessible area which provides some buffer from noise
generators and is close to restaurants and retail services;
. located in an area with residential density; and
. site size of approximately 2.5 to 3.0 acres which allows for 110 to 150
units.
As of the time of the Offering, the Company will have begun construction of
three hotels--a 139-unit facility in Phoenix, Arizona, a 143-unit facility in
Denver Colorado, and a 117-unit facility in Lenexa, Kansas--and expects each of
these hotels to be operational by the second or third quarter of 1997. The
Company currently owns development sites in Overland Park, Kansas, Salt Lake
City, Utah, Dallas, Texas, and a second site in Phoenix, Arizona, on each of
which it expects to begin construction of an extended-stay hotel during the
fourth quarter of 1996. As of August 23, 1996, the Company also has entered
into agreements, letters of intent, contracts, or other arrangements to
purchase 10 additional development sites, as set forth below:
<TABLE>
<CAPTION>
LOCATION NUMBER OF SITES
-------- ---------------
<S> <C>
Austin, Texas............................................. 2
Chicago, Illinois......................................... 1
Dallas, Texas (second and third sites).................... 2
Houston, Texas............................................ 1
Nashville, Tennessee...................................... 1
Orlando, Florida.......................................... 1
Phoenix, Arizona (third site)............................. 1
Portland, Oregon.......................................... 1
</TABLE>
27
<PAGE>
The Company currently operates one extended-stay hotel in Grand Prairie,
Texas near the Dallas/Fort Worth International Airport. This newly-constructed
139-unit hotel opened on June 17, 1996 under the name of "Studio Suites," and
will be renamed "Homegate Studios." The Company has an agreement to acquire
beneficial ownership of five additional extended-stay hotels in the Westar
Transaction. See "The Formation Transaction." These hotels are located in
Texas in the cities of San Antonio (2), El Paso, Amarillo and Irving. The
Company expects this acquisition to close prior to the consummation of the
Offering. The Westar hotels contain an aggregate of 622 units, all of which
are similar to the Homegate Studios & Suites prototype. The Westar hotels will
be renovated at an anticipated cost of approximately $4 million in order to
conform to the quality standards of the Company's prototype, and will be
operated under the Homegate Studios & Suites brand name.
PRODUCT CONCEPT
Based on its expected average weekly room rate of $280 to $350, the quality
of its interior design elements and finishes, the separation between cooking,
sleeping and living areas and the available amenities, management believes
that its hotels will offer a superior price/value relationship and appeal to
extended-stay guests of both upscale and economy facilities. The Company
believes that the extended-stay industry is currently segmented into three
price categories and that the weekly room rates charged in the various
categories are as follows: less than $280 in the economy or budget category;
greater than $280 and less than $500 in the midprice category; and over $500
in the upscale category. The Company's hotels will generally offer extended-
stay accommodations for average weekly rates between $280 and $350, but room
rates at specific hotels may vary significantly depending upon local market
factors. The Company's hotels will be designed to compete primarily in the
midprice segment of the extended-stay industry, and will contain a variety of
features that are attractive to the extended-stay guest, such as fully
equipped kitchens, resident laundry facilities, twice-weekly linen service,
weekly maid service, business centers and exercise facilities. The facilities
will consist of an apartment-style complex with two or three story buildings
containing, on average, approximately 136 guest rooms. The Company will
utilize both interior and exterior corridor building designs, depending
primarily on local market standards, building codes and weather factors.
The hotels will typically feature three functional room configurations:
studio, deluxe, and one bedroom. Management believes that the price/value
relationship of its guest rooms is enhanced by offering the following
features:
. a fully equipped kitchen with full-size refrigerator, stove, microwave,
coffee maker, dishwasher and cooking utensils;
. separate cooking, living and sleeping areas;
. residential-quality interior design elements;
. upscale finishes and accessories;
. an oversized work desk;
. two telephone jacks with dataports;
. direct dial telephone with voice mail messaging;
. fax and copy services available to guests;
. cable TV; and
. a sleeper sofa.
OPERATIONS
The Company's operating objective is to establish a well-recognized national
brand of extended-stay hotels while maximizing operating performance. The
Company intends to achieve these goals by (i) developing and offering
consistent, high quality accommodations; (ii) capitalizing on the attractive
operating characteristics of the extended-stay segment of the lodging
industry; and (iii) leveraging Wyndham's significant hotel management
expertise.
28
<PAGE>
Consistent Lodging Experience. The Company believes it will be able to
create a well-recognized brand under the Homegate Studios & Suites name by
creating a uniform and high quality lodging experience for its guests. Because
the Company will own and Wyndham will manage each hotel, the Company will be
better able to maintain a high level of consistency and quality. Management
believes that consistency and reliability in lodging experience is among the
most important factors considered by midprice extended-stay guests in
determining where to stay. Therefore, by maintaining a high level of
consistency and quality, management believes that this will lead to a higher
level of customer satisfaction which will enable the Company to create a
positive brand image for its hotels.
Attractive Extended Stay Operating Characteristics. The Company believes
that the extended-stay segment offers superior property-level operating
characteristics when compared to other segments of the lodging industry.
Extended-stay hotels typically experience longer average guest stays than
traditional hotels, resulting in higher average occupancies and a more stable
revenue stream. The Company will require minimum stays of one week at its
hotels, and will provide daily rates only after the minimum stay has been met.
In addition, the staffing levels of extended-stay hotels are much lower than
those of traditional hotels since many of the labor intensive services offered
by full-service hotels are de-emphasized or excluded entirely, resulting in
lower labor costs. At the Company's hotels, there will be no food and beverage
service and limited common area amenities. The front desk will typically offer
a limited operating schedule (7:00 a.m. to 9:00 p.m. Monday through Friday
plus 9:00 a.m. to 1:00 p.m. on Saturday and 1:00 p.m. to 5:00 p.m. on Sunday).
Voice mail messaging will remove the need for a telephone switchboard. The
Company has developed a system to allow for after hours check-in, eliminating
the need for 24-hour front desk operations. Housekeeping services will be
offered weekly, and linen service will be available twice weekly. Several
common area amenities that do not substantially increase operating expenses
will be included such as an exercise room, resident laundry, and a business
center.
Wyndham Hotel Management. Pursuant to the Management Agreement, Wyndham has
agreed to manage up to 60 Company hotels, each pursuant to a 10-year
management contract. Each Company hotel will have a Wyndham hotel manager, who
will share duties with and oversee a Wyndham-employed and -trained staff
generally consisting of approximately 10 employees. Wyndham's hotel managers
typically consist of college educated, career-oriented individuals. The
Company believes that Wyndham-trained hotel managers will provide consistent,
high quality service and will assist the Company in achieving operating
efficiencies. In particular, management believes that Wyndham's expertise will
be particularly beneficial in helping the Company's hotels quickly achieve a
normalized occupancy level. In addition, Wyndham will provide market research,
a preferred vendor program, a proprietary property management software system,
and national and local marketing efforts. See "Certain Transactions" and "Risk
Factors--Reliance upon Affiliated Companies."
The Company's strategy includes leveraging Wyndham's national and local
marketing efforts to market its hotels. The Company believes that direct sales
will be one of the Company's primary marketing tools, and will utilize
Wyndham's "push-pull" approach to marketing, where appropriate.
. The "push" refers to Wyndham's national marketing efforts, which
includes, among other things, calling programs to frequent travelers and
to national corporate travel departments, and marketing to major travel
agencies. The Wyndham National Sales Office has over 20 sales people and
offices in Chicago, Los Angeles, Dallas, New York and Washington, D.C.,
and will attempt to generate business on behalf of the Company. Wyndham
will provide these services pursuant to the Management Agreement and will
receive a fee for business generated.
. The "pull" refers to property specific marketing efforts both before and
after a facility has opened. Prior to opening, Wyndham will conduct a
marketing program to establish relationships with likely users of the
facility, such as human resource personnel or travel executives at local
corporations, local realtors and other lodging demand generators. After
the grand opening, the manager of each hotel will be responsible for
maintaining these relationships and generating new prospects, as well as
direct mailings, fliers, and local advertising.
29
<PAGE>
In markets with existing Wyndham-managed hotels, each hotel manager at the
Company's hotels will attend a weekly sales meeting with the sales
organization of the Wyndham hotel. The marketing representatives of the
Wyndham hotels will also be trained to refer extended-stay demand to the
Company's hotels, as well as to refer leads to the Company's local hotel
manager.
The Company believes that the management and additional services furnished
by Wyndham will provide it with competitive advantages over other extended
stay hotel companies even though the Company's hotels will not be operated
under the Wyndham name.
INDUSTRY OVERVIEW
Traditional Lodging Industry
The U.S. lodging industry is estimated to have generated approximately $52.7
billion in annual room revenues in 1995 and had approximately 3.3 million
rooms at the end of 1995. Industry statistics, which the Company believes to
be reliable, indicate that the U.S. lodging industry's performance is strongly
correlated to economic activity. Room supply and demand historically have been
sensitive to shifts in economic growth, which has resulted in cyclical changes
in average daily room and occupancy rates. The recession in 1990 and 1991
compounded the negative effects of the overbuilding in the mid- and late-
1980s, and led to depressed industry performance and a lack of capital
available to the industry in the late 1980s and early 1990s.
The Company believes that the lodging industry has benefited from a
gradually improving supply and demand balance, evidenced by increased 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 continues to grow faster then supply. According to industry
reports, which the Company believes to be reliable, supply growth was 1.1% in
1993, 1.4% in 1994, and 1.6% in 1995. This slow supply growth, coupled with
3.3%, 4.1% and 2.9% increases in demand (measured by occupied rooms) in 1993,
1994 and 1995, respectively, reflects an improved supply and demand balance in
the industry. Management believes that these factors have led to an increase
in average daily room rates from $61.85 in 1993 to $64.24 in 1994 and to
$67.34 in 1995 and increases in the industry average occupancies as shown
below.
Extended-Stay Market
The extended-stay category (defined as hotel suites with full kitchens) is
one of the most rapidly growing sectors of the U.S. lodging industry. From
1990 through 1995, the compounded annual growth rate in occupied rooms in
dedicated extended-stay hotels was 7.2% compared to 2.1% for the overall U.S.
lodging industry, while the compounded annual growth rate in room supply was
5.3% compared to 1.0% for the overall U.S. lodging industry. However, the vast
majority of the dedicated extended-stay hotel rooms developed during this time
period were in the upscale segment of the extended-stay category. As shown
below, average occupancy rates for extended-stay hotel chains have exceeded
such rates in the overall U.S. lodging industry, for each of the previous six
years, and extended-stay hotel chains have achieved an 80% or greater
occupancy level during each of the past three years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Average Occupancy Rates:
Extended-Stay Hotel Chains(1)............... 73.9% 73.4% 76.7% 80.0% 81.3% 80.9%
All U.S. Lodging Industry(2)................ 62.4% 60.6% 61.6% 63.0% 64.6% 65.4%
</TABLE>
- --------
(1) Occupancy rates were provided by Smith Travel Research. Includes Homestead
Village(R) , Villager Lodge(R), Studio Plus(R), Lexington Hotel Suites(R),
Hawthorn Suites(R), Homewood Suites(R), Residence Inn(R), Summerfield
Suites(R) and Woodfin Suites(R).
(2) Occupancy rates were provided by Smith Travel Research.
30
<PAGE>
Based on 1995 industry statistics, which the Company believes to be reliable,
the size of the demand for extended-stay lodging compares favorably to the
limited supply of dedicated extended-stay rooms, especially in the midprice
segment of the extended-stay category. In 1995, extended-stay guests (defined
as those guests staying five or more nights) accounted for a total of 175.1
million room nights, or 15.8% of the total number of room nights that were
accommodated by hotel and non-hotel facilities in the United States. Of these
175.1 million extended-stay room nights, 79%, or 137.8 million room nights,
were accommodated at hotels, 11%, or 19.1 million room nights, in apartments or
apartment complexes, and 10%, or 18.2 million room nights, in other types of
accommodations, such as bed and breakfast inns, timeshares and cruises. Of
these 137.8 million room nights, only 6 to 9% (8.3 million to 12.4 million) of
the room nights generated by extended-stay guests at hotels were accommodated
by extended-stay hotel chains. Management believes that the extended-stay hotel
chains' limited penetration of the extended-stay room demand in 1995 was partly
due to the limited number of dedicated extended-stay facilities in operation in
1995. Of the approximately 3.3 million total available rooms in the U.S.
lodging industry at the end of 1995, approximately 51,100, or only 1.5%, were
extended-stay rooms at approximately 445 dedicated extended-stay facilities. Of
these 445 dedicated extended-stay facilities, approximately 320, or 72%,
operated in the upscale segment of the extended-stay market, while
approximately 25, or 5.6%, operated in the midprice segment of the extended-
stay category.
In addition, management believes that the disparity between demand and supply
for extended-stay facilities in 1995 was greater for the midprice segment of
the total extended-stay category. In 1995, extended-stay guests who were
accommodated at hotels represented approximately 378,000 daily occupied rooms,
while the total number of available dedicated extended-stay rooms consisted of
only approximately 51,100. Of these 378,000 daily occupied rooms, approximately
164,000 represented extended-stay rooms occupied in the midprice range, while
the total number of available dedicated midprice rooms consisted of only
approximately 1,800. As a result, management believes that there exist
favorable growth opportunities in the midprice segment of the extended-stay
category for the near term.
COMPETITION
The U.S. lodging industry is highly competitive. Competition in the U.S.
lodging industry is based generally on convenience of location, price, range of
services and guest amenities offered, and quality of customer service. Each of
the Company's facilities will be located in a developed area that includes
competing lodging facilities. The Company believes the location of its hotels,
the high quality of its accommodations, the reasonableness of its room rates,
and its services and guest amenities will be among the most important factors
in its business. Demographic or other changes in one or more of the Company's
markets could impact the convenience or desirability of the sites of certain
hotels, which would adversely affect their operations.
The Company anticipates that competition within the extended-stay industry
segment will increase substantially in the foreseeable future. In the midprice
category of the extended-stay industry segment, a number of other lodging
chains and developers have recently announced plans to develop or are currently
developing extended-stay hotels which may compete with the Company's hotels.
The Company may compete for guests and for new development sites with certain
of these established entities and other entities which have greater financial
resources and brand awareness than the Company and better relationships with
lenders and real estate sellers. Further, there can be no assurance that new or
existing competitors, including traditional hotels with nationally recognized
brand names, will not significantly lower rates or offer greater convenience,
services, or amenities or significantly expand or improve facilities in a
market in which the Company's facilities compete, thereby adversely affecting
the Company's operations.
ENVIRONMENTAL MATTERS
Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose liability without regard to whether the owner knew of, or was
responsible for, the presence of
31
<PAGE>
hazardous or toxic substances. Furthermore, a person that arranges for the
disposal or transports for disposal or treatment of a hazardous substance at a
property owned by another may be liable for the costs of removal or
remediation of hazardous substances released into the environment at that
property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell
such real estate or to borrow using such real estate as collateral. In
connection with the ownership and operation of its properties, the Company may
be potentially liable for any such costs.
The Company has obtained recent Phase I environmental site assessments on
its existing properties and intends to obtain Phase I Surveys prior to the
purchase of any future properties. The Phase I Surveys are intended to
identify potential environmental contamination and regulatory compliance
concerns. Phase I Surveys generally include historical reviews of the
properties, reviews of certain public records, preliminary investigations of
the sites and surrounding properties and the preparation and issuance of
written reports. Phase I Surveys generally do not include invasive procedures,
such as soil sampling or ground water analysis.
The Phase I Surveys have not revealed any environmental liability or
compliance concern that the Company believes would have a material adverse
effect on the Company's business, assets, results of operations, or liquidity,
nor is the Company aware of any such liability or concern. Nevertheless, it is
possible that Phase I Surveys will not reveal all environmental liabilities or
compliance concerns or that there will be material environmental liabilities
or compliance concerns of which the Company will not be aware. Moreover, no
assurances can be given that (i) future laws, ordinances, or regulations will
not impose any material environmental liability, or (ii) the current
environmental condition of the Company's existing and future properties will
not be affected by the condition of the neighboring properties (such as the
presence of leaking underground storage tanks) or by third parties unrelated
to the Company.
GOVERNMENTAL REGULATION
The lodging industry is subject to numerous federal, state and local
government regulations including those relating to building and zoning
requirements. A number of states also regulate the licensing of hotels by
requiring registration, disclosure statements, and compliance with specific
standards of conduct. In addition, the Company is subject to employment laws,
including minimum wage requirements, overtime, working conditions and work
permit requirements. Recent amendments to the minimum wage laws will go into
effect in October 1996, and will increase the Company's labor costs. The
Company believes that the Studio Suites hotel and each of the Westar hotels
have the necessary permits, approvals and licenses to operate its respective
business and that collectively they comply with the applicable employment
laws, and the Company intends to continue to comply with such laws and
regulations. A change in such building, zoning, or licensing requirements or a
further increase in the minimum wage rate, employee benefit costs or other
costs associated with employees could materially and adversely affect the
Company.
Under the ADA, all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. While the
Company believes that the Studio Suites hotel and the Westar hotels are
substantially in compliance with these requirements, a determination that the
Company is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. In addition, changes in
governmental rules and regulations or enforcement policies affecting the use
and operation of the facilities, including changes to building codes and fire
and life-safety codes, may occur. If the Company were required to make
substantial modifications at its hotels to comply with the ADA or other
changes in governmental rules and regulations, the Company's financial
condition and ability to develop or acquire new hotels could be materially and
adversely affected.
TRADEMARKS
The Company has made application to register its name and logo and its
"Homegate Studios & Suites," "Homegate Studios" and "Homegate Studios Suites"
servicemarks with the United States Patent and Trademark office.
32
<PAGE>
INSURANCE
The Company currently has the types and amounts of insurance coverage that
it considers appropriate for a company in its business. While management
believes that its insurance coverage is adequate, if the Company were held
liable for amounts exceeding the limits of its insurance coverage or for
claims outside of the scope of its insurance coverage, the Company's business,
results of operations, and financial condition could be materially and
adversely affected.
EMPLOYEES
As of June 30, 1996, the Company employed approximately seven people. The
Company expects that it will significantly 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 not a party to any litigation or claims, other than routine
matters incidental to the operation of the business of the Company. To date,
no claims have had a material adverse effect on the Company nor does the
Company expect that the outcome of any pending claims will have such an
effect.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers, including their respective ages, at June 30,
1996. The Company intends to add two independent directors no later than 90
days after the date the registration statement of which this Prospectus is a
part (as amended and together with all exhibits and schedules thereto, the
"Registration Statement") is declared effective.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert A. Faith......................... 32 Chairman of the Board, Chief
Executive Officer and President
John C. Kratzer......................... 33 Chief Operating Officer and
Executive Vice President
Tim V. Keith............................ 43 Chief Financial Officer and
Treasurer
Anthony W. Dona......................... 37 Senior Vice President and Director
Joel Kinzie Oldham IV................... 34 Senior Vice President and Secretary
James D. Carreker....................... 49 Director
Harlan R. Crow.......................... 46 Director
John J. Moores.......................... 52 Director
Charles E. Noell........................ 44 Director
Leonard W. Wood......................... 49 Director
</TABLE>
ROBERT A. FAITH joined the Company in February 1996 as its Chairman of the
Board, President and Chief Executive Officer. Since August 1991, Mr. Faith has
served as the Chairman of the Board of Faith Holdings, Inc., a private holding
and management company with various business interests. Mr. Faith also
currently serves as the Chairman of the Board of the corporate general partner
of Greystar Capital Partners, L.P., a private holding company with investments
in real estate, apartment buildings and apartment management firms, a position
which he has held since May 1993. In August 1991, Mr. Faith co-founded
Starwood Capital Partners, a private real estate investment firm, for which he
served as Chief Executive Officer until August, 1993.
JOHN C. KRATZER is the Chief Operating Officer and Executive Vice President
of the Company. Before joining the Company in February 1996, Mr. Kratzer
served as a Principal with Benton Resources, which invested over $100 million
in land, notes and income producing assets. Mr. Kratzer served in this
capacity from August 1993 to February 1996. From September 1990 to August
1993, Mr. Kratzer was with Trammell Crow Realty Advisors, an institutional
real estate investment management company that acquired a multi-asset
portfolio of apartments valued at over $250 million. At the time of his
departure, Mr. Kratzer served as the Director of Multi-Family Acquisitions for
Trammell Crow Realty Advisors.
TIM V. KEITH joined the Company in July, 1996 as its Chief Financial Officer
and Treasurer. Prior to joining the Company, Mr. Keith served as the
Controller/Treasurer of David Weekley Homes, a single-family home builder,
from June 1994 to July 1996. From March 1989 to June 1994, Mr. Keith served as
Vice President of Finance for Coscan Florida Inc., a subsidiary of Coscan
Development Corporation, a real estate developer and builder. Mr. Keith has
accumulated 17 years of experience in real estate accounting and finance, as
well as three years in public accounting.
ANTHONY W. DONA is a Senior Vice President and Director of the Company. In
addition, Mr. Dona is the Managing Director of Crow Realty Investors, L.P.,
d/b/a Crow Investment Trust, a position which he has held since 1994, and is a
Director of Trammell Crow Company and TCR. Mr. Dona has served in these
capacities since 1994 and 1996, respectively. In addition, Mr. Dona serves on
the advisory board of Trammell Crow Interest Company. From 1985 until 1994,
Mr. Dona served in various capacities with the Crow entities including Chief
34
<PAGE>
Financial Officer of the Texas region of Trammell Crow Company, a partner in
the Dallas Office Building Division of Trammell Crow Company, Chief Executive
Officer of the Asset Management Group of the company and Director of Crow
Family Administration. As part of his asset management role, Mr. Dona managed
a large portfolio of distressed real estate partnerships during the recent
real estate down-cycle. In connection with the restructuring of that
portfolio, Mr. Dona has served during the last five years as an officer or
director in approximately 75 partnerships or corporations, or affiliates of
such partnerships or corporations, that filed for protection under federal
bankruptcy laws. In addition, in the past five years, Mr. Dona was an
executive officer or director in approximately 15 partnerships or
corporations, or affiliates of such partnerships or corporations, that were
placed in receivership.
JOEL KINZIE OLDHAM IV joined the Company in February 1996 as a Senior Vice
President and Secretary of the Company. Mr. Oldham is also the Senior Vice
President of Greystar Capital Partners, L.P., a private holding company with
investments in real estate, apartment buildings and apartment management
firms. Mr. Oldham joined Greystar in May 1993. Prior to joining Greystar, Mr.
Oldham was the Vice President of Starwood Capital Partners, a position he held
from August 1992 to August 1993. Prior to joining Starwood, Mr. Oldham was a
Marketing Director with Trammell Crow Company, which he joined in 1988.
JAMES D. CARREKER is a Director of the Company. Mr. Carreker has served as
President and Chief Executive Officer of Wyndham since May 1988 and as
Chairman of the Board of Wyndham since February 1996. He also served as Chief
Executive Officer of Trammell Crow Company from August 1994 to December 1995.
Prior to 1988, Mr. Carreker served as President of Burdine's, the Miami-based
division of Federated Department Stores.
HARLAN R. CROW is a Director of the Company. Mr. Crow is the Chief Executive
Officer of Crow Family Holdings, an investment company managing investments in
a variety of real estate related and other businesses, a position he has held
since 1986. Mr. Crow currently serves as a Director of Trammell Crow Company
and TCR. In addition, Mr. Crow serves as a Director for Wyndham, a publicly-
traded corporation. In any given year within the past five years, Mr. Crow has
indirectly owned interests in over 1,000 partnerships (or affiliates of
partnerships) or corporations. In the past five years, Mr. Crow was a general
partner, officer or director in approximately 75 partnerships or corporations,
or affiliates of such partnerships or corporations, that filed for protection
under federal bankruptcy laws. In addition, in the past five years, Mr. Crow
was a general partner, executive officer or director in approximately 15
partnerships or corporations, or affiliates of such partnerships or
corporations, that were placed in receivership.
JOHN J. MOORES is a Director of the Company. Mr. Moores founded BMC
Software, Inc., a vendor of system software utilities for IBM mainframe
computing environments in 1980. Prior to founding BMC Software, Mr. Moores was
employed by International Business Machines, Inc. and Shell Oil Corporation in
various technical divisions. Mr. Moores is Chairman of the Board of the
following entities: JMI Services, Inc., Peregrine Systems, Inc., Neon Systems,
Inc. and the San Diego Padres, L.P.
CHARLES E. NOELL is a Director of the Company. Mr. Noell is President of
JMI, Inc., a private investment company, which he joined in 1992 after 11
years in the corporate finance department of Alex. Brown & Sons Incorporated.
Mr. Noell is the Managing Partner of JMI Equity Fund, L.P., a private equity
investment fund, and is a Director of two publicly-traded companies:
Transactions Systems Architects, Inc. and Expert Software, Inc.
LEONARD W. WOOD is a Director of the Company. Mr. Wood is currently a Group
Managing Partner for TCR, and is responsible for overseeing the activities of
TCR throughout North Florida and the Southeastern and Midwestern United
States. Mr. Wood joined TCR in 1982.
The Company's Certificate of Incorporation provides, among other things, for
a Board of Directors divided into three classes, designated Class I, Class II
and Class III. Directors serve for staggered terms of three years each, except
that initially the Class I directors will serve until the Company's 1997
annual meeting of stockholders, the Class II directors until the 1998 meeting
and the Class III directors until the 1999 meeting. The Class I directors are
Messrs. Carreker and Wood, the Class II directors are Messrs. Crow and Moores,
and the
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<PAGE>
Class III directors are Messrs. Faith, Dona and Noell. Class I and Class II
will be expanded by one director each when the two independent directors are
elected to the Board of Directors.
The Company does not currently compensate, and does not anticipate
compensating, its directors for their services as directors, except that each
of the Company's non-employee directors will receive certain automatic stock
option grants as described in "Director Compensation" below. In addition, each
of the Company's Directors will receive reimbursement of all ordinary and
necessary expenses incurred in attending any meeting of the Board of Directors
or any committee of the Board of Directors.
ADVISORS
The Company has consulting arrangements with several advisors who are
available to counsel the Company and the Board of Directors. Such advisors
include:
LESLIE V. BENTLEY has been an advisor to the Company since prior to its
formation. Mr. Bentley has been employed by Wyndham since March 1985 and has
served as Executive Vice President and Wyndham Garden Division President of
Wyndham since May 1990.
J. RONALD TERWILLIGER has been an advisor to the Company since prior to its
formation. Mr. Terwilliger has served as Managing Partner of TCR since 1986.
In that capacity, Mr. Terwilliger is responsible for all residential
development and operations conducted by Trammell Crow partners and associates
in 22 offices located throughout the United States. Mr. Terwilliger is also
Vice President, Treasurer and a Trustee of the Urban Land Institute. Mr.
Terwilliger serves as Chairman of the Advisory Board of the Wharton Real
Estate Center at the University of Pennsylvania.
JACK VANHARTESVELT has been an advisor to the Company since prior to its
formation. Mr. vanHartesvelt is the Corporate Vice President of Development
for Wyndham and has 20 years of hotel development experience with Wyndham,
Residence Inn, Hawthorn Suites, and Eagle Hotel Group.
The advisors to the Company will not receive cash compensation for their
services, but may receive grants of unallocated options under the 1996 Plan,
as discussed below.
COMPENSATION AND OTHER COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company has established an Audit Committee and
a Compensation Committee. The Audit Committee's functions include recommending
to the Board of Directors the engagement of the Company's independent public
accountants, reviewing with such accountants the plans for and the results and
scope of their auditing engagement and certain other matters relating to their
services provided to the Company, including the independence of such
accountants. The Compensation Committee reviews on behalf of and makes
recommendation to, the Board of Directors with respect to the compensation of
executive officers and administers the Company's incentive and stock option
plans. The two independent Directors will serve on the Audit Committee.
Messrs. Carreker, Noell and one of the independent Directors will serve on the
Compensation Committee.
Prior to August 16, 1996, Messrs. Faith and Dona approved the terms of
compensation for the Company's executive officers in such officers' capacities
as ESLP employees.
Certain Directors or Director nominees are parties to transactions with the
Company, as described under the caption "Certain Transactions."
EXECUTIVE COMPENSATION
The Company was incorporated in August 1996, to succeed to the business of
ESLP, its predecessor, which was formed in February 1996. Accordingly, the
Company did not conduct any operations prior to February 1996. The Company
anticipates that during 1996 its most highly compensated officers, with
estimated base salary
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<PAGE>
amounts for each such individual on an annualized basis, will be Mr. Robert A.
Faith, $200,000; Mr. John C. Kratzer, $145,000; and Mr. Tim V. Keith, $110,000
(the "Named Executives"). The Named Executives may be entitled to performance
bonuses of up to 100% of their base salary, as determined by the Compensation
Committee.
OTHER COMPENSATION ARRANGEMENTS
Employment Agreements
The Company has not entered into any employment agreements with any of its
officers other than John C. Kratzer. Mr. Kratzer entered into a two-year
employment agreement in August 1996 with the Company, pursuant to which Mr.
Kratzer will receive a minimum annual base salary of $145,000. If Mr.
Kratzer's employment is terminated during the term of the agreement for any
reason other than by the Company without cause, Mr. Kratzer has agreed that he
shall not, directly or indirectly, compete with the Company within a 25-mile
radius of any hotel owned by the Company at the time of termination for a
period of two years from the date of termination. The agreement provides that
in the event Mr. Kratzer's employment is terminated by the Company for any
reason other than for cause or for disability, Mr. Kratzer shall be entitled
to receive an amount equal to his then base salary for the remainder of the
term of the employment agreement.
Pursuant to his employment agreement, Mr. Kratzer has agreed to restrict the
transfer of 158,092 shares of Common Stock owned by him for a period of seven
years. The restrictions will lapse with respect to 50% of such shares if Mr.
Kratzer is employed by the Company at the time of the earlier of the
completion or acquisition by the Company of its 30th hotel or December 31,
1997. The restrictions will lapse with respect to the remainder of the shares
held by Mr. Kratzer if he is employed by the Company at the time of the
earlier of the completion or acquisition by the Company of its 60th hotel or
December 31, 1998.
The 1996 Plan
The Company has adopted the Homegate Hospitality, Inc. 1996 Long-Term
Incentive Plan (the "1996 Plan") for the purpose of (i) attracting and
retaining employees and advisors with ability and initiative, (ii) providing
incentives to those deemed important to the success of the Company, and (iii)
associating the interests of these individuals with the interests of the
Company and its stockholders through opportunities for increased ownership of
Common Stock. The summary of the 1996 Plan set forth below is qualified in its
entirety by reference to the text of the 1996 Plan, which has been filed as an
exhibit to the Registration Statement.
Administration. The 1996 Plan will be administered by the Compensation
Committee of the Board of Directors. The Compensation Committee consists
solely of non-employee Directors.
Eligibility. Each employee and advisor of the Company or of a wholly-owned
subsidiary of the Company, including an employee who is a member of the Board
of Directors, is eligible to participate in the 1996 Plan. The Compensation
Committee will select the persons to be granted options, stock awards or
restricted stock pursuant to the 1996 Plan (the "Participants"), but no person
may be granted awards thereunder while he or she is a member of the
Compensation Committee. The Compensation Committee may, from time to time,
grant incentive stock options ("ISOs"), non-qualified stock options, stock
awards or restricted stock to Participants.
Stock Options. Options granted under the 1996 Plan may be ISOs or
nonqualified stock options. A stock option entitles the Participant to
purchase shares of Common Stock from the Company at the option price. The
option price may be paid in cash, with shares of Common Stock or with a
combination of cash and Common Stock. The terms of the option, including the
vesting of such option and the option price, will be fixed by the Compensation
Committee at the time the option is granted, but the option price shall not be
less than the fair market value of the shares at the date of grant (or, in the
case of ISOs issued to a Ten Percent Stockholder, as defined below, 110% of
the fair market value of the shares at the date of grant). A Participant is a
"Ten Percent Stockholder" if he owns, or is deemed to own, more than 10% of
the total combined voting power of all
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<PAGE>
classes of stock of the Company or a related entity. A Participant is deemed
to own any voting stock owned (directly or indirectly) by the Participant's
spouse, siblings, ancestors and lineal descendants. A Participant and such
persons are also considered to own proportionately any voting stock owned
(directly or indirectly) by or for a corporation, partnership, estate or trust
of which the Participant or any such person is a stockholder, partner or
beneficiary. The options will expire within ten years from the date of grant,
except that ISOs issued to Ten Percent Stockholders will not be longer than
five years. In addition, the Compensation Committee may specify that an option
will terminate prior to the end of its stated term upon termination of
employment, disability or death. Options that contain vesting schedules
ordinarily will become fully exercisable in case of disability or death or if
the Company terminates the employee without cause (as such term is used in the
1996 Plan). Moreover, no Participant may be granted ISOs which are first
exercisable in any calendar year for stock having an aggregate fair market
value (determined as of the date the ISO was first granted) that exceeds
$100,000. Finally, no Participant shall be granted options to purchase more
than shares of Common Stock in any 12-month period.
Restricted Stock; Stock Awards. Participants may also be awarded shares of
Common Stock pursuant to a stock award. The Compensation Committee, in its
discretion, may prescribe that a Participant's rights in a stock award shall
be nontransferable or forfeitable or both unless certain conditions are
satisfied. These conditions may include, for example, a requirement that the
Participant continue employment with the Company for a specified period or
that the Company or the Participant achieve specified objectives. Any such
restrictions will lapse in accordance with a schedule or other conditions as
the Compensation Committee determines.
Share Authorization. All awards under the 1996 Plan will be evidenced by
written agreements between the Company and the Participant. A maximum of
shares of Common Stock may be issued under the 1996 Plan. The share limitation
and the terms of outstanding awards shall be adjusted, as the Compensation
Committee deems appropriate, in the event of a stock dividend, stock split,
combination, reclassification, recapitalization or other similar event.
Nontransferability. Any option granted under the 1996 Plan is
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of a Participant, options may only be exercised by the
Participant. Notwithstanding the foregoing, a Participant may transfer a
nonqualified option with respect to all or part of the shares of Common Stock
subject to such option to the Participant's spouse, children or grandchildren,
to a trust for the benefit of such family members or to a partnership in which
such family members are the only partners if (a) no consideration is received
by the Participant in exchange for the option, (b) the agreement evidencing
the option expressly provides for transfers described herein and is approved
by the Compensation Committee, (c) the option continues to be subject to the
same terms and conditions after the transfer and (d) the transfer is
permissible under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") as in effect from time to time.
Change in Control. In the event the Company undergoes a change in control
(as defined in the 1996 Plan), all restricted stock shall vest (other than
restricted stock granted within six months of the change in control) and all
options granted under the 1996 Plan shall become exercisable. Amounts payable
or earned as a result of a change in control are subject to certain reductions
to mitigate the effect of section 280G of the Internal Revenue Code of 1986
(the "Code").
Assumption of Awards. In the event of a merger, consolidation or statutory
share exchange in which the Company either is not the survivor or becomes the
subsidiary of the acquiring entity, or an acquisition of the Company's assets
that results in the Company's going out of business, all awards granted under
the 1996 Plan shall be assumed by the acquiring entity.
Termination and Amendment. No option or stock award may be granted under the
1996 Plan after August , 2006. The Board of Directors may amend or terminate
the 1996 Plan at any time, but an amendment will not become effective without
stockholder approval if it changes the eligibility requirements, increases the
benefits that may be provided under the 1996 Plan or extends the term of the
Plan.
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<PAGE>
Initial Awards. The Company will grant, on the effective date of this
Registration Statement, options to acquire an aggregate of shares of
Common Stock to certain employees and Company advisors. The exercise price for
such stock options will be the initial public offering price of the Common
Stock offered for sale in the Offering. The stock option grants will include
the following grants to Named Executives and Directors of the Company: Mr.
Faith, 125,000 option shares, Mr. Kratzer, 93,750 option shares, and Mr.
Keith, 62,500 option shares. All of the options will vest ratably over a four-
year period. Each of the grantees will receive an ISO covering the maximum
number of shares for which an ISO may be awarded, given the $100,000 per year
annual limitation discussed above, and a nonqualified stock option covering
the remainder of the shares.
The Company will also grant, on the effective date of the Registration
Statement, stock awards of shares of Common Stock (assuming an initial
offering price of $ per share). The stock awards will include awards to the
following Named Executives and officers of the Company: Mr. Keith, shares,
and Mr. Oldham, shares.
Stockholder Rights. During the restriction period, the holder of a
restricted stock award may, in the Compensation Committee's discretion, have
certain rights as a stockholder, including the right to vote the stock subject
to the award or to receive dividends on that stock. An optionholder will have
no rights as a stockholder with respect to the shares subject to his or her
option until the option is exercised.
Federal Income Taxes. No income is recognized by a Participant at the time
an option is granted. If the option is an ISO, no income will be recognized
upon the Participant's exercise of the option. Income is recognized by a
Participant when he disposes of shares acquired under an ISO. The exercise of
a nonqualified stock option is generally a taxable event that requires the
Participant to recognize, as ordinary income, the difference between the fair
market value of the shares on the date of exercise and the option price. The
Company will generally be entitled to a compensation deduction for the amount
that is included in the Participant's income with respect to the exercise of
nonqualified stock options.
Unless an election is made under section 83(b) of the Code, a Participant
will recognize income on account of a stock award on the first day that the
shares are either transferable or not subject to a substantial risk of
forfeiture. The amount of income recognized by the Participant is equal to the
fair market value of the Common Stock received on that date. The Company will
generally be entitled to a compensation deduction for the amount that is
included in the Participant's income with respect to the stock awards.
401(K) SAVINGS PLAN
The Company sponsors a retirement plan called the Homegate Employee Savings
& Retirement Plan (the "401(k) Plan"). The trustee for the 401(k) Plan is .
Employees (including members of management) are eligible to make voluntary
contributions of up to fifteen percent (15%) of their compensation under the
401(k) Plan, subject to the applicable limitations of the Code. The Company is
permitted to make a discretionary contribution to the 401(k) Plan each fiscal
quarter which will be allocated among participants as a matching contribution
based on their contributions under the 401(k) Plan. The 401(k) Plan permits
employees to direct investments of their accounts among a selection of
mutual funds. The Company intends to amend the 401(k) Plan in the near future
to also permit employees to direct the investment of some or all of their
accounts to purchase shares of Common Stock, and to permit the Company to make
any contributions to the 401(k) Plan in the form of Common Stock. The 401(k)
Plan is intended to qualify as a profit sharing plan under Sections 401(a) and
401(k) of the Code.
DIRECTOR COMPENSATION
The Board of Directors and stockholders of the Company have adopted the
Homegate Hospitality, Inc. Non-Employee Directors' Stock Option Plan (the
"Director Plan") for its non-employee Directors, and have reserved shares
of Common Stock for issuance under the Director Plan. Each member of the
Company's Board of Directors who is not an employee of the Company (a "Non-
Employee Director") will receive annual grants
39
<PAGE>
of options to purchase 5,000 shares of Common Stock at the fair market value
of such shares on the date of grant. Only a Non-Employee Director who is
serving on December 31st of any calendar year is eligible to receive the
annual stock option grant under the Director Plan. The Board of Directors will
from time to time appoint two or more persons who are members of the Board of
Directors to administer the Director Plan (the "Director Plan Committee") who
are not eligible to participate in the Director Plan. The Director Plan
Committee will administer the Director Plan in accordance with its terms. The
number of shares of Common Stock reserved for issuance under such options is
subject to adjustment for stock splits, stock dividends and other similar
capital events.
In compliance with the Exchange Act, neither the Director Plan Committee nor
any other person (other than a participant acting in conformity with the terms
of the Director Plan) has any discretionary authority to make determinations
regarding (i) eligibility to become a participant, (ii) the times when
elections can be made, when shares of Common Stock will be issued, or when
distributions will be made, or (iii) any other decisions under the Director
Plan required by Rule 16b-3(b) under the Exchange Act to be afforded
exclusively to "disinterested persons" as defined thereunder.
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<PAGE>
CERTAIN TRANSACTIONS
In connection with the Formation, the current partners of ESLP will receive
approximately 6,400,000 shares of Common Stock, constituting approximately %
of the outstanding Common Stock after the Offering, as a result of the merger
of ESLP into the Company. Prior to such merger, the partners of ESLP will have
contributed an aggregate of $20 million in capital to ESLP. See "Principal
Stockholders."
In connection with the completion of the Offering, the Company will issue
stock options exercisable for shares of Common Stock and stock awards of
shares of Common Stock (assuming an initial offering price of $ per
share) to certain employees and Company advisors. See "Management--Other
Compensation Arrangements--The 1996 Plan." The exercise price for such stock
options will be the initial public offering price of the Common Stock shown on
the cover page of this Prospectus. The stock option grants will include the
following grants to Named Executives and Directors of the Company: Mr. Faith,
125,000 option shares, Mr. Kratzer, 93,750 option shares, and Mr. Keith,
62,500 option shares. The stock awards will include awards to the following
Named Executives and officers of the Company: Mr. Keith shares, and Mr.
Oldham, shares.
The Company has entered into a master development agreement with the
Development Partnership (which is comprised of TCR and Greystar), pursuant to
which the Development Partnership will develop up to 60 hotels on behalf of
the Company. In addition, the Developer Partnership will assist the Company in
locating sites suitable for development of Company hotels in markets
designated by the Company, and has agreed that neither it, its partners, nor
their respective affiliates will own, operate or develop a competing extended-
stay facility, subject to certain exceptions, within the continental United
States during the duration of the master development agreement. Unless
extended, the master development agreement will terminate upon the earlier of
the commencement of the 60th hotel or December 31, 1998.
Upon the selection of a site for development, the Company and one of the
Developer Affiliates will enter into a development and construction agreement,
pursuant to which the Developer Affiliate will construct the hotel on the site
in question. Pursuant to the development and construction agreement, the
Developer Affiliate will receive a development fee of $250,000. This
development fee is paid as follows: $50,000 upon approval of the development
budget, development plan and development schedule and commencement of
construction; $150,000, payable in installments each month over the course of
construction based upon the percentage of completion of the hotel; and $50,000
upon final completion. The Company believes that $250,000 in development fees
for each project is substantially less than the fees that an unrelated third
party developer would charge the Company for similar services. The Company may
terminate a development and construction agreement upon the failure of the
Developer Affiliate to meet certain performance standards.
Upon the merger of ESLP into the Company, the Developer Partnership will own
1,090,836 shares of Common Stock, constituting % of the outstanding Common
Stock after the Offering. The Developer Partnership received its interest in
ESLP in exchange for entering into the master development agreement. Pursuant
to the partnership agreement for the Developer Partnership, the Developer
Partnership will distribute one-sixtieth of such Common Stock to a Developer
Affiliate for each facility that the Developer Affiliate constructs. If 60
projects have not been commenced by the Developer Affiliates by December 31,
1998, then the remaining shares held by the Developer Partnership (i.e., the
product of the number of shares initially owned by the Developer Partnership,
multiplied by a fraction, the numerator of which equals 60 less the sum of the
number of completed facilities and the number of facilities on which
construction has commenced by December 31, 1998, and the denominator of which
is 60) will be distributed to the Developer Affiliates proportionately, based
upon the number of facilities each affiliate has constructed or commenced
prior to December 31, 1998.
The Company will also enter into the Management Agreement with a subsidiary
of Wyndham, pursuant to which Wyndham will manage up to 60 Company hotels and
will provide market research, a preferred vendor program, a proprietary
property management software package and national and local marketing efforts
to the Company. In addition, Wyndham has agreed not to own, operate or develop
a competing extended-stay facility within certain specified states that
include the Company's target markets (subject to certain exceptions), for the
term of such agreement. Unless extended, the Management Agreement will
terminate upon the earlier of the execution of a
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<PAGE>
management contract with respect to the 60th Company hotel or December 31,
1998. The Company shall pay Wyndham a one-time fee of $25,000 for Wyndham's
provision of design services in developing the initial prototype, certain other
fees for the provision of software and other services, and a commission of 5%
of the aggregate purchase price of all items that the Company purchases through
Wyndham's purchasing department. The Company believes that it will be able to
obtain substantial cost savings through the use of Wyndham's purchasing
department, but has retained the right not to use such department at the
Company's sole discretion upon 90-days' notice. The Company will also reimburse
Wyndham for up to $100,000 for the costs incurred in developing the Company's
payroll and accounts payable software and for developing a marketing database,
which costs will be reimbursed ratably upon the signing of the first 10
management contracts. Wyndham and the Company will agree upon any fees to be
paid with respect to ongoing systems support and maintenance.
Pursuant to each property-specific management contract, Wyndham will manage
and operate the specific Company hotel in exchange for the payment of a base
management fee of 3% of the hotel's gross revenues for the applicable period,
and an incentive management fee equal to (i) 3% of the gross revenues for the
applicable period if the Company's return on costs exceeds 16%, (ii) 2%, if the
Company's return on costs exceeds 13% but is less than 16%, and (iii) 1%, if
the Company's return on costs exceeds 10% but is less than 13%. In addition,
the Company will pay Wyndham a monthly fee of $1,000 (adjusted annually for
inflation) for Wyndham's accounting services, and will reimburse Wyndham for
reimbursable expenses (as defined in the contract) incurred by Wyndham with
respect to the hotel. The management contract also provides that Company will
contribute 1.5% of the gross room revenues from each hotel into a marketing and
advertising fund to be administered for the benefit of all Company hotels that
are managed by Wyndham, and that Wyndham will not own, develop, manage or lend
money to an extended-stay facility that is similar in operation and format to
the Company's hotel within a five-mile radius thereof, subject to certain
exceptions. This non-competition covenant will survive for the duration of the
applicable management contract. The Company will have the right to terminate
the property-specific management contract if certain performance standards are
not met. In addition, the Company may terminate such contracts without cause
with the payment of a cancellation fee if the Company desires to manage the
hotel internally. The Company believes that the management fees paid pursuant
to the property-specific management contracts are commensurate with the fees
that would be charged by unrelated third parties to manage the hotels.
In the past, Wyndham has paid certain payroll and other expenses of the
Company and the Company has agreed to reimburse Wyndham for such payments. At
June 30, 1996, ESLP owed Wyndham $89,434 for reimbursement of payroll and
insurance expenditures.
In the past, ESH Partners, L.P. ("ESH"), a limited partner of ESLP, Greystar,
TCR and Wyndham have made certain payments on behalf of the Company with
respect to the acquisition and development of certain properties and the
Company has reimbursed or has agreed to reimburse them for such payments. From
the period of inception through June 30, 1996, the Company has made payments of
$56,312 to Greystar and $94 to TCR in reimbursement of such acquisition and
development expenditures. At June 30, 1996, the Company owed the following to
ESH Partners, L.P., Greystar and Wyndham for reimbursement of such acquisition
and development expenditures: ESH Partners, L.P., $163,001; Greystar, $14,163;
and Wyndham, $13,407.
In the past, Greystar has paid the salary of the Chief Executive Officer of
the Company and the Company has agreed to reimburse Greystar for such payments.
At June 30, 1996, the Company owed Greystar $55,662 for such payments.
POLICY WITH RESPECT TO RELATED PARTY TRANSACTIONS
The Company has implemented a policy requiring any material transaction (or
series of related transactions) between the Company and related parties to be
approved by a majority of the Disinterested Directors, upon such Directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could have been obtained from unrelated third parties.
The policy defines a material related party transaction (or series of related
transactions) as one involving a purchase, sale, lease or exchange of property
or assets or the making of any investment with a value to the Company in excess
of $1.0 million or a service agreement (or series of related agreements) with a
value in excess of $1.0 million in any fiscal year. There can be no assurance
that this policy always will be successful in eliminating the influence of
conflicts of interest. See "Management--Directors and Executive Officers."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock assuming the Formation occurs on October 15,
1996, and as adjusted to reflect the sale of the Common Stock offered hereby,
by (i) each person known by the Company to own beneficially more than 5% of
any class of the Company's outstanding voting securities, (ii) each of the
Company's Directors, (iii) each Named Executive of the Company and (iv) all
current Directors and executive officers of the Company as a group. Unless
otherwise indicated, the Company believes that each person or entity named
below has sole voting and investment power with respect to all shares shown as
beneficially owned by such person or entity, subject to community property
laws where applicable and the information set forth in the footnotes to the
table below.
<TABLE>
<CAPTION>
PERCENT OF CLASS
--------------------
NUMBER OF SHARES BEFORE THE AFTER THE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ------------------------ --------------------- ---------- ---------
<S> <C> <C> <C>
JMI/Greystar Extended Stay Partners, 2,245,047 35.08%
L.P. ..............................
Two Riverway, Suite 850
Houston, TX 77056
Developer Extended Stay Partners 1,090,836 17.04%
L.P.(2) ...........................
Two Riverway, Suite 850
Houston, TX 77056
CRI/ESH Partners, L.P.(3)........... 1,998,092 31.22%
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201
Robert A. Faith(4).................. 3,739,018 58.42%
Two Riverway, Suite 850
Houston, TX 77056
James D. Carreker................... -- -- --
Harlan R. Crow(5)................... 3,213,348 50.21% --
Anthony W. Dona..................... 47,428 * --
John J. Moores(6)................... 403,135 6.3% --
Charles E. Noell.................... -- -- --
Leonard W. Wood..................... 120,552 1.9% --
John C. Kratzer..................... 237,138 3.7% --
Tim V. Keith........................ 4,000 * --
Directors and Named Executives of
the Company as a group............. 6,279,448 98.1% --
</TABLE>
- --------
* Less than 1%.
(1) The indicated share numbers assume an initial offering public price of
$ per share. Pursuant to the terms of the Formation a higher or lower
initial offering price will result in adjustments in the number of shares
of Common Stock.
(2) Shares owned by Developer Extended Stay Partners, L.P. will be voted by
its general partner, DESP General Partner, L.L.C., until such time as such
shares are distributed by such partnership to its partners, TCR Extended
Stay I Limited Partnership and Greystar Realty Services, L.P. See "Certain
Transactions."
(3) Crow Investment Trust indirectly owns an approximate 74% limited partner
interest in such partnership.
(4) Includes 2,245,047 shares owned by JMI/Greystar Extended Stay Partners,
L.P. which may be deemed to be beneficially owned by Mr. Faith, who is the
sole stockholder of Greystar Holdings, Inc., the sole general
43
<PAGE>
partner of such partnership. Mr. Faith disclaims beneficial ownership of all
such shares held by such partnership beyond his percentage ownership
therein. Includes 1,090,836 shares owned by Developer Extended Stay
Partners, L.P. as to which Mr. Faith has shared voting power as a result of
his indirect ownership of a percentage interest in DESP General Partner,
L.L.C., the sole general partner of such partnership. Mr. Faith disclaims
beneficial ownership of all such shares beyond his percentage ownership
therein. Includes 403,135 shares owned by JMI/Greystar Realty Partners, L.P.
as to which Mr. Faith has shared voting power as a result of his being the
sole stockholder of Greystar Holdings, Inc., one of the two general partners
of such partnership. Mr. Faith disclaims beneficial ownership of all such
shares held by such partnership beyond his percentage ownership therein.
(5) Includes 22,450 shares owned by Crow Family, Inc., of which Mr. Crow is
the sole director. Also includes 1,998,092 shares owned by CRI/ESH
Partners, L.P. and 101,969 shares owned by Crow Hotel Realty Investors,
L.P., as Crow Family, Inc. is the sole general partner of each such
partnership. Also includes 1,090,836 shares owned by Developer Extended
Stay Partners, L.P., as to which Mr. Crow has shared voting power as a
result of Crow Family, Inc.'s ownership of a percentage interest in DESP
General Partner, L.L.C., the sole general partner of such partnership. Mr.
Crow disclaims beneficial ownership of all such shares.
(6) Represents shares owned by JMI/Greystar Realty Partners, L.P., as to which
Mr. Moores has shared voting power as a result of his ownership of JMI
Realty, Inc., one of the two general partners of such partnership. Mr.
Moores disclaims beneficial ownership of all such shares held by such
partnership beyond his percentage ownership therein. Excludes 566,875
shares owned by JMI/Greystar Extended Stay Partners, L.P. attributable to
Mr. Moores' percentage interest in such partnership.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary description is qualified in its entirety by reference
to the Company's Certificate of Incorporation, which is filed as an exhibit to
the Registration Statement. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock").
The authorized and unissued shares of Common Stock and Preferred Stock may
be used by the Company for various purposes, including possible future
acquisitions. The Company currently does not have any specific plans or
obligations to issue shares of Common Stock or Preferred Stock, other than (i)
the sale of the shares of Common Stock offered hereby and (ii) the issuance of
shares of Common Stock under the Company's benefit plans. See "Management--
Other Compensation Arrangements" and "Certain Transactions."
COMMON STOCK
Prior to the completion of the Offering, but after giving effect to the
Formation, the Company will have 6,400,000 shares of Common Stock outstanding,
which will be held by stockholders of record.
The holders of shares of Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of common stockholders. There is
no provision in the Company's Certificate of Incorporation for cumulative
voting with respect to the election of Directors. Accordingly, the holders of
more than 50% of the total voting power of the Common Stock can, if they
choose to do so, elect all of the Directors of the Company. Each share of
Common Stock is entitled to participate equally in dividends, when, as and if
declared by the Board of Directors, and in the distribution of assets in the
event of liquidation, dissolution or winding up of the Company, subject in all
cases to any prior rights of outstanding shares of Preferred Stock. The shares
of Common Stock have no preemptive or conversion rights, redemption rights or
sinking fund provisions and are not subject to calls, assessments or rights of
redemption by the Company. All shares of Common Stock outstanding upon the
closing of this Offering will be duly authorized, validly issued, fully paid
and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
Company's stockholders, to issue Preferred Stock from time to time in one or
more series and to fix, as to any such series, the voting rights, if any,
applicable to such series and such other designations, preferences and special
rights as the Board of Directors may determine, including dividend,
conversion, redemption and liquidation rights and preferences. Upon the
closing of this Offering, there will be no shares of Preferred Stock
outstanding. The issuance of shares of Preferred Stock under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company or other corporate actions. See "--Anti-takeover
Provisions."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL") which provides, with certain exceptions,
that a Delaware corporation may not engage in any of a broad range of business
combinations, such as mergers, consolidations and sales of assets, with a
person or an affiliate or associate of such person who is an "Interested
Stockholder" (as defined below) for a period of three years from the date that
such person became an Interested Stockholder unless: (i) the business
combination or the transaction resulting in a person's becoming an Interested
Stockholder is approved by the Board of Directors of the Company before the
person becomes an Interested Stockholder, (ii) upon consummation of the
transaction which results in the person becoming an Interested Stockholder,
the Interested Stockholder owned 85% or more of the voting stock of the
Company outstanding at the time the transaction commenced (excluding shares
owned by persons who are both officers and Directors of the Company and shares
held by certain employee stock ownership plans) or (iii) on or after the date
the person became an Interested Stockholder, the business
45
<PAGE>
combination is approved by the Company's Board of Directors and by the holders
of at least 66 2/3% of the Company's outstanding voting stock, excluding
shares owned by the Interested Stockholder, at an annual or special meeting.
An "Interested Stockholder" is defined as any person, other than the Company
and any direct or indirect majority-owned subsidiaries of the Company, that is
(i) the owner of 15% or more of the outstanding voting stock of the Company or
(ii) an affiliate or associate of the Company and was the owner of 15% or more
of the outstanding voting stock of the Company 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.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that no Director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except for
liability (i) for any breach of the Director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) in respect
of certain unlawful dividend payments or stock redemptions or repurchases, or
(iv) for any transaction from which the Director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a Director for breach of
fiduciary duty as a Director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, Delaware
law, the Company's 1996 Plan and the Stockholders' Agreement (defined below)
summarized in the following paragraphs may have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider to be in that stockholder's best interests,
including attempts that might result in a premium over the market price to be
paid for the shares held by stockholders.
Certificate of Incorporation
Pursuant to the Company's Certificate of Incorporation, the Company's Board
of Directors by resolution may issue additional shares of Common Stock or
establish one or more classes or series of Preferred Stock having the number
of shares, designations, relative voting rights, dividend rates, liquidation
and other rights, preferences and limitations that the Board of Directors
fixes without stockholder approval. Any additional issuance of Common Stock or
designation of rights, preferences, privileges and limitations with respect to
Preferred Stock could have the effect of impeding or discouraging the
acquisition of control of the Company by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of the
Company's management. Specifically, if, in the due exercise of its fiduciary
obligations, the Board of Directors were to determine that a takeover proposal
was not in the Company's best interest, such shares could be issued by the
Board of Directors without stockholder approval in one or more transactions
that might prevent or render more difficult or costly the completion of the
proposed takeover transaction by diluting the voting or other rights of the
proposed acquiror or insurgent stockholder group, by putting a substantial
voting block in institutional or other hands that might undertake to support
the position of the incumbent Board of Directors, by effecting an acquisition
that might complicate or preclude the takeover, or otherwise.
Super-majority Votes
The Certificate of Incorporation requires the affirmative vote of the
holders of at least 66 2/3% of all securities of the Corporation entitled to
vote generally in the election of Directors to adopt an agreement of merger
(other than a merger effected between the Corporation and one of its
subsidiaries under Section 253 of the DGCL) or to approve the sale, lease or
exchange of all or substantially all of the Corporation's property and assets.
46
<PAGE>
Under the Certificate of Incorporation, the Board of Directors is authorized
to adopt, amend or repeal the Bylaws of the Corporation. However, the
stockholders of the Corporation may only amend or repeal the Bylaws with the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
shares of the Corporation entitled to vote generally in the election of
Directors voting together as a single class.
These super-majority voting provisions may have the effect of discouraging
or preventing a tender offer or takeover attempt which a stockholder might
consider to be in that stockholder's best interests.
Classified Board of Directors
The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes of Directors serving staggered three-year terms. As
a result, approximately one-third of the Board of Directors will be elected
each year.
The Board of Directors believes that a classified Board of Directors will
help to assure the continuity and stability of the Board of Directors and the
business strategies and policies of the Company as determined by the Board of
Directors, because the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board of Directors will be enhanced by staggered three-year terms.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company, even through such an attempt might be beneficial to the Company
and its stockholders. In addition, the classified board provision could delay
stockholders who do not agree with the policies of the Board of Directors from
removing a majority of the Board for two years. See "--Number of Directors;
Removal; Filling Vacancies."
Number of Directors; Removal; Filling Vacancies
The Certificate of Incorporation provides that the Board of Directors shall
consist of between five and 13 members, the exact number to be fixed from time
to time by resolution adopted by a majority of the Directors then in office.
The Company will have seven Directors prior to the Offering. Further, subject
to the rights of the holders of any series of Preferred Stock then
outstanding, the Certificate of Incorporation authorizes only a majority of
the Directors then in office to fill vacancies, including newly created
directorships. Accordingly, this provision could prevent a stockholder from
obtaining majority representation on the Board of Directors by enlarging the
Board of Directors and filling the new directorships with its own nominees.
The Certificate of Incorporation also provides that Directors of the Company
may be removed only for cause and only by the affirmative vote of holders of a
majority of the outstanding shares of stock eligible to vote in such matters.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations
The Certificate of Incorporation establishes an advance notice procedure for
the nomination, other than by or at the discretion of the Board of Directors
or a committee thereof, of candidates for election as Director as well as for
other stockholder proposals to be considered at an annual stockholders'
meeting.
Notice of stockholder proposals and Director nominations must be timely
given in writing to the Secretary of the Company prior to the meeting at which
the matters are to be acted upon or the Directors are to be elected. To be
timely, notice must be received at the principal offices of the Company not
less than 60, nor more than 90, days prior to the meeting of stockholders;
provided, that if less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which notice of the date of the meeting was mailed or the
day on which public disclosure was made, whichever first occurs.
The purpose of requiring advance notice is to afford the Board of Directors
an opportunity to consider the qualifications of the proposed nominees or the
merits of other stockholder proposals and, to the extent deemed necessary or
desirable by the Board of Directors, to inform stockholders about those
matters.
47
<PAGE>
Written Consent; Special Meetings of Stockholders
The Certificate of Incorporation prohibits the taking of stockholder action
by written consent without a meeting. The Certificate of Incorporation
provides that special meetings of the stockholders of the Company may be
called only by the Chairman of the Board or a majority of the members of the
Board of Directors. These provisions will make it more difficult for
stockholders to take action opposed by the Board of Directors.
Amendment of Certain Provisions of the Certificate of Incorporation
The Certificate of Incorporation generally requires the affirmative vote of
the holders of at least 66 2/3% of the outstanding voting stock in order to
amend any provisions of the Certificate of Incorporation concerning (i) the
classified Board of Directors, (ii) the amendment of Bylaws, (iii) any
proposed compromise or arrangement between the Company and its creditors, (iv)
the authority of stockholders to act by written consent, (v) the liability of
Directors, (vi) certain mergers, consolidations and sales, leases and
exchanges of all or substantially all of the Company's property and assets,
(vii) the required vote to amend the Certificate of Incorporation, (viii) the
call of a special meeting of stockholders, (ix) stockholder proposals
concerning business to be conducted at an annual meeting of stockholders, (x)
Director nominations by stockholders, (xi) what considerations the Board of
Directors, a committee of the Board of Directors and each Director may take
into account when discharging their respective duties, (xii) indemnification
of Directors, and (xiii) authorization of the Board of Directors to pursue or
take action with respect to transactions that would result in a change of
control of the Company. These voting requirements will make it more difficult
for minority stockholders to make changes in the Certificate of Incorporation
that could be designed to facilitate the exercise of control over the Company.
In addition, the requirement for approval by at least a 66 2/3% stockholder
vote will enable the holders of a minority of the voting stock of the Company
to prevent the holders of a majority or more of such securities from amending
such provisions of the Certificate of Incorporation.
Stockholders' Agreement
Pursuant to the Stockholders' Agreement, each of Greystar and Crow has
certain rights of first refusal with respect to shares of Common Stock held by
the other. These provisions may have the effect of hindering a change in
control of the Company. See "--Stockholders' Agreement."
REGISTRATION RIGHTS
Contemporaneously with the Formation (see "The Formation Transaction"), the
Company will enter into a registration rights agreement with Greystar, Crow
and certain existing holders of Common Stock (the "Registration Rights
Agreement"), pursuant to which the Company will agree, subject to certain
limitations and under certain circumstances, to register for sale any shares
of Common Stock of the Company (and other securities of the Company that are
exercisable to purchase, convertible into or exchangeable for shares of
capital stock of the Company) that are held by the parties thereto
(collectively, the "Registrable Securities"). All of the 6,400,000 shares of
Common Stock issued in the Formation of the Company will be Registrable
Securities. The Registration Rights Agreement provides that any holder of
Registrable Securities may require the Company upon written notice to register
for sale such Registrable Securities (a "Demand Registration"), provided that
the total amount of Registrable Securities to be included in the Demand
Registration has a market value of at least $20 million and provided that
notice is not given prior to six months after the effective date of the
previous Demand Registration. If Registrable Securities are going to be
registered by the Company pursuant to a Demand Registration, the Company must
provide written notice to the other holders of Registrable Securities and
permit them to include any or all Registrable Securities that they hold in the
Demand Registration, provided that the amount of Registrable Securities
requested to be registered may be limited by the underwriters in an
underwritten offering based on such underwriters' determination that inclusion
of the total amount of Registrable Securities requested for registration would
materially and adversely affect the success of the offering. Upon notice of a
Demand Registration, the Company is required to file a Registration Statement
within 60 days of the date on which notice is given, although the Company may
postpone the filing for up to 90 days under certain circumstances. Subject to
the conditions stated or referred to above, the holders of Registrable
Securities may
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<PAGE>
request an unlimited number of Demand Registrations. The parties to the
Registration Rights Agreement have agreed not to exercise any Demand
Registration rights for a period of 12 months from the date of execution of
the Registration Rights Agreement.
The Registration Rights Agreement also provides that, subject to certain
exceptions, in the event the Company proposes to file a registration statement
with respect to an offering of any class of equity securities, other than
certain types of registrations, the Company will offer the holders of
Registrable Securities the opportunity to register the number of Registrable
Securities they request to include (the "Piggyback Registration"), provided
that the amount of Registrable Securities requested to be registered may be
limited by the underwriters in an underwritten offering based on such
underwriters' determination that inclusion of the total amount of Registrable
Securities requested for registration would materially and adversely affect
the success of the offering. The Company is generally required to pay all of
the expenses of Demand Registrations and Piggyback Registrations, other than
underwriting discounts and commissions.
STOCKHOLDERS' AGREEMENT
Pursuant to a Stockholders' Agreement among ESH, JMI/Greystar Extended Stay
Partners, L.P. ("JMI/Greystar") and the Company (the "Stockholders'
Agreement"), in connection with any election of Company Directors, the Company
has agreed to nominate as Directors such number of designees of ESH and
JMI/Greystar as shall be required in order that the percentage of the entire
Board of Directors thereafter represented by ESH and JMI/Greystar nominees
(taking into account then sitting Directors who were nominated by ESH or
JMI/Greystar and assuming the election of the nominees then being designated)
is equal to the nearest whole number determined by multiplying (i) the number
of Directors that is to constitute the entire Board of Directors after giving
effect to such election by (ii) a fraction the numerator of which is the
number of shares of Common Stock owned by ESH and JMI/Greystar (and their
permitted transferees) and the denominator of which is the total number of
outstanding shares of Common Stock. ESH and JMI/Greystar have each agreed to
vote in favor of the other's nominees all shares of Common Stock it owns or
has the right to vote. Upon completion of the Offering, ESH and JMI/Greystar
will own collectively approximately % of the then outstanding Common Stock,
entitling them to nominate of the Company's seven Directors. Within 90 days
following the Offering, the Company intends to appoint to its Board of
Directors two additional independent Directors. Upon the resulting increase in
the number of Directors constituting the entire Board of Directors, such
percentage ownership would entitle ESH and JMI/Greystar to nominate of the
Company's nine Directors. For purposes of the provisions described above,
Harlan R. Crow, Anthony W. Dona, John J. Moores and Charles E. Noell are
deemed to be nominees of ESH and JMI/Greystar. The foregoing provisions of the
Stockholder's Agreement will terminate at such time as ESH, JMI/Greystar and
their permitted transferees no longer own collectively % of the outstanding
Common Stock. The rights to nominate Directors are apportioned among ESH and
JMI/Greystar proportionately based on their respective stock ownership in the
Company.
The Stockholders' Agreement requires that ESH and JMI/Greystar first offer
their shares to the other before they are permitted to transfer the shares to
a third party or in an open market transaction. By reason of the right of
first refusal provisions of the Stockholders' Agreement, ESH and JMI/Greystar
will have the first right to purchase shares sold by the other so as to enable
them to maintain the collective stock ownership position of these entities in
the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have an aggregate of
shares of Common Stock outstanding. Of these shares, the shares sold in
the Offering will be freely transferable without restriction or further
registration under the Securities Act.
SALES OF RESTRICTED SHARES
The 6,400,000 shares of Common Stock held by existing stockholders that were
not purchased in the Offering were sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
thus treated as "restricted" securities under Rule 144. In general, under Rule
144 as currently in effect, a person (or persons whose shares are aggregated)
including an affiliate of the Company who has beneficially owned restricted
securities within the meaning of Rule 144 for at least two years would be
entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of the
Company's Common Stock (approximately shares immediately after the
Offering) or (ii) the average weekly trading volume of the Company's Common
Stock on Nasdaq during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the three months immediately
preceding the sale is entitled to sell restricted shares pursuant to Rule
144(i) without regard to the limitations described above, provided that three
years have expired since the later of the date on which such restricted shares
were acquired from the Company or the date they were acquired from an
affiliate of the Company.
Certain stockholders of the Company hold registration rights. See
"Description of Capital Stock--Registration Rights." However, these
stockholders have entered into certain arrangements with the representatives
of the Underwriters, pursuant to which they have agreed not to offer, sell,
contract to sell or otherwise dispose of their shares of Common Stock for a
period of 360 days after the date of this Prospectus ("Lock-up Arrangements").
See "--Lock-up Arrangement."
LOCK-UP ARRANGEMENT
The Company and certain existing stockholders have agreed, subject to
certain exceptions, to enter into Lock-up Arrangements for a period of 360
days from the date of this Prospectus. Under the Lock-up Arrangements, such
stockholders will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities convertible into, or exercisable
or exchangeable for shares of Common Stock without the prior written consent
of Bear Stearns & Co. Inc., one of the representatives of the Underwriters.
Upon the expiration of the Lock-up Arrangement, those shares subject to Lock-
up Arrangement will not, absent registration, be freely tradeable but will
become eligible for sale under Rule 144 on various dates in the future.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial numbers of shares in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital through a sale of its equity securities.
50
<PAGE>
UNDERWRITING
The Underwriters of the Offering of Common Stock (the "Underwriters"), for
whom Bear, Stearns & Co. Inc. and Montgomery Securities are acting as
Representatives, have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the form of which is filed as an exhibit to the
Company's Registration Statement of which this Prospectus is a part), to
purchase from the Company an aggregate of shares of Common Stock. The
aggregate number of shares of Common Stock that each Underwriter has agreed to
purchase is set forth opposite its name below. The Underwriters are committed
to purchase and pay for all of such shares of Common Stock if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Bear Stearns & Co. Inc. ..............................................
Montgomery Securities.................................................
----
Total...............................................................
====
</TABLE>
The Underwriters have advised the Company that they propose to offer
shares of Common Stock to the public initially at the public offering price
set forth on the cover page of this Prospectus and to certain selected dealers
(who may include the Underwriters) at such public offering price less a
concession not to exceed $ per share. The selected dealers may reallow a
concession to certain other dealers not to exceed $ per share. After the
initial offering to the public, the public offering price, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part. The Underwriters have informed the Company
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Company has granted to the Underwriters an option to purchase up to
additional shares of Common Stock at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus, solely
to cover over-allotments, if any. This option may be exercised at any time
until 30 days after the date of this Prospectus. If the Underwriters exercise
this option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of additional shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
Prior to the Offering there has been no public market for the Company's
Common Stock. The initial public offering price set forth on the cover page of
this Prospectus has been determined by negotiations between the Company and
the Representatives. In determining such price, consideration was given to
various factors including: (i) the market valuation of comparable companies;
(ii) market conditions for initial public offerings; (iii) the history of and
prospects for the Company's business; (iv) the Company's past and present
operations and earnings; (v) the Company's current financial position; (vi) an
assessment of the Company's management; (vii) the position of the Company in
its industry; and (viii) the market value of the Company's assets.
Consideration also was given to the general condition of the securities
markets, the demand for similar securities of comparable companies and other
market factors.
The Company has agreed not to offer, issue, sell, agree to sell, grant any
option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable
51
<PAGE>
or exchangeable for Common Stock (except for options granted pursuant to the
1996 Plan) for a period of 360 days after the date of this Prospectus without
the prior written consent of the Representatives.
The Company's officers and Directors and certain stockholders have also
agreed with the Underwriters not to offer, sell, agree to sell, grant any
option to purchase or otherwise dispose of any shares owned by them for a
period of 360 days after the date of this Prospectus without the prior written
consent of the Representatives. This agreement may be released without notice
to persons purchasing shares in the Offering and without notice to any market
on which the Common Stock is traded.
The Company has been advised by the representatives of the Underwriters that
they presently intend to make a market in the Common Stock offered hereby;
however, the representatives of the Underwriters are under no obligation to do
so, and any market making activity may be discontinued at any time. There can
be no assurance that an active public market for the Common Stock will develop
and continue after the Offering.
A managing director of Bear, Stearns & Co. Inc. owns 11,225 shares of Common
Stock.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P. Certain legal matters relating to the
Offering of Common Stock will be passed upon for the Underwriters by Jenkens &
Gilchrist, a Professional Corporation.
EXPERTS
The Company's balance sheet as of August 22, 1996, the financial statements
and schedule of Extended Stay Limited Partnership as of June 30, 1996, and for
the period from inception (February 9, 1996) through June 30, 1996, and the
combined financial statements and schedule of Westar as of December 31, 1994
and 1995, and for the three years ended December 31, 1993, 1994 and 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein.
The information for Extended Stay Limited Partnership as of June 30, 1996,
and for the period from inception (February 9, 1996) through June 30, 1996,
and for Westar for the three years ended December 31, 1993, 1994 and 1995,
under the caption "Selected Financial Data" appearing in this Prospectus and
Registration have been derived from financial statements of Extended Stay
Limited Partnership and the combined financial statements of Westar audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein.
Such financial statements, combined financial statements and selected
financial data are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
52
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") the Registration Statement under the Securities Act with respect
to the shares of Common Stock offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement, including the exhibits and schedules filed
therewith. Statements contained in this Prospectus concerning the provisions
of any contract, agreement or other document referred to herein or therein are
not necessarily complete, but contain a summary of the material terms of such
contracts, agreements or other documents. With respect to each contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for the complete contents of the exhibit, and
each statement concerning its provisions is qualified in its entirety by such
reference. The Registration Statement may be inspected, without charge, at the
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at its regional offices at 7 World Trade Center, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2551. Copies of such materials may also be obtained by mail at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
such materials may also be obtained from the web site that the Commission
maintains at www.sec.gov.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HOMEGATE HOSPITALITY, INC.
Pro Forma Financial Statements
Pro Forma Balance Sheet as of June 30, 1996........................... F-3
Notes to Pro Forma Balance Sheet...................................... F-4
Pro Forma Statements of Operations for the Six Months Ended June 30,
1996 and for the Year Ended December 31, 1995........................ F-6
Notes to Pro Forma Statements of Operations........................... F-7
Balance Sheet:
Report of Independent Auditors........................................ F-8
Balance Sheet as of August 22, 1996................................... F-9
Notes to Balance Sheet................................................ F-10
EXTENDED STAY LIMITED PARTNERSHIP
Financial Statements:
Report of Independent Auditors........................................ F-11
Balance Sheet as of June 30, 1996..................................... F-12
Statement of Operations for the Period from Inception (February 9,
1996) through June 30, 1996.......................................... F-13
Statement of Changes in Partners' Capital for the Period from
Inception (February 9, 1996) through June 30, 1996................... F-14
Statement of Cash Flows for the Period from Inception (February 9,
1996) through June 30, 1996.......................................... F-15
Notes to Financial Statements......................................... F-16
WESTAR
Combined Financial Statements:
Report of Independent Auditors........................................ F-20
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996 (unaudited)..................................................... F-21
Combined Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 and the Six Months Ended June 30, 1995 and 1996
(unaudited).......................................................... F-22
Combined Statements of Stockholders' Equity (Deficit) and Partners'
Capital (Deficit) for the Years Ended December 31, 1993, 1994 and
1995 and the Six Months Ended June 30, 1996 (unaudited).............. F-23
Combined Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and the Six Months Ended June 30, 1995 and 1996
(unaudited).......................................................... F-24
Notes to Combined Financial Statements................................ F-25
</TABLE>
F-1
<PAGE>
HOMEGATE HOSPITALITY, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
The unaudited pro forma balance sheet, as adjusted, of the Company is
presented as if the Formation, the Westar Transaction, the acquisition of five
development sites, and the Offering had occurred on June 30, 1996. The
unaudited pro forma balance sheet should be read in conjunction with the
financial statements listed in the index on page F-1 of this Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made.
The unaudited pro forma balance sheet is not necessarily indicative of what
the actual financial position would have been at June 30, 1996, nor does it
purport to represent the future financial position of the Company.
F-2
<PAGE>
HOMEGATE HOSPITALITY, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITION
---------------------- AND COMPANY
FORMATION COMPANY OFFERING PRO FORMA
ESLP WESTAR ELIMINATIONS (A) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ----------- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $1,273,882 $ 1,012,683 $(1,012,683) $ 1,637,771 (B) $ 2,911,653 $41,350,000(G) $44,261,653
Accounts receivable... 7,184 225,811 (225,811) 7,184 7,184
Prepaid expenses and
other................ 3,078 217,400 (217,400) 3,078 3,078
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total current assets.. 1,284,144 1,455,894 (1,455,894) 1,637,771 2,921,915 41,350,000 44,271,915
Property and equipment,
net................... 8,200,570 14,237,577 15,661,611 (C) 38,099,758 38,099,758
Receivables from
affiliates............ 675,359 (675,359)
Escrow and reserve
funds................. 194,715 194,715 194,715
Other assets........... 223,524 7,485 (7,485) 223,524 223,524
Deferred loan costs.... 17,240 875,272 (875,272) 17,240 17,240
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets........... $9,725,478 $17,446,302 $(3,014,010) $17,299,382 $41,457,152 $41,350,000 $82,807,152
========== =========== =========== =========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS'
EQUITY/PARTNERS'
CAPITAL
Current liabilities:
Accounts payable...... $ 305,649 $ 472,938 $ (472,938) $ $ 305,649 $ $ 305,649
Other accrued
expenses............. 45,803 679,532 (679,532) 45,803 45,803
Payables to
affiliates........... 348,789 6,208,789 (6,208,789) 348,789 348,789
Current portion of
obligations under
capital leases....... 130,760 (86,305) 44,455 44,455
Current portion of
long-term debt....... 374,430 374,430 374,430
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities.......... 700,241 7,866,449 (7,447,564) 1,119,126 1,119,126
Mortgage note
payable/long-term
debt, less current
portion............... 2,869,387 18,308,808 (656,058) 20,522,137 20,522,137
Obligations under
capital leases, less
current portion....... 161,654 (106,695) 54,959 54,959
Stockholders'
equity/partners'
capital: Common stock. 531,914 (531,914) 64,000 (D) 64,000 64,000
Preferred stock....... 500,000 (500,000)
Additional paid-in
capital.............. 19,696,930 (E) 19,696,930 41,350,000(G) 61,046,930
Retained earnings/
accumulated deficit.. (6,059,913) 6,059,913
Partners' capital..... 6,155,850 (3,862,610) 3,862,610 (6,155,850)(F)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total stockholders'
equity/ partners'
capital............... 6,155,850 (8,890,609) 8,890,609 13,605,080 19,760,930 41,350,000 61,110,930
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders'
equity/partners'
capital............... $9,725,478 $17,446,302 $ 680,292 $13,605,080 $41,457,152 $41,350,000 $82,807,152
========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO PRO FORMA BALANCE SHEET
(A) Reflects the elimination of assets not acquired and liabilities not assumed
in connection with the purchase of Westar.
(B)Net increase reflects the following:
<TABLE>
<S> <C>
Additional capital contributions by ESLP partners to fund
Westar and land acquisitions................................. $11,967,309
Acquisition of Westar......................................... (6,970,715)
Acquisition of development sites(1)........................... (4,996,594)
Remaining capital contributions from ESLP partners to meet
$20,000,000 commitment....................................... 1,637,771
-----------
$ 1,637,771
===========
</TABLE>
--------
(1) Includes the acquisition of sites in Lenexa, Kansas, and Overland Park,
Kansas, purchased in July and August, 1996 and three sites under
contract and expected to close before completion of the Offering.
(C) Increase reflects allocation of purchase price from the acquisition of
Westar ($10,665,017) and acquisition of land of ($4,996,594).
(D) Reflects issuance of Common Stock to ESLP partners in exchange for
partnership interests.
(E) Net increase reflects the equity of ESLP before the merger ($18,123,159)
plus remaining capital contributions ($1,637,771), less par value of Common
Stock issued ($64,000).
(F) Decrease reflects the following:
<TABLE>
<S> <C>
Additional capital contributions by ESLP partners to fund
Westar and land acquisitions................................ $ 11,967,309
Exchange of ESLP partnership interests for Common Stock...... (19,760,930)
Remaining capital contributions from ESLP partners........... 1,637,771
------------
$ (6,155,850)
============
</TABLE>
(G) Increase reflects the proceeds of Offering ($45,000,000), net of expenses
of the Offering ($3,650,000).
F-4
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
The unaudited pro forma statements of operations, as adjusted, of the
Company are presented as if the Formation, the Westar Transaction, the
acquisition of five development sites, and the Offering had occurred on
January 1, 1995. The unaudited pro forma statements of operations should be
read in conjunction with the financial statements listed in the index on page
F-1 of this Prospectus. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.
The unaudited pro forma statements of operations are not necessarily
indicative of what the actual results of operations of the Company would have
been assuming such transactions had been completed at the beginning of the
period, nor do they purport to represent the results of operations of the
Company for any future periods.
F-5
<PAGE>
HOMEGATE HOSPITALITY, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITION
--------------------- AND COMPANY
FORMATION COMPANY OFFERING PRO FORMA
ESLP WESTAR ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 24,803 $3,871,050 $ $3,895,853 $ $3,895,853
Other revenue.......... 1,703 73,027 74,730 74,730
--------- ---------- --------- ---------- --------- ----------
Total revenue........... 26,506 3,944,077 3,970,583 3,970,583
Costs and expenses:
Property operating
expenses.............. 30,313 2,357,259 116,132 (A) 2,503,704 2,503,704
Corporate operating
expenses.............. 204,273 336,948 541,221 208,000 (D) 749,221
Depreciation and
amortization.......... 9,533 305,274 139,476 (B) 454,283 454,283
Interest............... 21,457 1,209,850 (297,376)(C) 933,931 933,931
--------- ---------- --------- ---------- --------- ----------
Total expenses.......... 265,576 4,209,331 (41,768) 4,433,139 208,000 4,641,139
--------- ---------- --------- ---------- --------- ----------
Loss before
extraordinary item..... $(239,070) $ (265,254) $ 41,768 $ (462,556) $(208,000) $ (670,556)
========= ========== ========= ========== ========= ==========
Loss per common share... $ (.07) $
========== ==========
Weighted average number
of shares of common
stock outstanding...... 6,400,000
========== ==========
</TABLE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITION AND COMPANY
---------- FORMATION COMPANY OFFERING PRO FORMA
WESTAR ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- --------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $8,193,093 $ $8,193,093 $ $ 8,193,093
Other revenue.......... 245,756 245,756 245,756
---------- --------- ---------- --------- -----------
Total revenue........... 8,438,849 8,438,849 8,438,849
Costs and expenses:
Property operating
expenses.............. 5,126,346 270,793 (A) 5,397,139 5,397,139
Corporate operating
expenses.............. 875,043 875,043 576,000 (D) 1,451,043
Depreciation and
amortization.......... 662,314 181,628 (B) 843,942 843,942
Interest............... 2,608,468 (621,417)(C) 1,987,051 1,987,051
---------- --------- ---------- --------- -----------
Total expenses.......... 9,272,171 (168,996) 9,103,175 576,000 9,679,175
---------- --------- ---------- --------- -----------
Loss before
extraordinary item..... $ (833,322) $ 168,996 $ (664,326) $(576,000) $(1,240,326)
========== ========= ========== ========= ===========
Loss per common share... $ (.10) $
========== ===========
Weighted average number
of shares of common
stock outstanding...... 6,400,000
========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
(A) Net increase reflects the following:
Hotel management fee................................. $ 116,132 $ 245,793
One-time fee under Management Agreement.............. -- 25,000
--------- ---------
$ 116,132 $ 270,793
========= =========
(B) Increase reflects additional depreciation relating
to purchase price allocation of Westar acquisition,
net of reduction in depreciation expense to reflect
increase in estimated useful lives from 30 to 40
years.............................................. $ 139,476 $ 181,628
========= =========
(C) Decrease reflects reduction in interest expense due
to Westar debt not assumed......................... $(297,376) $(621,417)
========= =========
(D) Increase reflects changes to corporate operating
expenses as follows:
Additional costs of operating as a public company.... $ 208,000 $ 416,000
Compensation relating to the awarding of shares of
common stock........................................ -- 160,000
--------- ---------
$ 208,000 $ 576,000
========= =========
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Homegate Hospitality, Inc.
We have audited the accompanying balance sheet of Homegate Hospitality, Inc.
as of August 22, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe our audit of the balance sheet provides a reasonable
basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Homegate Hospitality, Inc. as of
August 22, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
August 22, 1996
F-8
<PAGE>
HOMEGATE HOSPITALITY, INC.
BALANCE SHEET
AUGUST 22, 1996
<TABLE>
<S> <C>
Assets:
Cash.................................................................. $1,000
------
Total assets.......................................................... $1,000
======
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none
issued or outstanding................................................ $ --
Common stock, $.01 par value; 20,000,000 shares authorized; 10 shares
issued and outstanding............................................... --
Additional paid-in capital............................................ 1,000
------
Total stockholders' equity............................................ $1,000
======
</TABLE>
See accompanying notes.
F-9
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO BALANCE SHEET
AUGUST 22, 1996
1. ORGANIZATION
Homegate Hospitality, Inc. (the "Company") was organized in Delaware on
August 16, 1996. The Company is authorized to issue 20,000,000 shares of common
stock (par value--$.01 per share). The Board of Directors of the Company also
has the authority to issue 5,000,000 shares of preferred stock (par value--$.01
per share). The Company intends to offer for sale common stock in an initial
public offering in the United States (the "Offering"). The Company was
capitalized with the issuance of 10 shares of common stock to Extended Stay
Limited Partnership. Each common stockholder is entitled to one vote for each
share held. As more fully described in the Formation Transaction in the
Registration Statement relating to the Offering, the Company was formed to
continue the extended-stay lodging facility development, acquisition, and
management operations of Extended Stay Limited Partnership, and to acquire,
develop and maintain certain extended-stay lodging facilities throughout the
United States.
Income Taxes
The Company was formed as a Subchapter C corporation and, as such, will be
subject to federal and any applicable state income taxes.
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Extended Stay Limited Partnership
We have audited the accompanying balance sheet of Extended Stay Limited
Partnership as of June 30, 1996, and the related statements of operations,
changes in partners' capital and cash flows for the period from inception
(February 9, 1996) through June 30, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Extended Stay Limited
Partnership as of June 30, 1996, and the results of its operations and its
cash flows for the period from inception (February 9, 1996) through June 30,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
August 8, 1996
F-11
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents......................................... $1,273,882
Accounts receivable............................................... 7,184
Prepaid expenses.................................................. 3,078
----------
Total current assets............................................ 1,284,144
Property and equipment, net (Notes 2 and 3)......................... 8,200,570
Deferred loan costs................................................. 17,240
Other assets........................................................ 223,524
----------
Total assets........................................................ $9,725,478
==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable.................................................. $ 305,649
Accrued expenses.................................................. 45,803
Payables to affiliates (Note 4)................................... 348,789
----------
Total current liabilities....................................... 700,241
Mortgage note payable (Note 3)...................................... 2,869,387
Partners' capital (Note 5)
Greystar.......................................................... 3,077,925
ESH............................................................... 3,077,925
Limited partners.................................................. --
----------
Total partners' capital......................................... 6,155,850
----------
Total liabilities and partners' capital............................. $9,725,478
==========
</TABLE>
See accompanying notes.
F-12
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION (FEBRUARY 9, 1996)
THROUGH JUNE 30, 1996
<TABLE>
<S> <C>
REVENUES
Room revenue........................................................ $ 24,803
Other revenue....................................................... 1,703
---------
26,506
COSTS AND EXPENSES
Property operating expenses......................................... 30,313
Corporate operating expenses........................................ 204,273
Depreciation and amortization....................................... 9,533
Interest............................................................ 21,457
---------
265,576
---------
Net loss............................................................ $(239,070)
=========
</TABLE>
See accompanying notes.
F-13
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED
GREYSTAR ESH PARTNERS TOTAL
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance at inception (February 9,
1996)............................ $ -- $ -- $ -- $ --
Contributions................... 3,197,460 3,197,460 -- 6,394,920
Net loss........................ (119,535) (119,535) -- (239,070)
---------- ---------- ----- ----------
Balance at June 30, 1996.......... $3,077,925 $3,077,925 $ -- $6,155,850
========== ========== ===== ==========
</TABLE>
See accompanying notes.
F-14
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (FEBRUARY 9, 1996)
THROUGH JUNE 30, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.......................................................... $ (239,070)
Adjustments to reconcile net loss to net cash provided by operat-
ing activities
Depreciation and amortization................................... 9,533
Accrued interest added to mortgage note payable................. 21,457
Changes in operating assets and liabilities:
Accounts receivable........................................... (7,184)
Prepaid expenses.............................................. (3,078)
Accounts payable.............................................. 136,403
Accrued expenses.............................................. 45,803
Payables to affiliates........................................ 348,789
----------
Net cash provided by operating activities......................... 312,653
INVESTING ACTIVITIES
Acquisition of hotel facility..................................... (4,911,486)
Acquisition of land............................................... (2,991,123)
Additions to property and equipment, net of development costs pay-
able............................................................. (133,038)
Additions to other assets......................................... (228,734)
----------
Net cash used in investing activities............................. (8,264,381)
----------
FINANCING ACTIVITIES
Proceeds from mortgage note payable............................... 2,847,930
Payment of deferred loan costs.................................... (17,240)
Contributions from partners....................................... 6,394,920
----------
Net cash provided by financing activities......................... 9,225,610
----------
Net increase in cash and cash equivalents......................... 1,273,882
Cash and cash equivalents at beginning of period.................. --
----------
Cash and cash equivalents at end of period........................ $1,273,882
==========
</TABLE>
See accompanying notes.
F-15
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
ORGANIZATION
Extended Stay Limited Partnership, a Delaware limited partnership (the
"Partnership"), was formed on February 9, 1996, by ESH Partners, L.P. ("Crow")
and JMI/Greystar Extended Stay Partners, L.P. ("Greystar"), as the general
partners, and various limited partners, for the purpose of holding,
maintaining, improving, developing, operating, managing, selling, and
exchanging moderately priced extended-stay lodging facilities ("hotel
facilities") throughout the United States. Development and management of the
facilities will be performed by various related entities.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from these estimates.
INCOME TAX MATTERS
Under present income tax laws, the Partnership is not subject to federal
income taxes; therefore, no taxes have been provided in the accompanying
financial statements. The partners are to include their respective share of
Partnership income or losses in their individual tax returns.
REVENUE RECOGNITION
Room revenue and other income are recognized when earned, utilizing the
accrual method of accounting.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
PROPERTY AND EQUIPMENT
The Partnership capitalizes costs directly related to the acquisition,
renovation or development of property and equipment while maintenance and
repairs are charged to operating expense when incurred. Property and equipment
is recorded at cost. The building and improvements and furniture and fixtures
are depreciated over their estimated useful lives, which are 40 years and 7
years, respectively, using the straight-line method.
DEFERRED LOAN COSTS
The Partnership has incurred costs in obtaining financing. These costs have
been deferred and will be amortized over the life of the loan.
OTHER ASSETS
Other assets include site deposits, preacquisition and development costs,
pre-opening costs, and organization costs. Site deposits have been paid to
escrow agents in conjunction with executed purchase agreements, whereby the
Partnership is considering the purchase of certain land parcels.
F-16
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
Preacquisition and development costs related to the acquisition of property
sites are capitalized when it is probable that a site will be acquired and are
reclassified to property and equipment upon acquisition. In the event the
acquisition is not consummated, the costs are expensed.
Compensation, promotional costs and other costs relating to the opening of
new properties are capitalized by the Partnership. Amortization is provided
using the straight line method over a twelve-month period.
Organization costs of $78,158 incurred in conjunction with the formation of
the Partnership have been capitalized and are being amortized over sixty
months using the straight-line method. Accumulated amortization for
organization costs was $5,210 at June 30, 1996.
2. PROPERTY AND EQUIPMENT
At June 30, 1996, property and equipment consists of the following:
<TABLE>
<S> <C>
Land........................................................... $3,825,326
Buildings and improvements..................................... 3,806,052
Furniture, fixtures, and equipment............................. 573,515
----------
8,204,893
Less accumulated depreciation.................................. 4,323
----------
$8,200,570
==========
</TABLE>
On February 15, 1996, the Partnership acquired a land parcel in Phoenix,
Arizona, and on May 24, 1996, acquired a land parcel in Denver, Colorado, for
future development of hotel facilities. Additionally, on May 31, 1996, the
Partnership acquired Studio Suites (the "Hotel") in Grand Prairie, Texas.
Operations of the Hotel commenced during June 1996 and are included in the
accompanying statement of operations.
Long-lived assets are evaluated when indicators of impairment are present
and provisions for possible losses are recorded when the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
3. MORTGAGE NOTE PAYABLE
The Partnership has entered into a Master Loan Agreement (the "Note") with
Bank One, Arizona. The Note provides up to $30 million in construction/mini-
perm mortgage loans for the acquisition and development of land and hotel
facilities for up to five years. A loan of up to $3,448,250 (the "Loan") was
committed under the Note in connection with the acquisition of the Hotel. The
Loan, secured by the Hotel, accrues interest at prime plus .5% (8.75% at June
30, 1996), and requires interest payments for the first twelve months of the
loan, followed by principal and interest payments based upon a fifteen year
amortization until maturity, June 1, 1998. The outstanding balance at June 30,
1996, includes $2,847,930 of original principal borrowed and $21,457 of
accrued interest added from a $70,000 interest reserve.
The Loan requires the Partnership to make payments equal to 4% of the
monthly net operating income, as defined, into a capital replacement reserve,
held by the lender, to establish and maintain a balance of $60,000. No such
payments were due at June 30, 1996.
F-17
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. MORTGAGE NOTE PAYABLE (CONTINUED)
At the time of maturity, the Partnership has an option to extend the loan
for three years, for a fee equal to .375% of the unpaid principal balance.
Principal maturities of the mortgage note payable at June 30, 1996, are as
follows:
<TABLE>
<S> <C>
Six months ending December 31, 1996............................ $ --
1997........................................................... 63,928
1998........................................................... 2,805,459
----------
$2,869,387
==========
</TABLE>
The carrying value of the mortgage note payable as of June 30, 1996
approximates fair value as the interest rate approximates market rate for
similar debt instruments.
4. RELATED PARTY TRANSACTIONS
Wyndham Management Corporation ("Wyndham") an affiliate of Crow, administers
and funds payroll and insurance benefits for all employees of the Partnership
and the Hotel. Payables to affiliates includes $89,434 due to Wyndham at June
30, 1996, for reimbursement of payroll and insurance expenditures.
Wyndham is entitled to receive a management fee equal to 3% of gross
revenues, as defined, for management of the Hotel.
The Partnership reimburses Greystar for a portion of the salary of
Greystar's CEO, based on an allocation of his time incurred on the
Partnership. Payables to affiliates includes $55,662 due to Greystar at June
30, 1996.
Additionally, payables to affiliates includes $163,001, $13,407, and $14,163
due to affiliates of Crow, Wyndham, and Greystar, respectively, at June 30,
1996, for reimbursement of out-of-pocket expenditures incurred in conjunction
with the pursuit and acquisition of land and property.
One of the limited partners has agreed to develop up to 60 hotel facilities
for the Partnership, under an agreement that expires at the earlier of the
completion of the sixtieth hotel or December 31, 1998.
5. PARTNERS' EQUITY
CAPITAL CONTRIBUTIONS
Upon formation of the Partnership, Greystar and Crow each made initial cash
contributions of $750,000. The general partners each made additional capital
contributions of $2,447,460 during the period ended June 30, 1996, and are
each required to contribute an additional $6,802,540.
ALLOCATIONS OF PROFITS AND LOSSES
Net profits and losses are to be allocated in accordance with the
Partnership Agreement, as limited by the provisions of Section 704(b) of the
Internal Revenue Code.
F-18
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PARTNERS' EQUITY (CONTINUED)
CASH DISTRIBUTIONS
Distributions may be made as determined by the Management Committee of the
Partnership and are to be distributed as follows:
. First, to the general partners in payment of their cumulative Preferred
Return equal to 13% on their Capital Contribution Account, as defined,
and in proportion to their cumulative Preferred Return ($75,159 and
$70,066 for Greystar and Crow, respectively, at June 30, 1996); then,
. To the general partners an amount equal to their Capital Contributions
and in proportion to the balances of their Capital Contribution Accounts
($3,197,460 for each of Greystar and Crow as of June 30, 1996); then,
. To the partners in accordance with their Percentage Interests as limited
by the Partnership agreement.
No distributions were made for the period ended June 30, 1996.
6. SUBSEQUENT EVENTS
Subsequent to June 30, 1996, the Partnership purchased two land sites for an
aggregate purchase price of $2,010,780 for future hotel development.
Additionally, the Partnership began the development of one hotel facility.
Total expected development costs for the facility are approximately
$5,400,000.
F-19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Westar
We have audited the accompanying combined balance sheets of Westar at
December 31, 1994 and 1995, and the related combined statements of operations,
stockholders' equity (deficit) and partners' capital (deficit), and cash flows
for each of the three years in the period ended December 31, 1995. 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 Westar at
December 31, 1994 and 1995, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Antonio, Texas
August 2, 1996
F-20
<PAGE>
WESTAR
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
JUNE 30
1994 1995 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................. $ 234,358 $ 480,761 $ 1,012,683
Accounts receivable.................. 275,345 226,800 225,811
Prepaid expenses and other........... 127,940 164,531 217,400
------------ ----------- -----------
Total current assets................... 637,643 872,092 1,455,894
Hotel property and other fixed assets,
net................................... 14,516,183 14,493,834 14,237,577
Net receivables from affiliates........ 577,821 678,654 675,359
Deferred loan costs, net............... 59,542 898,050 875,272
Escrow and reserve funds............... -- 194,715 194,715
Other assets........................... 13,502 3,729 7,485
------------ ----------- -----------
Total assets........................... $ 15,804,691 $17,141,074 $17,446,302
============ =========== ===========
LIABILITIES, STOCKHOLDERS' EQUITY
(DEFICIT) AND PARTNERS' CAPITAL
(DEFICIT)
Current liabilities:
Accounts payable..................... $ 387,633 $ 413,774 $ 472,938
Other accrued liabilities............ 314,674 304,936 679,532
Current portion of obligations under
capital leases...................... 76,321 140,569 130,760
Current portion of long-term debt.... 328,751 332,584 374,430
Notes payable to stockholders and
partners............................ 5,508,162 5,799,138 6,208,789
------------ ----------- -----------
Total current liabilities.............. 6,615,541 6,991,001 7,866,449
Obligations under capital leases, less
current portion....................... 88,201 193,509 161,654
Long-term debt, less current portion... 20,021,219 19,894,994 18,308,808
Commitments and contingencies
Stockholders' equity (deficit) and
partners' capital (deficit):
Class A common stock, voting, $1 par
value, 10,000,000 shares authorized,
500,000 shares issued and
outstanding......................... 500,000 500,000 500,000
Class B common stock, nonvoting, $1
par value, 72,500 shares authorized,
31,914 shares issued and
outstanding......................... 31,914 31,914 31,914
Preferred stock, redeemable,
nonvoting, $10 par value, 1,000,000
shares authorized, 50,000 shares
issued and outstanding.............. 500,000 500,000 500,000
Retained earnings (deficit).......... (5,439,375) (5,608,665) (6,059,913)
------------ ----------- -----------
Total stockholders' equity (deficit)... (4,407,461) (4,576,751) (5,027,999)
Partners' capital (deficit)............ (6,512,809) (5,361,679) (3,862,610)
------------ ----------- -----------
Total stockholders' equity (deficit)
and partners' capital (deficit)....... (10,920,270) (9,938,430) (8,890,609)
------------ ----------- -----------
Total liabilities, stockholders' equity
(deficit) and partners' capital
(deficit)............................. $ 15,804,691 $17,141,074 $17,446,302
============ =========== ===========
</TABLE>
See accompanying notes.
F-21
<PAGE>
WESTAR
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
--------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue.......... $8,465,611 $8,299,237 $8,193,093 $ 4,222,107 $ 3,871,050
Other revenue......... 295,405 284,476 245,756 81,349 73,027
---------- ---------- ---------- ------------ ------------
Total revenue........... 8,761,016 8,583,713 8,438,849 4,303,456 3,944,077
Expenses:
Property operating ex-
penses............... 4,921,659 5,135,787 5,126,346 2,371,702 2,357,259
Corporate operating
expenses............. 537,933 930,460 875,043 213,937 336,948
Depreciation and amor-
tization............. 592,176 610,551 662,314 296,519 305,274
Interest.............. 2,454,930 2,375,122 2,608,468 1,038,612 1,209,850
---------- ---------- ---------- ------------ ------------
Total expenses.......... 8,506,698 9,051,920 9,272,171 3,920,770 4,209,331
---------- ---------- ---------- ------------ ------------
Income (loss) before ex-
traordinary gain....... 254,318 (468,207) (833,322) 382,686 (265,254)
Extraordinary gain on
extinguishment of debt. -- -- 1,465,113 -- --
---------- ---------- ---------- ------------ ------------
Net income (loss)....... $ 254,318 $ (468,207) $ 631,791 $ 382,686 $ (265,254)
========== ========== ========== ============ ============
</TABLE>
See accompanying notes.
F-22
<PAGE>
WESTAR
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND PARTNERS' CAPITAL
(DEFICIT)
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
RETAINED STOCKHOLDERS' PARTNERS' AND PARTNERS'
COMMON PREFERRED EARNINGS EQUITY CAPITAL CAPITAL
STOCK STOCK (DEFICIT) (DEFICIT) (DEFICIT) (DEFICIT)
-------- --------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... $531,914 $500,000 $(5,746,479) $(4,714,565) $(6,046,701) $(10,761,266)
Net income (loss)...... -- -- 482,650 482,650 (228,332) 254,318
-------- -------- ----------- ----------- ----------- ------------
Balance at December 31,
1993................... 531,914 500,000 (5,263,829) (4,231,915) (6,275,033) (10,506,948)
Net (loss)............. -- -- (175,546) (175,546) (292,661) (468,207)
Capital contribution... -- -- -- -- 54,885 54,885
-------- -------- ----------- ----------- ----------- ------------
Balance at December 31,
1994................... 531,914 500,000 (5,439,375) (4,407,461) (6,512,809) (10,920,270)
Net income (loss)...... -- -- (169,290) (169,290) 801,081 631,791
Capital contribution... -- -- -- -- 350,049 350,049
-------- -------- ----------- ----------- ----------- ------------
Balance at December 31,
1995................... 531,914 500,000 (5,608,665) (4,576,751) (5,361,679) (9,938,430)
Net income (loss)...... -- -- (451,248) (451,248) 185,994 (265,254)
Conversion of long-term
debt into partners'
capital............... -- -- -- -- 1,383,200 1,383,200
Distributions.......... -- -- -- -- (70,125) (70,125)
-------- -------- ----------- ----------- ----------- ------------
Balance at June 30, 1996
(Unaudited)............ $531,914 $500,000 $(6,059,913) $(5,027,999) $(3,862,610) $ (8,890,609)
======== ======== =========== =========== =========== ============
</TABLE>
See accompanying notes.
F-23
<PAGE>
WESTAR
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
---------------------------------- --------------------------
1993 1994 1995 1995 1996
--------- --------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ 254,318 $(468,207) $ 631,791 $ 382,686 $ (265,254)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and amor-
tization............. 592,176 610,551 662,314 296,519 305,274
Extraordinary gain.... -- -- (1,465,113) -- --
Interest payable to
stockholders and
partners............. 328,911 341,808 345,697 177,848 197,661
Changes in:
Accounts receivable. (135,562) 118,973 48,545 90,128 989
Prepaids and other.. (64,020) 146,165 (36,591) 62,431 (52,869)
Accounts payable.... (120,829) 158,927 26,141 (18,410) 59,164
Other accrued lia-
bilities........... 95,365 (50,103) (9,738) 214,543 374,596
Other............... (7,113) 2,660 9,773 5,770 (3,756)
--------- --------- ------------ ------------ ------------
Net cash provided by op-
erating activities..... 943,246 860,774 212,819 1,211,515 615,805
INVESTING ACTIVITIES
Acquisition of hotel
property and other
fixed assets........... (365,920) (910,165) (639,965) (262,061) (26,239)
--------- --------- ------------ ------------ ------------
Net cash used in invest-
ing activities......... (365,920) (910,165) (639,965) (262,061) (26,239)
FINANCING ACTIVITIES
Borrowings of long-term
debt................... -- -- 19,650,000 -- --
Payments of long-term
debt................... (300,000) (284,861) (18,307,279) (509,494) (161,140)
Advances from (to) af-
filiates............... (236,994) 443,621 (100,833) (51,539) 3,295
Advances from (payments
to) stockholders and
partners............... -- (362,579) (54,721) -- 211,990
Payments on obligations
under capital leases... (54,000) (52,648) (84,000) -- (41,664)
Borrowings on obliga-
tions under capital
leases................. 109,047 -- 253,556 -- --
Capital contributions... -- 54,885 350,049 -- --
Distributions........... -- -- -- -- (70,125)
Deferred loan costs..... -- -- (838,508) -- --
Escrow and reserve
funds.................. -- -- (194,715) (251,264) --
--------- --------- ------------ ------------ ------------
Net cash provided by
(used in) financing
activities............. (481,947) (201,582) 673,549 (812,297) (57,644)
--------- --------- ------------ ------------ ------------
Net change in cash and
cash equivalents....... 95,379 (250,973) 246,403 137,157 531,922
Cash and cash
equivalents at
beginning of year...... 389,952 485,331 234,358 234,358 480,761
--------- --------- ------------ ------------ ------------
Cash and cash equiva-
lents at end of year... $ 485,331 $ 234,358 $ 480,761 $ 371,515 $ 1,012,683
========= ========= ============ ============ ============
Supplemental schedule of
noncash activities:
Conversion of long-
term debt to
partners' capital.... $ -- $ -- $ -- $ -- $ 1,383,200
</TABLE>
See accompanying notes.
F-24
<PAGE>
WESTAR
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(INFORMATION AS TO JUNE 30, 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Westar (Westar or Company) operates and manages five suite hotels and serves
as the general and a limited partner of certain partnerships formed to develop
and own the suite hotels. The accompanying financial statements have been
presented on a combined basis to represent both the ownership and results of
operations of the five hotels. The combined financial statements include the
accounts of Westar, Inc., VPS I, L.P., and five separate limited partnerships,
RHF-Amarillo, Ltd., RHF-El Paso, Ltd., RHF-Irving, Ltd., RHF San Antonio
North, Ltd., and RHF-San Antonio #2, Ltd. Each of these five partnerships
owned one of the hotels until December 29, 1995, at which time the hotel
properties were contributed to VPS I, L.P. (see Note 2). All intercompany
transactions and balances have been eliminated.
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated interim financial statements are unaudited,
but reflect all adjustments (consisting only of normal recurring accruals)
which are, in the opinion of the Company's management, necessary to present
fairly the financial position as of June 30, 1996, and the results of
operations and cash flows for the six months ended June 30, 1995 and 1996. The
results of the six months ended June 30, 1996 are not necessarily indicative
of results to be expected for the full year.
HOTEL PROPERTY AND OTHER FIXED ASSETS
Depreciation of hotel property and other fixed assets is provided by the
straight-line method over the estimated useful lives of the various assets,
generally from three to thirty years. Amortization of capital leases is also
included with depreciation.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, money market funds and all highly liquid short-term investments which
are available for operations and are readily convertible into cash.
INCOME TAXES
Westar accounts for income taxes using Financial Accounting Standards Board
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the years in which the differences are
expected to reverse. Under SFAS 109, changes in tax rates are recognized in
the year the new legislation is enacted.
The partnerships are not subject to federal or state income taxes. The
income or loss of the partnerships is reported by the general and limited
partners of each respective partnership.
F-25
<PAGE>
WESTAR
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and accounts receivable.
Though limited to one geographical area, the concentration of credit risk with
respect to the Company's receivables is minimized due to the large number of
customers, individually small balances, short payment terms, and required
deposits.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CHANGE IN PARTNERSHIP STRUCTURE AND REFINANCING OF LONG-TERM DEBT
On December 29, 1995, the five separate partnerships which were formed to
develop and own each of the hotels contributed all of their hotel property and
other fixed assets to a newly-formed partnership, VPS I, L.P., at their
historical basis. Simultaneous with these transactions, VPS I, L.P. obtained
new financing which was used to pay the existing mortgage debt of the
individual partnerships. Essentially, the partnerships each contributed their
fixed assets to VPS I, L.P. to serve as collateral for newly-issued debt so
that the Company could consolidate its debt into a single credit agreement.
The Company paid approximately $18,112,000 as complete and final settlement
of its old bank debt which had a carrying value of approximately $19,577,000
(including capitalized financing fees), resulting in an extraordinary gain on
settlement of debt of $1,465,113.
3. HOTEL PROPERTY AND OTHER FIXED ASSETS
Hotel property and other fixed assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Land.................................... $ 4,474,418 $ 4,649,419 $ 4,649,419
Hotel buildings and improvements........ 13,176,370 13,061,569 13,107,391
Furniture and fixtures.................. 3,337,972 3,888,799 3,893,776
----------- ----------- -----------
20,988,760 21,599,787 21,650,586
Less accumulated depreciation and amor-
tization............................... 6,472,577 7,105,953 7,413,009
----------- ----------- -----------
$14,516,183 $14,493,834 $14,237,577
=========== =========== ===========
</TABLE>
F-26
<PAGE>
WESTAR
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. NOTES PAYABLE TO STOCKHOLDERS AND PARTNERS
Notes payable to stockholders and partners consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
JUNE 30
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
10% convertible subordinated notes payable to
primary stockholder, principal and interest
due in varying amounts during 1996,
unsecured, convertible at any time to Class A
common stock at $1 per share................. $ 400,000 $ 400,000 $ 400,000
10% notes payable to primary stockholder,
principal and interest due in 1996,
unsecured.................................... 240,727 186,006 397,996
9% notes payable to limited partners in
partnership, principal and interest due in
varying amounts based on certain cash flow
requirements through 2002, with investments
in partnerships as collateral, subordinated
to other stockholder debt.................... 2,700,000 2,700,000 2,700,000
---------- ---------- ----------
3,340,727 3,286,006 3,497,996
Accrued interest payable...................... 2,167,435 2,513,132 2,710,793
---------- ---------- ----------
$5,508,162 $5,799,138 $6,208,789
========== ========== ==========
</TABLE>
During the years ended 1993, 1994, and 1995, and the six months ended June
30, 1995 and 1996, the Company recorded interest expense on the above notes
and related accrued interest of approximately $329,000, $342,000, $346,000,
$178,000, and $198,000, respectively. Pursuant to agreements with the primary
limited partner and the primary stockholder, (and Company president), so long
as the Company is not otherwise in default with respect to its mortgage and
floating rate debt obligations or obligation to the primary limited partner or
primary stockholder that are due in 1996, no demand will be made on the notes
payable to the limited partner or to the primary stockholder through the
earlier of June 30, 1997, or the date of sale of the five hotels occurs, nor
will such primary stockholder exercise any rights to redeem any of the
Preferred Stock owned by such primary stockholder.
F-27
<PAGE>
WESTAR
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Mortgage note due to Nomura Asset Capital
Corporation, with interest at 9.71%
through January 11, 2011 and the greater
of 14.71% or the Treasury Rate plus 9%
thereafter, due in monthly installments
of $160,789, including interest,
commencing February 1996 through January
2021, secured by hotel properties and
improvements (see discussion below)...... $ -- $18,100,000 $18,027,180
Floating rate note due to Nomura Asset
Capital Corporation, with interest at
LIBOR plus 6%, due in January 2001,
secured by hotel properties and
improvements. This debt was converted
into an ownership interest on February
29, 1996 (see discussion below).......... -- 1,400,000 --
Loan agreement with Franklin Federal
Bancorp, with interest at 10%, due in
August 1997 with a balloon payment of the
remaining principal and interest,
guaranteed by hotel properties and
improvement. Debt was paid off on
December 29, 1995........................ 19,765,109 -- --
Note payable to bank, interest due monthly
at a fixed rate of 8.85%, principal due
August 1997, unsecured, guaranteed by
primary stockholder and affiliates....... 300,000 300,000 300,000
Note payable to bank, interest due monthly
at a fixed rate of 8.85%, principal due
August 1997, unsecured, guaranteed by
primary stockholder...................... 200,000 200,000 200,000
Note payable to bank, interest due monthly
at prime plus 1.5%, principal due May
1996, secured by certain securities owned
by a stockholder......................... -- 150,000 150,000
Other bank notes.......................... 84,861 77,578 6,058
----------- ----------- -----------
20,349,970 20,227,578 18,683,238
Less current portion...................... 328,751 332,584 374,430
----------- ----------- -----------
$20,021,219 $19,894,994 $18,308,808
=========== =========== ===========
</TABLE>
The $18,100,000 mortgage note payable to Nomura Asset Capital Corporation
does not allow for prepayment of the debt until January 11, 2011, except by
providing the lender with U.S. obligations that produce payments which
replicate the payment obligations of the Company under the note. This
restriction represents a substantial prepayment penalty. On or after January
11, 2011, the loan can be prepaid at any time with no prepayment penalty.
The note agreement imposes various conditions, restrictions, and limitations
on the Company including those substantially restricting the payment of
dividends or incurring additional debt.
On February 29, 1996, the $1,400,000 note due to Nomura Asset Capital
Corporation was converted into an ownership interest in VPS I, L.P. The then
outstanding note balance of $1,383,200 was converted into 277 Class B
partnership units.
F-28
<PAGE>
WESTAR
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
Future annual maturities of long-term debt for the years subsequent to
December 31, 1995 consist of the following:
<TABLE>
<S> <C>
1996............................................................. $ 332,584
1997............................................................. 711,843
1998............................................................. 225,218
1999............................................................. 242,968
2000............................................................. 262,628
Thereafter....................................................... 18,452,337
-----------
$20,227,578
===========
</TABLE>
Cash paid for interest during the years ended December 31, 1993, 1994, and
1995, and the six months ended June 30, 1995 and 1996 was approximately
$2,126,000, $2,033,000, $2,262,000, $861,000, and $1,012,000, respectively.
6. OTHER RELATED PARTY TRANSACTIONS
In addition to the borrowings from the Company's stockholders and partners
discussed above and capital lease obligations discussed in Note 7, the Company
makes noninterest-bearing advances to, and receives noninterest-bearing
advances from, affiliates on a periodic basis as working capital is available
or needed. There are no formal terms related to such advances, the amounts of
which are carried as net receivables from affiliates on the balance sheets.
7. LEASE COMMITMENTS
The Company leases certain equipment and office facilities under long-term
noncancelable leases. Future minimum lease payments for capital and operating
leases at December 31, 1995 consist of the following:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
---- -------- ---------
<S> <C> <C>
1996..................................................... $177,836 $ 57,441
1997..................................................... 138,991 57,441
1998..................................................... 76,621 57,441
1999..................................................... -- 46,474
2000..................................................... -- 39,218
Thereafter............................................... -- 192,822
-------- --------
Total minimum lease payments............................. 393,448 $450,837
========
Less amount representing interest........................ 59,370
--------
Present value of net minimum lease payments.............. 334,078
Less current portion of capital lease obligations........ 140,569
--------
$193,509
========
</TABLE>
Included in the minimum capital lease obligations is $311,275 for various
furniture and fixtures being leased from the Company's president. The minimum
lease obligation amounts to $130,433, $112,273, and $68,569 for the years
ended December 31, 1996, 1997, and 1998, respectively. Also, included in
operating lease obligations is a lease for the Company's corporate office with
various officers of the Company. The annual minimum lease
F-29
<PAGE>
WESTAR
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS (CONTINUED)
obligation is $39,218 through 2005. The office lease allows for adjustment of
the monthly lease payment for increases in operating costs.
Total rental expense incurred under operating leases was approximately
$151,000, $157,000, and $57,000 for the years ended December 31, 1993, 1994,
and 1995, respectively, and $28,000 for each of the six-month periods ended
June 30, 1995 and 1996. Approximately $40,000 of the expense for each year
relates to leases with related parties.
8. FEDERAL INCOME TAXES
Deferred income taxes for Westar, Inc. reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The provision for federal income taxes does not include the tax impact of
flow-through items of income or loss from the partnerships to its owners other
than Westar, Inc. because such amounts are not determinable due to federal
income tax limitation rules. Significant components of Westar, Inc.'s deferred
tax assets and liabilities at December 31, 1995 are as follows:
<TABLE>
<S> <C>
Deferred tax asset:
Current:
Allowance for doubtful accounts............................. $ 5,643
Noncurrent:
Accrued interest to related parties......................... 166,390
Loss carryforwards.......................................... 1,743,467
Book versus tax basis of depreciable assets................. 22,600
-----------
1,938,100
Less valuation allowance.................................... (1,938,100)
-----------
Net deferred taxes.......................................... $ --
===========
</TABLE>
Results of operations for the year ended December 31, 1995 increased both
the deferred tax assets and the corresponding valuation allowance by $68,848.
Westar has net operating loss carryforwards for income tax purposes and unused
investment tax credit carryforwards of approximately $4,650,000 and $21,000,
respectively, which will expire beginning in 1999. The Company's future
utilization of net operating loss carryforwards may be subject to an annual
limitation if there is a "change in ownership" as defined for federal income
tax purposes.
9. STOCKHOLDERS' EQUITY
The Company's 10% cumulative preferred stock may be redeemed by the
preferred stockholders in three equal annual installments after December 31,
1994 at a price of $10.00 per share, plus any unpaid dividends. Unpaid
dividends in arrears totaled approximately $240,000 and $290,000 at December
31, 1994 and 1995, respectively.
Under an agreement with the affiliated partnerships' lender, the Company may
not, without prior approval from the lender, redeem or retire any shares of
its capital stock or pay any dividends.
10. SUBSEQUENT EVENT/PENDING TRANSACTION
The stockholders and partners have entered into a letter of intent to sell
all of the hotel properties to an unrelated third party.
F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS 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 UNDERWRIT-
ERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SO-
LICITATION 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 CREATE ANY IMPLICATION THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Special Note Regarding Forward-Looking Statements......................... 16
The Formation Transaction................................................. 17
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution.................................................................. 19
Capitalization............................................................ 20
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 26
Management................................................................ 34
Certain Transactions...................................................... 41
Principal Stockholders.................................................... 43
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 50
Underwriting.............................................................. 51
Legal Matters............................................................. 52
Experts................................................................... 52
Additional Information.................................................... 53
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REQUIRED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDER-
WRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR SUBSCRIPTION.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
HOMEGATE HOSPITALITY, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
MONTGOMERY SECURITIES
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the registrant in connection with the
registration, issuance and distribution of the Common Stock offered hereby,
other than underwriting discounts and commissions, are as follows.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $17,845
Nasdaq National Market System Filing Fee......................... *
-------
NASD Filing Fee.................................................. 5,675
Printing and Engraving Expenses.................................. *
-------
Legal Fees and Expenses.......................................... *
-------
Accounting Fees and Expenses..................................... *
-------
Fees and Expenses of Transfer Agent.............................. *
-------
"Blue Sky" Fees and Expenses (including legal fees).............. *
-------
Miscellaneous Expenses........................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Sixteenth of the Certificate of Incorporation of the registrant
provides that the registrant shall indemnify its officers and directors to the
maximum extent allowed by the Delaware General Corporation Law. Pursuant to
Section 145 of the Delaware General Corporation Law, the registrant generally
has the power to indemnify its present and former directors and officers
against expenses and liabilities incurred by them in connection with any suit
to which they are, or are threatened to be made, a party by reason of their
serving in those positions so long as they acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of
the registrant, and with respect to any criminal action, so long as they had
no reasonable cause to believe their conduct was unlawful. With respect to
suits by or in the right of the registrant, however, indemnification is
generally limited to attorneys' fees and other expenses and is not available
if the person is adjudged to be liable to the registrant, unless the court
determines that indemnification is appropriate. The statute expressly provides
that the power to indemnify authorized thereby is not exclusive of any rights
granted under any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. The registrant also has the power to purchase and
maintain insurance for its directors and officers. Additionally,
Article Sixteenth of the Certificate of Incorporation provides that, in the
event that an officer or director files suit against the registrant seeking
indemnification of liabilities or expenses incurred, the burden will be on the
registrant to prove that the indemnification would not be permitted under the
Delaware General Corporation Law.
The preceding discussion of the registrant's Certificate of Incorporation
and Section 145 of the Delaware General Corporation Law is not intended to be
exhaustive and is qualified in its entirety by the Certificate of
Incorporation and Section 145 of the Delaware General Corporation Law.
The form of Underwriting Agreement included as Exhibit 1.1 provides for
indemnification of the registrant and certain controlling persons under
certain circumstances, including indemnification for liabilities under the
Securities Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Formation, the current partners of ESLP will receive
approximately 6,400,000 shares of Common Stock, constituting approximately
% of the outstanding Common Stock after the Offering, as a result of the
merger of ESLP into the Company. Such Shares were sold without registration
under the Securities Act, in reliance on Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 Underwriting Agreement
*2.1 Plan of Merger between Extended Stay Limited Partnership and
Homegate Hospitality, Inc.
3.1 Certificate of Incorporation
3.2 Bylaws of the Company
*4.1 Form of specimen certificate for the Common Stock
*5.1 Opinion of Vinson & Elkins L.L.P.
*10.1 Master Management Assistance Agreement between Wyndham Hotel Corporation
and Homegate Hospitality, Inc.
10.2 Master Development Agreement between Developer Extended Stay Partners,
L.P. and Homegate Hospitality, Inc.
*10.3 Employment Agreement between John C. Kratzer and Homegate Hospitality,
Inc.
*10.4 Homegate Hospitality, Inc. 1996 Long-term Incentive Plan
*10.5 Homegate Hospitality, Inc. Non-Employee Director's Stock Option Plan
*10.6 Homegate Employee Savings & Retirement Plan
10.7 Agreement to Purchase Ownership Interests and Termination of Management
Agreement among RHF-Amarillo, Ltd., RHF-El Paso, Ltd., RHF-Irving, Ltd.,
RHF-San Antonio, Ltd., RHF-San Antonio North, Ltd., Westar Hotels, Inc.
and Extended Stay Limited Partnership
*10.8 Loan Agreement between VPS I, L.P. and Nomura Asset Capital Corporation
10.9 Mortgage Loan Facility between Bank One Arizona, N.A. and
Homegate Hospitality, Inc.
*10.10 Stockholders Agreement between ESH Partners, L.P. and JMI/Greystar
Extended
Stay Partners, L.P.
*10.11 Registration Rights Agreement
10.12 Limited Partnership Agreement of Developer Extended Stay Partners, L.P.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
*23.3 Consent of Vinson & Elkins L.L.P.
24.1 Powers of Attorney
</TABLE>
- --------
* To be filed by amendment.
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule III (Real Estate Investments and Accumulated Depreciation--
Extended-Stay Limited Partnership)
Schedule III (Real Estate Investments and Accumulated Depreciation--Westar)
All other schedules are omitted because they are not required under the
applicable instructions, because they are inapplicable or because the
requested information is shown in the financial statements or notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes to provide to the representatives
of the underwriters at the closing specified in the underwriting agreements
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
Company, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company 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
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A 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, 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 this Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS,
ON THE 30TH DAY OF AUGUST, 1996.
Homegate Hospitality, Inc.
/s/ Robert A. Faith
By: _________________________________
ROBERT A. FAITH
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Robert A. Faith President, Chief August 30, 1996
- ------------------------------------- Executive Officer
ROBERT A. FAITH and Chairman of the
Board (Principal
Executive Officer)
/s/ Tim V. Keith Chief Financial August 30, 1996
- ------------------------------------- Officer (Principal
TIM V. KEITH Financial and
Accounting Officer)
*James D. Carreker Director August 30, 1996
- -------------------------------------
JAMES D. CARREKER
/s/ Anthony W. Dona Director August 30, 1996
- -------------------------------------
ANTHONY W. DONA
*Harlan R. Crow Director August 30, 1996
- -------------------------------------
HARLAN R. CROW
**John Moores Director August 30, 1996
- -------------------------------------
JOHN MOORES
**Charles E. Noell Director August 30, 1996
- -------------------------------------
CHARLES E. NOELL
*Leonard W. Wood Director August 30, 1996
- -------------------------------------
LEONARD W. WOOD
/s/ Anthony W. Dona
- -------------------------------------
*By: ANTHONY W. DONA ATTORNEY-IN-
FACT
/s/ Robert A. Faith
- -------------------------------------
**By: ROBERT A. FAITH ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Extended Stay Limited Partnership
We have audited the financial statements of Extended Stay Limited Partnership
as of June 30, 1996, and for the period from inception (February 9, 1996)
through June 30, 1996 and have issued our report thereon dated August 8, 1996
(included elsewhere in this Registration Statement). Our audit also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the management of Extended
Stay Limited Partnership. Our responsibility is to express an opinion based on
our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
August 8, 1996
S-1
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
INITIAL COST COSTS CARRIED AT JUNE 30, 1996
------------------- CAPITALIZED --------------------------
BUILDINGS SUBSEQUENT BUILDINGS
RELATED AND TO AND ACCUMULATED DATE OF DATE
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED
----------- ----------- ------ ------------ ----------- ------ ------------ ------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Grand Prairie,
Texas
Studio Suites.... $2,869 $ 834 $4,077 $303 $ 834 $4,380 $5,214 $ 4 5/96 5/96
Denver, Colorado
land............. -- 1,605 -- -- 1,605 -- 1,605 -- (a) 5/96
Phoenix, Arizona
land............. -- 1,386 -- -- 1,386 -- 1,386 -- (a) 2/96
------ ------ ------ ---- ------ ------ ------ ----
Total........... $2,869 $3,825 $4,077 $303 $3,825 $4,380 $8,205 $ 4
====== ====== ====== ==== ====== ====== ====== ====
<CAPTION>
DEPRECIABLE
DESCRIPTION LIVES IN YEARS
----------- --------------
<S> <C>
Grand Prairie,
Texas
Studio Suites.... 7-40
Denver, Colorado
land............. --
Phoenix, Arizona
land............. --
Total...........
</TABLE>
- ----
(a) As of June 30, 1996, development had not commenced.
NOTE TO SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Changes in real estate investments and accumulated depreciation for the six
months ended June 30, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1996
------
<S> <C>
Property and equipment
Balance at beginning of period........................... $ --
Acquisitions........................................... 7,902
Additions and improvements............................. 303
------
Balance at end of period................................. $8,205
======
Accumulated depreciation
Balance at beginning of period........................... $ --
Depreciation........................................... 4
------
Balance at end of period................................. $ 4
======
</TABLE>
S-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Westar
We have audited the financial statements of Westar as of December 31, 1994
and 1995, and for each of the three years in the period ended December 31, 1995
and have issued our report thereon dated August 2, 1996 (included elsewhere in
this Registration Statement). Our audit also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
San Antonio, Texas
August 2, 1996
S-3
<PAGE>
WESTAR
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
INITIAL COST COSTS CARRIED AT DECEMBER 31, 1995
------------------------------ CAPITALIZED --------------------------------------
(1) BUILDINGS FURNITURE, SUBSEQUENT BUILDINGS FURNITURE,
RELATED AND FIXTURES & TO AND FIXTURES & ACCUMULATED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS EQUIPMENT ACQUISITION LAND IMPROVEMENTS EQUIPMENT TOTAL DEPRECIATION
----------- ------------ ------ ------------ ---------- ----------- ------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Suite hotels:
Amarillo, Texas.. $ $ 535 $ 2,513 $ 547 $ 15 $ 604 $ 2,485 $ 521 $ 3,610 $1,254
San Antonio,
Texas
San Antonio #1.. 799 2,598 563 123 857 2,552 674 4,083 1,351
San Antonio #2.. 909 2,785 659 132 1,014 2,752 720 4,486 1,317
Land............ 175 175 175
Irving, Texas.... 1,255 2,758 548 192 1,350 2,752 651 4,753 1,323
El Paso, Texas... 551 2,537 566 176 649 2,493 687 3,829 1,210
------- ------ ------- ------ ---- ------ ------- ------ ------- ------
$18,027 $4,224 $13,191 $2,883 $638 $4,649 $13,034 $3,253 $20,936 $6,455
======= ====== ======= ====== ==== ====== ======= ====== ======= ======
<CAPTION>
DATE OF DATE DEPRECIABLE
DESCRIPTION CONSTRUCTION ACQUIRED LIVES IN YEARS
----------- ------------ -------- --------------
<S> <C> <C> <C>
Suite hotels:
Amarillo, Texas.. 1985 1985 5-40
San Antonio,
Texas
San Antonio #1.. 1985 1985 5-40
San Antonio #2.. 1986 1986 5-40
Land............ 1985
Irving, Texas.... 1985 1985 5-40
El Paso, Texas... 1985 1985 5-40
</TABLE>
- ----
(1) The related encumbrance is collateralized by all properties in Schedule
III.
NOTE TO SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Changes in real estate investments and accumulated depreciation for the
three years ended December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year............ $19,383 $19,552 $20,325
Additions and improvements............ 366 910 640
Deletions............................. (197) (137) (29)
------- ------- -------
Balance at end of year.................. $19,552 $20,325 $20,936
======= ======= =======
Accumulated depreciation:
Balance at beginning of year............ $ 4,980 $ 5,477 $ 5,916
Depreciation.......................... 497 516 568
Deletions............................. -- (77) (29)
------- ------- -------
Balance at end of year.................. $ 5,477 $ 5,916 $ 6,455
======= ======= =======
</TABLE>
S-4
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
HOMEGATE HOSPITALITY, INC.
FIRST: The name of the corporation is Homegate Hospitality, Inc.
SECOND: The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 in
New Castle County, Delaware. The name of its registered agent at such address
is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is twenty-five million
(25,000,000), of which (A) twenty million (20,000,000) shares shall be
designated as Common Stock, par value $.01 per share (the "Common Stock"), and
(B) five million (5,000,000) shares shall be designated as Preferred Stock, par
value $.01 per share, (the "Preferred Stock").
The following is a statement of the designations, preferences,
limitations and relative rights, including voting rights, in respect of the
classes of stock of the Corporation and of the authority with respect thereto
expressly vested in the Board of Directors of the Corporation:
A. Common Stock
1. Each share of Common Stock of the Corporation shall have identical
rights and privileges in every respect. The holders of shares of Common Stock
shall be entitled to vote upon all matters submitted to a vote of the
stockholders of the Corporation and shall be entitled to one vote for each share
of Common Stock held.
2. Subject to the prior rights and preferences, if any, applicable to
shares of the Preferred Stock or any series thereof, the holders of shares of
the Common Stock shall be entitled to receive such dividends (payable in cash,
stock or otherwise) as may be declared thereon by the Board of Directors at any
time and from time to time out of any funds of the Corporation legally available
therefor.
1
<PAGE>
3. In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, after distribution in full of the
preferential amounts, if any, to be distributed to the holders of shares of the
Preferred Stock or any series thereof, the holders of shares of the Common Stock
shall be entitled to receive all of the remaining assets of the Corporation
available for distribution to its stockholders, ratably in proportion to the
number of shares of the Common Stock held by them. A liquidation, dissolution or
winding-up of the Corporation, as such terms are used in this subparagraph
(3), shall not be deemed to be occasioned by or to include any merger of the
Corporation with or into one or more corporations or other entities, any
acquisition or exchange of the outstanding shares of one or more classes or
series of the Corporation or any sale, lease, exchange or other disposition of
all or a part of the assets of the Corporation.
B. Preferred Stock
1. Shares of the Preferred Stock may be issued from time to time in
one or more classes or series, the shares of each series to have such voting
powers, designations, preferences, rights and qualifications, limitations or
restrictions, as shall be stated and expressed herein or in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors of the Corporation (or a duly authorized committee thereof). Each such
series of Preferred Stock shall be designated so as to distinguish the shares
thereof from the shares of all other series and classes. The Board of Directors
of the Corporation (or a duly authorized committee thereof) is hereby expressly
authorized, subject to the limitations provided by law, to establish and
designate series of the Preferred Stock, to fix the number of shares
constituting each series and to fix the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of the
shares of each series and the variations of the relative rights and preferences
as between series, and to increase and to decrease the number of shares
constituting each series, provided that the Board of Directors (or a duly
authorized committee thereof) may not decrease the number of shares within a
series to less than the number of shares within such series that are then
issued. The relative powers, preferences, rights and qualifications, limitations
or restrictions may vary between and among series of Preferred Stock in any and
all respects so long as all shares of the same series are identical in all
respects, except that shares of any such series issued at different times may
have different dates from which dividends thereon cumulate. The authority of the
Board of Directors of the Corporation (or a duly authorized committee thereof)
with respect to each series shall include, but shall not be limited to, the
authority to determine the following:
(a) The designation of such class or series;
(b) The number of shares initially constituting such class or
series;
(c) The rate or rates and the times at which dividends on the
shares of such class or series shall be paid, the periods in respect of
which dividends are payable, the conditions upon such dividends, the
relationship and preferences, if any, of such dividends to dividends
2
<PAGE>
payable on any other class or series of shares, whether or not such
dividends shall be cumulative, partially cumulative or noncumulative, if
such dividends shall be cumulative or partially cumulative, the date or
dates from and after which, and the amounts in which, they shall
accumulate, whether such dividends shall be share dividends, cash or other
dividends or any combination thereof, and if such dividends shall include
share dividends, whether such share dividends shall be payable in shares of
the same or any other class or series of shares of the Corporation (whether
now or hereafter authorized), or any combination thereof and the other
terms and conditions, if any, applicable to dividends on shares of such
series;
(d) Whether or not the shares of such series shall be redeemable
or subject to repurchase at the option of the Corporation or the holder
thereof or upon the happening of a specified event, if such shares shall be
redeemable, the terms and conditions of such redemption, including but not
limited to the date or dates upon or after which such shares shall be
redeemable, the amount per share which shall be payable upon such
redemption, which amount may vary under different conditions and at
different redemption dates and whether such amount shall be payable in
cash, property or rights, including securities of the Corporation or
another corporation;
(e) The rights of the holders of shares of such series (which may
vary depending upon the circumstances or nature of such liquidation,
dissolution or winding up) in the event of the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and the
relationship or preference, if any, of such rights to rights of holders of
stock of any other class or series. A liquidation, dissolution or winding
up of the Corporation, as such terms are used in this subparagraph (e),
shall not be deemed to be occasioned by or to include any merger of the
Corporation with or into one or more corporations or other entities, any
acquisition or exchange of the outstanding shares of one or more classes or
series of the Corporation or any sale, lease, exchange or other disposition
of all or a part of the assets of the Corporation;
(f) Whether or not the shares of such series shall have voting
powers and, if such shares shall have such voting powers, the terms and
conditions thereof, including, but not limited to, the right of the holders
of such shares to vote as a separate class either alone or with the holders
of shares of one or more other classes or series of stock and the right to
have more (or less) than one vote per share;
(g) Whether or not a sinking fund shall be provided for the
redemption of the shares of such series and, if such a sinking fund shall
be provided, the terms and conditions thereof;
(h) Whether or not a purchase fund shall be provided for the
shares of such series and, if such a purchase fund shall be provided, the
terms and conditions thereof;
3
<PAGE>
(i) Whether or not the shares of such series, at the option of
either the Corporation or the holder or upon the happening of a specified
event, shall be convertible into stock of any other class or series and, if
such shares shall be so convertible, the terms and conditions of
conversion, including, but not limited to, any provision for the adjustment
of the conversion rate or the conversion price;
(j) Whether or not the shares of such series, at the option of
either the Corporation or the holder or upon the happening of a specified
event, shall be exchangeable for securities, indebtedness or property of
the Corporation and, if such shares shall be so exchangeable, the terms and
conditions of exchange, including, but not limited to, any provision for
the adjustment of the exchange rate or the exchange price; and
(k) Any other preferences, limitations and relative rights as
shall not be inconsistent with the provisions of this Article Fourth or the
limitations provided by law.
2. Except as otherwise provided herein, as required by law or in any
resolution of the Board of Directors (or a duly authorized committee thereof)
creating any series of Preferred Stock, the holders of shares of Preferred Stock
and all series thereof who are entitled to vote shall vote together with the
holders of shares of Common Stock, and not separately by class.
FIFTH: The name of the incorporator is Brian A. Bradshaw and his
mailing address is c/o Vinson & Elkins L.L.P., 3700 Trammell Crow Center, 2001
Ross Avenue, Dallas, Texas 75201.
SIXTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. The Board of Directors may
exercise all such authority and powers of the Corporation and do all such lawful
acts and things as are not by statute or the Certificate of Incorporation
directed or required to be exercised or done by the stockholders.
A. Number of Directors
The number of directors of the Corporation (exclusive of directors to
be elected by the holders of one or more series of the Preferred Stock of the
Corporation which may be outstanding, voting separately as a series or class)
shall be fixed from time to time by action of not less than a majority of the
members of the Board of Directors then in office, though less than a quorum, but
in no event shall be less than five nor more than thirteen. The number of
directors constituting the initial board of directors is seven, and the name of
each person who is to serve as director until the first annual meeting of
stockholders or until his successor is elected and qualified is Robert A. Faith,
Anthony W. Dona, James D. Carreker, Harlan R. Crow, John Moores, Charles E.
Noell and J. Ronald Terwilliger. The mailing address of each of such persons is
2001 Bryan Street, Suite 2400, Dallas, Texas 75201.
4
<PAGE>
B. Classes
Subject to the rights, if any, of any series of Preferred Stock then
outstanding, the directors shall be divided into three classes, designated Class
I, Class II and Class III. The initial Class I directors are Messrs. Carreker
and Terwilliger, the initial Class II directors are Messrs. Crow and Moores and
the initial Class III directors are Messrs. Faith, Dona and Noell. The number of
directors in each class shall be the whole number contained in the quotient
arrived at by dividing the authorized number of directors by three, and if a
fraction is also contained in such quotient then if such fraction is one-third
(1/3) the extra director shall be a member of Class III and if the fraction is
two-thirds (2/3) one of the extra directors shall be a member of Class III and
the other shall be a member of Class II. Directors shall serve for staggered
terms of three years each, except that initially the Class I directors will
serve until the Corporation's 1997 annual meeting of stockholders, the Class II
directors will serve until the Corporation's 1998 annual meeting and the Class
III directors will serve until the Corporation's 1999 annual meeting. At each
annual meeting of stockholders following the first annual meeting of
stockholders, directors shall be elected to succeed those directors whose terms
expire for a term of office to expire at the third succeeding annual meeting of
stockholders after their election. All directors shall hold office until the
annual meeting of stockholders for the year in which their term expires and
until their successors are duly elected and qualified, or until their earlier
death, resignation, disqualification or removal.
C. Vacancies
Subject to the rights, if any, of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, disqualification or removal may be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified.
D. Removal
Any director or the entire Board of Directors may be removed only for
cause and only by the vote of the holders of a majority of the securities of the
Corporation then entitled to vote at an election of directors.
SEVENTH: Nominations of persons for election to the Board of Directors
may be made at an annual meeting of stockholders or special meeting of
stockholders called by the Board of Directors for the purpose of electing
directors (1) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation entitled to vote for the election of directors at
such meeting who complies with the notice of procedures set forth in this
Article Seventh. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the
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Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the scheduled
date of the meeting, regardless of any postponement, deferral or adjournment of
that meeting to a later date; provided, however, that if less than 70 days'
-------- -------
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so delivered or
received not later than the close of business on the 10th day following the
earlier of (i) the day on which such notice of the date of the meeting was
mailed or (ii) the day on which such public disclosure was made.
A stockholder's notice to the Secretary shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the Corporation which are beneficially owned by such
person on the date of such stockholder's notice and (d) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, or any
successor statute thereto (the "Exchange Act") (including, without limitation,
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (ii) as to the stockholder giving
notice (a) the name and address, as such information appears on the
corporation's books, of such stockholder and any other stockholders known by
such stockholder to be supporting such nominee(s), (b) the class and number of
shares of the Corporation which are beneficially owned by such stockholder and
each other stockholder known bu such stockholder to be supporting such
nominee(s) on the date of such stockholder notice, (c) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; and (iii) a description
of all arrangements or understandings between the stockholder and each nominee
and other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder.
Subject to the rights, if any, of the holders of any series of Preferred
Stock then outstanding, no person shall be eligible for election as a director
of the Corporation unless nominated in accordance with the procedures set forth
in this Article Seventh. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Article Seventh and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
EIGHTH: At the annual meeting of stockholders, only such business
shall be conducted, and only such proposals shall be acted upon, as shall have
been properly brought before the annual meeting of stockholders (i) by or at the
direction of the Board of Directors or (ii) by a stockholder of the Corporation
who complies with the procedures set forth in this Article Eighth. For business
or a proposal to be properly brought before an annual meeting of stockholders by
a stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the scheduled
date of the annual meeting, regardless of any postponement, deferral or
adjournment of that meeting to a later date;
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provided, however, that if less than 70 days' notice or prior public disclosure
- -------- -------
of the date of the annual meeting is given or made to stockholders, notice by
the stockholder to be timely must be so delivered or mailed and received not
later than the close of business on the 10th day following the earlier of
(i) the day on which such notice of the date of the meeting was mailed or
(ii) the day on which such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before an annual meeting of
stockholders (i) a description, in 500 words or less, of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as such information
appears on the corporation's books, of the stockholder proposing such business
and any other stockholder known by such stockholder to be supporting such
proposal, (iii) the class and number of shares of the Corporation that are
beneficially owned by such stockholder and each other stockholder known by such
stockholder to be supporting such proposal on the date of such stockholder's
notice, (iv) a description, in 500 words or less, of any interest of the
stockholder in such proposal and (v) a representation that the stockholder is a
holder of record of stock of the Corporation and intends to appear in person or
by proxy at the meeting to present the proposal specified in the notice.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that the business was not properly brought before the
meeting in accordance with the procedures prescribed by this Article Eighth, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing, nothing in this Article Eighth shall be
interpreted or construed to require the inclusion of information about any such
proposal in any proxy statement distributed by, at the direction of, or on
behalf of, the Board of Directors.
NINTH: Any action required or permitted to be taken at any annual or
special meeting of stockholders may only be taken upon the vote of the
stockholders at an annual or special meeting duly called and may not be taken by
written consent of the stockholders.
TENTH: Subject to the rights of the holders of any series of Preferred
Stock, special meetings of the stockholders, unless otherwise prescribed by
statute, may be called at any time only by the Chairman of the Board of
Directors or a majority of the Board of Directors or a majority of the members
of the Board of Directors.
ELEVENTH: In addition to any affirmative vote required by applicable
law or any other provision of this Certificate of Incorporation or specified in
any agreement, and in addition to any voting rights granted to or held by the
holders of any series of Preferred Stock, the affirmative vote of the holders of
not less than two-thirds (2/3) of all securities of the Corporation entitled to
vote generally in the election of directors shall be required to adopt an
agreement of merger or consolidation (other than with respect to the merger of a
subsidiary of the Corporation with and into the Corporation pursuant to Section
253 of the General Corporation Law of Delaware) or to approve the sale, lease or
exchange of all or substantially all of the Corporation's property and assets
(other than a mortgage or pledge thereof).
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TWELFTH: The Board of Directors is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation. Any Bylaws made by the directors
under the powers conferred hereby may be amended or repealed by the directors or
by the stockholders. Notwithstanding the foregoing and anything contained in
this Certificate of Incorporation to the contrary, (A) the Bylaws shall not be
amended or repealed by the stockholders, without the affirmative vote of the
holders of at least two-thirds (2/3) of the voting power of all shares of the
Corporation entitled to vote generally in the election of directors voting
together as a single class and (B) no provision inconsistent therewith shall be
adopted by the stockholders, without the affirmative vote of the holders of at
least two-thirds (2/3) of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors voting together as a
single class.
THIRTEENTH: The Board of Directors, each committee of the Board of
Directors and each individual director, in discharging their respective duties
under applicable law and this Certificate of Incorporation and in determining
what they each believe to be in the best interests of the Corporation and its
stockholders, may consider the effects, both short-term and long-term, of any
action or proposed action taken or to be taken by the Corporation, the Board of
Directors or any committee of the Board of Directors on the interests of (i) the
employees, franchisees, associates, customers, suppliers and/or creditors of the
Corporation and its subsidiaries and (ii) the communities in which the
Corporation and its subsidiaries own or lease property or conduct business, all
to the extent that the Board of Directors, any committee of the Board of
Directors or any individual director deems pertinent under the circumstances
(including the possibility that the interests of the Corporation may best be
served by the continued independence of the Corporation); provided, however,
-------- -------
that the provisions of this Article Thirteenth shall not limit in any way the
right of the Board of Directors to consider any other lawful factors in making
its determinations, including, without limitation, the effects, both short-term
and long-term, of any action or proposed action on the Corporation or its
stockholders directly; and provided further that this Article Thirteenth shall
-------- -------
be deemed solely to grant discretionary authority to the Board of Directors,
each committee of the Board of Directors and each individual director and shall
not be deemed to provide to any specific constituency any right to be
considered.
FOURTEENTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stock holders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding
8
<PAGE>
on all the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
FIFTEENTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the preceding sentence, a
director of the Corporation shall not be liable to the fullest extent permitted
by any amendment to the Delaware General Corporation Law hereafter enacted that
further limits the liability of a director.
SIXTEENTH: The Corporation shall indemnify any person who was, is, or
is threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic Corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the same
exists or may hereafter be amended. Such right shall be a contract right and as
such shall inure to the benefit of any director or officer who is elected and
accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this Article
Sixteenth is in effect. Any repeal or amendment of this Article Sixteenth shall
be prospective only and shall not limit the rights of any such director or
officer or the obligations of the Corporation with respect to any claim arising
from or related to the services of such director or officer in any of the
foregoing capacities prior to any such repeal or amendment to this Article
Sixteenth. Such right shall include the right to be paid by the Corporation
expenses (including without limitation attorneys' fees) actually and reasonably
incurred by him in defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the Delaware General
Corporation Law, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense is not permitted under the
Delaware General Corporation Law, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors or any committee thereof, independent legal counsel, or
stockholders) to have made its determination prior to the commencement of such
action that indemnification of, or advancement of costs of defense to, the
claimant is permissible in the circumstances nor any actual determination by the
Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) that such indemnification or
advancement is not permissible shall be a defense to the action or create a
presumption that such indemnification or advance is not permissible. In the
event of the death of any person having a right
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<PAGE>
of indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, bylaw,
resolution of stockholders or directors, agreement, or otherwise.
The Corporation may also indemnify any employee or agent of the Corporation
to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, any inquiry or investigation that could lead to such an
action, suit , or proceeding.
SEVENTEENTH: The Corporation reserves the right to amend, add, alter,
change, repeal or adopt any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. In addition to any affirmative vote required by applicable law or
any other provision of this Certificate of Incorporation or specified in any
agreement, and in addition to any voting rights granted to or held by the
holders of any series of Preferred Stock, the affirmative vote of the holders of
not less than two-thirds (2/3) of the voting power of all securities of the
Corporation entitled to vote generally in the election of directors shall be
required to amend, add, alter, change, repeal or adopt any provisions
inconsistent with Articles Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh,
Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth or this Article
Seventeenth of this Certificate of Incorporation.
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I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Delaware General Corporation
Law, do make this certificate, hereby declaring that this is my act and deed and
that the facts herein stated are true, and accordingly have hereunto set my hand
this ___ day of August, 1996.
/s/ Brian A. Bradshaw
----------------------------------------------
Brian A. Bradshaw
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Exhibit 3.2
BYLAWS
OF
HOMEGATE HOSPITALITY, INC.
Article I
Offices
-------
Section 1. Registered Office. The registered office of the
--------- -----------------
Corporation required by the General Corporation Law of the State of Delaware to
be maintained in the State of Delaware, shall be the registered office named in
the original Certificate of Incorporation of the Corporation (as the same may be
amended and restated from time to time, the "Certificate of Incorporation"), or
such other office as may be designated from time to time by the Board of
Directors in the manner provided by law. Should the Corporation maintain a
principal office within the State of Delaware, such registered office need not
be identical to such principal office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at
--------- -------------
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article II
Stockholders
------------
Section 1. Place of Meetings. All meetings of the stockholders shall
--------- -----------------
be held at the principal office of the Corporation, or at such other place
within or without the State of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise
--------- -------------------------------
required by law or provided in the Certificate of Incorporation or these bylaws,
the holders of a majority of the stock issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum at any meeting of stockholders for the transaction of business and the
act of a majority of such stock so represented at any meeting of stockholders at
which a quorum is present shall constitute the act of the meeting of
stockholders. The stockholders present at a duly organized meeting may continue
to transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
<PAGE>
Notwithstanding the other provisions of the Certificate of
Incorporation or these bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock present in person or represented by
proxy at any meeting of stockholders, whether or not a quorum is present, shall
have the power to adjourn such meeting from time to time without any notice
other than announcement at the meeting of the time and place of the holding of
the adjourned meeting; provided, however, if the adjournment is for more than
-------- -------
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at such meeting. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 3. Annual Meetings. An annual meeting of the stockholders,
--------- ---------------
for the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Delaware, on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the
--------- ----------------
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be only be called by the Chairman of the Board (if any)
or by a majority of the Board of Directors.
Section 5. Record Date. For the purpose of determining stockholders
--------- -----------
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors of the Corporation
may fix, in advance, a date as the record date for any such determination of
stockholders, which date shall not be more than sixty (60) days nor less than
ten (l0) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the Board of Directors does not fix a record date for any meeting
of the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance with
Article VIII, Section 3 of these bylaws, notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. If, in
accordance with Section 12 of this Article II, corporate action without a
meeting of stockholders is to be taken, the record date for determining
stockholders entitled to express consent to such corporate action in writing,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent
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<PAGE>
is expressed. The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Notice of Meetings. Written notice of the place, date and
--------- ------------------
hour of all meetings and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
Chairman of the Board (if any) or the President, the Secretary or the other
person(s) calling the meeting to each stockholder entitled to vote thereat not
less than ten (10) nor more than sixty (60) days before the date of the meeting.
Such notice may be delivered either personally or by mail. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
Section 7. Stock List. A complete list of stockholders entitled to
--------- ----------
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The stock list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting
--------- -------
of stockholders or to express consent or dissent to a corporate action in
writing without a meeting may authorize another person or persons to act for him
by proxy. Proxies for use at any meeting of stockholders shall be filed with
the Secretary or such other officer as the Board of Directors may from time to
time determine by resolution before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed by the chairman of the meeting, in which event such inspector or
inspectors shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless
the proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
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Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of the
same portion of the shares as he is of the proxies representing such shares.
Section 9. Voting; Elections; Inspectors. Unless otherwise required
--------- -----------------------------
by law or provided in the Certificate of Incorporation, each stockholder shall
have one vote for each share of stock entitled to vote which is registered in
his name on the record date for the meeting. Shares registered in the name of
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the bylaws (or comparable instrument) of such corporation may
prescribe, or in the absence of such provision, as the Board of Directors (or
comparable body) of such corporation may determine. Shares registered in the
name of a deceased person may be voted by his executor or administrator, either
in person or by proxy.
All voting, except as required by the Certificate of Incorporation or
where otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefor by stockholders holding a majority of the issued and
outstanding stock present in person or by proxy at any meeting a stock vote
shall be taken. Every stock vote shall be taken by written ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
All elections of directors shall be by ballot, unless otherwise provided in the
Certificate of Incorporation.
At any meeting at which a vote is taken by ballots, the chairman of
the meeting may appoint one or more inspectors, each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders
---------- -------------------
shall be presided over by the Chairman of the Board (if any), or if he is not
present, by the President, or if neither the Chairman of the Board (if any), nor
President is present, by a chairman elected at the meeting. The Secretary of
the Corporation, if present, shall act as secretary of such meetings, or if he
is not
4
<PAGE>
present, an Assistant Secretary shall so act; if neither the Secretary nor an
Assistant Secretary is present, then a secretary shall be appointed by the
chairman of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
in order. Unless the chairman of the meeting of stockholders shall otherwise
determine, the order of business shall be as follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination
of a quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
Section 11. Treasury Stock. The Corporation shall not vote, directly
---------- --------------
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes.
Article III
Board of Directors
------------------
Section 1. Power; Number; Term of Office. The business and affairs
--------- -----------------------------
of the Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the Certificate of
Incorporation, they may exercise all the powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors shall be that set forth in the Certificate of Incorporation for the
initial Board of Directors or such number as shall be specified from time to
time thereafter in a resolution adopted by the Board of Directors. Each
director shall hold office for the term for which he is elected and until his
successor shall have been elected and qualified or until his earlier death,
resignation or removal.
Unless otherwise provided in the Certificate of Incorporation,
directors need not be stockholders nor residents of the State of Delaware.
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Section 2. Quorum. Unless otherwise provided in the Certificate of
--------- ------
Incorporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business of the Board of Directors and the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may
--------- ------------------------------------
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from time
to time determine by resolution. At all meetings of the Board of Directors
business shall be transacted in such order as shall from time to time be
determined by the Chairman of the Board (if any), or in his absence by the
President, or by resolution of the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may
--------- -------------
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which
a quorum shall be present, held next after the annual meeting of stockholders,
the Board of Directors shall proceed to the election of the officers of the
Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of
--------- ----------------
Directors shall be held at such times and places as shall be designated from
time to time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of
--------- ----------------
Directors may be called by the Chairman of the Board (if any), the President or,
on the written request of any two directors, by the Secretary, in each case on
at least twenty-four (24) hours personal, written, telegraphic, cable or
wireless notice to each director. Such notice, or any waiver thereof pursuant
to Article VIII, Section 3 hereof, need not state the purpose or purposes of
such meeting, except as may otherwise be required by law or provided for in the
Certificate of Incorporation or these bylaws.
Section 7. Removal. Any director or the entire Board of Directors
--------- -------
may only be removed for cause by the holders of a majority of the shares then
entitled to vote at an election of directors.
Section 8. Vacancies; Increases in the Number of Directors. Unless
--------- -----------------------------------------------
otherwise provided in the Certificate of Incorporation, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or a sole remaining director; and any director so chosen
shall hold office until the next annual election and until his successor shall
be duly elected and shall qualify, unless sooner displaced.
6
<PAGE>
If the directors of the Corporation are divided into classes, any
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for which such directors shall have
been chosen, and until their successors shall be duly elected and shall qualify.
Section 9. Compensation. Unless otherwise restricted by the
--------- ------------
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting.
---------- ------------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee designated by the Board of Directors may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting and may be
stated as such in any document or instrument filed with the Secretary of State
of Delaware.
Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 11. Approval or Ratification of Acts or Contracts by
---------- ------------------------------------------------
Stockholders. The Board of Directors in its discretion may submit any act or
- ------------
contract for approval or ratification at any annual meeting of the stockholders
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present), shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote and such
consent shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
Article IV
7
<PAGE>
Committees
----------
Section 1. Designation; Powers. The Board of Directors may, by
--------- -------------------
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, each
such committee to consist of one or more of the directors of the Corporation.
Any such designated committee shall have and may exercise such of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution, except that no
such committee shall have the power or authority of the Board of Directors in
reference to amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, or amending, altering or
repealing the bylaws or adopting new bylaws for the Corporation and, unless such
resolution or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such designated committee may authorize
the seal of the Corporation to be affixed to all papers which may require it.
In addition to the above, such committee or committees shall have such other
powers and limitations of authority as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 2. Procedure; Meetings; Quorum. Any committee designated
--------- ---------------------------
pursuant to Section 1 of this Article shall choose its own chairman, shall keep
regular minutes of its proceedings and report the same to the Board of Directors
when requested, shall fix its own rules or procedures, and shall meet at such
times and at such place or places as may be provided by such rules, or by
resolution of such committee or resolution of the Board of Directors. At every
meeting of any such committee, the presence of a majority of all the members
thereof shall constitute a quorum and the affirmative vote of a majority of the
members present shall be necessary for the adoption by it of any resolution.
Section 3. Substitution of Members. The Board of Directors may
--------- -----------------------
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
8
<PAGE>
Article V
Officers
--------
Section 1. Number, Titles and Term of Office. The officers of the
--------- ---------------------------------
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of
the Board and such other officers as the Board of Directors may from time to
time elect or appoint. Each officer shall hold office until his successor shall
be duly elected and shall qualify until his death or until he shall resign or
shall have been removed in the manner hereinafter provided. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
provides otherwise. Except for the Chairman of the Board, if any, no officer
need be a director.
Section 2. Salaries. The salaries or other compensation of the
--------- --------
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors.
Section 3. Removal. Any officer or agent elected or appointed by the
--------- -------
Board of Directors may be removed, either with or without cause, by the vote of
a majority of the whole Board of Directors at a special meeting called for the
purpose, or at any regular meeting of the Board of Directors, provided the
notice for such meeting shall specify that the matter of any such proposed
removal will be considered at the meeting, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of the
--------- ---------
Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The
--------- ------------------------------------------------
President shall be the chief executive officer of the Corporation unless the
Board of Directors designates the Chairman of the Board as chief executive
officer. Subject to the control of the Board of Directors and the executive
committee (if any), the chief executive officer shall have general executive
charge, management and control of the properties, business and operations of the
Corporation with all such powers as may be reasonably incident to such
responsibilities; may agree upon and execute all leases, contracts, evidences of
indebtedness and other obligations in the name of the Corporation and may sign
all certificates for shares of capital stock of the Corporation; and shall have
such other powers and duties as designated in accordance with these bylaws and
as from time to time may be assigned to him by the Board of Directors.
Section 6. Powers and Duties of the Chairman of the Board. If
--------- ----------------------------------------------
elected, the Chairman of the Board shall preside at all meetings of the
stockholders and of the Board of Directors; and he
9
<PAGE>
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of
--------- ----------------------------------
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board or
if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 8. Vice Presidents. In the absence of the President, or in
--------- ---------------
the event of his inability or refusal to act, a Vice President designated by the
Board of Directors shall perform the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. In the absence of a designation by the Board of Directors of a Vice
President to perform the duties of the President, or in the event of his absence
or inability or refusal to act, the Vice President who is present and who is
senior in terms of time as a Vice President of the Corporation, shall so act.
The Vice Presidents shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility for
--------- ---------
the custody and control of all the funds and securities of the Corporation and
he shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors. He shall
perform all acts incident to the position of Treasurer, subject to the control
of the chief executive officer and the Board of Directors; and he shall, if
required by the Board of Directors, give such bond for the faithful discharge of
his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall
---------- --------------------
have the usual powers and duties pertaining to his office, together with such
other powers and duties as designated in these bylaws and as from time to time
may be assigned to him by the chief executive officer or the Board of Directors.
The Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all
---------- ---------
meetings of the Board of Directors, committees of directors and the
stockholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the seal
of the Corporation to all contracts of the Corporation and attest the affixation
of the seal of the Corporation thereto; he may sign with the other appointed
officers all certificates for shares of capital stock of the Corporation; he
shall have charge of the certificate books, transfer books and stock
10
<PAGE>
ledgers, and such other books and papers as the Board of Directors may direct,
all of which shall at all reasonable times be open to inspection of any director
upon application at the office of the Corporation during business hours; he
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors; and he shall
in general perform all acts incident to the office of Secretary, subject to the
control of the chief executive officer and the Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary shall
---------- ---------------------
have the usual powers and duties pertaining to his office, together with such
other powers and duties as designated in these bylaws and as from time to time
may be assigned to him by the chief executive officer or the Board of Directors.
The Assistant Secretaries shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other Corporations.
---------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the chief executive officer
shall have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of security holders of or with respect to any
action of security holders of any other corporation in which this Corporation
may hold securities and otherwise to exercise any and all rights and powers
which this Corporation may possess by reason of its ownership of securities in
such other corporation.
Article VI
Indemnification of Directors,
Officers, Employees and Agents
------------------------------
Section 1. Right to Indemnification. The Corporation shall indemnify
--------- ------------------------
any person who was, is, or is threatened to be made a party to a proceeding (as
hereinafter defined) by reason of the fact that he or she (i) is or was a
director or officer of the Corporation or (ii) while a director or officer of
the Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic Corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the Delaware General
Corporation Law, as the same exists or may hereafter be amended. Such right
shall be a contract right and as such shall inure to the benefit of any director
or officer who is elected and accepts the position of director or officer of the
Corporation or elects to continue to serve as a director or officer of the
Corporation while this Article VI is in effect. Any repeal or amendment of this
Article VI shall be prospective only and shall not limit the rights of any such
director or officer or the obligations of the Corporation with respect to any
claim arising from or related to the services of such director or officer in any
of the foregoing capacities prior to any such repeal or amendment to this
Article VI. Such right shall include the right to be paid by the Corporation
expenses (including, without limitation, attorneys'
11
<PAGE>
fees) actually and reasonably incurred by him in defending any such proceeding
in advance of its final disposition to the maximum extent permitted under the
Delaware General Corporation Law, as the same exists or may hereafter be
amended. If a claim for indemnification or advancement of expenses hereunder is
not paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim,
and if successful in whole or in part, the claimant shall also be entitled to be
paid the expenses of prosecuting such claim. It shall be a defense to any such
action that such indemnification or advancement of costs of defense is not
permitted under the Delaware General Corporation Law, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors or any committee thereof, independent legal
counsel, or stockholders) to have made its determination prior to the
commencement of such action that indemnification of, or advancement of costs of
defense to, the claimant is permissible in the circumstances nor any actual
determination by the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advance is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, bylaw,
resolution of stockholders or directors, agreement, or otherwise.
As used herein, the term "proceeding" means any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, any inquiry or investigation that could lead to such an
action, suit , or proceeding.
Section 2. Indemnification of Employees and Agents. The Corporation
--------- ---------------------------------------
may, by action of its Board of Directors, provide indemnification to employees
and agents of the Corporation, individually or as a group, with the same scope
and effect as the indemnification of directors and officers provided for in this
Article.
Section 3. Right of Claimant to Bring Suit. If a written claim
--------- -------------------------------
received by the Corporation from or on behalf of an indemnified party under this
Article VI is not paid in full by the Corporation within ninety days after such
receipt, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled also to be paid the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation
12
<PAGE>
to indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 4. Nonexclusivity of Rights. The right to indemnification
--------- ------------------------
and the advancement and payment of expenses conferred in this Article VI shall
not be exclusive of any other right which any person may have or hereafter
acquire under any law (common or statutory), provision of the Certificate of
Incorporation of the Corporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
--------- ---------
expense, to protect itself and any person who is or was serving as 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 any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Savings Clause. If this Article VI or any portion hereof
--------- --------------
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each director and
officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated and to the fullest extent
permitted by applicable law.
Section 7. Definitions. For purposes of this Article, reference to
--------- -----------
the "Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger prior to (or, in the case of an entity specifically
designated in a resolution of the Board of Directors, after) the adoption hereof
and which, if its separate existence had continued, would have had the power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article
13
<PAGE>
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
Article VII
Capital Stock
-------------
Section 1. Certificates of Stock. The certificates for shares of the
--------- ---------------------
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation, as shall be approved
by the Board of Directors. The Chairman of the Board (if any), President or a
Vice President shall cause to be issued to each stockholder one or more
certificates, under the seal of the Corporation or a facsimile thereof if the
Board of Directors shall have provided for such seal, and signed by the Chairman
of the Board (if any), President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer certifying the
number of shares (and, if the stock of the Corporation shall be divided into
classes or series, the class and series of such shares) owned by such
stockholder in the Corporation; provided, however, that any or all of the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary or at the office of
such transfer agent or transfer agents as the Board of Directors may from time
to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures shall
have been placed upon any such certificate or certificates shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued
by the Corporation, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue. The stock certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the
--------- ------------------
Corporation shall be transferable only on the books of the Corporation by the
holders thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to
--------- -------------------
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
14
<PAGE>
Section 4. Regulations Regarding Certificates. The Board of
--------- ----------------------------------
Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock of
the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors
--------- ------------------------------
may determine the conditions upon which a new certificate of stock may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in their discretion, require the owner of such certificate
or his legal representative to give bond, with sufficient surety, to indemnify
the Corporation and each transfer agent and registrar against any and all losses
or claims which may arise by reason of the issue of a new certificate in the
place of the one so lost, stolen or destroyed.
Article VIII
Miscellaneous Provisions
------------------------
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
--------- --------------
suitable seal, containing the name of the Corporation. The Secretary shall have
charge of the seal (if any). If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is
--------- ---------------------------
required to be given by law, the Certificate of Incorporation or under the
provisions of these bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission or (ii) by deposit of
the same in a post office box in a sealed prepaid wrapper addressed to the
person entitled thereto at his post office address, as it appears on the records
of the Corporation, and such notice shall be deemed to have been given on the
day of such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or the bylaws.
15
<PAGE>
Section 4. Resignations. Any director, member of a committee or
--------- ------------
officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the chief executive officer or Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for
--------- --------------------
the use of facsimile signatures elsewhere specifically authorized in these
bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. Each director
--------- ----------------------------------------
and each member of any committee designated by the Board of Directors shall, in
the performance of his duties, be fully protected in relying in good faith upon
the books of account or reports made to the Corporation by any of its officers,
or by an independent certified public accountant, or by an appraiser selected
with reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
Article IX
Amendments
----------
If provided in the Certificate of Incorporation of the Corporation,
the Board of Directors shall have the power to adopt, amend and repeal from time
to time bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal such bylaws as adopted
or amended by the Board of Directors.
16
<PAGE>
EXHIBIT 10.2
MASTER DEVELOPMENT ASSISTANCE AGREEMENT
----------------------------------------
This Master Development Assistance Agreement (this "Agreement") is
---------
entered into as of February 9, 1996, between DEVELOPER EXTENDED STAY PARTNERS,
L.P. ("Developer"), EXTENDED STAY LIMITED PARTNERSHIP ("Owner"), TCR EXTENDED
--------- -----
STAY I LIMITED PARTNERSHIP ("TCR"), GREYSTAR REALTY SERVICES, L.P. ("Greystar"),
--- --------
and each person executing this Agreement as an Other Restricted Party (herein so
called). TCR and Greystar are herein collectively called "Developer Parties"
-----------------
and are individually referred to herein as a "Developer Party." "Developer
--------------- ---------
Party Affiliate" means a person or entity (other than Developer) that controls,
- ---------------
is controlled by, or is under common control with one of the Developer Parties.
RECITALS
--------
Owner intends to acquire land for the development of extended-stay
lodging facilities ("Hotels") and has requested Developer to provide certain
------
services in connection with the selection of suitable Hotel sites, acquisition
of such sites and subsequent development of Hotels thereon. Developer has
agreed to provide such services on the terms and conditions contained herein.
Each Developer Party has agreed with Developer to participate in the delivery of
such services and, upon approval of a site identified by such Developer Party,
to construct the Hotel on such site. Such agreement is given in connection with
and as part of the consideration for Developer's 23% limited partner interest in
Owner.
AGREEMENTS
----------
For valuable consideration, whose receipt and sufficiency are
acknowledged, Owner, Developer and each Developer Party agree as follows:
1. Site Selection. Upon Owner's request, Developer shall assist
--------------
Owner in locating sites suitable for development of Hotels in markets designated
by Owner in the Restricted Area (defined below) from time to time. Each
Developer Party will cooperate with Developer in such efforts. In connection
therewith, Developer shall provide such services as Owner may reasonably request
which may include the preparation and delivery of the following information (the
"Property Information"): a preliminary site acquisition checklist; preliminary
- ---------------------
site information and market studies (including aerial photographs, maps,
location description in narrative form, demographic profiles, a list and map of
competitive properties in submarkets, and hotel supply statistics); and utility
verification. The Property Information shall be prepared in such detail as Owner
may reasonably request. The Developer Party submitting to Owner the Property
Information for a site shall be the "Developer Partner" under the Developer's
partnership agreement for such site and,
<PAGE>
upon such Developer Party's request therefor, Developer and Owner shall execute
an acknowledgment stating such is the case.
II. Project Development. Upon the preliminary selection by Owner of a
-------------------
site for the development of a Hotel, Owner and the Developer Partner (or an
affiliate thereof) for such Hotel shall execute a development and construction
agreement whose form is attached as Exhibit A (each, a "Development Agreement"),
--------- ---------------------
under which the Developer Partner shall construct the Hotel on the site in
question.
III. Term. This Agreement shall begin on the date hereof and shall
----
expire on the earliest of A. the execution of a Development Agreement for the
60th Hotel hereunder, B. the sale of all or substantially all of the assets of
Owner except in connection with a transaction in which the constituent partners
of Owner shall have ownership interests in the purchaser after giving effect to
such transaction or, if Owner is not a publicly-traded company, a change in the
control of Owner, or C. December 31, 1998.
IV. Non-Competition. None of the Developer, the Developer Parties, nor
---------------
any Other Restricted Party (collectively, "Restricted Parties") shall, directly
------------------
or indirectly through one or more intermediaries, own, operate, construct, or
develop a Competing Extended-Stay Project (defined below) during the Term in any
of the 48 states comprising the continental United States of America (the
"Restricted Area"). Each Restricted Party shall cause its constituent partners
- ----------------
and their respective partners, shareholders and affiliates (excluding, in the
case of TCR, any person who is an affiliate solely because of common ownership
or control by members of the family of Trammell Crow) not to own, operate,
construct, or develop a Competing Extended-Stay Project during the Term in the
Restricted Area. "Competing Extended-Stay Project" means a lodging facility
-------------------------------
whose primary business is the leasing or providing of hotel rooms to guests for
durations of one week or more for a price that is $400 or less per week;
however, "Competing Extended-Stay Project" does not include a facility operated
---
as an apartment development, even if units in the facility are leased or
otherwise made available for short-term occupancy (including occupancy for a
duration the same as Owner's target market) or leased or otherwise made
available to another person who intends to make such units available for short-
term occupancy. The non-competition provision of this Section is a material
inducement and is consideration for Owner's agreement to enter into this
Agreement. Each Restricted Party acknowledges and stipulates that the
restriction provided in this Section is reasonable in light of Owner's intended
expansion plan for Hotels during the Term and Owner's agreement to contract with
the Developer Parties and their respective Developer Party Affiliates to
construct Hotels pursuant to Development Agreements as provided herein. In
addition to all other rights and remedies therefor, Owner shall be entitled to
injunctive relief if a Restricted Party violates the terms of this Section.
V. Severability. If any provision hereof is found to be invalid or
------------
unenforceable, all the other provisions shall remain in full force and effect to
the maximum extent permitted by law and
2
<PAGE>
such invalid or unenforceable provisions shall be interpreted and deemed to be
modified so as to give effect to the intent and purpose thereof to the fullest
extent permitted by law.
VI. Notices. All notices provided or permitted to be given under this
-------
Agreement must be in writing and may be served by depositing the notice in the
United States Mail addressed to the party to be notified, postage prepaid,
registered or certified with return receipt requested; by delivering the notice
to such party by overnight or same-day courier service; or by facsimile
transmission. Notice given in accordance herewith shall be effective when
delivered to the address of the addressee. The address for notices for each
party hereto is set forth under its signature to this Agreement. Any party may
change its address for notice by giving three-days' prior written notice thereof
to the other parties.
VII. Binding Effect; Governing Law. This Agreement shall be binding on
-----------------------------
Owner, Developer, each Developer Party, each Other Restricted Party, and their
respective successors and assigns. This Agreement shall be governed by Texas
law. Neither Developer nor any Developer Party shall assign any of its rights
under this Agreement to any party without the prior consent of Owner, which
consent may be withheld or denied in Owner's sole discretion.
VIII. Obligations Several. The obligations of each Developer Partner
-------------------
under its Development Agreement are several. Neither TCR nor Greystar shall be
liable for the obligations or performance (or failure of performance) of the
other party under such other party's Development Agreement.
Executed as of the date first set forth above.
DEVELOPER EXTENDED STAY PARTNERS, L.P., a Texas
limited partnership
By: Extended Stay Limited Partnership, a
Delaware partnership, its general partner
By: ESH Partners, L.P., its general partner
By: Crow Family, Inc., its general partner
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: 2001 Ross Avenue, Suite 3200
Dallas, Texas 75201
3
<PAGE>
EXTENDED STAY LIMITED PARTNERSHIP, a Delaware
limited partnership
By: ESH Partners, L.P., a Texas limited partnership, its
general partner
By: Crow Family, Inc., its general partner
By: /s/ Anthony W. Dona
-------------------------------------------
Name: Anthony W. Dona
-----------------------------------------
Its:
------------------------------------------
Address: 2001 Ross Avenue, Suite 3200
Dallas, Texas 75201
TCR EXTENDED STAY I LIMITED PARTNERSHIP, a Texas limited
partnership
By: TCR Extended Stay, Inc., a Texas corporation, its
general partner
By: /s/ Randy Pace
-------------------------------------------------
Name: Randy Pace
-----------------------------------------------
Its:
------------------------------------------------
Address: 717 N.Harwood St., Suite 1200
Dallas, Texas 75201
Attention: Randy J. Pace
GREYSTAR REALTY SERVICES, L.P., a Delaware limited
partnership
By: Greystar Holdings, Inc., a Texas corporation, its
general partner
By: /s/ Robert A. Faith
------------------------------------------------
Name: Robert A. Faith
-----------------------------------------------
Its:
-----------------------------------------------
Address: Two Riverway, Suite 850
Houston, Texas 77056
4
<PAGE>
OTHER RESTRICTED PARTIES:
/s/ Robert A. Faith
---------------------------------------------
ROBERT A. FAITH
Address: Two Riverway, Suite 850
Houston, Texas 77056
/s/ Leonard W. Wood
---------------------------------------------
LEONARD W. WOOD
Address:
-------------------------------------
-------------------------------------
/s/ J. Ronald Terwilliger
---------------------------------------------
J. RONALD TERWILLIGER
Address:
-------------------------------------
-------------------------------------
/s/ Bruce C. Ward
---------------------------------------------
BRUCE C. WARD
Address:
-------------------------------------
-------------------------------------
/s/ Chris Wheeler
---------------------------------------------
CHRIS WHEELER
Address:
-------------------------------------
-------------------------------------
5
<PAGE>
================================================================================
DEVELOPMENT AND
CONSTRUCTION AGREEMENT
Date: [_______________]
[Note: This agreement will be signed after the Project has received preliminary
approval by Wyndham and before final approval of the Project in question.]
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
APPOINTMENT
-----------
<S> <C> <C>
Section 1.1 Appointment................... 1
Section 1.2 Term.......................... 1
Section 1.3 Independent Contractor........ 1
Section 1.4 Developer's Authority......... 1
ARTICLE 2
DEVELOPMENT AND CONSTRUCTION SERVICES
-------------------------------------
Section 2.1 Preliminary and Final Approval 2
Section 2.2 Other Services................ 4
Section 2.3 Construction.................. 5
Section 2.4 Related Party Service......... 5
Section 2.5 Construction Costs............ 5
Section 2.6 Construction Lender Guaranty.. 6
ARTICLE 3
COMPENSATION
------------
Section 3.1 General Conditions Payments... 7
ARTICLE 4
INSURANCE
---------
Section 4.1 Types and Amounts of Insurance 7
Section 4.2 Waiver of Claims.............. 9
ARTICLE 5
DEFAULT AND REMEDIES
--------------------
ARTICLE 6
DUTIES UPON TERMINATION OR EXPIRATION
-------------------------------------
Section 6.1 Developer's Duties............ 9
Section 6.2 Owner's Duties................ 9
ARTICLE 7
MISCELLANEOUS PROVISIONS
------------------------
Section 7.1 Notices....................... 10
Section 7.2 Assignment.................... 10
Section 7.3 Governing Law................. 10
Section 7.4 Entireties, Beneficiaries..... 10
Section 7.5 Acquisition of Land........... 10
Section 7.6 Termination................... 10
</TABLE>
i
<PAGE>
LIST OF DEFINED TERMS
---------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Additional Contract Costs......... 5
Agreement......................... 1
AIA Contract...................... 5
CGL............................... 7
Construction Costs................ 5
Construction Lender............... 6
Consultants....................... 4
Cost Overruns..................... 5
Developer......................... 1
Developer Affiliates.............. 6
Developer Partner................. 6
Development Budget................ 3
Development Plan.................. 3
Final Approval.................... 3
Final Completion.................. 6
Force Majeure..................... 6
General Conditions Payments....... 7
Improvements...................... 1
Land.............................. 1
Management Committee.............. 2
Owner............................. 1
Preliminary Approval Period....... 2
Project........................... 1
Project Schedule.................. 3
Proposed Construction Lender...... 6
Purchase Agreement................ 2
Services.......................... 1
Subsequent Governmental Costs..... 5
Unanticipated Geotechnical Costs.. 5
</TABLE>
ii
<PAGE>
DEVELOPMENT AND
CONSTRUCTION AGREEMENT
----------------------
This Development and Construction Agreement (this "Agreement") is made as
---------
of ________________, 199___, between EXTENDED STAY LIMITED PARTNERSHIP, a
Delaware limited partnership ("Owner"), and [insert correct entity name]
----- --------------------------------
("Developer").
---------
RECITALS
--------
A. Owner owns or expects to acquire the land described on Schedule 1 (the
----------
"Land"). Owner intends to construct an extended-stay hotel facility and related
----
site improvements (the "Improvements"). The Improvements and Land are
------------
collectively called the "Project."
-------
B. Owner desires to retain Developer to provide the services described in
this Agreement, and Developer desires to provide such services to Owner on the
terms and conditions set forth in this Agreement.
AGREEMENTS
----------
For valuable consideration, whose receipt and sufficiency are acknowledged,
the parties agree as follows:
ARTICLE 1
APPOINTMENT
-----------
Section 1.1 Appointment. Developer is appointed as the developer of the
-----------
Project to provide development and construction services with respect to the
Project (the "Services"). Developer accepts such appointment and shall perform
--------
the Services in accordance with this Agreement and in accordance with normal
practices in the real estate industry in the vicinity of the Land.
Section 1.2 Term. This Agreement shall be for a term beginning with the
----
date hereof, and ending upon Final Completion (defined below), unless Owner
terminates this Agreement as provided herein.
1
<PAGE>
Section 1.3 Independent Contractor. Developer is an independent
----------------------
contractor. Developer's authority to act for Owner is strictly limited to that
expressly delegated herein and, except as otherwise provided herein, Developer
is not authorized to bind or commit Owner.
Section 1.4 Developer's Authority. Developer is authorized to take all
---------------------
actions necessary or appropriate to fulfill its obligations hereunder; however,
Developer may not incur any expense on behalf of Owner, except for those
incurred (a) in accordance with the Development Budget (defined below) or
otherwise approved in advance by Owner or (b) to preserve or repair the Project
and for other items if, in Developer's reasonable judgment, such expenditures
are necessary to prevent damage to the Project or to preserve the health or
safety of any person. Developer shall inform Owner of any expenditure described
in clause (b) of the previous sentence as soon as reasonably practicable, but in
any event not later than the end of the next business day after the expenditure
is made.
ARTICLE 2
DEVELOPMENT AND CONSTRUCTION SERVICES
-------------------------------------
Section 2.1 Preliminary and Final Approval. Owner has preliminarily
------------------------------
approved the Land and Project as a potential location for an extended-stay hotel
facility based on the preliminary site acquisition checklist submitted to Owner
by Developer or its affiliate, but has not received final approval of the Land
and Project for an extended-stay facility. From the date hereof until Owner
presents the Project to the management committee of Owner (the "Management
----------
Committee") for final approval (the "Preliminary Approval Period"), Owner and
- --------- ---------------------------
Developer shall take the following action:
(a) Owner shall reimburse Developer for all out-of-pocket costs paid
by Developer before the date hereof for the preparation of a site plan for the
Project, for earnest money deposited under a contract of sale entered into by
Developer or its affiliate for the Land, if any (a "Purchase Agreement"), and
------------------
for other costs incurred in connection with the Project before the date hereof,
all to the extent set forth on Schedule 2. If Developer or its affiliate has
----------
entered into a Purchase Agreement, then the Purchase Agreement shall be assigned
to Owner contemporaneously with the execution hereof, by the purchaser
thereunder executing the assignment set forth under the signature blocks hereto.
(b) Developer shall:
(1) Prepare and submit to Owner for its review a proposed budget
for all projected hard costs, soft costs, and other expenditures in connection
with developing the Project (which shall include all development costs
particular to the area where the Land is located, such as, without limitation,
impact fees, assessments for off-site improvements, and the like) and a
construction cost disbursement schedule.
2
<PAGE>
(2) Provide preliminary site information for the Project (including,
without limitation, aerial photographs, maps, location description in
narrative form, demographic profiles, a list and map of competitive
properties in submarkets, and hotel supply statistics).
(3) Prepare a list setting forth anticipated long lead time items,
construction commencement date, and completion date.
(4) Developer shall obtain a Phase I Environmental Report and a
geotechnical report for the Project addressed to Owner. Each such report
shall be prepared by an engineer or other consultant reasonably acceptable
to Owner and shall comply with the customary standards and scope of
services typically required by affiliates of Developer in their ordinary
course of business of acquiring and developing property.
After Owner has received the information described above, such information shall
be submitted to the Management Committee for approval of the Project. If the
Management Committee does not approve of the Project, then this Agreement shall
terminate, Owner shall reimburse to Developer all out-of-pocket costs incurred
by Developer during the Preliminary Approval Period (to the extent such costs
are set forth on Schedule 2 or otherwise specifically approved in writing by
----------
Owner), and neither party shall have any further rights or obligations
hereunder. If the Management Committee approves of the Project (the "Final
-----
Approval"), then this Agreement shall remain in effect, Owner shall reimburse to
- --------
Developer all out-of-pocket costs incurred by Developer during the Preliminary
Approval Period (to the extent such costs are set forth on Schedule 2 or
----------
otherwise specifically approved in writing by Owner), Developer shall not be in
default if it failed to deliver any of the items specified in Sections
2.1(b)(1), 2.1(b)(2), and 2.1(b)(3), and Owner and Developer shall perform their
respective obligations hereunder.
(c) After Final Approval, Developer shall:
(1) Prepare and submit to Owner for its approval a proposed detailed
development plan setting forth a precise description of the proposed
improvements comprising the Project, the schedule for development of the
plans and specifications therefor, and the proposed parameters of
agreements with architectural, engineering, and consulting firms and such
other detailed information as Owner may reasonably request. Such
development plan, as approved by Owner, and as from time to time amended
with the approval of Owner and Developer, shall constitute the "Development
Plan." -----------
----
(2) Make any necessary modifications to the preliminary budget
prepared in accordance with Section 2.1(b)(1) and deliver such budget to
Owner for its review and approval. Such budget, as approved by Owner, and
as from time to time amended with the approval of Owner and Developer,
shall constitute the "Development Budget." The
------------------
3
<PAGE>
Development Budget shall be in such detail as Owner may reasonably request
and shall provide for contingencies and an estimate of all costs to be
incurred in developing the Project. Owner and Developer shall sign the
Development Budget after it has been approved.
(3) Prepare and submit for Owner's approval an estimated critical
path schedule (the "Project Schedule") that coordinates and integrates
----------------
Developer's services and Owner's responsibilities and needs with
anticipated construction schedules. The Project Schedule shall include a
detailed program for the design and construction of the Project including
procurement, fabrication and delivery dates for all major materials and
equipment; cover all phases of the work required by this Agreement; and
indicate the established dates for the start and completion of all phases
of the Project, including the "Target Substantial Completion Date" and the
date for "Final Completion" under the AIA Contract (defined below). Upon
approval of the Project Schedule, Owner and Developer shall complete the
blanks in the AIA Contract for the Target Substantial Completion Date and
the Final Completion Date. If they fail to do so, such dates will be the
dates set forth therefor on the Project Schedule.10
(4) Perform the other services hereinafter described.
The preparation, proposal and presentation of the Development Plan, Development
Budget and Project Schedule shall include meeting with Owner and its
representatives to establish a basic framework of development planning for the
Project, including Developer's work plan and Project personnel, issues of
budget, schedule, project execution (architect, subcontractors, consultants),
special requirements and conditions. If Owner and Developer are unable to agree
on the Development Plan, Development Budget, or Project Schedule, then either
party may terminate this Agreement by delivering to the other party written
notice thereof, in which case, Owner shall reimburse Developer for all out-of-
pocket costs incurred by Developer after Final Approval through the termination
date (to the extent such costs are set forth on Schedule 2 or otherwise
----------
specifically approved by Owner). After such termination and such reimbursement,
neither party shall have any further rights or obligations to the other under
this Agreement.
Section 2.2 Other Services. Developer shall also provide the following
--------------
services before construction of a Project begins:
(a) Assist Owner in determining the portions of the Land that should
be used as the site for the Project.
(b) Interview, negotiate with, and, if appropriate, engage, with
Owner's approval (which shall not be unreasonably withheld or delayed), any
other design and development
4
<PAGE>
consultants (the "Consultants") for the Project, such as, space planners,
-----------
landscape architects, civil, soils, mechanical, electrical and plumbing
engineers, and acoustical, curtain wall, lighting, art and graphic design
consultants.
(c) Manage and coordinate the Consultants and coordinate the
architect's preparation of conceptual design, and the detailed plans and
specifications therefor, including matters relating to site planning,
engineering, building shell, public space, building height, total area, floor
size and landscape design, traffic and circulation matters.
(d) Initiate the planning and coordinate with Owner and the architect
the receipt of all necessary public and private approvals for the Project,
including city planning, applicable building codes, public works, architectural
review committee, and building permit approvals.
(e) Review designs during their development and advise Owner
regarding on-site use and improvements, selection of materials, and building
systems and equipment.
(f) Assist Owner in space planning, design and finish-out
evaluations.
(g) Prepare a detailed estimate of construction costs, developed by
using estimating techniques which anticipate the various elements of the
Project, and based on schematic design documents prepared by the architect.
Update and refine this estimate periodically as the architect prepares design
development and construction documents.
Section 2.3 Construction. After (a) Developer and Owner have approved
------------
the Development Plan, Development Budget, and Development Schedule, (b) the
plans and specifications for the improvements have been completed and initialed
by Owner and Developer, and (c) Owner has delivered to Developer a notice to
proceed, Developer shall construct the Improvements pursuant to the construction
contract attached hereto as Schedule 3 and shall be the "Contractor" thereunder
(such ----------
contract and the addendum thereto are herein collectively called the "AIA
---
Contract"). If the notice to proceed is not given within 30 days after the
- --------
Development Budget is signed, Developer may request amendments to the
Development Budget. If Owner and Developer are unable to agree on such
amendments, then either party may terminate this Agreement by delivering to the
other written notice thereof, in which case, Owner shall reimburse Developer for
all out-of-pocket costs incurred by Developer after Final Approval through the
termination date (to the extent such costs are set forth on Schedule 2 or
----------
otherwise specifically approved by Owner). If the terms of this Agreement
conflict with the terms of the AIA Contract, the terms of this Agreement shall
control.
Section 2.4 Related Party Service. If any service provided with respect
---------------------
to the Project (as, for example, roofing work or construction services) is to be
provided by a party affiliated
5
<PAGE>
with Developer, the cost thereof shall be comparable to that obtainable from
qualified third parties that are not so affiliated.
Section 2.5 Construction Costs. Developer shall be responsible for all
------------------
Construction Costs (defined below) in excess of the amount set forth on the
Development Budget (such excess amounts are herein called "Cost Overruns").
-------------
"Construction Costs" means all costs incurred for architectural work,
- -------------------
engineering work, labor, materials, other hard costs, general conditions,
permitting costs, and other governmental charges or fees (including impact fees)
in connection with the development of the Project, but shall not include costs
for interest expense, costs incurred by Owner for its overhead expenses and
travel expenses, Additional Contract Costs (defined below), Subsequent
Governmental Costs (defined below), or Unanticipated Geotechnical Costs (defined
below). "Additional Contract Costs" means costs incurred by Owner under
--------------------------
contracts entered into by Owner which have not been approved by Developer, other
than contracts entered into by Owner to perform Developer's unperformed
obligations under this Agreement after a default by Developer. "Subsequent
----------
Governmental Costs" means costs incurred by Owner for changes to the Project
- ------------------
required by governmental authorities after the plans and specifications for the
Project have been reviewed and finally approved by all requisite governmental
authorities, other than costs incurred because of Developer's failure to comply
with such finally approved plans and specifications. "Unanticipated Geotechnical
--------------------------
Costs" means additional costs incurred by Owner because of errors in the
- -----
geotechnical report or environmental report obtained for the Project. Developer
shall provisionally fund Construction Cost line item overruns in the Development
Budget even if there are available cost savings for other Construction Cost line
items or available contingencies unless the Construction Lender (defined below)
permits the use of contingency to pay such line item overruns; however, (a) to
the extent there are savings in any hard cost line item after completion of such
item, then Developer may use such savings to defray any cost overruns for other
hard cost line items, and (b) to the extent there are available savings in soft
cost line items that are Construction Costs or contingency upon final lien-free
completion of the Project (including all punch-list items) Developer shall be
reimbursed for the amounts funded under this sentence, which reimbursement shall
be made within 30 days after Final Completion. "Force Majeure" means acts of
-------------
God and other matters beyond the reasonable control of the Developer, but shall
not include matters arising because of the action or inaction of any
subcontractor or other persons engaged by or under Developer. "Final
-----
Completion" means the date on which all the following have occurred: (1) final,
- ----------
lien-free completion of the Project (including all punch-list items),
(2) delivery of lien waivers from each person (other than laborers) who
performed work at or provided or fabricated materials in connection with the
Work to be performed under this Agreement (including all subcontracts executed
in connection therewith), other than from those persons whose claims are being
contested by Developer, in good faith, and for which Developer has provided to
Owner a bond or security in an amount reasonably acceptable to Owner, and
(3) issuance of a final, unconditional certificate of occupancy for the Project
enabling it to be occupied and operated for its intended use. Developer shall,
and shall cause Developer Affiliates (defined below) to, execute and deliver to
Owner and, to the extent required by the construction lender of the Project (the
"Construction
------------
6
<PAGE>
Lender"), the Construction Lender completion and cost overrun guaranties. The
- ------
completion and cost overrun guaranty to be provided to Owner shall be in form
substantially similar to Schedule 4 and the guaranty to be provided to the
----------
Construction Lender shall be on such form as the Construction Lender may
require. Neither Developer nor Developer Affiliates shall have rights of
subrogation against Owner for any amounts paid under any such guaranties (such
waiver shall not affect Developer's contractual claims against Owner under this
Agreement). If such guaranties are not provided by Developer and Developer
Affiliates, Owner may terminate this Agreement by delivering to Developer
written notice thereof. "Developer Affiliates" means: [in the case of Greystar
--------------------
Realty Services, L.P. - Robert A. Faith; in the case of TCR Extended Stay I
Limited Partnership - Ron Terwilliger, CFP Residential, L.P., and TCF
Residential Partnership, L.P.]
Section 2.6 Construction Lender Guaranty. The proposed Construction
----------------------------
Lender for the Project is Bank One, Arizona, NA (the "Proposed Construction
Lender"). Developer and Owner shall use reasonable efforts to cause the Proposed
Construction Lender to accept a completion guaranty from Developer and the
Developer Affiliates in form and substance substantially similar to that
customarily provided by such parties to institutional construction lenders. If
the Proposed Construction Lender will not accept such guaranty, Developer shall
negotiate with the Proposed Construction Lender regarding the form of guaranty
that will be acceptable to such lender. However, under no circumstances shall
Owner be required to modify the terms of the proposed loan from the Proposed
Construction Lender or incur any additional obligations to the Proposed
Construction Lender to cause the Proposed Construction Lender to accept such
form of guaranty, and Developer shall be under no obligation to agree to provide
a completion guaranty, other than on such form. If Developer and the Proposed
Construction Lender are unable to agree on the form of guaranty to be delivered
by Developer and the Developer Affiliates or if such guaranties are not provided
by Developer and the Developer Affiliates, then Owner may terminate this
Agreement by delivering to Developer written notice thereof, in which case the
party designated as the Developer Partner on the Acknowledgment of Developer
Partner to this Agreement (the "Developer Partner") shall no longer be the
"Developer Partner" for the Project under the partnership agreement of Developer
Extended Stay Partners, L.P.
ARTICLE 3
COMPENSATION
------------
Section 3.1 General Conditions Payments. For services rendered in
---------------------------
connection with the development of the Project (including general conditions),
Developer shall be paid an amount (the "General Conditions Payments") equal to
---------------------------
$250,000. The General Conditions Payments shall be paid as follows: $50,000
upon approval of the Development Budget, Development Plan and Development
Schedule and commencement of construction; $150,000, payable in installments on
the tenth day of each month, based on the percentage of completion of the
Improvements; and $50,000 upon Final Completion.
7
<PAGE>
ARTICLE 4
INSURANCE
---------
Section 4.1 Types and Amounts of Insurance. Unless otherwise noted,
------------------------------
Developer shall obtain insurance of the types and in the amounts described
below. The insurance shall be written by insurance companies and on forms
acceptable to Owner. The cost of such insurance shall not be a Cost of the Work
other than the workmen's compensation insurance specified in Section 4.1(c).
(a) Commercial General and Umbrella Liability Insurance. Developer
---------------------------------------------------
shall maintain commercial general liability ("CGL") and, if necessary,
---
commercial umbrella insurance with a limit of not less than $6,000,000 each
occurrence. If such CGL insurance contains a general aggregate limit, it shall
apply separately to the Project.
(1) CGL insurance shall be written on ISO occurrence form CG 00
01 10 (or a substitute form providing equivalent coverage) and shall cover
liability arising from premises, operations, independent contractors,
products-completed operations, personal injury and advertising injury,
broad form property damage and liability assumed under an insured contract
(including the tort liability of another assumed in a business contract).
(2) Owner shall be included as an additional insured under the
CGL, using ISO Additional Insured Endorsement CG 20 10 or a substitute
providing equivalent coverage, and under the commercial umbrella, if any.
(3) Developer and Owner waive all rights against each other and
their agents, officers, directors and employees for recovery of damages to
the extent these damages are covered by the CGL or commercial umbrella
liability insurance maintained pursuant to Section 4.1(a).
(b) Business Auto and Umbrella Liability Insurance. Developer shall
----------------------------------------------
maintain business auto liability and, if necessary, commercial umbrella
liability insurance with a limit of not less than $1,000,000 each accident.
(1) Such insurance shall cover liability arising out of any auto
(including owned, hired and non-owned autos). Owner shall be included as an
additional insured using the appropriate endorsement therefor.
(2) Business auto coverage shall be written on ISO form CA 00 01,
CA 00 05, CA 00 12, CA 00 20, or a substitute form providing equivalent
liability coverage.
8
<PAGE>
If necessary, the policy shall be endorsed to provide contractual liability
coverage equivalent to that provided in the 1990 and later editions of CA 00 01.
(3) Developer and Owner waive all rights against each other and
their agents, officers, directors, and employees for recovery of damages to the
extent these damages are covered by the business auto liability or commercial
umbrella liability insurance maintained by Developer pursuant to Section 4.1(b)
or under any applicable auto physical damage coverage.
(c) Workers Compensation Insurance. Developer shall maintain workers
------------------------------
compensation and employers liability insurance, with waivers of subrogation.
(1) The employers liability limits shall not be less than
$500,000 each accident for bodily injury by accident or $500,000 each employee
for bodily injury by disease.
(2) Developer waives all rights against Owner and its agents,
officers, directors and employees for recovery of damages to the extent those
damages are covered by the workers compensation and employers liability or
commercial umbrella insurance obtained by Developer pursuant to Section 4.1(c).
(d) Builders Risk Insurance.
-----------------------
(1) Owner shall purchase and maintain in force builders risk
insurance for the entire work. Such insurance shall be written in an amount at
least equal to the initial contract sum as well as subsequent modifications of
that sum. The insurance shall apply on a replacement cost basis and shall be
written on a completed value form.
(2) The insurance required in Section 4.1(d) (A) shall name as
insureds the Owner and Developer on the Project, (B) cover the entire work at
the Project site, (C) also cover portions of the work located away from the site
but intended for use at the site, and (D) cover portions of the work in transit.
(e) Evidence of Insurance. Prior to commencing the work, Developer and
---------------------
Owner shall furnish to the other a certificate of insurance, executed by a duly
authorized representative of each insurer, showing compliance with the insurance
requirements in this Article 4. All certificates shall provide for 30-days'
written notice to Owner and Developer prior to the cancellation or material
change of any insurance referred to therein.
Section 4.2 Waiver of Claims. Notwithstanding anything in this Agreement
----------------
to the contrary, Owner and Developer hereby waive and release each other from
any and all right of
9
<PAGE>
recovery, claim, action, or cause of action against each other, their officers
and employees, for any loss or damage that may occur to the Project,
improvements to the Project, or personal property within the Project, by reason
of fire or the elements, or other casualty, regardless of whether the negligence
------------------------------------
or fault of the other party or their agents, officers, employees or contractors
- --------------------------------------------------------------------------------
caused such loss, to the extent the same is insured against under insurance
- ----------------
policies carried by the waiving party (or required to be carried by such party).
Owner and Developer shall obtain a waiver of subrogation from the respective
insurance companies which have issued policies of insurance covering all risk of
direct physical loss, and to have the insurance policies endorsed, if necessary,
to prevent the invalidation of the insurance coverages by reason of the mutual
waivers.
ARTICLE 5
DEFAULT AND REMEDIES
--------------------
If either party defaults in performance of any of its obligations
hereunder, which default continues for a period of 15 days after written notice
thereof, then the non-defaulting party, in addition to pursuing all other
rights, remedies and recourses available at law, may terminate this Agreement by
written notice to the other party. If within such 15-day period the defaulting
party diligently commences curing such default, the non-defaulting party shall
grant a 30-day extension during which it shall not terminate this Agreement for
the default in question, so long as the defaulting party continues to pursue
such cure. Enforcement of the provisions of this Article 5 shall not diminish
Developer's obligations under Article 6.
ARTICLE 6
DUTIES UPON TERMINATION OR EXPIRATION
-------------------------------------
Section 6.1 Developer's Duties. At the end of the Term, Developer shall
------------------
deliver to Owner copies of all books and records maintained by Developer for the
Project and all funds in possession of Developer belonging to Owner or received
by Developer with regard to the Project. Developer shall also be available for
a period not less than 60 days after the end of the Term to consult with Owner
concerning operation of the Project, provided that Owner shall compensate
Developer for time spent in consulting with Owner during this period.
Section 6.2 Owner's Duties. Owner shall compensate Developer for all fees
--------------
earned hereunder through the date of termination promptly following the delivery
of the information called for in Section 6.1, subject to any claims Owner may
have arising out of Developer's default in performance hereunder.
10
<PAGE>
ARTICLE 7
MISCELLANEOUS PROVISIONS
------------------------
Section 7.1 Notices. All notices given hereunder shall be made in writing
-------
and given to the addressee at the address specified on the signature pages
hereof. Notices may be given by certified mail, return receipt requested, by
hand delivery, by overnight courier service, or by facsimile transfer and shall
be effective upon delivery at the address of the addressee.
Section 7.2 Assignment. Developer may not assign its rights nor delegate
----------
its duties hereunder without the prior written consent of Owner, other than to
an entity which controls, is controlled by, or is under common control with
Developer. No assignment of this Agreement by Developer nor delegation of its
duties hereunder shall release Developer from its obligations hereunder.
Section 7.3 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Texas.
Section 7.4 Entireties, Beneficiaries. This Agreement represents the
-------------------------
entire Agreement between Owner and Developer with regard to management of the
Project and all prior agreements are superseded hereby. If any provision of
this Agreement is inconsistent with any provision of any Schedule hereto, the
terms of this Agreement shall control. This Agreement is for the sole benefit
of Owner and Developer and no other party is benefitted hereby.
Section 7.5 Acquisition of Land. Developer hereby acknowledges that Owner
-------------------
has not acquired the Land. Accordingly, Owner may terminate this Agreement if
Owner does not acquire the Land. If Owner so terminates this Agreement, Owner
shall reimburse Developer for all costs incurred by Developer before such
termination, to the extent such costs are set forth on Schedule 2 or are
----------
otherwise approved by Owner. At Developer's option, Owner shall reinstate this
Agreement if Owner acquires the Land within 12 months after the termination
date, and in such case, Owner will negotiate with Developer in good faith for
changes in the Development Budget and the Project Schedule to reflect the delay
resulting from the termination.
Section 7.6 Termination. If this Agreement is terminated as provided
-----------
herein (including as specified in Schedule 3) before Final Completion, the
----------
Developer Partner shall not be the "Developer Partner" for the Project under the
partnership agreement of Developer Extended Stay Partners, L.P., unless the
Developer Affiliates complete the Project in accordance with its guaranty.
11
<PAGE>
Executed effective as of the date written above.
OWNER:
EXTENDED STAY LIMITED PARTNERSHIP, a
Delaware limited partnership
By: ESH Partners, L.P., a Delaware limited
partnership, its general partner
By: Crow Family, Inc., a Texas
corporation, its general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
DEVELOPER:
----------------------------------------------
By:
----------------------------------------------
Name:
----------------------------------------------
Title:
----------------------------------------------
12
<PAGE>
ACKNOWLEDGMENT OF DEVELOPER PARTNER
-----------------------------------
Each of the undersigned hereby acknowledges that [Greystar Realty Services,
L.P. - OR - TCR Extended Stay I Limited Partnership] is the Developer Partner
for the Project under the Limited Partnership Agreement of Developer Extended
Stay Partners, L.P. dated as of February 9, 1996, provided that all conditions
to remaining the Developer Partner thereunder are satisfied, including, without
limitation, providing the guaranties specified herein and the Developer fully
performing its obligations hereunder. The Developer Partner consents to the
terms of this Agreement.
DEVELOPER EXTENDED STAY PARTNERS, L.P., a
Texas limited partnership
By: DESP General Partner, L.L.C., a Texas limited liability company
[By: Crow Family, Inc. - OR - Greystar Holdings, Inc.]
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
TCR EXTENDED STAY I LIMITED PARTNERSHIP
By: TCR Extended Stay, Inc.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
OR
GREYSTAR REALTY SERVICES, L.P.
By: Greystar Holdings, Inc.
By:
---------------------------------------------------
Name:
-------------------------------------------------
Title:
------------------------------------------------
13
<PAGE>
ASSIGNMENT OF PURCHASE AGREEMENT
--------------------------------
The undersigned hereby assigns to Owner all of its rights, titles, and
interests in and to the (a) [Contract of Sale] dated ________________, 199___,
between the undersigned, as purchaser, and _____________________, as seller (as
amended, the "Purchase Agreement"), (b) any earnest money and other deposits
------------------
made under the Purchase Agreement, together with interest thereon, and (c) all
studies, reports, surveys, and other information obtained by or at the request
of the undersigned in connection with or relating to the Purchase Agreement and
the property encumbered thereby. The undersigned shall execute such
documentation and take such action as Owner may request to further evidence such
assignment. In connection herewith, the undersigned represents and warrants that
it has delivered to Owner a true and correct copy of the Purchase Agreement;
there are no other agreements between the undersigned and the Seller relating to
the transaction described in the Purchase Agreement or the property encumbered
thereby; it is the sole owner of the interest of the purchaser under the
Purchase Agreement free from claims of any other person; all consents, if any,
required for such assignment have been obtained; and no default exists
thereunder on the part of the purchaser or, to the knowledge of the undersigned,
the seller thereunder.
-------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
THE STATE OF ___________ (S)
(S)
COUNTY OF ____________ (S)
This instrument was acknowledged before me on ______________, 19__, by
___________________, ___________________ of _______________________, a
______________, on behalf of said ___________________________.
--------------------------------------------
Notary Public, State of
---------------------
14
<PAGE>
SCHEDULE 1
[Property Description]
Schedule 1-1
<PAGE>
SCHEDULE 2
I. Pre-Contract Reimbursable Costs
[site plan, earnest money, and others]
II. Preliminary Approval Period Reimbursable Costs
III. Reimbursable Costs from Final Approval through approval of the
Development Plan, Development Budget, and Project Schedule.
Schedule 2-1
<PAGE>
SCHEDULE 3
[Form of General Contract]
Schedule 3-1
<PAGE>
SCHEDULE 4
COMPLETION GUARANTY
-------------------
THIS COMPLETION GUARANTY (this "Guaranty") is made as of
--------
___________________, by _______________ ("Guarantor") in favor of EXTENDED STAY
---------
LIMITED PARTNERSHIP ("Owner"). Unless specified otherwise, all capitalized
-----
terms used herein shall have the meanings assigned to them in the Development
Agreement (defined below).
1 To induce Owner to engage ____________ ("Developer") as the
---------
"Developer" under the Development and Construction Agreement dated _____________
(as modified from time to time, the "Development Agreement"), relating to the
---------------------
development and construction of improvements on the real property described on
Exhibit A (the "Project"), Guarantor hereby unconditionally and irrevocably
- --------- -------
guarantees to Owner and to its successors, and assigns the following obligations
of the Developer under the Development Agreement (the "Guaranteed Obligations")
----------------------
(as modified or amended from time to time in the manner set forth in the
Development Agreement):
(a) the Developer's obligations under the AIA Contract (as modified or
amended from time to time in the manner set forth in the Development Agreement);
and
(b) the Developer's obligations under Section 2.5 of the Development
Agreement (as modified or amended from time to time in the manner set forth in
the Development Agreement) to pay for Cost Overruns.
Guarantor's liability for non-conformance of the Work with the Contract
Documents or for any defect in the Work shall be limited to correction of the
defective work under the terms of the AIA Contract (if notice of the defective
work is given within the one-year warranty period), and Guarantor shall not in
any event be liable to Owner for incidental or consequential damages, including
any loss in income or any liability for damage to property or injury to persons
or loss of life.
2 Guarantor represents and warrants to Owner and agrees as follows:
(a) Guarantor shall continue to be liable under this Guaranty and the
provisions hereof shall remain in full force and effect notwithstanding (1) any
modification, agreement or stipulation between Developer and Owner, or their
respective successors and assigns, with respect to the Development Agreement or
the obligations encompassed thereby; (2) Owner's waiver of or failure to enforce
any of the terms, covenants or conditions contained in the Development
Agreement; (3) any release of Developer or any other guarantor from any
liability with respect to the Guaranteed Obligations; or (4) any release or
subordination of any real or personal property then held by Owner as security
for the performance of the Guaranteed Obligations.
Schedule 4-1
<PAGE>
(b) Guarantor's liability under this Guaranty shall continue until all
Guaranteed Obligations have been satisfied.
(c) Guarantor warrants and represents to Owner that it now has and
will continue to have full and complete access to any and all information
concerning the transactions contemplated by the Development Agreement or
referred to therein, the value of the assets owned or to be acquired by
Developer, and Developer's financial status and its ability to perform the
Guaranteed Obligations. Guarantor further warrants and represents that it has
reviewed and approved the Development Agreement and is fully informed of the
remedies Owner may pursue, with or without notice to Developer. So long as any
of the Guaranteed Obligations remains unsatisfied, Guarantor shall keep itself
fully informed as to all aspects of Developer's financial condition and the
performance of the Guaranteed Obligations.
(d) The liability of Guarantor under the Guaranty is a guaranty of
performance and not of collectibility, and is not conditioned or contingent upon
the genuineness, validity, regularity or enforceability of the Development
Agreement or other instruments relating to the creation or performance of the
Guaranteed Obligations or the pursuit by Owner of any remedies which it now has
or may hereafter have with respect thereto under the Development Agreement, at
law, in equity, or otherwise.
3 Guarantor hereby waives to the extent permitted by law: (a) all
notices to Guarantor, to Developer, or to any other person, including but not
limited to, notices of the acceptance of this Guaranty or the creation, renewal,
extension, modification, accrual of any of the Guaranteed Obligations and
enforcement of any right or remedy with respect thereto, and notice of any other
matters relating thereto; (b) diligence and demand of payment, presentment,
protest, dishonor and notice of dishonor; (c) any statute of limitations
affecting Guarantor's liability hereunder or the enforcement thereof; and (d)
all principles or provisions of law which conflict with the terms of this
Guaranty. Owner may enforce this Guaranty upon the occurrence and during the
continuation of a default under the Development Agreement, notwithstanding the
existence of any dispute between Developer and Owner regarding the existence of
the default or performance of the Guaranteed Obligations or any counterclaim,
set-off or other claim which Developer may allege against Owner with respect
thereto. Moreover, Guarantor's obligations shall not be affected by any
circumstances which constitute a legal or equitable discharge of a guarantor or
surety.
4 Owner may enforce this Guaranty without the necessity of resorting to
or exhausting any security or collateral and without the necessity of proceeding
against Developer or any other guarantor. Guarantor hereby waives the right to
require Owner to proceed against Developer, to proceed against any other
guarantor, to foreclose any lien on any real or personal property, to exercise
any right or remedy under the Development Agreement or to pursue any other
remedy or to enforce any other right.
Schedule 4-2
<PAGE>
5 (a) Nothing contained herein shall prevent Owner from exercising any
rights available to it under the Development Agreement and the exercise of any
of such rights shall not constitute a legal or equitable discharge of any other
guarantor. Guarantor understands that the exercise by Owner of certain rights
and remedies contained in the Development Agreement may affect or eliminate
Guarantor's right of subrogation against Developer and that Guarantor may
therefore incur a partially or totally non-reimbursable liability hereunder.
Nevertheless, Guarantor hereby authorizes and empowers Owner to exercise, in its
sole discretion, any rights and remedies, or any combination thereof, which may
then be available to Owner, since it is the intent and purpose of Guarantor that
the obligations hereunder shall be absolute, independent and unconditional under
any and all circumstances.
(b) Guarantor shall have no right of subrogation against Developer or
against any collateral or security unless and until all Guaranteed Obligations
have been satisfied, including, without limitation, substantial completion of
the Project.
(c) To the extent any dispute exists at any time between or among
Guarantor and one or more other guarantors as to Guarantor's right to
contribution or otherwise, Guarantor agrees to indemnify, defend and hold Owner
harmless for, from and against any loss, damage, claim, demand, reasonable cost
or any other liability (including reasonable attorneys' fees and costs) Owner
may suffer as a result of such dispute.
6 [(a) For guaranty to be delivered by TCR affiliates -- Guarantor
warrants and represents that to the best of its knowledge, after due inquiry and
investigation, the Estimated Collateral Value Statements of Guarantor delivered
to Owner are true and correct in all material respects as of the date thereof
and were prepared using the values assigned to assets in accordance with methods
then generally used by Trammell Crow Residential Company in the valuation of
assets owned by persons affiliated with Trammell Crow Residential Company as set
forth in the notes to the Collateral Value Statements of the Guarantors dated as
of June 30, 1995 ("EVBS Value").]
----------
(b) Guarantor further covenants and agrees to promptly notify Owner at
such time as Guarantor obtains actual knowledge of any material adverse change
in Guarantor's financial condition.
7 All notices, requests and demands to be made hereunder to the parties
hereto shall be in writing and shall be delivered by hand, or sent by registered
or certified mail, postage prepaid, through the United States Postal Service to
the addresses shown below or such other addresses which the parties may provide
to one another in accordance herewith. Such notices, requests and demands, if
sent by mail, shall be deemed given three Business Days (as defined in the Loan
Agreement) after deposit in the United States mail, and if delivered by hand
shall be deemed given when delivered.
Schedule 4-3
<PAGE>
To Guarantor: ---------------------------------
---------------------------------
---------------------------------
Attn:
----------------------------
To Owner: Extended Stay Limited Partnership
2001 Bryan Avenue, Suite 2300
Dallas, Texas 75201
Attn: John C. Kratzer
with a copy to: Vinson & Elkins L.L.P.
2001 Ross Avenue, Suite 3700
Dallas, Texas 75201-2975
Attn: Bryant W. Burke
8 Guarantor's performance of a portion, but not all, of the Guaranteed
Obligations shall in no way limit, affect, modify or abridge Guarantor's
liability for the Guaranteed Obligations which are not performed. Without in
any way limiting the generality of the foregoing, if Owner is awarded a judgment
in any suit brought to enforce Guarantor's covenant to perform a portion of the
Guaranteed Obligations, such judgment shall in no way be deemed to release
Guarantor from its covenant to perform any portion of the Guaranteed Obligations
which is not the subject of the suit.
9 Without in any way limiting the generality of the foregoing, upon the
occurrence and during the continuation of default under the Development
Agreement, Owner shall require Guarantor to complete construction of the Project
by delivering to Guarantor written notice thereof. If Guarantor fails to
commence completion of the Project within five business days after receiving
such notice and to thereafter diligently perform the Work necessary to complete
the Project in accordance with the AIA Contract, then Owner may complete
construction of Project itself or cause the Project to be completed by a third
party. If Guarantor completes the Project, Owner shall make payments to
Guarantor on the terms and conditions of the Development Agreement for the cost
of each portion of the Work completed by Guarantor, but not in excess of the
undisbursed amount available for such completed portion of the Work under the
Development Budget; Guarantor shall be responsible for all costs incurred in
connection with any portion of the Work in excess of the amounts set forth on
the Development Budget for such portion of the Work. Guarantor shall have the
same right to reallocate cost savings in the Development Budget as is afforded
Developer under Section 2.5 of the Development Agreement. If Owner completes
the Project itself or causes a third party to complete the Project, Guarantor
shall pay to Owner, within ten days after written notice from Owner to
Guarantor, an amount equal to the difference between actual costs reasonably
incurred by Owner in developing and constructing the Project minus the amount
set forth on the Development Budget (other than interest expense) as of the date
of Owner's election to complete the Project itself or to
Schedule 4-4
<PAGE>
cause a third party to complete the Project and which are directly related to
the development and construction of the Project.
10 Without in any way limiting the generality of the foregoing, Owner
may, in its sole discretion, bring suit against Guarantor on the Guaranteed
Obligations to enforce Guarantor's covenant to perform the Guaranteed
Obligations. Any such suit by Owner shall not, in any way, prejudice Owner's
right, at any time, to enforce Guarantor's covenants to develop and construct
the Project.
11 This Guaranty shall be binding upon Guarantor, his heirs, legal
representatives, successors and assigns and shall inure to the benefit of and
shall be enforceable by Owner, its successors, endorsees and assigns. Subject
to Section 18, any married person executing this Guaranty agrees that recourse
may be had against community assets and against his or her separate property for
the satisfaction of all obligations herein guaranteed. As used herein, the
singular shall include the plural, and the masculine shall include the feminine
and neuter and vice versa, if the context so requires.
12 In the event of any litigation regarding the enforcement or validity
of this Guaranty, Guarantor shall be jointly and severally obligated to pay all
charges, reasonable costs and expenses (including reasonable attorneys' fees)
incurred by Owner whether or not such litigation is prosecuted to judgment.
13 THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS.
14 This Guaranty is solely for the benefit of Owner, its successors, and
assigns, and is not intended to nor shall it be deemed to be for the benefit of
any third party, including Developer.
15 This Guaranty may be executed in counterparts, all of which executed
counterparts shall together constitute a single document.
16 Every provision of this Guaranty is intended to be severable. In the
event any term or provision hereof is declared to be illegal or invalid for any
reason whatsoever by a court of competent jurisdiction, such illegality or
invalidity shall not affect the balance of the terms and provisions hereof,
which terms and provisions shall remain binding and enforceable.
17 (a) Owner and Guarantor hereby agree that all controversies and claims
of any nature between them (including but not limited to contract, tort and
others) arising directly or indirectly out of this Guaranty shall at the written
request of any party be arbitrated pursuant to the applicable rules of the
American Arbitration Association. The arbitration shall occur in Dallas, Texas.
Judgment upon any award rendered by the arbitrator(s) may be entered in any
court having
Schedule 4-5
<PAGE>
jurisdiction. The Federal Arbitration Act shall apply to the construction and
interpretation of this arbitration agreement.
(b) A single arbitrator shall have the power to render a maximum award
of $100,000. When any party files a claim in excess of this amount, the
arbitration decision shall be made by the majority vote of three arbitrators. No
arbitrator shall have the power to restrain any act of any party.
(c) No provision of Section 17.(a) shall limit the right of any party
to exercise self-help remedies or to obtain any provisional or ancillary
remedies (including but not limited to injunctive relief or the appointment of a
receiver) from a court of competent jurisdiction. The institution and
maintenance of any remedy permitted above shall not constitute a waiver of the
rights to submit any controversy or claim to arbitration. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in action brought by a party shall be applicable in any
arbitration proceeding.
18 Notwithstanding anything in this Guaranty to the contrary, Owner
agrees to look for satisfaction of the obligations of Guarantor hereunder only
to the following real and personal property of Guarantor (the "Available
---------
Assets"), but not to the tangible or intangible proceeds therefrom (other than
- ------
proceeds arising from Owner realizing upon such assets):
[(a) For TCR Guarantors -- the legal and beneficial interests of
Guarantor in any entity that is, at the time of enforcement of this Guaranty,(1)
engaged in the business of holding, constructing, developing or providing
property management or overhead services for real estate designed for
residential use in the United States, and (2) affiliated in any way with
Trammell Crow Residential Company, or any subsidiary or affiliate thereof or any
successor or assign of all or substantially all of the assets thereof/For Robert
A Faith -- the legal and beneficial interests of Guarantor in Greystar Capital
Partners, L.P. and any entity in which Greystar Capital Partners, L.P., directly
or indirectly, owns an interest; and]
(b) any receivables due Guarantor from any entity described in Section
18.(a).
Except for the assets just enumerated, Owner shall not look to Guarantor's other
tangible or intangible real and personal property [For TCR Guarantors --
(including, without limitation, cash, cash equivalents, stock in Avalon
Properties, Inc., stock in Gables Residential Trust, stock in Wood Properties,
Inc., units in Gables Realty Limited Partnership, ownership in Randy J. Pace
Grantor Trust, ownership in J. Ronald Terwilliger Grantor Trust, ownership in
Leonard W. Wood Grantor Trust, ownership in Leonard W. Wood Family Limited
Partnership Grantor Trust, stock in JRT Investments, Inc., other securities, or
partnership interests, receivables or similar intangible personal property), for
satisfaction of Guarantor's obligations hereunder. The term "residential"
-----------
Schedule 4-6
<PAGE>
as used in this Guaranty means single family and multi-family dwellings,
residential land/lot development, and senior living communities.]
[For TCR Guarantors--All representations made in this Guaranty as to the
Guarantor's financial condition or the completeness and accuracy of the
Guarantor's financial statements are expressly limited by the disclosures
included in the body and footnotes of Guarantor's Estimated Collateral Value
Statements delivered to Owner.]
[For TCR Guaranty--Notwithstanding the foregoing limitations, Lender may
look to proceeds of Pre-Transaction Available Assets (defined below) (but not
other assets of the Guarantor) realized by the Guarantor (A) after the Aggregate
EVBS Value (defined below) is less than $30,000,000 or (B) as a result of a
transaction that causes the Aggregate EVBS Value (calculated on the basis
provided in the notes to the Collateral Value Statements of the Guarantors dated
as of June 30, 1995) to be less than $30,000,000. As used in this paragraph,
the term "Aggregate EVBS Value" means the aggregate EVBS Value of the Available
--------------------
Assets, as existing from time to time, as reported in the Collateral Value
Statements from time to time prepared by the Guarantor and the following
persons: {insert names of other Guarantors}. "Pre-Transaction Available Assets"
--------------------------------
means Available Assets which existed immediately before the event described in
clauses (A) and (B).]
[For TCF Residential Partnership, L.P. and CFP Residential, L.P. - None of
the constituent partners of Guarantor (including the general partner) shall be
liable for any of the obligations of Guarantor hereunder.]
Executed as of the date first written above.
-----------------------------------
THE STATE OF TEXAS (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on _____________________, 19___,
by _____________________.
-----------------------------------
Notary Public, State of Texas
Schedule 4-7
<PAGE>
ADDENDUM
--------
This Addendum (this "Addendum") is executed in connection with the Standard
--------
Form of Agreement between Owner and Contractor between EXTENDED STAY LIMITED
PARTNERSHIP ("Owner") and _____________________ ("Contractor"), dated
----- ----------
__________________, 199__, and the General Conditions of the Contract for
Construction (AIA Document A201) (collectively, the "Contract"). To the extent
--------
the terms of the Contract and this Addendum are in conflict, the terms of this
Addendum shall control.
Riders for Standard Form
- ------------------------
19 Rider 4.2 - Liquidated Damages. If Contractor has not achieved
--------- ------------------
Substantial Completion within 60 days after the Target Substantial Completion
Date, Contractor shall pay to Owner, as liquidated damages, the Liquidated
Damages Amount (defined below) for each day of the Delay Period (defined below).
"Delay Period" shall mean the period beginning with the 61st day after the
------------
Target Substantial Completion Date and ending on the day Substantial Completion
is achieved. Owner and Contractor agree that such product is a reasonable
estimate of the loss to be suffered by Owner and recognize that actual damages
may be difficult, if not impossible, to accurately ascertain. "Liquidated
----------
Damages Amount" for each day in the Delay Period shall equal the amount obtained
- --------------
by performing the following calculation:
A + B; where
A = the daily interest on the loan secured by the Project; and
B = $1,000 for the first 14 days of the Delay Period, $2,000 for
the 15th through the 56th days of the Delay Period, and
$3,000 for each day after the 56th day of the Delay Period.
For example, if there were 21 days in a Delay Period and the daily interest
accruing on the loan secured by the Project was $3,000, then the aggregate
Liquidated Damages Amount would be $91,000 [($3,000 x 21) + ($1,000 x 14) +
($2,000 x 7)].
20 Rider 7.1.4.6 - Cost Limitation. Notwithstanding anything to the
------------- ---------------
contrary in this Article 7, the maximum aggregate amount payable for the off-
site project manager and the costs described in Section 7.1.4.4 and 7.1.4.5
shall be limited to $20,000.00.
21 Rider 12.5.4 - Retainage. Subtract the retainage, which shall be in
------------ ---------
an amount required by law, such that no lien claims may be filed against the
Project, or such other amount as may be required by the Construction Lender
(defined below). If, and to the extent the Construction Lender consents thereto
and agrees to disburse loan proceeds therefor, (a) no retainage shall be
1
<PAGE>
required for materials, provided that the supplier of such materials executes
and delivers to Owner a lien waiver in the form of Exhibit B or another form
---------
acceptable to Owner waiving all claims for the materials so supplied, (b) no
retainage shall be withheld on soft costs, and (c) upon completion of individual
subcontract work, retainage withheld for such subcontract work shall be
disbursed upon receipt of a fully executed lien waiver in the form of Exhibit B
---------
or another form acceptable to Owner.
22 Rider 12.5.5.- Payments. In no event shall payment be made in excess
------------ --------
of the costs actually incurred plus the appropriate General Condition Payments
----
less the required retainage.
- ----
23 Rider 12.5.6 - Lien Waivers. Within 15 days of receiving a progress
------------ ------------
payment, Contractor shall deliver to Owner the following ("Lien Waivers"):
------------
(a) waivers of lien rights executed by Contractor covering amounts
paid to Contractor in the form of Exhibit A, with such changes as may be
---------
required to comply with applicable law, or another form acceptable to Owner; and
(b) waivers of lien rights executed by all Subcontractors and
suppliers covering amounts paid on their account in the form of Exhibit B, with
---------
such changes as may be required to comply with applicable law, or another form
acceptable to Owner.
Riders for General Conditions .
- -----------------------------
24 Rider 1.2.6 - Conflicts of discrepancies among the Contract Documents
-----------
shall be resolved in the following order of priority:
(a) this Contract, as supplemented by the Addendum;
(b) the Supplemental Conditions;
(c) Drawings and Specifications; and
(d) submittals.
Amendments and revisions of later date take precedence over those of earlier
date. Additionally, Drawings govern Specifications for quantity and location,
and Specifications govern Drawings for quality and performance; if there is an
ambiguity in quantity or quality, the greater quantity and the better quality
shall govern; and figure dimensions govern scale dimensions and large-scale
Drawings govern small-scale Drawings.
25 Rider 3.5.2 - Contractor's express warranties contained herein shall
-----------
be exclusive of any warranties that Owner may have in the Contract Documents, at
law or in equity for defective Work or breach of the Contract Documents. All of
Contractor's warranties however arising shall be limited to one year after
substantial completion of the Work. Owner shall allow Developer an opportunity
to cure any defective work before Owner engages a third party to perform such
work.
2
<PAGE>
If (a) Developer does not commence to cure the defective work within five
business days after receiving written notice thereof or (b) after beginning such
work, Developer fails to diligently cure such work, then Owner may engage a
third party to perform such work, in which case, Developer shall be responsible
for all costs incurred by Owner in curing such defective work. Developer's
liability for non-conformance of the Work with the Contract Documents or for any
defect in the Work shall be limited to correction of the defective work under
the terms of the Contract (if notice of the defective work is given within the
one-year warranty period), and Developer shall not in any event be liabile to
Owner for incidental or consequential damages, including any loss in income or
any liability for damage to property or injury to persons or loss of life.
26 Rider 3.18.3 - Should any Subcontractor, supplier, or other person or
------------
any of them make, record, or file or maintain any action on or respect any claim
of mechanic's lien, stop-notice, equitable lien, payment or performance bond, a
lis pendens or similar claims, relating to the Work, Contractor shall
immediately and at its expense procure, furnish, and record appropriate
statutory release bonds which will extinguish or expunge such claim, lien, stop-
notice, lis pendens, or claims.
27 Rider 4.1.4 - Owner may not remove the Architect without the prior
-----------
approval of Contractor. Upon each removal, Owner may appoint a successor
Architect, subject to Paragraph 4.1.3. If Owner appoints a successor Architect,
Owner shall furnish the name of the successor Architect to Contractor. If Owner
and Architect disagree on any matter regarding the design of the Project,
Owner's decision shall govern.
28 Rider 5.4.2 - Each subcontract agreement shall be assignable to Owner
-----------
and to the Construction Lender. Additionally, Contractor shall assign to Owner,
from time to time as Owner may request, all assignable guaranties, warranties,
and indemnities extended by any Subcontractor, materialman, mechanic or vendor
with respect to any work, materials, equipment, or services performed or
furnished by the issuing party and forming a part of the Work. Contractor shall
use its best efforts to obtain assignable guaranties, warranties and indemnities
with respect to the Work. Contractor shall, if requested by Owner, enforce any
non-assignable guaranty, warranty or indemnity in its name but on behalf of
Owner and otherwise assist Owner in realizing the full benefits thereof. If
Contractor is required to correct defective work, it shall be entitled to
enforce all third-party warranties applicable thereto, and Owner shall reassign
such warranties or cooperate in the enforcement thereof, as necessary to allow
recovery.
29 Rider 7.5.1 - No change in the Work shall be the basis of an addition
-----------
to the Contract Sum or a change in the Contract Time unless and until such
change has been authorized by Owner. Changes in the Work may be made without
notice to Contractor's sureties and absence of such notice shall not relieve
such sureties of any of their obligations to Owner.
30 Rider 8.3.1 - A time extension shall be Contractor's sole remedy and
-----------
compensation for all such delays, other than those caused by the acts or
negligence of Owner, Architect, or
3
<PAGE>
Owner's separate contractors (collectively, "Owner-Caused Delays"). For Owner-
-------------------
Caused Delays, Contractor shall be entitled to reimbursement for its reasonable
additional costs resulting from such delays but not for any overhead expenses,
additional profit, or fee.
31 Rider 9.3.4 - All Applications for Payment must be accompanied by such
-----------
information as the Construction Lender may reasonably request.
32 Rider 9.6.7 - Unless Contractor is not in default and otherwise
-----------
requests Owner not to do so as a result of Contractor's good-faith dispute with
a Subcontractor or supplier, Owner may make payments jointly to the order of
Contractor and its Subcontractor or supplier.
33 Rider 9.8.1 - "Substantial Completion" means a final, unconditional
----------- ----------------------
certificate of occupancy has been issued for the Project and the cost of
completing the Work that remains to be performed does not exceed $50,000.
34 Rider 13.7.1 - No inspection (or the failure to inspect), payment, or
------------
interim acceptance by Owner shall constitute a final acceptance of the Work or
any part thereof or release Contractor from its duties to perform the Work or
any part thereof or release Contractor from its duties to perform the Work in
accordance with the Contract Documents.
35 Rider 13.8.1 - Contractor shall assist Owner in the preparation and
------------
submittal of all reports and other information concerning the construction of
the Work as required under Owner's agreement with any person or entity having a
security interest in the Project (the "Construction Lender"). Promptly
-------------------
following Owner's request, Contractor shall deliver to Owner and Construction
Lender accurate lists of all Subcontractors, Sub-subcontractors and material
suppliers retained in connection with the Work as well as copies of all
contracts with such persons. Owner and Construction Lender shall have the right
to contact such Subcontractors, Sub-subcontractors and material suppliers to
verify independently any matter related to the Work and such entities.
36 Rider 13.8.2 - Upon Owner's request, Contractor shall execute and
------------
deliver to Construction Lender such certificates relating to completion of the
Work and its compliance with applicable laws, codes, ordinances, rules and
regulations in such forms as may be required by Construction Lender, provided
that such certificates do not materially increase Developer's obligations
hereunder.
37 Rider 13.8.3 - Contractor hereby consents to the assignment of this
------------
Contract to Construction Lender and shall execute such documentation as
Construction Lender may request in connection therewith, provided that such
documentation does not materially increase Contractor's obligations hereunder.
4
<PAGE>
38 Rider 13.9 - Contractor may not assign its rights or obligations under
----------
the Contract Documents without the prior written consent of Owner. Owner may
assign its rights and obligations under the Contract Documents, in whole or in
part.
39 Rider 13.10 - If a lawsuit or other proceeding is instituted to
-----------
enforce the terms of this Contract, the losing party shall pay the reasonable
costs of the prevailing party (including reasonable attorneys' fees and
expenses).
40 Rider 13.11 - The title to all Work completed in the course of
-----------
construction and all materials on account of which any payments have been made
shall vest in Owner.
41 Rider 14.1.1 - Contractor may not terminate this Agreement for non-
------------
payment of any item of Work that is disputed by Owner in good faith until such
dispute has been settled by agreement or otherwise and Owner has failed to pay
such amount within ten days after such settlement.
42 Rider 14.4 - Owner may terminate this Contract without cause at any
----------
time by giving Contractor 24 hours written notice thereof if Owner has elected
to discontinue the Project or to postpone the Project for at least one year.
Upon receipt of such notice of termination, Contractor shall immediately
terminate performance of the Work; provided, however, in connection with any
such termination Contractor shall perform such acts as may be necessary to
preserve and protect that part of the Work theretofore performed hereunder.
Upon such termination without cause, Contractor shall retain all sums of money
theretofore paid hereunder to Contractor, and Owner shall pay to Contractor (a)
all amounts, if any, theretofore retained hereunder by Owner in respect of the
Work performed to the date of such termination, (b) a sum of money equal to the
Cost of the Work performed hereunder by Contractor for which payments have not
theretofore been made hereunder, and (c) reasonable out-of-pocket costs directly
attributable to such termination. The amounts owing by Owner to Contractor
pursuant to the preceding sentence shall be as specified in Contractor's final
Application for Payment and supported by proper records. Contractor's
entitlement to receive its final termination payment under this Section shall
require a final Lien Waiver from Contractor and, except for Subcontractors with
whom a dispute exists and a bond has been provided as specified in Section
9.10.2 of the General Conditions, from all Subcontractors whose subcontracts are
not being continued by Owner, such documents to be the same form and delivered
under the same conditions as Final Payment absent a termination under this
Section.
Executed as of _______________, 199__.
OWNER:
------------------------------------------
CONTRACTOR:
------------------------------------------
5
<PAGE>
EXHIBIT A
---------
WAIVER AND RELEASE OF LIEN BY CONTRACTOR
----------------------------------------
THE STATE OF _________ (S)
(S) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF ___________ (S)
The undersigned, by written agreement dated _____________, 199_ (the
"Agreement"), contracted to furnish labor and/or materials (the "Work") in
- ---------- ----
connection with certain improvements being constructed on the real property
described in Exhibit A hereto (such improvements and real property being
---------
referred to herein as the "Property") owned by _______________ ("Owner") on
-------- -----
________________________ [describe Property].
Following is the breakdown on payments for the Work:
Contract: ________________
Funds Previously Paid: ________________
Current Payment: ________________
Balance Due: ________________
In consideration of current payment of ___________________ Dollars
($___________), which is the total sum due for said Work through ______________,
the receipt and sufficiency of which is hereby acknowledged, the undersigned
does hereby waive and release any mechanics' lien or materialmen's lien or claim
of lien, including any constitutional lien or claim thereto, which the
undersigned has or hereafter may have on the Property on account of any Work
furnished through the date to which such payment relates by the undersigned
whether pursuant to the Agreement or otherwise.
The undersigned certifies and warrants that the following are the sole
subcontractors which have furnished labor and/or materials on behalf of the
undersigned in connection with the Property:
Name Address
- ---- -------
- --------------------------------------------------------------------------------
A-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The undersigned further certifies and warrants that, except for those
persons whose claims are being contested by the undersigned in good faith and
for which the undersigned has delivered to Owner a bond or security in an amount
reasonably satisfactory to Owner, (a) there are no mechanics' or materialmen's
liens outstanding, (b) all bills with respect to the Work have been paid in
full, and (c) there is no known basis for the filing of any mechanics' or
materialmen's liens on the Property by any person or entity performing work on
behalf of the undersigned; to the extent permitted by applicable law, the
undersigned does hereby waive and release any mechanics' or materialmen's lien
or claim of lien arising with respect to the work of any other such person or
entity, and further agrees to indemnify, defend and hold Owner harmless from any
said lien or claim.
EXECUTED as of ___________________, 199_.
--------------------------------------------
[Contractor]
THE STATE OF _________ (S)
(S)
COUNTY OF ____________ (S)
This instrument was acknowledged before me on ____________, 199_, by
_______________ [Contractor].
---------------------------------------
Notary Public, State of _______________
A-2
<PAGE>
EXHIBIT B
---------
WAIVER AND RELEASE OF LIEN
BY SUBCONTRACTOR OR SUPPLIER
----------------------------
THE STATE OF _________ (S)
(S) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF ____________ (S)
The undersigned, by written agreement dated ______________, 199_ (the
"Agreement"), contracted to furnish labor and/or materials (the "Work") in
--------- ----
connection with certain improvements being constructed on the real property
described in Exhibit A hereto (such improvements and real property being
---------
referred to herein as the "Property") owned by ______________ ("Owner") on
-------- -----
_______________ [describe property].
Following is the breakdown on payments for the Work:
Contract:
----------------
Funds Previously Paid:
----------------
Current Payment:
----------------
Balance Due:
----------------
In consideration of current payment of ___________________ Dollars
($___________), which is the total sum due for said Work through ______________,
the receipt and sufficiency of which is hereby acknowledged, the undersigned
does hereby waive and release any mechanics' lien or materialmen's lien or claim
of lien, including any constitutional lien or claim thereto, which the
undersigned has or hereafter may have on the Property on account of any Work
furnished through the date to which such payment relates by the undersigned
whether pursuant to the Agreement or otherwise.
The undersigned further certifies and warrants that, except for those
persons whose claims are being contested by the undersigned in good faith and
for which the undersigned has delivered to Owner a bond or other security in an
amount reasonably acceptable to Owner, (a) there are no known mechanics' or
materialmen's liens outstanding, (b) all bills with respect to the Work have
been paid in full, and (c) there is no known basis for the filing of any
mechanics' or materialmen's
B-1
<PAGE>
liens on the Property above described by any person or entity performing work on
behalf of the undersigned; to the extent permitted by applicable law, the
undersigned does hereby waive and release any mechanics' or materialmen's lien
or claim of lien arising with respect to the work of any other such person or
entity, and further agrees to indemnify and hold Owner harmless from any said
lien or claim.
EXECUTED as of ________________, 199_.
-------------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
THE STATE OF ___________ (S)
(S)
COUNTY OF ____________ (S)
This instrument was acknowledged before me on ______________, 199__, by
___________________, ___________________ of _______________________, a
______________, on behalf of said ___________________________.
--------------------------------------
Notary Public, State of
--------------
B-2
<PAGE>
EXHIBIT 10.7
AGREEMENT TO PURCHASE
OWNERSHIP INTERESTS AND TERMINATION
OF MANAGEMENT AGREEMENT
-----------------------
This Agreement to Purchase Ownership Interests and Termination of
Management Agreement (this "Agreement") is entered into as of August 23, 1996,
---------
between RHF-AMARILLO, LTD., RHF-EL PASO, LTD., RHF-IRVING, LTD., RHF-SAN ANTONIO
#2, LTD., and RHF-SAN ANTONIO NORTH, LTD. (collectively, "Partnership Sellers"
-------------------
and individually a "Partnership Seller"); WESTAR HOTELS, INC. ("GP Seller"); and
------------------ ---------
EXTENDED STAY LIMITED PARTNERSHIP, a Delaware limited partnership ("Purchaser").
---------
"Sellers" shall collectively refer to the Partnership Sellers and GP Seller, and
-------
"Seller" shall refer to GP Seller or a Partnership Seller as the context may
------
require. "Interested Party" means one of the Sellers, the General Partner
----------------
(defined below) or the Partnership (defined below), as the context may require.
RECITALS
--------
A. Partnership Sellers own the following limited partner interests in VPS
I, L.P., a Delaware partnership (the "Partnership"), which was formed pursuant
-----------
to the limited partnership agreement dated December 29, 1995 (as amended, the
"Partnership Agreement"), between Sellers and VPS, Inc., a Delaware corporation
- ----------------------
(the "General Partner"): RHF-Amarillo, Ltd--12.3%, representing 123 units;
---------------
RHF-El Paso, Ltd.--39.7%, representing 397 units; RHF Irving, Ltd.--8.2%,
representing 82 units; RHF-San Antonio #2, Ltd.--25.7%, representing 257 units;
and RHF-San Antonio North, Ltd.--13.1%, representing 131 units. The term
"Partnership Interests" shall mean such partnership interests, all rights,
- ----------------------
titles, and interests Partnership Sellers may have under the Partnership
Agreement, and all rights Partnership Sellers may have to acquire an interest in
the Partnership.
B. GP Seller owns all of the outstanding capital stock of the General
Partner and outstanding rights, if any, to acquire capital stock of the General
Partner whether pursuant to options, conversion rights, or otherwise
(collectively, the "Stock"). The Partnership Interests and Stock are herein
-----
collectively called the "Ownership Interests."
-------------------
C. The Partnership owns the five tracts of land described on Exhibit A
---------
and the improvements thereon (each tract of land and the improvements and
fixtures thereon are herein collectively called a "Hotel Site"). The
----------
Partnership and GP Seller have entered into the management agreement described
on Exhibit B (the "Management Agreement"), under which GP Seller has agreed to
--------- --------------------
manage each Hotel Site pursuant to the terms of the Management Agreement.
D. Purchaser desires to acquire all of the Ownership Interests and
Sellers desire to sell the Ownership Interests as herein provided. As a
condition to purchasing the Ownership Interests, Purchaser requires that the
Management Agreement be terminated and GP Seller has agreed to such termination
as provided herein.
<PAGE>
AGREEMENTS:
----------
For $100 and other valuable consideration, whose receipt and sufficiency
are acknowledged, the parties hereto agree as follows:
Section 1 Sale and Purchase.
-----------------
(a) Sellers shall sell and assign to Purchaser all of the Ownership
Interests on the terms and conditions set forth herein. The Ownership Interests
shall be assigned to Purchaser at Closing (defined below), free and clear of all
liens, claims, and encumbrances whatsoever upon payment to Sellers of the
Purchase Price. The "Purchase Price" shall equal $5,010,000, which shall be
--------------
increased by the difference between $18,100,000 and the outstanding principal
balance of the Nomura Loan (defined below) as of the Closing Date and shall be
subject to further adjustment as provided in Section 9.(d). The Purchase Price
shall be allocated to the Sellers in the following percentages:
<TABLE>
<CAPTION>
------------------------------------------------
Seller Percentage
------------------------------------------------
<S> <C>
------------------------------------------------
GP Seller 1%
------------------------------------------------
RHF-Amarillo, Ltd. 12.3%
------------------------------------------------
RHF-El Paso, Ltd. 39.7%
------------------------------------------------
RHF-Irving, Ltd. 8.2%
------------------------------------------------
RHF-San Antonio #2, Ltd. 25.7%
------------------------------------------------
RHF-San Antonio North, Ltd. 13.1%
------------------------------------------------
</TABLE>
(b) At Closing, Sellers shall provide to the Partnership funds in
the amount required by the Partnership in order to redeem the Nomura Partnership
Interest (defined below) (the "Nomura Redemption Amount"). As described in
------------------------
Section 8.(b), GP Seller shall cause and permit the $1,500,000 Termination Fee
to be used to the extent required for this purpose.
Section 2 Earnest Money. Within two business days after the
-------------
execution hereof, Purchaser shall deliver to Chicago Title Insurance Company,
350 N. St. Paul Street, Suite 250, Dallas, Texas, 75201, Attn: J. Scott Sargent
(the "Title Company"), a check in the amount of
-------------
2
<PAGE>
$100,000, which the Title Company shall immediately deposit for collection in an
interest-bearing account. As used in this Agreement, the term "Earnest Money"
-------------
shall mean the amount so deposited by Purchaser and all interest earned thereon
while in the custody of Title Company. Sellers and Purchaser stipulate that the
$100 delivered to Sellers contemporaneously with the execution hereof and
Purchaser's agreement to deposit the Earnest Money are sufficient consideration
to support this Agreement notwithstanding Purchaser's rights under Section 4;
however, if Purchaser does not timely deposit the Earnest Money, this Agreement
shall terminate and be of no further effect.
Section 3 Delivery of Information by Seller. By August 27, 1996,
---------------------------------
Sellers, at their expense (except as provided below), shall deliver to Purchaser
the following:
(a) A copy of the lender's policy of title insurance for each Hotel
Site (collectively, the "Title Policies") and true, complete, and legible copies
--------------
of all documents referenced therein.
(b) An abstract of title issued by Title Company for each Hotel
Site for the period beginning with the date of the Title Policy for such Hotel
Site and ending on the date of the abstract of title and true, complete, and
legible copies of all documents referenced therein, which shall be obtained at
Purchaser's expense.
(c) An as-built survey of each Hotel Site consisting of a plat and
field notes prepared by a licensed surveyor (collectively, the "Surveys"). Each
-------
Survey must be certified to the Partnership, be dated within one year of the
date of this Agreement, and comply with the requirements of the Texas Society of
Professional Surveyors for a Category 1A, Condition II survey.
(d) Current Uniform Commercial Code (the "UCC") searches reflecting
---
all effective financing statements filed against each Interested Party in the
Office of the Secretary of State of Texas, the appropriate UCC filing offices in
the State of its formation, and those filed in the County Clerk's office of each
county where a Hotel Site is located, all of which shall be obtained at
Purchaser's expense.
(e) (1) Legible copies of all contracts to which the Partnership,
the General Partner or the GP Seller (as the current manager under the
Management Agreement) is a party and any other contract relating to the
ownership, operation, maintenance, and use of a Hotel Site and the personal
property at such site, including all room reservation, management,
maintenance, service, and utility contracts relating to a Hotel Site and
personal property leases for property at a Hotel Site (collectively, the
"Property Agreements"),
-------------------
(2) copies of all engineering and technical reports in the
possession of any Interested Party or their representatives concerning each
Hotel Site, including geotechnical reports, engineering reports, and
environmental inspections, surveys and reports; (3) copies of all plans and
specifications and appraisals that describe or relate to a Hotel Site; (4)
cash flow statements, income statements, statements of changes in financial
position and balance
3
<PAGE>
sheets for the General Partner and the Partnership for the period described
below, and operating and cash flow statements reflecting the results of
operation of each Hotel Site for the following period: January 1, 1991 through
June 30, 1996; (5) copies of all permits, licenses, and franchises relating to
the Hotel Sites and their operations; (6) copies of all books and records of the
General Partner and the Partnership; and (7) copies of guest ledgers for each
Hotel Site.
(f) All documents and agreements evidencing or relating to the
Vehicle Loans (defined below) and all indebtedness of the Partnership and the
General Partner, including all loan documents executed or delivered in
connection with the loan (the "Nomura Loan") made by Nomura Asset Capital
-----------
Corporation ("Nomura") to the Partnership.
------
(g) A true and correct copy of the Partnership Agreement, including
any documentation admitting Nomura as a special limited partner to the
Partnership.
(h) True and complete copies of the articles of incorporation,
by-laws, resolutions, minute book, shareholders' agreements, voting agreements,
and subscription agreements of or relating to the General Partner, together with
a list of all present officers and directors of the General Partner.
(i) The exhibits and schedules to this Agreement completed
accurately with all information required to be placed thereon (collectively, the
"Schedules").
---------
Section 4 Inspection Right; Contingency Period.
------------------------------------
(a) From the date of execution hereof to the Closing Date, Purchaser
and its representatives may inspect, at reasonable hours, the Hotel Sites, and
all books, records, contracts, and other documents or data pertaining to the
Partnership, the General Partner and their respective businesses, including
those pertaining to the ownership, operation, or maintenance of the Hotel Sites.
In conducting its inspections, Purchaser shall not unreasonably interfere with
the business and operations of the Partnership or the General Partner.
(b) Purchaser may terminate this Agreement, by delivering to Seller
a termination notice at any time during the period beginning on the date hereof
and ending at 5:00 p.m., Dallas, Texas time on the later of August 29, 1996 or
three business days after Sellers have delivered to Purchaser all of the
Schedules (the "Contingency Period"). If Purchaser does not so terminate this
------------------
Agreement before the Contingency Period expires, Purchaser shall have waived its
right to terminate this Agreement under this Section 4.
Section 5 Covenants. From the date hereof until the Closing Date,
---------
the Partnership, the General Partner, and the GP Seller shall: (1) maintain and
operate the Hotel Sites in a good and businesslike manner in accordance with
good and prudent business practices;
4
<PAGE>
(2) except as herein provided, continue all Property Agreements, occupancy
agreements, permits, licenses, franchises, and insurance policies or contracts
relative to the Hotel Sites in full effect and neither cancel, amend, nor renew
any of them without Purchaser's prior written consent; (3) not commit or permit
to be committed any waste to the Hotel Sites; (4) not, without the prior written
consent of Purchaser, enter into any agreement or instrument or take any action
that would encumber the Hotel Sites after Closing, that would bind Purchaser,
the General Partner, the Partnership or any Hotel Site after Closing, or that
would be outside the normal scope of maintaining and operating the Hotel Sites;
(5) not remove any item of personal property from the Hotel Sites unless it is
replaced with an item of at least equal value, quality, and utility as the
removed item; and (6) not transfer or encumber any Hotel Site, any improvements
thereon, or any personalty used in connection therewith. Nothing in this
Agreement shall prohibit the Partnership from entering into hotel guest
agreements consistent with its previous ordinary course of business practices.
Section 6 Seller Representations, Warranties, and Covenants. Each
-------------------------------------------------
Interested Party (solely for the purposes of the representations and warranties
contained in this Section 6, Mark Y. Harris shall be considered an Interested
Party) represents and warrants to Purchaser that:
(a) Organization and Standing. Each of the General Partner and the
-------------------------
Partnership is duly organized, validly existing, and is in good standing under
the laws of the State of Delaware and has the requisite power to execute,
deliver and perform this Agreement and all other documents delivered in
connection with the transaction contemplated hereby to which it is a party.
Each of the Sellers is duly organized, validly existing and, in the case of the
GP Seller, in good standing under the laws of the State of Texas and has the
requisite power to execute, deliver and perform this Agreement and all other
documents delivered in connection with the transaction contemplated hereby to
which it is a party. The transaction provided for in this Agreement is herein
called the "Transaction."
-----------
(b) Authorization. Each Interested Party's execution, delivery and
-------------
performance of this Agreement and performance of the Transaction have been duly
authorized by all requisite action and all approvals and consents requisite
therefor have been obtained. This Agreement has been duly and validly executed
and delivered by each Interested Party and constitutes valid and binding
obligations enforceable against it in accordance with its terms, except as such
enforceability may be limited by (1) applicable bankruptcy, insolvency, or
similar laws from time to time in effect which may affect the enforcement of
creditor's rights in general and (2) general principles of equity.
(c) Approvals, Consents, Etc. No permit, consent, authorization
------------------------
or approval of, or waiver or exemption by, or filing with, any person is
required in connection with the execution, delivery or performance of this
Agreement or the consummation of the Transaction by any Interested Party, other
than the consent of Pacific Mutual (defined below) and the consent of the other
parties
5
<PAGE>
to any leases and other contracts to be assigned pursuant to this Agreement and
of the lender of the Vehicle Loan (defined below).
(d) Compliance with Other Instruments. The execution, delivery and
---------------------------------
performance by the Interested Parties of this Agreement and the consummation by
them of the Transaction will not, with or without the giving of notice or the
lapse of time or both, (1) violate any laws to which any of them are subject,
(2) violate any judgment, order, writ or decree of any court applicable to any
of them or any of their respective affiliates, (3) have any effect on the
ability of the Partnership to operate the Hotel Sites as hotel facilities, or
(4) result in the breach of or conflict with any term, covenant, condition or
provision of, result in the modification or termination of, constitute a default
under, or result in the creation or imposition of any encumbrance upon any of
the assets of an Interested Party pursuant to, any contract or other instrument
to which such Interested Party is a party or by which its assets are bound.
(e) Partnership; General Partner. The Partnership has the requisite
-----------
partnership power and all permits and licenses necessary to carry on its
business as currently being conducted. The General Partner has the requisite
corporate power and all permits and licenses necessary to carry on its business
as currently being conducted. The General Partner has not elected to be treated
as an S corporation for federal income tax purposes.
(f) Hotel Sites. The following is true and correct as to each Hotel
-----------
Site:
(1) The Partnership has good, marketable and indefeasible
title to the Hotel Site, free and clear of all mortgages, claims, liens,
charges, options, encumbrances, tenancies, and other rights of other
parties affecting title (the "Encumbrances"), except (A) Encumbrances
set ------------
forth on the Title Policy therefor, and (B) the lien for current taxes,
including assessments for public improvements or installments thereof,
not yet due and payable and reflected on the Financial Statements
(defined below) (the "Permitted Encumbrances").
----------------------
(2) Except as set forth on Schedule 6.(f)(2), the
-----------------
Partnership has good title to all personal property located on or used
in connection with the Hotel Site, free and clear of all Encumbrances
other than Permitted Encumbrances. Attached as Exhibit C is a complete
---------
and correct inventory of the equipment and other personal property
located at and used in connection with the ownership, operation, and
maintenance of the Hotel Site indicating whether the property is leased
or owned and, if leased, the lessor and lessee thereof.
(3) To the Interested Parties' current, actual knowledge,
the improvements on the Hotel Site are being maintained, and operated in
compliance with all laws, rules, regulations, court orders, governmental
directives, governmental orders, contracts, permits,
6
<PAGE>
licenses, restrictions, covenants, and easements (collectively,
"Legal Requirements"). No Interested Party has received any written
----- ------------
notice claiming any violation of any Legal Requirements or
requesting or requiring the performance of any repairs,
alterations, or other work to comply with Legal Requirements. A
certificate of occupancy has been duly issued for the improvements
located on the Hotel Site. The Hotel Site does not depend on or
require the use of any other property to comply with Legal
Requirements or for vehicular ingress and egress to and from
publicly-dedicated streets, except for irrevocable rights granted
in favor of the Partnership under recorded easements which are not
subordinate to any interest in the land encumbered thereby. On or
before the Closing Date, the Hotel Site will be taxed as a separate
tax lot.
(4) There are no outstanding unpaid assessments (or
installments thereof) which are currently due and payable against
the Hotel Site.
(5) To the Interested Parties' current, actual knowledge,
there are no condemnation, environmental, zoning or other land use
regulation proceedings, either instituted or planned to be
instituted, that would affect the use and operation of the Hotel
Site for its intended purpose or the value of the Hotel Site, nor
are there any special assessment proceedings threatened or pending
affecting the Hotel Site.
(6) To the Interested Parties' current, actual knowledge,
all water, sewer, gas, electric, telephone, cable service, and
drainage facilities, and all other utilities required by Legal
Requirements or by normal use and operation of the Hotel Site are
installed to the property lines thereof, are connected pursuant to
valid permits, and are adequate to service the Hotel Site and to
permit full compliance with all Legal Requirements. The Partnership
has no responsibility for maintenance of off-site lines, pumps,
lift stations, or other facilities.
(7) On or before the Closing Date, the Partnership will
have all licenses, permits, easements, approvals, and rights-of-way
required from all governmental authorities having jurisdiction over
the Hotel Site for normal use and operation of the Hotel Site.
(8) None of the Interested Parties knows of any facts nor
has it failed to disclose to Purchaser any fact that would prevent
or materially adversely affect the Partnership from using and
operating the Hotel Site after Closing in the manner in which it
has been used by the Partnership.
(9) Attached hereto as Schedule 6.(f)(9) is a complete and
-----------------
correct list of all Property Agreements relating to the Hotel Site
setting forth the identity of the parties thereto, the date of such
agreement, the consideration payable thereunder, the services to be
rendered thereunder, and the expiration date thereof. Except as
otherwise expressly indicated on Schedule 6.(f)(9), all of the
-----------------
Property Agreements are cancelable on 30 or fewer days
7
<PAGE>
notice, without payment of any cancellation consideration. Except as set
forth in Schedule 6(f)(9), (A) there has not occurred any material
----------------
default by the Partnership (or any other Interested Party) or any event
which, with the lapse of time or the election of any person will become
a material default by the Partnership (or any other Interested Party)
nor, to the best knowledge of the Interested Parties, has there occurred
any material default by other persons or any event which, with the lapse
of time or the election of the Partnership (or another Interested Party)
will become a material default by other persons under any of the
Property Agreements relating to the Hotel Site; and (B) to the best
knowledge of the Interested Parties, neither the Partnership nor any
other party, is in material arrears in respect of the performance or
satisfaction of the terms or conditions on its part to be performed
under such Property Agreements.
(10) All financial statements, reports, rent rolls, and other
data, including but not limited to information concerning gross
receipts, operating expenses, debt service, and cash flow statements
heretofore furnished by the Interested Parties to Purchaser relative to
the Hotel Site are true and correct in all material respects and fully
and accurately present the financial condition, the financial results,
or other subject matter thereof as of the dates thereof. All such
statements, reports, information, and other data hereafter furnished by
the Interested Parties to Purchaser shall be true and correct in all
material respects and shall fully and accurately present the financial
condition, the financial results, or other subject matter thereof as of
the dates thereof.
(11) To the Interested Parties' current, actual knowledge, no
Hotel Site had been the site of any activity that would violate any past
or present environmental law or regulation of any governmental body or
agency having jurisdiction over it. Specifically, but without limitation
and subject to the preceding sentence, (A) solid waste, petroleum, or
petroleum products have not been handled or stored on the Hotel Site
such that they may have leaked or spilled onto the Hotel Site or
contaminated the Hotel Sites, (B) there is no on-site contamination
resulting from activities on the Hotel Site or adjacent tracts, and (C)
the Hotel Site does not contain "hazardous materials" which shall mean
any petroleum products, flammables, explosives, radioactive materials,
asbestos, radon, or other hazardous waste including substances defined
as "hazardous substances", "hazardous materials", or "toxic substances"
in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Hazardous Materials Transportation Act, and the
Resources Conversion and Recovery Act, and any other material or
substance whose use, storage or disposal is regulated by law.
(g) Contracts. There are no contracts, whether written or oral, to
---------
which the Partnership or the General Partner is a party or which relate to or
affect the business, assets or liabilities of the Partnership or the General
Partner other than the Property Agreements set forth on Schedule 6.(f)(9), the
-----------------
Permitted Encumbrances and the Management Agreement.
8
<PAGE>
(h) Financial Statements. The balance sheets and the statements of
--------------------
income and cash flow for the Partnership and the General Partner or its
predecessors in interest for the calendar years 1991 through 1995 and for the
six -month period ending June 30, 1996 (the "Financial Statements"),
--------------------
present fairly the financial position, results of operations and cash flow of
the Partnership and the General Partner (as applicable) as of the dates and for
the periods indicated; all such statements were prepared in accordance with
generally accepting accounting principles, consistently applied.
(i) Absence of Certain Changes or Events. Since June 30, 1996, neither
------------------------------------
neither the Partnership nor the General Partner has:
(1) incurred any obligation or liability (fixed or
contingent), except (A) trade or business obligations incurred in the
ordinary course of business, (B) obligations and liabilities under the
Property Agreements, (C) and obligations and liabilities under this
Agreement;
(2) suffered any material adverse change in its financial
condition, results of operations, properties or business;
(3) incurred damage or destruction of any material asset by
fire, storm or other casualty, whether or not covered by insurance, in
such amount or to such extent that the damage or destruction materially
impairs the value of the damaged asset;
(4) sold, transferred or leased any of its assets, other
than in the ordinary course of business;
(5) waived or released any rights of any material value,
other than releasing Faulkner Construction Company for claims for
defective roof installation and matters related thereto;
(6) transferred any rights under any contracts;
(7) entered into any contract to make any capital
expenditures in excess of $500 which has not been fully performed and
paid for as of the date hereof; or
(8) entered into any material transaction other than in the
ordinary course of business.
(j) Litigation. Except as listed on Schedule 6.(i),(1) there is no
----------
claim, action, suit, proceeding, arbitration, investigation, hearing or notice
of hearing ("Litigation"), pending or, to the best knowledge of the Interested
----------
Parties, threatened, by or before any court, governmental or administrative
authority or private arbitration tribunal against the Partnership or the General
Partner
9
<PAGE>
which relates to or affects the Partnership's or the General Partner's
assets or business or the Transaction; (2) neither the Partnership nor the
General Partner has been permanently or temporarily enjoined or barred by order,
judgment or decree of any court or other tribunal or any agency or self-
regulatory body from engaging in or continuing any conduct in connection with
its business; and (3) there is not in effect any order, judgment or decree or
any court of other tribunal or any agency or self-regulatory body requiring the
Partnership or the General Partner to take or refrain from any action with
respect to the Partnership's or the General Partner's business.
(k) Books and Records. All the books, records and accounts of the
-----------------
Partnership and the General Partner are in all material respects accurate and
complete and are maintained in accordance with generally accepted accounting
principles, consistently applied.
(l) Withholding. Neither the Partnership nor the General Partner has
-----------
been or is required to withhold any amounts required by law or contract to be
withheld from the wages of any Person and is not liable for any arrears of wages
or any taxes or penalties for failure to comply with any of the foregoing.
(m) Labor Practices. Neither the Partnership nor the General Partner is
---------------
now engaged in any unfair labor practice within the meaning of the National
Labor Relations Act. There are no pending unfair labor practice charges or
discrimination complaints relating to race, color, national origin, sex, sexual
preference, religion, age, marital status or handicap against the Partnership or
the General Partner before any domestic (federal, state or local) or foreign
board, department, commission or agency nor does any basis therefor exist.
(n) Employee Benefits Plans, Etc.
----------------------------
(1) "Company Benefit Plans" shall mean "employee
---------------------
benefit plans" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1976, as amended ("ERISA"), maintained or
-----
contributed to by the Partnership or the General Partner and covering
Employees or Former Employees. "Company Welfare Benefit Plans" shall
-----------------------------
mean "employee welfare benefit plans" as defined in Section 3(1) of
ERISA maintained or contributed to by the Partnership or the General
Partner and covering Employees or Former Employees. "Company Pension
---------------
Plans" shall mean "employee pension benefit plans" as defined in Section
-----
3(2) of ERISA maintained or contributed to by the Partnership or the
General Partner and covering Employees or Former Employees.
(2) "Benefits Arrangements" shall mean all employment
---------------------
contracts, executive employment or compensation contracts, and bonus,
deferred compensation, excess benefits, pension, retirement, profit
sharing, stock bonus, stock option, stock purchase, life and health
insurance, hospitalization, savings, holiday, vacation, severance pay,
sick pay, sick leave, disability, dependent care assistance, death
benefit, tuition refund, service award,
10
<PAGE>
company car, scholarship, relocation, patent awards, fringe benefits as
defined in Section 132 of the Internal Revenue Code of 1986, as amended
(the "Code") and other contracts or practices of the Partnership, the
----
General Partner or any of their respective affiliates providing employee
or executive benefits to Employees or Former Employees.
(3) "Employees" shall mean all persons currently employed by
---------
the Partnership or the General Partner, including any such persons not
actively at work due to disability.
(4) "Former Employees" shall mean all persons formerly
----------------
employed by the Partnership or the General Partner whose service
therewith and all of its affiliates terminated when their service with
the Partnership or the General Partner terminated, including any such
persons who are disabled.
(5) There are no Employees, Former Employees, nor any
Company Benefit Plans, Company Welfare Plans or Company Pension Plans
("Plans").
-----
(6) No facts exist which would give any third party the
right under ERISA or the Code to assert a lien upon any of the assets of
the Partnership or the General Partner to secure liabilities in
connection with any Plan.
(o) Compliance with Applicable Laws.
-------------------------------
(1) To the Interested Parties' current, actual knowledge,
neither the General Partner nor the Partnership is in violation of any
Legal Requirement currently in effect, or, to the best knowledge of the
Interested Parties, proposed to become effective; and
(2) To the Interested Parties' current, actual knowledge,
neither the General Partner nor the Partnership has received any written
notice of any violation of any Legal Requirement, and none of the
Interested Parties knows of any basis for the allegation of any such
violation which, if sustained, would have a material adverse effect on
the financial condition, results of operations, properties, business or
prospects of the Partnership or the General Partner.
(p) Permits. Attached hereto as Schedule 6.(p), is a list of all
------- --------------
federal, state, county, and local governmental licenses, certificates, and
permits held or applied for by the Partnership or the General Partner. The
Partnership and the General Partner have complied in all material respects, and
is in compliance in all material respects, with the terms and conditions of all
such licenses, certificates, and permits, and no material violation of any such
licenses, certificates, or permits or the laws or rules governing the issuance
or continued validity thereof has occurred. No additional license, certificate,
or permit is required from any federal, state, county, or local
11
<PAGE>
governmental agency or body thereof in connection with the conduct of the
business of the Partnership or the General Partner. No written claim by any
governmental authority has been received by the Partnership or the General
Partner (and, to the best knowledge of the Interested Parties, no such claim is
anticipated) to the effect that a license, permit, or order is necessary in
respect of the business conducted by the Partnership or the General Partner.
(q) Insurance and Insurance Requirements.
------------------------------------
(1) There will be no outstanding or unsatisfied requirements
or recommendations by any insurance company that issued a policy with
respect to the Partnership's or General Partner's assets, by any Board of
Fire Underwriters or other body exercising similar functions or by any
governmental authority requiring or recommending any material repairs or
improvements to the Partnership's or General Partner's assets.
(2) (A) all tangible assets of the Partnership or the
General Partner are covered by insurance with responsible companies against
casualty and other losses customarily obtained to cover comparable
properties and assets by businesses in the region in which such assets are
located, in amounts and coverage which are reasonable and customary in
light of existing circumstances; and (B) all of the foregoing insurance is
in full force and effect.
(3) Schedule 6.(q) lists all insurance policies and fidelity
--------------
and surety bonds covering the Partnership's or the General Partner's
assets. To the Interested Parties' current, actual knowledge, there are no
disputes with underwriters, and all premiums due and payable have been
paid.
(r) Taxes. The Partnership and General Partner have filed all tax
-----
returns (federal, state, and local) required to be filed and have paid all
taxes, assessments, and governmental charges and levies thereon which are due.
(s) Debt. Except as set forth on Schedule 6.(s), neither the
---- --------------
Partnership nor the General Partner has Debt or any other liability (fixed or
contingent). "Debt" means (1) indebtedness or liability for borrowed money; (2)
----
obligations evidenced by bonds, debentures, notes, or other similar instruments;
(3) obligations for the deferred purchase price for property or services; (4)
obligations under any lease that would be considered a capital lease under
generally accepted accounting principles; (5) obligations under letters of
credit; (6) obligations under acceptance facilities; (7) all guaranties,
endorsements and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any person, or otherwise to insure a
creditor against loss; and (8) obligations secured by any mortgage, lien,
pledge, or security interest or other charge on property, whether or not the
obligations have been assumed. With regard to the Nomura Loan: (A) the
instruments described on Schedule 6(s) are all of the instruments or agreements
-------------
that are
12
<PAGE>
currently in effect that evidence or secure the Nomura Loan or any understanding
relating thereto (the "Nomura Loan Documents"); (B) no uncured breaches or
---------------------
defaults (whether declared or not), including nonpayment of any sum or
nonperformance of any obligation, exist under or with regard to the Nomura Loan;
and (C) the outstanding balance of the Nomura Loan as of the Closing Date will
not exceed $18,100,000.
(t) Subsidiaries. The Partnership does not have (nor possesses any
------------
options or other rights to acquire) any direct or indirect ownership interests
in any person. The General Partner does not have (nor possesses any options or
other rights to acquire) any direct or indirect ownership interest in any person
other than the Partnership.
(u) Intellectual Rights. Attached hereto as Schedule 6.(v) is a list
------------------- --------------
and description of all trademarks and trade names and applications therefor
owned by or registered in the name of the Partnership or the General Partner or
in which the Partnership or the General Partner has any right, license, or
interest. Except as provided in the Management Agreement with respect to the
name "Westar," neither the Partnership nor the General Partner is a party to any
license agreements, either as licensor or licensee, with respect to any
trademarks or trade names, and each of the Partnership and the General Partner
has good and marketable title to or the right to use such assets, without the
payment of any royalty or similar payment. Neither the Partnership nor the
General Partner is infringing on any trademark or trade name of others, and none
of the Interest Parties is aware of any infringement by others of any such
rights owned by any Partnership or the General Partner.
(v) Information Furnished. Sellers have made available to Purchaser
---------------------
and its officers, attorneys, accountants, and representatives true and correct
copies of all agreements, documents, and other items listed on the schedules to
this Agreement and all books and records of the Partnership and the General
Partner and neither this Agreement, the schedules hereto, nor any information,
agreements, or documents delivered to or made available to Purchaser or its
officers, attorneys, accountants, or representatives in connection with this
Agreement contain any untrue statement of a material fact or omit any material
fact necessary to make the statements herein or therein, as the case may be, not
misleading.
(w) Bills. All bills and other payments due with respect to the
-----
ownership, operation, and maintenance of the Hotel Sites, the Partnership and
the General Partner have been paid or will be paid prior to Closing in the
ordinary course of business, or, if unpaid, shall be identified by Sellers in
writing and shall be taken into account as "current liabilities" for purposes of
Section 9.(d).
(x) Partnership Agreement. Sellers have delivered to Purchaser a
---------------------
true and complete copy of the Partnership Agreement, including all modifications
or amendments thereto.
13
<PAGE>
(y) General Partner Organizational Documents. Sellers have delivered
----------------------------------------
to Purchaser true and correct copies of the following documents in respect of or
relating to the General Partner: articles of incorporation; bylaws; resolutions
of the board of directors; certificates of authority; certificates of existence;
shareholders' agreements; voting agreements; subscription agreements; and minute
books.
(z) Ownership Interests. Except for the special limited partner
-------------------
interest of Nomura in the Partnership (the "Nomura Partnership Interest"), no
---------------------------
person has any ownership interest in the Partnership or any rights under the
Partnership Agreement (or the right to acquire such an interest or rights
whether pursuant to an option, conversion right or otherwise) other than the
General Partner, Partnership Sellers and Purchaser. No person owns any stock,
has any voting rights or has any rights to acquire stock or voting rights in the
General Partner (whether pursuant to an option, conversion right, or otherwise),
other than the GP Seller and Purchaser. The aggregate Nomura Redemption Amount
will not exceed $1,300,000 as of the Closing Date.
If (1) any representations and warranties set forth in this Section 6 are untrue
in any material respect, or (2) at any time at or before Closing there is any
material change with respect to the matters represented and warranted in this
Section 6, Purchaser may terminate this Agreement by delivering written notice
to Seller at any time at or before the Closing, in which case, the Earnest Money
shall be returned to Purchaser. All of the representations and warranties shall
survive the Closing (other than those made regarding the physical condition of
the Improvements and the personal property which shall terminate upon Closing);
however, neither the Partnership nor the General Partner shall have any
liability to any person (including another Interested Party) for any breach of a
representation or warranty from and after Closing. For purposes hereof, the
knowledge of Mark Y. Harris shall be imputed to each Seller.
Section 7 Purchaser's Representations and Warranties. Purchaser
------------------------------------------
represents and warrants to Sellers that:
(a) Organization and Standing. Purchaser is duly organized, validly
-------------------------
existing, and is in good standing under the laws of the State of Delaware and
has the requisite power to execute, deliver and perform this Agreement and all
other documents delivered in connection with the transaction contemplated hereby
to which it is a party.
(b) Authorization. Purchaser's execution, delivery and performance
-------------
of this Agreement and performance of the Transaction has been duly authorized by
all requisite action and all approvals and consents requisite therefor have been
obtained. This Agreement has been duly and validly executed and delivered by
Purchaser and constitutes valid and binding obligations enforceable against it
in accordance with its terms, except as such enforceability may be limited by
(1) applicable bankruptcy, insolvency, or similar laws from time to time in
effect which may affect the enforcement of creditor's rights in general and (2)
general principles of equity.
14
<PAGE>
(c) Approvals, Consents, Etc. No permit, consent, authorization or
------------------------
approval of, or waiver or exemption by, or filing with, any person is required
in connection with the execution, delivery or performance of this Agreement or
the consummation of the Transaction by Purchaser.
(d) Compliance with Other Instruments. The execution, delivery and
---------------------------------
performance by Purchaser of this Agreement and the consummation by it of the
Transaction will not, with or without the giving of notice or the lapse of time
or both, (1) violate any laws to which it is subject, (2) violate any judgment,
order, writ or decree of any court applicable to it, or (3) result in the breach
of or conflict with any term, covenant, condition or provision of, result in the
modification or termination of, constitute a default under, or result in the
creation or imposition of any encumbrance upon any of the assets of Purchaser
pursuant to any contract or other instrument to which it is a party or by which
its assets are bound.
Section 8 Termination of Management Agreement and Harris FF&E.
---------------------------------------------------
(a) At Closing, GP Seller and the Partnership shall execute an agreement,
in form and substance satisfactory to Purchaser and such parties, terminating
the Management Agreement (the "Termination Agreement"), upon payment by
---------------------
Purchaser to GP Seller of a termination fee of $1,500,000 (the "Termination
-----------
Fee"). In addition to payment of the Termination Fee, at Closing:
- ---
(1) GP Seller shall assign to Purchaser those leases and contracts
described in Schedule 8.(a)(1) (the "Assigned Personalty Leases") and the
----------------- --------------------------
Partnership shall succeed to all of GP Seller's right, title and interest
therein and shall indemnify and hold GP Seller harmless with respect to any
and all obligations arising thereunder after Closing. GP Seller shall
obtain all lessor, lender and other third-party consents which may be
required for such assignments together with such estoppel certificates from
such third parties as Purchaser may reasonably request in connection
therewith.
(2) GP Seller shall sell, transfer and convey to the Partnership the motor
vehicles described in Schedule 8.(a)(2) (the "Vehicles"), subject
----------------- --------
only to the existing loans thereon described in Schedule 8.(a)(2) (the
-----------------
"Vehicle Loans") (not to exceed the principal and accrued interest amount
--------------
set forth in said Schedule). The Partnership shall succeed to all of GP
Seller's right, title and interest therein, free and clear of all other
claims, liens and encumbrances, and the Partnership shall indemnify and
hold GP Seller harmless with respect to the loans described above and shall
pay all transfer costs, sales taxes and similar costs related to such
transfers. GP Seller shall obtain all lender consents required for such
conveyances together with such estoppel certificates from such third
parties as Purchaser may reasonably request in connection therewith.
(b) The Termination Fee, together with the amount described in Section
1.(b) (the "Section 1.(b) Amount"), shall be paid directly by Purchaser to
Nomura at Closing in satisfaction
15
<PAGE>
of the Nomura Redemption Amount payable by the Partnership in redemption of the
Nomura Partnership Interest, and such payment by Purchaser shall be accorded the
following treatment:
(1) The Termination Fee so used shall be treated (A) as having been
received by GP Seller from Purchaser; (B) as having been paid by GP Seller
to the General Partner as a contribution to the capital of the General
Partner in lieu and in replacement of that certain demand Promissory Note
dated December 29, 1995, in the original principal amount of $960,000,
payable by Mark Y. Harris to GP Seller (the "Harris Note"), which Harris
-----------
Note was previously assigned by GP Seller to the General Partner as a
contribution to the capital of the General Partner on December 29, 1995;
(C) as having been contributed to the capital of the Partnership by the
General Partner; and (D) as having been paid by the Partnership to Nomura
immediately prior to Closing as part of the Nomura Redemption Amount.
(c) At Closing, the General Partner shall negotiate and assign the Harris
Note, without recourse or warranty of any kind whatsoever, to GP Seller.
(d) At Closing, Mark Y. Harris shall convey to the Partnership all of the
furniture, fixtures and equipment described on Schedule 8.d and Purchaser shall
pay to Mark Y. Harris on behalf of the Partnership, $194,509.93 (the "FF&E
----
Price"). If Purchaser elects to extend the Closing Date, the FF&E Price shall
- -----
increase by $39.12 per day during the extension period. There shall be no
increase in the FF&E Price if Sellers elect to extend the Closing Date.
Section 9 Closing. The closing (the "Closing") of the sale of the
------- -------
Ownership Interests by Sellers to Purchaser shall occur on the later of
September 6, 1996, or three business days after Seller has delivered to
Purchaser the Schedules (the "Closing Date"), in the offices of Vinson & Elkins
------------
L.L.P., 2001 Ross Avenue, Suite 3700, Dallas, Texas, 75201, commencing at 11:00
a.m., Dallas, Texas time. Purchaser may extend the Closing Date to a date which
is not later than September 20, 1996, by delivering to Seller written notice
thereof before September 6, 1996, in which case, the Purchase Price shall be
increased by $75,000. At the Closing the following, which are mutually
concurrent conditions, shall occur:
16
<PAGE>
(a) Purchaser shall deliver or cause to be delivered to or for the benefit
of Sellers the following (which shall be conditions to Sellers' obligations to
close the Transaction):
(1) cashier's check, or the check of the Title Company made payable
to the order of Nomura, or immediately available cash funds to Nomura, in
payment of the Nomura Redemption Amount for the benefit of Sellers as
described in Section 8.(b) (and in satisfaction of Purchaser's obligation
to GP Seller for the portion of Termination Fee so used);
(2) cashier's check, or the check of the Title Company, made payable
to the order of Sellers, or immediately available cash funds, in the amount
of the Purchase Price less the Reserve Amount (defined below);
(3) cashier's check or the check of the Title Company, made payable
to the order of GP Seller, or immediately available cash funds, in the
amount of the Termination Fee not used to pay the Nomura Redemption Amount;
(4) evidence satisfactory to Sellers that the person executing the
Closing documents on behalf of Purchaser has full right, power, and
authority to do so;
(5) acceptances whose form and substance are reasonably satisfactory
to GP Seller pursuant to which Purchaser shall accept the transfers and
assignments described in Sections 8.(a)(1) and 8.(a)(2) on terms consistent
with those provisions;
(6) cashier's check or check of the Title Company made payable to the
order of Mark Y. Harris in the amount of the FF&E Price in payment of its
obligation under Section 8.(d);
(7) cashier's checks or checks of the Title Company made payable to
the appropriate Seller or Seller Affiliate, or immediately available cash
funds in the amounts of any payments due to them from the Partnership or
the General Partner, provided that the aggregate amount of such payments
does not exceed $1,500,000. The aggregate amount of such payments shall be
deemed to be paid by the Partnership to the appropriate Seller or Seller
Affiliate immediately prior to Closing and the Purchase Price shall be
reduced by the amount thereof; and
(8) certificate executed by Purchaser stating that, as of the Closing
Date, each of Purchaser's representations and warranties set forth in
Section 7 is true and correct in all material respects.
(b) Sellers, at their expense, shall deliver or cause to be delivered to
Purchaser the following (which shall be conditions to Purchaser's obligation to
close the Transaction):
17
<PAGE>
(1) Bill of Sale and Assignments whose form and substance are
reasonably satisfactory to Purchaser, fully executed and acknowledged by
Sellers, assigning all of the Ownership Interests to Purchaser, together
with all certificates representing the Stock endorsed to Purchaser;
(2) assignments of each Property Agreement set forth on Schedule
--------
8.(a)(1), together with all requisite consents thereto and estoppel
--------
certificates reasonably required by Purchaser in connection therewith, each
in form and substance reasonably acceptable to Purchaser.
(3) certificates of title to the Vehicles endorsed to the
Partnership.
(4) termination agreements terminating each Property Agreement set
forth on Schedule 9.(b)(4).
-----------------
(5) evidence satisfactory to Purchaser and the Title Company that the
persons executing and delivering the Closing documents on behalf of each
Seller has full right, power and authority to do so;
(6) certificate executed and acknowledged by a duly authorized officer
of Pacific Mutual Life Insurance Company ("Pacific Mutual") (A) stating that
--------------
the Nomura Loan and the liens and security interests securing such loan are
in good standing and no uncured breaches or defaults exist thereunder; (B)
setting forth the unpaid principal balance on the Nomura Loan and the amount
of all escrow deposits held in respect of the Nomura Loan as of the Closing
Date; (C) setting forth the date through which interest on the Nomura Loan
has been paid;(D) consenting to the Transaction; (E) agreeing to notify
Purchaser of any default under or other matter relative to the Nomura Loan;
and (F) if the Nomura Loan contains any "other indebtedness", "cross-
default", or other provisions found onerous by Purchaser, that such
provisions are deleted therefrom or modified in a manner acceptable to
Purchaser;
(7) certificate executed by Seller stating that, as of the Closing
Date, each of Seller's representations and warranties set forth in Section 6
is true and correct in all material respects as of the Closing Date;
(8) such other instruments as are customarily executed in Texas to
effectuate the conveyance of property similar to the Ownership Interests,
with the effect that, after the Closing, Purchaser will have succeeded to
all of the rights, titles, and interests of Sellers related to the Ownership
Interests, the Partnership, or the General Partner, and Sellers will no
longer have any rights, titles, or interests in and to the Ownership
Interests, the Partnership, or the General Partner;
18
<PAGE>
(9) the Termination Agreement;
(10) release agreements executed by each Seller Affiliate (defined
below) releasing the Partnership and the General Partner from any and all claims
the Seller Affiliate may have against the Partnership or the General Partner
(the "Seller Affiliate Liabilities"), whether known or unknown, under contract,
----------------------------
at law, in equity or otherwise, including, without limitation, loans and lease
obligations. "Seller Affiliate" means a person or entity (A) which, directly or
----------------
indirectly through one or more intermediaries, (i) controls, is controlled by,
or is under common control with a Seller or (ii) owns any ownership interest in
a Seller,(B) which is a partner, shareholder, director, officer, member, or
manager of a Seller or the General Partner, or (C) any family members of the
foregoing persons;
(11) bill of sale and assignment executed by each Seller Affiliate
(including Mark Y. Harris) which has any interest in any furniture, fixture,
equipment, or other personal property used in the operation of any Hotel Site
(including that described on Schedule 8.(d)), conveying to the Partnership all
--------------
or such Seller Affiliates' rights, titles, and interests in and to such
property;
(12) releases from each lender of Debt to the Partnership or General
Partner, other than the Nomura Loan and the Assigned Personalty Leases;
(13) resignation letters from each officer and director of the General
Partner under which they resign from their respective positions as of the
Closing Date;
(14) abstracts of title (which shall be paid for by Purchaser) for
each Hotel Site from the date of the abstract of title delivered under Section
3.(b) through the Closing Date indicating no change in title has occurred since
the date of the previous abstract of title;
(15) current Uniform Commercial Code searches (which shall be paid for
by Purchaser) for the Interested Parties dated as of the Closing Date indicating
no change from the Uniform Commercial Code searches delivered under
Section 3.(d); and
(16) a withdrawal agreement from Nomura in which it withdraws as a
partner in the Partnership and releases all rights, titles, and interests it may
have in, to, or against the Partnership or the General Partner.
If Seller has failed to satisfy any of the conditions set forth above by
September 6, 1996, Seller may extend the Closing Date and the date by which such
conditions must be met to a date not later than September 20, 1996. Such
extension may be exercised by Sellers delivering to Purchaser written notice
thereof by 5:00 p.m., Dallas, Texas, time on September 5, 1996. Time is of the
essence with
19
<PAGE>
respect to the delivery of the extension notice; accordingly, if
Sellers fail to timely deliver the extension notice, this extension right shall
expire.
(c) Consents. Sellers shall be responsible for obtaining all consents
--------
requisite for the Transaction, including the consent of Pacific Mutual and shall
pay all costs incurred by them in connection therewith; however, Purchaser shall
be responsible for all costs and expenses incurred in connection with satisfying
the conditions to obtaining the consent of Pacific Mutual for this Transaction,
including reasonable legal fees and expenses incurred in connection with
rendering a non-consolidation opinion, but excluding any legal fees and expenses
incurred by Sellers or any Seller Affiliate in connection therewith. Purchaser
shall cooperate in good faith with Sellers in obtaining such consents.
(d) Prorations. The current assets (including, without limitation, the
----------
amount of all escrow deposits held in respect of the Nomura Loan and accounts
receivable) and current iabilities of the Partnership and the General Partner
shall be prorated as of the Closing Date, with Sellers being credited with (as
an increase to the Purchase Price) the amount by which the current assets exceed
the current liabilities or being charged with (as a reduction to the Purchase
Price) the amount by which the current liabilities exceed the current assets, as
the case may be. For purposes hereof, "current liabilities" shall include unpaid
-------------------
liabilities, if any, described in Section 6.(w) and otherwise shall be
determined in accordance with the Uniform System of Accounts for Hotels, 8th
Revised Edition and "current assets" shall mean cash, publicly-traded
--------------
securities, and accounts receivable and otherwise shall be determined in
accordance with the Uniform System of Accounts for Hotels, 8th Revised Edition;
however, because all of the Seller Affiliate Liabilities are being paid or
otherwise released at Closing, current liabilities shall exclude Seller
Affiliate Liabilities. Such prorations shall be based on Seller's and
Purchaser's good-faith estimates based on the then-most-recently prepared
balance sheets for the Partnership and the General Partner and other available
information (the "Preliminary Prorations"). Within 60 days after the Closing
----------------------
Date, Purchaser and Sellers shall make a cash settlement reflecting the
appropriate prorations based on the actual figures (the date on which such
settlement occurs is herein called the "Settlement Date").
---------------
(e) Reserve Account. At Closing, a portion of the Purchase Price equal to
---------------
the aggregate amount described in clauses (1) and (2) below (the "Reserve
-------
Amount") shall be paid to the Title Company to be held in an escrow account (the
"Reserve Account") as provided herein pursuant to an escrow agreement reasonably
---------------
acceptable to Sellers, Purchaser and the Title Company. The Reserve Amount
shall be held and applied for the following purposes:
(1) An amount equal to the accounts receivable existing as of the
Closing Date shall be deposited into the Reserve Account (the "AR Deposit").
----------
Thereafter, the Partnership shall use commercially reasonable efforts to obtain
payment of the pre-Closing Date accounts receivable. In exercising such efforts,
the Partnership may, but shall not be required to, institute a lawsuit or other
legal proceedings to collect such accounts receivable.
20
<PAGE>
Within ten days after the end of each calendar month, the Partnership shall
notify the Title Company and GP Seller of the pre-Closing Date accounts
receivable received during such month ("AR Receipts"). The Title Company shall
-----------
pay to GP Seller from the AR Deposit an amount equal to the AR Receipts for the
month in question within ten days after such notice is delivered to the Title
Company. If on December 31, 1996, the remaining AR Deposit is greater than the
AR Amounts received by the Partnership during such period, then the remaining AR
Deposit shall be delivered to the Partnership and the Partnership shall assign
to GP Seller the uncollected pre-Closing Date accounts receivable as of such
date.
(2) $50,000 (the "Settlement Deposit") shall be deposited into the
------------------
Reserve Account until the final Settlement Date. If, on the Settlement Date, it
is determined that at Closing the Purchase Price was not reduced enough or was
increased too much to reflect the difference between the actual current
liabilities and actual current assets of the Partnership as of the Closing Date,
then the difference between the adjustment based on the Preliminary Prorations
and the actual adjustment based on actual figures shall be settled as follows:
an amount equal to such difference shall be disbursed from the Settlement
Deposit to the Partnership and (A) if such amount is insufficient to pay such
difference, Sellers shall pay to the Partnership an amount equal to the unpaid
portion of such difference and (B) if such amount is sufficient to pay such
difference, then the remaining Settlement Deposit shall be paid to GP Seller.
If, on the Settlement Date, it is determined that at Closing the Purchase Price
was not increased enough or was reduced too much to reflect the difference
between the actual current liabilities and actual current assets of the
Partnership as of the Closing Date, then the difference between the adjustment
based on the Preliminary Proration and the actual adjustment based on the actual
figures shall be settled as follows: all funds in the Settlement Deposit shall
be delivered to the GP Seller and Purchaser shall pay to the GP Seller such
difference.
The Reserve Amount shall be maintained by the Title Company in an interest-
bearing account and all interest earned thereon shall accrue for the benefit of
Sellers and shall be payable to Sellers on a monthly basis. All amounts payable
to Sellers under this Section 9(e) shall be paid to GP Seller as agent for
Sellers. Each of Sellers hereby appoints GP Seller as its agent to receive
payments under this Section 9.(e). Sellers may, after giving the Partnership at
least ten-days' prior written notice thereof, inspect or audit the Partnership's
records relating to the matters described in clauses (1) and (2) above. Such
inspection rights shall be conducted during normal business hours reasonably
designated by the Partnership and in a manner so as not to unreasonably
interfere with the Partnership's business operations. Such inspection right may
not be exercised by the Sellers more than once in any 30-day period or after
February 28, 1997.
21
<PAGE>
Section 10 Remedies. If Purchaser defaults hereunder, Sellers' sole
--------
remedy shall be to terminate this Agreement and receive the Earnest Money as
liquidated damages. Purchaser and Sellers acknowledge the actual damages to be
incurred by Sellers can reasonably be expected to approximate the amount of
liquidated damages provided for herein, even though the actual amount of such
damages would be difficult if not impossible to accurately measure. If any
Seller defaults on its obligation to consummate the Transaction hereunder,
Purchaser may as its exclusive remedy therefor (a) terminate this Agreement and
receive the Earnest Money, (b) waive the default or unsatisfied condition, or
(c) enforce specific performance.
Section 11 Miscellaneous.
-------------
(a) Waivers. No action taken pursuant to this Agreement, including any
-------
investigation by or on behalf of any party hereto, shall be deemed to constitute
a waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein. The waiver by any party
hereto of any condition or of a breach of any other provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party of any of the conditions precedent
to its obligations under this Agreement shall not preclude it from seeking
redress for the breach of this Agreement other than with respect to the
condition so waived.
(b) Notices. All notices, requests, demands, applications, services of
-------
process and other communications which are required to be or may be given under
this Agreement shall be given by telex, telecopy or facsimile transmission; hand
delivery; overnight courier service; or delivered or mailed, certified first
class mail, postage prepaid, return receipt requested, to the parties hereto at
the addresses shown on the signature pages hereof or to such other address as
any party shall furnish to the other by notice given in accordance with this
Section. All such notices shall be effective upon delivery to the address of
the intended addressee.
(c) Entire Agreement; Amendments. This Agreement embodies the entire
----------------------------
agreement between the parties hereto with respect to the subject matter hereof
and thereof and supersedes all prior agreements and understandings, oral or
written, with respect thereto. This Agreement may not be changed orally, but
only by an agreement in writing signed by the party or parties against whom any
waiver, change, amendment, modification or discharge may be sought.
(d) Binding Effect; Benefits. This Agreement shall inure to the benefit
------------------------
of and shall be binding upon the parties hereto and their respect heirs, legal
representatives, successors and assigns. The obligations of Sellers hereunder
shall be joint and several.
(e) Headings. The section and other headings contained in this Agreement
--------
are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. References to Articles, Sections, Schedules
and Exhibits are to the articles, sections, schedules and
22
<PAGE>
exhibits to this Agreement. References to this Agreement are to the Agreement
together with all Exhibits and Schedules.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
(g) Rules of Construction. In this Agreement, unless the context
---------------------
otherwise requires, words in the singular number or in the plural number shall
each include the singular number and the plural number, and words of the
masculine gender shall include the feminine and the neuter, and, when the sense
so indicates, words of the neuter gender may refer to any gender. The term
"affiliate" shall mean, with respect to each person, another person which,
directly or indirectly, controls, is controlled by, or is under common control
with the person in question. The term "person" shall mean an individual or
entity. The term "including" shall mean including without limitation. The rule
that this Agreement shall be construed against the drafting party shall be
inapplicable.
(h) Publicity. None of the Interested Parties nor any of their affiliates
---------
shall make any public announcement regarding the Transaction or the execution of
this Agreement without the prior written consent of Purchaser.
(i) Governing Law. This Agreement and the obligations of the parties
-------------
hereto shall be construed and enforced in accordance with the laws of the State
of Texas, excluding any conflicts of law rule or principle which might refer
such construction to the laws of another state or country. Each party hereto
submits to the jurisdiction of the state and federal courts in the State of
Texas.
(j) Separability. Any term or provision of this Agreement which is
------------
invalid or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement.
(k) Third Parties. This Agreement constitutes an agreement solely among
-------------
the parties hereto, and is not intended to and shall not confer any rights,
remedies, obligations or liabilities, legal or equitable, including any right of
employment, on any person other than the parties hereto and their respective
heirs, legal representatives, successors or assigns, or otherwise constitute any
person a third party beneficiary under or by reason of this Agreement.
(l) Further Assurances. Each party hereto shall take such action and
------------------
shall execute such further documentation as may be reasonably requested by any
other party hereto to further evidence or effect the Transactions.
23
<PAGE>
Executed as of the date first set forth above.
SELLERS: WESTAR HOTELS, INC., a Texas corporation
By:/s/ Mark Y. Harris
------------------------------------
Name: Mark Y. Harris
----------------------------------
Title:
---------------------------------
Address: 1205 Rio Grande
Austin, Texas 78701
Fax No.: (512) 477-0998
RHF-AMARILLO, LTD., a Texas limited
partnership
By: RH, Ltd., its general partner
By: Westar Hotels, Inc., its general partner
By:/s/ Mark Y. Harris
------------------------------------
Name: Mark Y. Harris
----------------------------------
Title:
---------------------------------
Address: 1205 Rio Grande
Austin, Texas 78701
Fax No.: (512) 477-0998
RHF-EL PASO, LTD., a Texas limited
partnership
By: RH, Ltd., its general partner
By: Westar Hotels, Inc., its general partner
By:/s/ Mark Y. Harris
------------------------------------
Name: Mark Y. Harris
----------------------------------
Title:
---------------------------------
Address: 1205 Rio Grande
Austin, Texas 78701
Fax No.: (512) 477-0998
24
<PAGE>
RHF-IRVING, LTD., a Texas limited partnership
By: RH, Ltd., its general partner
By: Westar Hotels, Inc., its general partner
By: /s/ Mark Y. Harris
-------------------------------
Name: Mark Y. Harris
-----------------------------
Title:
----------------------------
Address: 1205 Rio Grande
Austin, Texas 78701
Fax No.: (512) 477-0998
RHF-SAN ANTONIO #2, LTD., a Texas limited
partnership
By: RH, Ltd., its general partner
By: Westar Hotels, Inc., its general partner
By: /s/ Mark Y. Harris
-------------------------------
Name: Mark Y. Harris
-----------------------------
Title:
----------------------------
Address: 1205 Rio Grande
Austin, Texas 78701
Fax No.: (512) 477-0998
RHF-SAN ANTONIO NORTH, LTD., a Texas
limited partnership
By: RH, Ltd., its general partner
By: Westar Hotels, Inc., its general partner
By: /s/ Mark Y. Harris
-------------------------------
Name: Mark Y. Harris
-----------------------------
Title:
----------------------------
Address: 1205 Rio Grande
Austin, Texas 78701
Fax No.: (512) 477-0998
25
<PAGE>
PARTNERSHIP: VPS I, L.P., a Delaware limited partnership
By: VPS I, Inc., a Delaware corporation
By: /s/ Mark Y. Harris
-------------------------------
Name: Mark Y. Harris
-----------------------------
Title:
----------------------------
Address: 1205 Rio Grande
Austin, Texas 78701
Fax No.: (512) 477-0998
GENERAL PARTNER: VPS, INC., a Delaware corporation
By: /s/ Mark Y. Harris
-------------------------------
Name: Mark Y. Harris
-----------------------------
Title:
----------------------------
Address: 1205 Rio Grande
Austin, Texas 78701
Fax No.: (512) 477-0998
PURCHASER: EXTENDED STAY LIMITED PARTNERSHIP,
a Delaware limited partnership
By: JMI/Greystar Extended Stay Partners, L.P., a
Delaware limited partnership
By: Greystar Holdings, Inc.
By:/s/ Robert A. Faith
--------------------
Name: Robert A. Faith
---------------------
Title:
---------------------
Address: 2001 Ross Suite 3200
Dallas, TX 75201
Fax No.: (214) 863-3421
26
<PAGE>
OTHER PARTY: /s/ Mark Y. Harris
For the sole purpose of --------------------
======================= MARK Y. HARRIS
making the representations Address: 1205 Rio Grande
========================== Austin, Texas 78701
and warranties in Section 6 Fax No.: (512) 477-0998
===========================
and to confirm his obligations
==============================
under Sections 8.(d) and 9
==========================
27
<PAGE>
EXHIBIT A
---------
[Description of the Land]
A-1
<PAGE>
EXHIBIT B
---------
[Management Agreement]
B-1
<PAGE>
EXHIBIT C
---------
[Inventory, which should indicate whether property is leased or owned and,
if leased, the lessor and lessee thereof]
[To be prepared by Sellers]
C-1
<PAGE>
SCHEDULE 6.(f)(2)
-----------------
[Exceptions to Title to Personal Property; i.e., security interests, leases]
[To be prepared by Sellers]
Schedule 6.(f)(2)-1
<PAGE>
SCHEDULE 6.(f)(9)
-----------------
[Property Agreements, indicate if not cancellable on not more than
30-days' notice without premium and any defaults by any party thereto]
[To be prepared by Sellers]
Schedule 6.(f)(9)-1
<PAGE>
SCHEDULE 6.(j)
--------------
[Litigation]
[To be prepared by Sellers]
Schedule 6.(j)-1
<PAGE>
SCHEDULE 6.(p)
--------------
[Permits, etc.]
[To be prepared by Sellers]
Schedule 6.(p)-1
<PAGE>
SCHEDULE 6.(q)
--------------
[Insurance]
[To be prepared by Sellers]
Schedule 6.(q)-1
<PAGE>
SCHEDULE 6.(s)
--------------
[Description of Debt and description of Nomura Loan Documents]
[To be prepared by Sellers]
Schedule 6.(s)-1
<PAGE>
SCHEDULE 6.(v)
--------------
[Trademarks, etc.]
[To be prepared by Sellers]
Schedule 6.(v)-1
<PAGE>
SCHEDULE 8.(a)(1)
-----------------
[GP Leases to be Assumed, list lessor and lessee]
Schedule 8.(a)(1)-1
<PAGE>
SCHEDULE 8.(a)(2)
-----------------
[Description of Vans and Loans]
Schedule 8(a)(2)-1
<PAGE>
SCHEDULE 8.(d)
--------------
[List of furniture, fixtures and equipment]
Schedule 8.(d)-1
<PAGE>
SCHEDULE 9.(b)(4)
-----------------
[Property Agreements to be terminated]
[To be prepared by Purchaser and Seller]
Schedule 9.(b)(4)-1
<PAGE>
EXHIBIT 10.9
- --------------------------------------------------------------------------------
MASTER LINE OF CREDIT AGREEMENT
BANK ONE, ARIZONA, NA,
a national banking association
("Lender")
------
and
EXTENDED STAY LIMITED PARTNERSHIP,
a Delaware limited partnership
("Borrower")
--------
August 14, 1996
- --------------------------------------------------------------------------------
<PAGE>
MASTER LINE OF CREDIT AGREEMENT
-------------------------------
This Master Line of Credit Agreement is made as of August 14, 1996, by and
among EXTENDED STAY LIMITED PARTNERSHIP, a Delaware limited partnership, whose
address is 2001 Bryan Street, Suite 2400, Dallas, Texas 75201-3075 ("Borrower");
--------
and BANK ONE, ARIZONA, NA, a national banking association, whose address is
Western Region Real Estate, P. O. Box 29542, Phoenix, Arizona 85038 ("Lender").
------
RECITALS
A. Borrower has applied to Lender for a line of credit to provide
development funds for the acquisition and construction of extended stay hotels
throughout the United States of America.
B. Lender desires to extend the credit facility on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
------------
meanings set forth below:
"Advance" shall mean a disbursement of proceeds pursuant to a Project Loan
-------
Agreement.
"Agreement" shall mean this Master Line of Credit Agreement, as the same
---------
may be amended, modified and supplemented from time to time.
"Appraisal" shall mean an appraisal ordered by Lender and prepared by an
---------
appraiser satisfactory to Lender, which appraisal complies with all federal and
state standards for appraisals and is otherwise in form and substance
satisfactory to Lender.
<PAGE>
"Borrower" shall have the meaning set forth in the introduction hereto.
--------
"Borrower's Counsel" shall mean Vinson & Elkins L.L.P.
------------------
"Business Day" shall mean a day of the year other than Saturdays, Sundays
------------
and legal holidays on which Lender's main office located at 201 North Central
Avenue, Phoenix, Arizona, is closed.
"Capital Expenditures" shall mean any payment made directly or indirectly
--------------------
for the purpose of repairing or replacing fixed assets, real property or
equipment which, in accordance with GAAP, would be added as a debit to the fixed
asset account of the Person making the payment.
"Certification of Non-Foreign Status" shall mean an affidavit, signed under
-----------------------------------
penalty of perjury by an authorized representative of Borrower, stating (a) that
Borrower is not a "foreign corporation," "foreign partnership," "foreign trust,"
or "foreign estate," as those terms are defined in the Internal Revenue Code and
the regulations promulgated thereunder, (b) Borrower's U.S. employer
identification number, and (c) the address of Borrower's principal place of
business. Such affidavit shall be consistent with the requirements of the
regulations promulgated under Section 1445 of the Internal Revenue Code, and
shall otherwise be in form and substance acceptable to Lender.
"Collected Revenues" shall mean the amounts of (i) room revenues actually
------------------
received by Borrower, (ii) gift shop income, food and beverage income, vending
machine income, telephone income and other service fees and (iii) other revenues
from the operation of a Project.
"Commitment Fee" shall mean a fee payable by Borrower for the Master Credit
--------------
Line in the amount of One Hundred Fifty Thousand and No/100 Dollars
($150,000.00).
"Constant Interest Only Coverage" shall mean an amount, expressed as a
-------------------------------
percentage, calculated by Lender, and equal to (i) the Net Operating Income for
the period in question divided by (ii) the Loan Amount.
2
<PAGE>
"Construction Contract" shall mean any contract (other than a General
---------------------
Contract or a Subcontract) relating to work performed or to be performed for the
construction of the Improvements for a Project.
"Construction Contractor" shall mean any contractor who is a party to a
-----------------------
Construction Contract.
"Day" or "Days" shall mean calendar days unless expressly stated to be
--- ----
Business Days.
"Debt Ratio" shall have the meaning as set forth in Section 5.13 hereof.
---------- ------------
"Debt Service Amount" shall mean the monthly payments of principal and
-------------------
interest that would be necessary to fully amortize an assumed loan with the
following characteristics: (i) the amount of such loan is the outstanding
principal balance of all Mini-Perms Loans; (ii) the interest rate on such loan
is equal to the sum of (A) 2.50% per annum and (B) the weekly average yield on
United States Treasury Securities Constant Maturities Series issued by the
United States Government for a ten-year term as most recently published by the
Board of Governors of the Federal Reserve System and Federal Reserve Statistical
Release H.15(519) (or any similar or successor publication selected by Lender)
as of the date of determination of the Debt Service Amount; and (iii) the
amortization period is fifteen (15) years.
"Debt Service Coverage Ratio" shall mean the number obtained by dividing
---------------------------
(i) the Net Operating Income for all Mini-Perm Projects during the period in
question by (ii) the Debt Service Amount for the period in question.
"Deed of Trust" or "Deeds of Trust" shall mean, individually and
------------- --------------
collectively, the deeds of trust and fixture filings, with assignment of rents
and security agreement, executed and delivered by Borrower subsequent to the
date hereof pursuant to Sections 3.2 and 3.3 hereof (which also includes that
--------------------
certain Deed of Trust (With Assignment of Rents and Security Agreement)
previously executed by Borrower and recorded in Tarrant County, Texas), all
substantially in the form attached hereto as Exhibit C.
---------
3
<PAGE>
"Environmental Indemnity" shall mean, collectively and individually, the
-----------------------
agreements executed by Borrower for the benefit of Lender in the form attached
hereto as Exhibit D relating to a Project.
---------
"Event of Default" shall mean the occurrence of any of the events listed in
----------------
subsection 6.1 of this Agreement and the expiration of any applicable notice and
- --------------
cure period provided in said subsection.
"Financial Statements" shall mean such balance sheets, income statements,
--------------------
cash flow statements or other information respecting the condition of Borrower
as Lender may from time to time reasonably request, for any fiscal year or
portion thereof during the term of this Agreement, prepared and reported
according to GAAP, consistently applied.
"Financing Statement" shall mean one or more UCC-1 financing statements
-------------------
executed by Borrower, as debtor, in favor of Lender, as secured party, and
perfecting Lender's security interest in the collateral described therein, each
in form and substance satisfactory to Lender, to be filed in the Office of the
Secretary of State of the state in which the Project Premises is located, and in
such other offices for recording or filing such statements in such jurisdictions
as Lender shall desire to perfect Lender's security interest or reflect such
interest in appropriate public records.
"GAAP" shall mean generally accepted accounting principles in the United
----
States of America in effect from time to time.
"General Contract" shall mean that certain Development and Construction
----------------
Agreement by and between Borrower and the General Contractor relating to the
construction of the Improvements for a Project, all substantially in the form
attached hereto as Exhibit E.
---------
"General Contractor" shall mean TCR Extended Stay I Limited Partnership,
------------------
and Greystar Realty Service, L.P. as General Contractor.
4
<PAGE>
"Governmental Authority" shall mean any arbitrator, other private
----------------------
adjudicator, court, government or governmental authority (federal, state, local
or foreign).
"Hard Costs" shall mean all costs incurred for labor performed in the
----------
construction of the Improvements for a Project and the materials acquired for
such Improvements. "Hard Costs" shall in any event include any items approved
by Lender and designated as such on a Project Budget and shall include a
$250,000 fee/general conditions payment to the General Contractor.
"Improvements" shall mean the improvements to be constructed on each
------------
Project Premises for the development of such Project Premises as an extended
stay hotel, all in accordance with the applicable Project Plans and all as
approved by Lender pursuant to Section 3.2 hereof.
-----------
"Legal Action" shall have the meaning set forth in Section 4.5 of this
------------ -----------
Agreement.
"Lender" shall mean Bank One, Arizona, NA, a national banking association.
------
"Liquidity" shall have the meaning as set forth in Section 5.13 hereof.
--------- ------------
"Loan Amount" shall mean the amount of THIRTY MILLION AND NO/100 DOLLARS
-----------
($30,000,000.00).
"Loan Documents" shall mean the Project Loan Agreements, the Project Notes,
--------------
the Deeds of Trust, the Financing Statements, the Environmental Indemnities, and
all other documents and instruments now or hereafter executed and delivered by
Borrower in connection with the Project Loans and Advances made thereunder.
"Loan-to-Cost Ratio" shall mean the ratio, expressed as a percentage,
------------------
obtained by dividing (i) the Project Loan Amount (or proposed Project Loan
Amount) by (ii) the Total Costs of such Project upon completion, as reasonably
determined by Lender.
"Loan-to-Value Ratio" shall mean the ratio, expressed as a percentage,
-------------------
obtained by dividing (i) the Project Loan Amount (or proposed Project Loan
Amount) by (ii) the value of such Project
5
<PAGE>
upon completion, as set forth in an Appraisal or an Updated Appraisal, if
obtained by Lender, and as reasonably determined by Lender.
"Master Credit Line" shall mean the line of credit described herein from
------------------
Lender to Borrower for financing the acquisition and construction of Projects.
"Master Credit Line Expiration Date" shall mean November 30, 1997, subject
----------------------------------
to extension pursuant to Section 2.6.
-----------
"Net Operating Income" shall mean (i) the amount of Collected Revenues for
--------------------
the period in question minus (ii) Total Expenses for the period in question.
-----
For the purpose of determining Net Operating Income, principal and interest
payments on the Project Loan shall not be considered as expenses. Net Operating
Income will be determined by Lender using the operating reports prepared by the
managers of the Projects.
"Net Worth" shall mean the gross book value of the Borrower's assets
---------
(excluding all intangible assets, but including partners capital contribution
obligations) plus debt subordinated to the Lender in a manner acceptable to the
Lender less total liabilities, including but not limited to accrued and deferred
income taxes, and any reserves against assets.
"Other Loans" shall mean all loans entered into by and between Lender and
-----------
Borrower under the Master Credit Line, including, without limitation, that
certain Project Loan in the original principal amount of $3,448,250.00 made
pursuant to that certain Loan Agreement dated May 31, 1996 between Lender and
Borrower.
"Person" shall mean any natural person, any unincorporated association, any
------
corporation, any partnership, any joint venture, any limited liability company,
any trust, any other legal entity, or any Governmental Authority.
"Project" shall mean each of the Project Premises and the Improvements
-------
constructed thereon of the design and type as more particularly described in the
Project Plans.
"Project Budget" shall mean a maximum budget for a Project, including a
--------------
specific construction line item cost breakdown,
6
<PAGE>
approved by Lender in its sole discretion, as modified from time to time
pursuant to the terms of this Agreement.
"Project Loan" shall mean a loan approved by Lender to Borrower pursuant to
------------
this Agreement for the construction of a Project in the amount of the Project
Loan Amount with respect to such Project, which loan shall be disbursed in
accordance with the terms and conditions of the Project Loan Agreement for such
Project Loan.
"Project Loan Agreement" shall mean, collectively and individually, the
----------------------
loan agreements executed by Borrower and Lender in connection with each Project
Loan, substantially in the form attached hereto as Exhibit A.
---------
"Project Loan Amount" shall mean for each Project Loan, an amount not to
-------------------
exceed fifty-five percent (55%) of the amount of Total Costs for such Project as
set forth in the applicable Project Budget.
"Project Loan Commitment Fee" shall mean one-half of one percent (.50%) of
---------------------------
the Project Loan Amount for each Project Loan.
"Project Loan Maturity Date" shall mean the date upon which a Project Loan
--------------------------
becomes due and payable, which date shall be twenty-four (24) months after the
date the Deed of Trust for the Project Loan is recorded with the county recorder
for the county in which the Project Premises is located, subject to extension
pursuant to the Project Loan Documents.
"Project Note" shall mean, collectively and individually, the promissory
------------
notes executed by Borrower to Lender evidencing Borrower's indebtedness under a
Project Loan, substantially in the form attached hereto as Exhibit B.
---------
"Project Plans" shall mean the plans and specifications for the
-------------
construction of the Improvements for each Project approved by Lender pursuant to
Section 3.2 of this Agreement.
- -----------
"Project Premises" shall mean each parcel of real property approved by
----------------
Lender from time to time pursuant to Sections 3.2 and 3.3 hereof.
------------ ---
7
<PAGE>
"Soft Costs" shall mean with respect to each Project, the fees and costs
----------
that are related to the on-site construction of the Improvements for such
Project as approved by Lender that are not Hard Costs, which shall include,
without limitation, to the extent set forth on the applicable Project Budget,
inspection fees, advertising, fees and costs for direct Project supervision,
interest, appraisal fees, processing fees, insurance and closing costs plus any
other costs, fees or expenses approved by Lender in its sole discretion;
provided, however, "Soft Costs" shall in any event include any items approved by
- -------- -------
Lender and designated as such on a Project Budget and shall include a $250,000
fee/general conditions payment to the General Contractor.
"Subcontract" shall mean a contract relating to any work performed or to be
-----------
performed for a Project executed or to be executed by the General Contractor or
a Construction Contractor with a Subcontractor.
"Subcontractor" shall mean any contractor who is a party to a Subcontract
-------------
other than a General Contractor or a Construction Contractor.
"Substantially Complete" or "Substantial Completion" shall mean such time
---------------------- ----------------------
as Lender shall have inspected and verified the completed work for the
Improvements and received Certificates of Substantial Completion with respect
thereto.
"Survey" shall mean a current ALTA (or local equivalent) survey of the
------
Project Premises prepared by a surveyor registered or licensed in the state
where the Project Premises is located and in form and substance acceptable to
Lender.
"Title Company" shall mean such title insurance company as Lender may
-------------
approve from time to time.
"Title Insurance Policy" shall mean, collectively, title insurance policies
----------------------
in the form of an American Land Title Association Loan Policy 1992 extended
coverage (or its reasonable equivalent), without modification, revision or
amendment, issued by the Title Company, with such reinsurance or coinsurance as
Lender may reasonably require, insuring that on the date of recordation of the
Deed of Trust for each Project Loan, the applicable Borrower owns fee simple
title to the Project Premises, and that the Deed of
8
<PAGE>
Trust is a valid first lien on the Premises in the amount of the Project Loan
Amount. The Title Insurance Policy shall contain such endorsements as Lender may
reasonably require, from time to time, and be subject to only such exceptions as
Lender approves in Lender's sole discretion.
"Total Costs" shall mean the sum of (i) the purchase price for the Project
-----------
Premises, (ii) Hard Costs and (iii) Soft Costs, all as approved by Lender.
"Total Expenses" shall mean all ordinary and normal expenses of operation
--------------
of a Project determined on a cash basis, including property taxes, insurance
premiums, utilities, repair and maintenance, salaries and wages, reserves for
Capital Expenditures approved or required by Lender (such reserves shall not
exceed four percent (4%) of gross revenues per annum), management fees not to
exceed six percent (6%) of gross revenues per annum, reasonable advertising and
marketing expenses; excluding, however, depreciation, amortization and other
non-cash items and also excluding income or franchise taxes.
"Updated Appraisal" shall mean an Appraisal ordered by Lender which is to
-----------------
update or replace the initial Appraisal or another Updated Appraisal.
1.2 Accounting Terms. For purposes of this Agreement, all accounting
----------------
terms not otherwise defined herein or in the Recitals shall have the meanings
assigned to them in conformity with GAAP.
ARTICLE II
THE FACILITY
2.1 The Master Credit Line and Project Loans.
----------------------------------------
(a) Credit. Subject to the terms and conditions of this Agreement, Lender
-------
agrees to make the Master Credit Line available to Borrower in the form of
individual Project Loans to Borrower, in an aggregate amount that shall not
exceed the Master Credit Line. Each Project Loan shall be for the purpose of
providing funds to Borrower for the payment of, or reimbursing Borrower for,
certain costs and expenses incurred in connection with the acquisition and
construction of a Project and other costs and expenses incidental
9
<PAGE>
thereto, as more particularly provided in this Agreement and the Project Loan
Agreement. The availability of Project Loans shall be subject to the various
terms, conditions and limitations set forth herein, including, without
limitation, Sections 3.2 and 3.3. Notwithstanding anything contained herein to
------------ ---
the contrary, Lender and Borrower agree that a Project Loan may be used solely
to acquire and/or refinance an existing Project. In such event, the Project
Loan Documents shall be modified to delete all provisions relating to
construction to the Improvements consistent with the first Project Loan
described in Section 2.10.
------------
(b) Maximum Amount. In addition to the limitations set forth in Section
--------------- -------
3.2, under no circumstances shall the aggregate Project Loan Amount of all
- ---
Project Loans (including both amounts advanced and outstanding and unadvanced
amounts) at any time exceed the Loan Amount. Lender shall have no obligation
(i) to commence or continue Advances of a Project Loan if the Project Loan
Amount of such Project Loan, when added to the Project Loan Amount of all other
Project Loans (including both amounts advanced and outstanding and unadvanced
amounts) would exceed the Loan Amount, or (ii) to make an Advance of a Project
Loan if after giving effect to such Advance the outstanding principal amount of
the Master Credit Line would exceed the Loan Amount. In the event the
outstanding principal balance of the Master Credit Line at any time exceeds the
Loan Amount, Borrower shall make a prepayment of principal in the amount of such
excess within five (5) Business Days after Lender's written notice demanding
such payment.
2.2 Evidence of Indebtedness Under the Loan. Amounts outstanding under
----------------------------------------
the Master Credit Line shall be evidenced by the Project Notes. Disbursements
under the Master Credit Line shall be charged and funded under the Project
Notes. In the event of any inconsistency between the Project Notes and this
Agreement, the provisions of this Agreement shall prevail.
2.3 Interest Rate. With respect to each Project Loan, the payment of
--------------
interest, selection of an interest rate, computation of interest, prepayment of
advances, deductions and other related matters shall be set forth in the Project
Loan Agreement and Project Note.
2.4 Payments. All amounts payable by Borrower on or with respect to any
---------
Project Loan or pursuant to the terms of any Loan
10
<PAGE>
Document, shall be paid to Lender, in lawful money of the United States of
America at 201 North Central Avenue, Phoenix, Arizona 85004, in same day funds,
not later than 1:00 p.m. (Arizona time) on the date due.
2.5 Prepayment of Principal. Prepayment of any Project Loan shall be
------------------------
subject to the terms and conditions of the Project Note.
2.6 Term of Facility. The obligation of Lender to approve or to commence
-----------------
making Advances with respect to new Project Loans shall expire on the Master
Credit Line Expiration Date. The Master Credit Line Expiration Date may be
extended for consecutive additional twelve (12) month periods, each in Lender's
sole discretion, upon the following terms and conditions for each such
extension:
(i) On or before ninety (90) days prior to the Master Credit Line
Expiration Date, Borrower shall give Lender notice in writing of Borrower's
desire to extend the Master Credit Line Expiration Date;
(ii) No Event of Default shall have occurred and be continuing, either
on the date of Borrower's notice to Lender as provided in subparagraph (i)
above or on the Master Credit Line Expiration Date; and
(iii) Lender shall have reviewed and approved such other matters as
Lender reasonably deems necessary or appropriate under the circumstances.
Lender shall have thirty (30) days following receipt of Borrower's extension
request to approve or deny such request. If Lender fails to provide written
notice of its approval to Borrower within such thirty (30) day period, such
request shall be deemed denied. From and after the Master Credit Line
Expiration Date, Borrower shall have no further right to request approval of any
new Project Loan and Lender's obligation to approve additional Project Loans
shall terminate. On and after the Master Credit Line Expiration Date, any
existing Project Loans shall continue to be advanced pursuant to the terms and
conditions of the Loan Documents for the remaining term of any such Project
Loan.
11
<PAGE>
2.7 Term of Individual Project Loans. Each Project Loan shall be due and
---------------------------------
payable in full on the Project Loan Maturity Date applicable to each such
Project Loan.
2.8 Security. Payment of each Project Loan and all other obligations
---------
under the Loan Documents associated with a Project Loan shall be secured by the
following:
(a) the Project Loan Deed of Trust;
(b) a Financing Statement; and
(c) the Project Loan assignments of agreements set forth in Section
-------
2.9 below.
---
2.9 Additional Security. As additional security for the indebtedness and
--------------------
obligations of Borrower under the Loan Documents associated with a Project Loan,
Borrower will transfer and assign to Lender, and grant a first priority security
interest to Lender in all of Borrower's right, title and interest in and to all
written agreements that have been or will be entered into by Borrower relating
to the applicable Project Premises, including without limitation, management
agreements, the General Contract, each Construction Contract, each Subcontract,
and all other construction contracts, architect's agreements, the Project Plans,
drawings, licenses, permits, franchises, authorizations, approvals, and any
other documents, instruments and agreements relating to the construction of any
Project, or required for the use, occupancy or operation of any Project.
2.10 Inclusion of First Project Loan. Lender and Borrower hereby
-------------------------------
acknowledge and agree that the $3,448,250.00 loan from Lender to Borrower made
pursuant to that certain Loan Agreement dated May 31, 1996 is included as the
first Project Loan under the Master Credit Line.
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent to Lender's Obligations. Upon the execution and
---------------------------------------------
delivery of this Agreement, and as a condition precedent to any of Lender's
obligations hereunder, each of the
12
<PAGE>
following shall have been performed and satisfied in full by Borrower:
(a) No Defaults. No Event of Default shall have occurred and be
------------
continuing.
(b) Opinion. Borrower shall have delivered to Lender an opinion of
--------
Borrower's Counsel in such form as Lender and its counsel may reasonably
require.
(c) Formation Documents. Borrower shall have delivered to Lender,
--------------------
and Lender shall have approved, as applicable, certified copies of (i) such
resolutions and certificates authorizing the execution of this Agreement,
(ii) the partnership agreement of each entity comprising the Borrower, and
all amendments thereto, (iii) the filed or recorded certificate of limited
partnership of each entity comprising the Borrower, and all amendments
thereto, and (iv) a certificate of good standing as a limited partnership
from the jurisdiction of formation or organization of entity comprising the
Borrower.
(d) Financial Statements. Borrower shall have delivered to Lender
---------------------
and Lender shall have approved Financial Statements for Borrower.
(e) Fees and Expenses. Lender shall have received payment of all
------------------
fees, expenses and costs of Lender required pursuant to this Agreement
including, without limitation, payment of the Commitment Fee, and all other
amounts described in Section 7.7 hereof.
-----------
3.2 Conditions Precedent to Project Loans. Subject to the general
--------------------------------------
underwriting guidelines set forth in Section 3.3, Borrower may from time to time
-----------
request individual Project Loans for the development of a Project. Each such
request shall be in writing. Lender's obligation to commence making Advances
with respect to any Project Loan shall be subject to satisfaction of the
following conditions precedent at the time of the making of each such request:
(a) Project Loan Amount. The Project Loan Amount for the requested
--------------------
Project Loan, when aggregated with the Project
13
<PAGE>
Loan Amount of all other outstanding Project Loans (including both amounts
advanced and outstanding and unadvanced amounts), shall not result in a
violation of Section 2.1(b).
--------------
(b) No Defaults. No Event of Default shall have occurred and be
------------
continuing.
(c) Representations and Warranties. All representations and
-------------------------------
warranties set forth in this Agreement, which by their terms are not
limited to the date hereof, shall be true and correct in all material
respects as if made as of the date of such Project Loan request.
(d) Project Plans. Borrower shall have provided Lender and Lender
--------------
shall have approved in Lender's reasonable discretion the Project Plans for
the Project to be constructed with the requested Project Loan.
(e) Preliminary Title Report. Borrower shall have provided Lender
-------------------------
with a Preliminary Title Report, including all Schedule B items, and the
Title Company shall be irrevocably committed to issue a Title Insurance
Policy in form and content satisfactory to Lender.
(f) Appraisal. Lender shall have ordered and received an Appraisal
----------
of the Project to be constructed with the requested Project Loan, and such
Appraisal shall be in form and content satisfactory to Lender.
(g) Project Budget and Borrower's Equity. Borrower shall have
-------------------------------------
provided to Lender information reasonably necessary for Lender to evaluate
and approve (in Lender's reasonable discretion) the Project Budget
submitted by Borrower for such Project. The Project Budget submitted by
Borrower shall set forth the applicable Hard Costs, Soft Costs, and other
costs to be funded through the Project Loan in question.
(h) Project Loan Agreement. Borrower shall have executed and
-----------------------
delivered to Lender a Project Loan Agreement for the Project Loan.
(i) Project Note. Borrower shall have executed and delivered to
-------------
Lender a Project Note for the Project Loan,
14
<PAGE>
payable to Lender in an amount equal to the Project Loan Amount for such
Project.
(j) Deed of Trust. Borrower shall have executed, delivered and
--------------
recorded a Deed of Trust on the Project Premises. Title to the Project
Premises in question shall be vested in Borrower and the trustor under each
Deed of Trust shall be Borrower.
(k) Financing Statements. Borrower shall have executed and delivered
---------------------
to Lender a Financing Statement, and such Financing Statement shall be duly
filed with the Secretary of State for the state in which the Project
Premises is located.
(l) Other Loan Documents. Borrower shall have executed and delivered
---------------------
such other Loan Documents as Lender may reasonably require, including
without limitation, (i) a signature authorization form on Lender's approved
form, (ii) if requested, a Certification of Non-Foreign Status, and (iii)
an Environmental Indemnity.
(m) Due Diligence Documents. Borrower shall have delivered to
------------------------
Lender, and Lender shall have approved (i) a Survey for the Project
Premises; (ii) a Phase I environmental report and assessment; (iii)
Lender's form of environmental questionnaire; (iv) copies of the General
Contract, together with copies of all agreements with the General
Contractor, and all engineers and architects for the Project; (v) a
construction schedule for the Project and all other information reasonably
required by Lender in order for Lender to complete a pre-construction
review of the Project; (vi) proof of insurance as required pursuant to the
Project Loan Agreement; and (vii) copies of any purchase contracts for the
Project Premises (if not already owned by Borrower). If requested by
Lender, Borrower shall also provide copies of all existing Construction
Contracts and Subcontracts relating to the Project Loan. If Lender
disapproves any of the due diligence items set forth in this paragraph,
Lender agrees to provide prompt written notice to Borrower of such
disapproval and the reasons for such disapproval.
(n) Property Documents. If then obtained, Borrower shall have
-------------------
delivered to Lender and Lender shall have approved
15
<PAGE>
all authorizations, including development plans, site plans, building
permits, annexation agreements, plan approvals, environmental approvals
(including an environmental impact report or negative declarations if
required under applicable law), sewer, water, and all other utility
approvals (will serve letters) and zoning and land use entitlements which
are necessary for the construction and use of the Improvements in
accordance with the applicable Project Plans and in accordance with all
applicable building, environmental, subdivision, land use and zoning laws
and for tax assessment purposes, that may be applicable to the Project. If
Lender disapproves any of the due diligence items set forth in this
paragraph or elsewhere in Section 3.2, Lender agrees to provide prompt
-----------
written notice to Borrower of such disapproval and the reasons for such
disapproval.
(o) Fees and Expenses. Unless otherwise designated as a permitted
------------------
Advance in the approved Project Budget, Borrower shall pay from Borrower's
own funds and not from proceeds of the Project Loan (i) the Project Loan
Commitment Fee, (ii) all title insurance, recording and similar amounts and
(iii) all other costs and expenses of Lender as set forth in Section 7.7
-----------
hereof; all of such costs shall be part of the Total Costs for the Project.
(p) Soils Tests. Upon Lender's request, Borrower shall have provided
------------
a soils test report prepared by a licensed soils engineer satisfactory to
Lender showing the locations of, and containing boring logs for, all
borings, together with recommendations for the design of the foundations,
paved areas and underground utilities for such Project Premises which
report shall be dated within three (3) years of the date delivered to
Lender and shall otherwise be in form and content satisfactory to Lender.
(q) Opinion. If requested, Borrower shall have delivered to Lender
--------
an opinion of counsel in such form as Lender and its counsel may reasonably
require. Notwithstanding the foregoing sentence, Lender does not intend to
require such opinion unless (i) an Event of Default occurs which would have
a material adverse effect upon Borrower or (ii) the Project Premises is
located within a state not previously the subject of a Project Loan.
16
<PAGE>
(r) Formation Documents. If requested, Borrower shall have delivered
--------------------
to Lender, and Lender shall have approved, certified copies of any changes
in the formation documents described in Section 3.1(c) above which requires
--------------
Lender's approval under Section 5.8.
-----------
(s) Assignments. Lender shall have received executed assignments of
------------
the Project Plans and any associated agreement with the architect for the
Project, the General Contract, and any other plans and specifications and
all other material agreements, contracts, rights, permits, authorizations
and franchises relating to the Project in form satisfactory to Lender, and
Borrower shall have obtained consents to such assignments where deemed
appropriate by Lender.
(t) Other Conditions. Borrower shall have satisfied all other
-----------------
conditions precedent to the initial Advance of the Project Loan pursuant to
Article IV of the Project Loan Agreement.
----------
(u) Other Matters. Borrower shall have executed and delivered other
--------------
documents and performed such other actions as Lender may reasonably
require.
3.3 General Underwriting Guidelines.
--------------------------------
(a) In addition to the conditions set forth in Sections 3.2, if Borrower
------------
requests a "construction and mini-perm" Project Loan, Lender shall have no
obligation to approve such Project Loan unless all of the following underwriting
guidelines have been satisfied or waived by Lender:
(i) the Project Loan does not exceed a Loan-to-Value Ratio of fifty-
five percent (55%); and
(ii) Lender also shall have determined that the appraised stabilized
Net Operating Income shall be not less than 20.00% of the Loan Amount.
(b) In addition to the conditions set forth in Sections 3.2, if Borrower
------------
requests a "mini-perm" only Project Loan, that is, a Project Loan with no
construction loan component, Lender shall have no obligation to approve such
Project Loan unless all of the
17
<PAGE>
following underwriting guidelines have been satisfied or waived by Lender:
(i) such Project Loan does not exceed the lesser of (A) a Loan-to-Cost
Ratio of sixty-five percent (65%) or (B) a Loan-to-Value Ratio of sixty-
five percent (65%); and
(ii) Lender also shall have determined that the annualized Net
Operating Income for such Project must be equal to the greater of (A) the
Constant Interest Only Coverage of 17.50% or (B) the mortgage constant
derived from the amortization of $1.00 based on the characteristics set
forth in the definition of Debt Service Amount, multiplied by 1.40.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Consideration. As an inducement to Lender to execute this Agreement,
--------------
Borrower represents and warrants to Lender that the following statements set
forth in this Article IV are true, correct and complete as of the date hereof.
4.2 Organization, Powers and Good Standing.
---------------------------------------
(a) Organization and Powers. Borrower is a duly organized and
------------------------
existing limited partnership created under the laws of the State of
Delaware. Borrower has all requisite power and authority, rights and
franchises to (i) own and operate its properties, to carry on its
businesses as now conducted and as proposed to be conducted, and (ii) to
enter into and perform this Agreement. The chief executive office and
principal place of business of Borrower is as set forth in the introductory
paragraph of this Agreement.
(b) Good Standing. Borrower has made all filings and is in good
-------------
standing in each jurisdiction in which the character of the property it
owns or the nature of the business it transacts makes such filings
necessary or where the failure to make such filings could have a materially
adverse effect on the business, operations, assets or condition of
Borrower.
18
<PAGE>
(c) Non-Foreign Status. Borrower is not a "foreign corporation,"
------------------
"foreign partnership," "foreign trust," or "foreign estate," as those terms
are defined in the Internal Revenue Code and the regulations promulgated
thereunder. Borrower's U.S. employer identification number is as set forth
in the Certification of Non-Foreign Status.
4.3 Authorization of Master Line of Credit Agreement.
-------------------------------------------------
(a) Authorization. The execution, delivery and performance of this
--------------
Agreement by Borrower are within Borrower's powers and have been duly
authorized by all necessary action by Borrower.
(b) No Conflict. The execution, delivery and performance of this
------------
Agreement by Borrower will not violate (i) Borrower's formation documents;
(ii) any legal requirement affecting Borrower's properties; or (iii) any
agreement to which Borrower is bound or to which Borrower is a party and
will not result in or require the creation of any lien upon any of such
properties other than liens created pursuant to any of the Loan Documents.
(c) Binding Obligations. This Agreement has been duly executed by
--------------------
Borrower, and is the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and by
general principles of equity.
4.4 No Material Defaults. There exists no material violation of or
--------------------
material default by Borrower and, to the best knowledge of Borrower, no event
has occurred which, upon the giving of notice or the passage of time, or both,
would constitute a material default with respect to (a) the terms of any
instrument evidencing or securing any indebtedness secured by any Project, (b)
any lease or other agreement affecting any Project to which Borrower is a party,
(c) any license, permit, statute, ordinance, law, judgment, order, writ,
injunction, decree, rule or regulation of any Governmental Authority, or any
determination or award of any arbitrator to which Borrower or any Project may be
bound, or (d) any mortgage, instrument, agreement or document by which Borrower,
or any of its
19
<PAGE>
properties is bound: (i) which could reasonably be expected to materially and
adversely affect the ability of Borrower to perform its obligations under any of
the Loan Documents or any other material instrument, agreement or document to
which it is a party, or (ii) which could reasonably be expected to adversely
affect the first priority of the liens created by any of the Loan Documents.
4.5 Litigation; Adverse Facts. There is no action, suit, investigation,
-------------------------
proceeding or arbitration (whether or not purportedly on behalf of the Borrower)
at law or in equity or before or by any foreign or domestic court or other
governmental entity (a "Legal Action"), pending or, to the knowledge of
------------
Borrower, threatened against or affecting Borrower or any of its assets which
could reasonably be expected to result in any material adverse change in the
business, operations, assets (including the Project) or financial condition of
Borrower or would materially and adversely affect Borrower's ability to perform
its obligations under the Loan Documents. There is no basis known to Borrower
for any such action, suit or proceeding. Borrower is not (a) in violation of
any applicable law which violation materially and adversely affects or could
reasonably be expected to materially and adversely affect the business,
operations, assets (including any Project) or financial condition of Borrower,
(b) subject to, or in default with respect to any other legal requirement that
would have a materially adverse effect on the business, operations, assets
(including any Project) or condition (financial or otherwise) of Borrower, or
(c) in default with respect to any agreement to which Borrower is a party or to
which it is bound which could reasonably be expected to have a material adverse
effect on Borrower or its business operations. There is no Legal Action pending
or, to the knowledge of Borrower, threatened against or affecting Borrower
questioning the validity or the enforceability of this Agreement or any of the
other Loan Documents.
4.6 Title to Properties; Liens. Borrower has good legal title to all
--------------------------
properties and assets reflected in its most recent balance sheet delivered to
Lender, except for assets disposed of in the ordinary course of business since
the date of such balance sheet.
4.7 Disclosure. There is no fact known to Borrower which Borrower
----------
believes would materially and adversely effect the business, operations, assets
or financial condition of Borrower
20
<PAGE>
which has not been disclosed in this Agreement or in other documents,
certificates and written statements furnished to Lender in connection herewith.
4.8 Payment of Taxes. All tax returns and reports of Borrower required
-----------------
to be filed by it have been timely filed, and all taxes, assessments, fees and
other governmental charges upon Borrower and upon its properties, assets, income
and franchises which are due and payable have been paid prior to delinquency,
except for those which are being contested by Borrower in good faith and in
accordance with law. As of the date hereof, Borrower knows of no proposed tax
assessment against it that would be material to the financial condition of
Borrower, and Borrower has not contracted with any government entity in
connection with such taxes.
4.9 Securities Activities. Borrower is not engaged principally, or as
----------------------
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any margin stock (as defined within
Regulations G, T and U of the Board of Governors of the Federal Reserve System),
and not more than twenty-five percent (25%) of the value of Borrower's assets
consist of such margin stock. No part of the loans made pursuant hereto will be
used to purchase or carry any margin stock or to extend credit to others for
that purpose or for any other purpose that violates the provisions of
Regulations U or X of said Board of Governors.
4.10 Government Regulations. Borrower is not subject to regulation under
-----------------------
the Investment Company Act of 1940, the Federal Power Act, the Public Utility
Holding Company Act of 1935, the Interstate Commerce Act or to any federal or
state statute or regulation limiting its ability in incur indebtedness for money
borrowed.
4.11 Financial Condition. The financial statements and all financial data
--------------------
previously delivered to Lender in connection with this Agreement relating to
Borrower are true, correct and complete in all material respects as of the date
thereof. Such financial statements fairly present the financial position of
Borrower as of the date thereof in all material respects. No material adverse
change has occurred in such financial position from the date of the last
financial statements provided to Lender.
21
<PAGE>
4.12 Other Loan Documents. Each of the representations and warranties of
---------------------
Borrower contained in any of the other Loan Documents is true and correct in all
material respects as of the date hereof. All of such representations and
warranties are incorporated herein for the benefit of Lender.
ARTICLE V
COVENANTS
5.1 Consideration. As an inducement to Lender to execute this Agreement
--------------
and to make each disbursement of each Project Loan, Borrower hereby covenants as
set forth in this Article V, which covenants shall remain in effect so long as
---------
any Project Loan remains unpaid, any obligation of a Borrower under any of the
Loan Documents remains outstanding or unperformed, or this Agreement otherwise
remains in effect.
5.2 Lender Inspections. During normal business hours, Borrower will
------------------
permit Lender and Lender's representatives, inspectors and consultants to enter
upon the offices of Borrower, to audit, examine and copy all contracts, records
(including, but not limited to, financial and accounting records pertaining to
the any Project Loan or any Project), and to discuss the affairs, finances and
accounts of Borrower with representatives of Borrower.
5.3 Financial Statements and Reports.
--------------------------------
(a) As soon as available, and in any event within ninety (90) days of
the end of each fiscal year of Borrower, Borrower shall prepare and furnish
to Lender a copy of (i) the annual operating statement of Borrower, and
(ii) the financial statements of Borrower, for such year, in form and
substance reasonably satisfactory to Lender and shall also provide Lender
with such other information respecting the condition of Borrower and the
Projects as Lender may from time to time reasonably request.
(b) As soon as available, and in any event within sixty (60) days of
the end of each fiscal quarter of Borrower, Borrower shall prepare and
furnish to Lender a copy of the financial statements of Borrower, for such
quarter, in form and substance reasonably satisfactory to Lender and shall
also
22
<PAGE>
provide Lender with such other information respecting the condition of
Borrower and the Projects as Lender may from time to time reasonably
request.
(c) Unless sooner requested by Lender, by the fortieth (40th) day
after each calendar quarter, Lender shall receive a quarterly operating
statement for the Projects covering the prior quarter.
5.4 Representations and Warranties. Until repayment of the last Project
------------------------------
Note, the representations and warranties of Article IV shall remain true and
complete in all material respects.
5.5 Trade Names. Borrower shall immediately notify Lender in writing of
-----------
any change in the legal, trade or fictitious business names used by Borrower and
shall, upon Lender's request, execute any additional financing statements and
other certificates necessary to reflect the change in trade names or fictitious
business names.
5.6 Further Assurances. Borrower shall execute and deliver from time to
-------------------
time, promptly after any request therefor by Lender, any and all instruments,
agreements and documents and shall take such other action as may be necessary or
desirable in the opinion of Lender to maintain, perfect or insure Lender's
security provided for herein and in the other Loan Documents for each Project
Loan, including, without limitation, the execution of UCC-1 continuation
statements, the execution of such amendments to the Deeds of Trust and the other
Loan Documents and the delivery of such endorsements to the Title Insurance
Policy, all as Lender shall reasonably require, and Borrower shall pay all fees
and expenses (including reasonable attorneys' fees) related thereto. Promptly
upon the request of Lender, Borrower shall execute and deliver a Certification
of Non-Foreign Status.
5.7 Maintenance of Existence. Borrower shall maintain and preserve its
-------------------------
existence and all rights and franchises material to its business.
5.8 Amendments to Partnership Agreement. Borrower shall not allow any
-----------------------------------
amendments to be made in the terms of its partnership agreement, which
amendments would either (i) have a material and adverse effect on Borrower's
ownership of the Projects or (ii)
23
<PAGE>
materially and adversely affect Borrower's ability to repay the Project Loans,
without Lender's prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed.
5.9 Notice of Litigation. Borrower will give, or cause to be given,
--------------------
prompt written notice to Lender of (a) any action or proceeding which is
instituted by or against it in any Federal or state court or before any
commission or other regulatory body, Federal, state or local, foreign or
domestic, or any such proceedings which are threatened against it which, if
adversely determined, could reasonably be expected to have a material and
adverse effect upon its business, operations, properties, assets, management,
ownership or financial condition, (b) any other action, event or condition of
any nature which could reasonably be expected to have a material and adverse
effect upon its business, operations, management, assets, properties, ownership
or financial condition, or which, with notice or lapse of time or both, would
constitute an Event of Default or a default under any other contract, instrument
or agreement to which it is a party or to which it or any of its properties or
assets may be bound or subject which could reasonably be expected to have a
material and adverse effect upon its business, operations, management, assets,
properties, ownership or financial condition, and (c) any actions, proceedings
or notices adversely affecting any Project or Lender's interest therein by any
zoning, building or other municipal officers, offices or departments having
jurisdiction with respect to such Project.
5.10 Management of Property. The Projects will be managed at all times
-----------------------
by (i) Borrower or (ii) Wyndham Hotel Corporation. Prior to entering into any
management agreements with respect to a Project, Borrower must submit to Lender
the form of the proposed agreement (along with such other information as Lender
may reasonably request) for Lender's prior written approval, which approval
shall not be unreasonably withheld, conditioned or delayed.
5.11 Financial Covenants. At all times, Borrower shall comply with the
--------------------
following:
(a) Debt Ratio. At all times, Borrower shall maintain a Debt Ratio of
----------
not more than 1.50:1. "Debt" shall mean, without limitation, to the extent
reflected as a liability on
24
<PAGE>
the consolidated balance sheet of Borrower (i) any indebtedness for
borrowed money, (ii) all indebtedness evidenced by bonds, debentures,
notes, letters of credit, drafts or similar instruments, (iii) all
indebtedness to pay the deferred purchase price of property or services,
but not including accounts payable and accrued expenses arising in the
ordinary course of business, (iv) all capitalized lease obligations, (v)
all Debt of others secured by a lien on any asset of Borrower, whether or
not such Debt is assumed or guaranteed by Borrower, and (vi) all Debt of
others guaranteed by Borrower and all other indebtedness that would appear
as a liability upon a balance sheet of Borrower prepared in accordance with
GAAP. "Debt Ratio" shall mean, with respect to Borrower, the ratio of (i)
Borrower's Debt to (ii) Borrower's Net Worth.
(b) Liquidity. At all times, Borrower shall maintain Liquidity of not
---------
less than an amount equal to ten percent (10%) of Borrower's Senior Debt
Commitments. "Liquidity" shall mean the amount of Borrower's unencumbered
cash and unencumbered cash equivalents, including amounts that Borrower may
be entitled to or have available under any lines of credit or other lending
arrangements and undrawn commitments for capital contributions. "Senior
Debt Commitments" shall mean any debt facilities held by Borrower, which
facilities are secured by first lien security interests.
(c) Constant Coverage. Annualized Net Operating Income for all Mini-
-----------------
Perm Projects must be equal to the greater of (i) the Constant Interest Only
Coverage of 17.50 % or (ii) the mortgage constant derived from the
amortization of $1.00 based on the characteristics set forth in the
definition of Debt Service Amount, multiplied by 1.4. Thereafter, if, as of
the end of any fiscal quarter of Borrower, for that fiscal quarter and the
immediately preceding three fiscal quarters taken as a whole, if the actual,
annualized Net Operating Income for all Mini-Perm Projects falls below (i)
the Constant Interest Only Coverage of 17.50 % or (ii) the mortgage constant
derived from the amortization of $1.00 based on the characteristics set
forth in the definition of Debt Service Amount, multiplied by 1.4, then
Borrower shall have sixty (60) days after written notice from Lender to cure
any such breach of this financial covenant. If Borrower fails to remedy
such breach within the sixty (60) day time period referenced above, then
within
25
<PAGE>
fifteen (15) days after the expiration of the 60-day cure period, Borrower
shall reduce the unpaid principal balance of the Master Credit Line or Mini-
Perm Loans to an amount with respect to which the actual annualized Net
Operating Income for the Project divided by the Loan Amount is greater than
20.00 % and the mortgage constant derived from the amortization of $1.00
based on the characteristics set forth in the definition of Debt Service
Amount, multiplied by 1.4.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
6.1 Events of Default.
------------------
(a) The occurrence of any one or more of the following shall constitute an
Event of Default under this Agreement, after the expiration of applicable notice
and cure periods:
(i) Failure by Borrower to pay any monies on the date such monies are
due under this Agreement and the expiration of five (5) Business Days after
written notice of such failure by Lender to Borrower without such failure
having been cured.
(ii) Failure by Borrower to perform any obligation not involving the
payment of money, or to comply with any other term or condition applicable
to Borrower, under any Loan Document and the expiration of thirty (30) days
after written notice of such failure by Lender to Borrower; however, if such
default is of a nature such that it cannot reasonably be cured within such
30-day period and Borrower commences to cure such default and thereafter
diligently proceeds with the cure thereof, then the cure period shall be
extended to up to 90 days.
(iii) Any representation or warranty by Borrower in any Loan Document
is materially false, incorrect, or misleading as of the date hereof.
(iv) Borrower (i) is unable or admits in writing Borrower's inability
to generally pay Borrower's monetary obligations as they become due, (ii)
makes a general assignment for the benefit of creditors, or (iii) applies
for, consents
26
<PAGE>
to, or acquiesces in, the appointment of a trustee, receiver, or other
custodian for Borrower or the property of Borrower or any part thereof, or
in the absence of such application, consent, or acquiescence, a trustee,
receiver, or other custodian is appointed for Borrower or the property of
Borrower or any part thereof, and such appointment is not discharged within
ninety (90) days.
(v) Commencement of any case under the Bankruptcy Code, Title 11 of
the United State Code, or commencement of any other bankruptcy arrangement,
reorganization, receivership, custodianship, or similar proceeding under any
federal, state, or foreign law by or against Borrower and with respect to
any such case or proceeding that is involuntary, such case or proceeding is
not dismissed with prejudice within ninety (90) days of the filing thereof.
(vi) Any litigation or proceeding is commenced before any Governmental
Authority against or affecting Borrower or the property of Borrower or any
part thereof and such litigation or proceeding is not defended diligently
and in good faith by Borrower, and such litigation or proceeding would have
a material and adverse effect on Borrower's ability to repay the Master
Credit Line.
(vii) A final judgment or decree for monetary damages or a monetary
fine or penalty (not subject to appeal or as to which the time for appeal
has expired) is entered against Borrower by any Government Authority, which
together with the aggregate amount of all other such judgments and decrees
against Borrower that remain unpaid or that have not been discharged or
stayed, exceeds Five Thousand Dollars ($5,000), is not paid and discharged
or stayed within thirty (30) days after the entry thereof, and such
judgement or decree would have a material and adverse effect on Borrower's
ability to repay the Master Credit Line.
(viii) Commencement of any action or proceeding which seeks as one of
its remedies the dissolution of Borrower.
(ix) All or any substantial part of the property of Borrower is
attached, levied upon, or otherwise seized by legal process, and such
attachment, levy, or seizure is not quashed,
27
<PAGE>
stayed, or released within forty-five (45) days of the date thereof.
(x) The occurrence of any Transfer in violation of the Deed of Trust,
unless prior to such Transfer Lender has delivered to Borrower its written
consent thereto.
(xi) The occurrence of any Event of Default, as such term is defined
in any other Loan Document, subject to the expiration of all applicable
notice and cure periods.
(xii) Any failure, breach or default by Borrower under the Other
Loans, it being the intention and agreement of Lender and Borrower to cross-
default the Master Credit Line and the Other Loans with one another.
6.2 Remedies. Notwithstanding any provision to the contrary herein or in
---------
any of the other Loan Documents, upon the occurrence and continuation of any
Event of Default under this Agreement, the Master Credit Line shall, at Lender's
option, immediately and automatically terminate and Lender's obligation to
approve new Project Loans shall, at Lender's option, immediately and
automatically terminate. Notwithstanding the preceding, Borrower shall have the
right at any time and from time to time to remedy a default under any Project
Loan (or fully repay any Project Loan which is in default), in which case the
Master Credit Line shall be fully reinstated, subject to the terms and
conditions set forth herein.
ARTICLE VII
MISCELLANEOUS
7.1 Assignment. Borrower shall not assign any of its rights under this
-----------
Agreement.
7.2 Notices. All notices, requests, demands and consents to be made
--------
hereunder to the parties hereto shall be in writing and shall be delivered by
hand or sent by registered mail or certified mail, postage prepaid, return
receipt requested, through the United States Postal Service to the addresses
shown below or such other address which the parties may provide to one another
in accordance herewith. Such notices, requests, demands and consents, if sent
by
28
<PAGE>
mail shall be deemed given two (2) Business Days after deposit in the United
States mail, and if delivered by hand, shall be deemed given when delivered.
To Lender: BANK ONE, ARIZONA, NA
Western Region Real Estate
P. O. Box 29542
Phoenix, Arizona 85038
Attention: Department A365
with a copy BANK ONE, ARIZONA, NA
to: Western Region Real Estate
P. O. Box 29542
Phoenix, Arizona 85038
Attention: Kirk Monroe
To Borrower: EXTENDED STAY LIMITED PARTNERSHIP
2001 Bryan Street, Suite 2300
Dallas, Texas 75201-3075
Attention: John Kratzer, COO
with a copy
to: Mr. Bob Faith, CEO
EXTENDED STAY LIMITED PARTNERSHIP
Two Riverway, Suite 850
Houston, Texas 77056
7.3 Inconsistencies with the Loan Documents. In the event of any
----------------------------------------
inconsistencies between the terms of this Agreement and any terms of any of the
Loan Documents, the terms of this Agreement shall govern and prevail.
7.4 Lender Approval of Instruments and Parties. All proceedings taken in
-------------------------------------------
accordance with transactions provided for herein, and all surveys, appraisals
and documents required or contemplated by this Agreement and the persons
responsible for the execution and preparation thereof shall be satisfactory to
and subject to approval by Lender. Lender's counsel shall be provided with
copies of all documents which they may reasonably request in connection with the
Agreement.
7.5 Lender Determination of Facts. Lender shall at all times be free to
------------------------------
establish independently, to its satisfaction, the
29
<PAGE>
existence or nonexistence of any fact or facts, the existence or nonexistence of
which is a condition of this Agreement.
7.6 Incorporation of Preamble, Recitals and Exhibits. The preamble,
-------------------------------------------------
recitals and exhibits hereto are hereby incorporated in this Agreement.
7.7 Payment of Expenses. With respect to this Agreement, Borrower shall
--------------------
pay all expenses, charges, costs and fees of Lender provided for in this
Agreement, including, without limitation, reasonable fees and expenses of
Lender's counsel.
7.8 Disclaimer by Lender. Borrower is not and shall not be an agent of
---------------------
Lender for any purpose. Lender is not a joint venture partner with Borrower or
with the constituent partners in Borrower in any manner whatsoever. Approvals
granted by Lender for any matters covered under this Agreement shall be narrowly
construed to cover only the parties and facts identified in any written approval
or, if not in writing, such approvals shall be solely for the benefit of
Borrower.
7.9 Indemnification. To the fullest extent permitted by law, Borrower
----------------
agrees to protect, indemnify, defend and save harmless Lender, its directors,
officers, agents and employees for, from and against any and all liability,
expense or damage of any kind or nature and for, from and against any suits,
claims or demands, including reasonable legal fees and expenses on account of
any matter or thing or action, whether in suit or not, arising out of this
Agreement or in connection herewith, excluding, however, any matters arising out
of an indemnified party's negligence or willful misconduct or any matters
arising after Lender has taken title to or possession of any Project. Upon
receiving knowledge of any suit, claim or demand asserted by a third party that
Lender believes is covered by this indemnity, Lender shall give Borrower notice
of the matter and an opportunity to defend it, at Borrower's sole cost and
expense, with legal counsel satisfactory to Lender. Lender may also require
Borrower to so defend the matter. The obligations on the part of Borrower under
this Section 7.9 shall survive the execution of this Agreement.
-----------
7.10 Titles and Headings. The headings at the beginning of each section of
-------------------
this Agreement are solely for convenience and are not part of this Agreement.
Unless otherwise indicated, each
30
<PAGE>
reference in this Agreement to a section or an exhibit is a reference to the
respective section herein or exhibit hereto.
7.11 Brokers. Borrower and Lender represent to each other that neither of
-------
them knows of any brokerage commissions or finders' fee due or claimed with
respect to the transaction contemplated hereby. Borrower and Lender shall
indemnify and hold harmless the other party for, from and against any and all
loss, damage, liability, or expense, including costs and reasonable attorney
fees, which such other party may incur or sustain by reason of or in connection
with any misrepresentation by the indemnifying party with respect to the
foregoing.
7.12 Change, Discharge, Termination, or Waiver. No provision of this
-----------------------------------------
Agreement may be changed, discharged, terminated, or waived except in writing
signed by the party against whom enforcement of the change, discharge,
termination, or waiver is sought. No failure on the part of Lender to exercise
and no delay by Lender in exercising any right or remedy under the Loan
Documents or under the law shall operate as a waiver thereof.
7.13 CHOICE OF LAW. THIS AGREEMENT AND THE TRANSACTION CONTEMPLATED
--------------
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ARIZONA WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES.
7.14 Participations. Lender shall have the right at any time to sell,
--------------
assign, transfer, negotiate or grant participations in all or any part of the
Master Credit Line or the Project Loans or the Project Notes to one or more
participants, provided, however, at all times during the term of the Loan,
Lender shall retain a controlling interest in such Loans and shall continue to
act as the sole lead bank or agent thereof. Borrower hereby acknowledges and
agrees that any such disposition will give rise to a direct obligation of
Borrower to each such participant, but no loan made by such a participant or
assignee to Borrower shall constitute an "Other Loan."
7.15 Counterparts. This Agreement may be executed in any number of
-------------
counterparts each of which shall be deemed an original, but all such
counterparts together shall constitute but one agreement.
31
<PAGE>
7.16 Time is of the Essence. Time is of the essence of this Agreement.
-----------------------
7.17 Attorneys' Fees. Borrower agrees to pay all costs of enforcement and
---------------
collection and preparation for any Event of Default or any action taken by
Lender (including, without limitation, reasonable attorney's fees) to enforce
the Loan Documents whether or not any action or proceeding is brought
(including, without limitation, all such costs incurred in connection with any
bankruptcy, receivership, or other court proceedings (whether at the trial or
appellate level)), together with interest thereon from the date of demand at the
default interest rate.
7.18 Submission of Agreement. The submission of this Agreement to Borrower
------------------------
or its agent or attorney for review or signature does not constitute a
commitment by Lender to make the Master Credit Line to Borrower, and this
Agreement shall have no binding force or effect until its execution and delivery
by both Borrower and Lender.
7.19 Exchange of Information. Borrower agrees that Lender may exchange
------------------------
financial information about Borrower with its affiliates and other related
entities.
7.20 Arbitration.
-----------
(a) Binding Arbitration. Lender and Borrower hereby agree that all
-------------------
controversies and claims arising directly or indirectly out of this
Agreement and the Loan Documents, shall at the written request of any party
be arbitrated pursuant to the applicable rules of the American Arbitration
Association. The arbitration shall occur in the State of Arizona. Judgment
upon any award rendered by the arbitrator(s) may be entered in any court
having jurisdiction. The Federal Arbitration Act shall apply to the
construction and interpretation of this arbitration agreement.
(b) Arbitration Panel. A single arbitrator shall have the power to
-----------------
render a maximum award of one hundred thousand dollars. When any party
files a claim in excess of this amount, the arbitration decision shall be
made by the majority vote of three arbitrators. No arbitrator shall have
the power to restrain any act of any party.
32
<PAGE>
(c) Provisional Remedies; Self Help; and Foreclosure. No provision of
------------------------------------------------
subparagraph (a) shall limit the right of any party to exercise self help
remedies, to foreclose against any real or personal property collateral, or
to obtain any provisional or ancillary remedies (including but not limited
to injunctive relief or the appointment of a receiver) from a court of
competent jurisdiction. At Lender's option, it may enforce its right under
a mortgage by judicial foreclosure, and under a deed of trust either by
exercise of power of sale or by judicial foreclosure. The institution and
maintenance of any remedy permitted above shall not constitute a waiver of
the rights to submit any controversy or claim to arbitration. The statute
of limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding.
7.21 Integration. The Loan Documents contain the complete understanding and
-----------
agreement of Borrower and Lender and supersede all prior representations,
warranties, agreements, arrangements, understandings, and negotiations.
7.22 Binding Effect. The Loan Documents will be binding upon, and inure to
--------------
the benefit of, Borrower and Lender and their respective successors and assigns.
Borrower may not delegate its obligations under the Loan Documents.
7.23 Survival. The representations, warranties, and covenants of the
--------
Borrower and the Loan Documents shall survive the execution and delivery of the
Loan Documents and the making of the Loan.
ARTICLE VIII
EXHIBITS
The following exhibits to this Agreement are fully incorporated herein as if
set forth at length:
Exhibit "A" Project Loan Agreement Form
-----------
Exhibit "B" Project Note Form
-----------
Exhibit "C" Deed of Trust Form
-----------
Exhibit "D" Environmental Indemnity Form
-----------
Exhibit "E" General Contract Form
-----------
33
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
duly executed and delivered as of the date first above written.
EXTENDED STAY LIMITED PARTNERSHIP, a Delaware limited
partnership
By: JMI/GREYSTAR EXTENDED STAY PARTNERSHIP, L.P., a
Delaware limited partnership, General Partner
By: Greystar Holdings, Inc., a Delaware
corporation, its general partner
By: /s/ Robert A. Faith
_____________________________
Name: Robert A. Faith
___________________________
Title:__________________________
34
<PAGE>
By: ESH PARTNERS, L.P., a Texas limited partnership,
General Partner
By: Crow Family, Inc., a Texas corporation, its
general partner
By: /s/ Anthony W. Dona
_____________________________
Name: Anthony W. Dona
___________________________
Title:__________________________
"Borrower"
BANK ONE, ARIZONA, NA, a national
banking association
By: /s/ Kirk Monroe
_________________________________________
Name: Kirk Monroe
_______________________________________
Title:______________________________________
"Lender"
35
<PAGE>
Exhibit "A"
Project Loan Agreement Form
36
<PAGE>
Exhibit "B"
Project Note Form
37
<PAGE>
Exhibit "C"
Deed of Trust Form
38
<PAGE>
Exhibit "D"
Environmental Indemnity Form
39
<PAGE>
Exhibit "E"
Form of General Contract
40
<PAGE>
EXHIBIT 10.12
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
DEVELOPER EXTENDED STAY PARTNERS, L.P.
DATED AS OF
August 20, 1996
THE INTERESTS EVIDENCED BY THIS
AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE
SECURITIES ACT OF ANY STATE, HAVE
BEEN ACQUIRED FOR INVESTMENT, AND
MAY NOT BE SOLD, OR OTHERWISE
DISPOSED OF, OR OFFERED FOR SALE
UNLESS REGISTRATION STATEMENTS
UNDER SUCH ACTS WITH RESPECT TO
SUCH INTERESTS ARE THEN IN EFFECT OR
EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACTS ARE THEN
APPLICABLE TO SUCH OFFER OR SALE,
AND UNLESS THE PROVISIONS OF THIS
AGREEMENT ARE SATISFIED.
<PAGE>
TABLE OF CONTENTS
-----------------
Page No.
----------
1. Definitions..................................................... 1
2. Continuation.................................................... 6
3. Name............................................................ 6
4. Principal Office................................................ 6
5. Purpose and Character of Business............................... 6
6. Term............................................................ 7
7. Capital......................................................... 7
7.1 Capital Contributions........................................... 7
7.2 Capital Accounts................................................ 7
7.3 Interest on and Return of Capital............................... 8
7.4 Waiver of Right of Partition and Dissolution.................... 8
7.5 Negative Capital Accounts....................................... 8
8. Profits and Losses.............................................. 8
8.1 Allocation of Profits and Losses................................ 8
8.2 Compliance with Section 704(b).................................. 9
8.3 Tax Matters Partner............................................. 10
9. Distributions................................................... 11
9.1 Distributions................................................... 11
9.2 Consent to Distributions........................................ 11
10. Management of Partnership....................................... 11
10.1 General Partner's Management Authority.......................... 11
10.2 Designation of the Developer Partners........................... 12
10.3 Limitations on Powers and Authority of General Partner.......... 12
10.4 Other Partners.................................................. 12
10.5 Compensation of Partners........................................ 13
10.6 Liability of Partners........................................... 13
10.7 Creditors Not Benefitted........................................ 13
10.8 Other Activities of Partners and Agreements with Related Parties 13
10.9 Purchase Option................................................. 13
10.10 Termination of Other Agreements................................. 16
11. Investment Representations of the Partners...................... 17
12. Power of Attorney............................................... 17
12.1 Grant of Power.................................................. 17
12.2 Irrevocability of Power......................................... 18
13. Banking......................................................... 18
14. Accounting...................................................... 18
14.1 Fiscal Year..................................................... 18
14.2 Books of Account................................................ 18
14.3 Method of Accounting............................................ 19
i
<PAGE>
15. New Partners, Restrictions on Transfer of Partnership Interests
and Other Matters, and Withdrawals.............................. 19
15.1 Admission of Partners........................................... 19
15.2 Transfer of Partnership Interests............................... 19
15.3 Withdrawal...................................................... 19
16. Liquidation and Dissolution of Partnership...................... 20
16.1 Dissolution Events.............................................. 20
16.2 Continuation.................................................... 20
16.3 Method of Liquidation........................................... 21
16.4 Deemed Distribution and Recontribution.......................... 22
16.5 Date of Termination............................................. 22
17. Miscellaneous................................................... 22
17.1 Notices......................................................... 22
17.2 Amendments; Waivers............................................. 22
17.3 Binding Effect.................................................. 23
17.4 Duplicate Originals............................................. 23
17.5 Construction.................................................... 23
17.6 Governing Law; Jurisdiction..................................... 23
17.7 Arbitration..................................................... 23
17.8 Other Instruments............................................... 24
17.9 Gender; Etc..................................................... 24
17.10 Prior Agreements Superseded..................................... 24
17.11 Severability.................................................... 24
17.12 Multiple Originals.............................................. 25
ii
<PAGE>
LIST OF DEFINED TERMS
---------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
1933 Act................................................................... 1
AAA........................................................................ 23
Act........................................................................ 1
Adjusted Capital Account................................................... 1
Adjusted Capital Account Deficit........................................... 1
Agreement.................................................................. 1
Book Basis................................................................. 1
Buyer...................................................................... 14
Capital Account............................................................ 2
Capital Contribution....................................................... 2
Code....................................................................... 2
Company.................................................................... 2
Completed Project.......................................................... 2
Consultant................................................................. 16
Developer Partner.......................................................... 2
Development Agreement...................................................... 2
Final Completion........................................................... 2
Finally Completed.......................................................... 2
General Partner............................................................ 3
Indemnified Persons........................................................ 13
Investment................................................................. 3
IPO........................................................................ 1
Limited Partner............................................................ 3
Liquidator................................................................. 21
Loss....................................................................... 3
Master Development Agreement............................................... 4
Net Loss................................................................... 4
Net Profit................................................................. 4
Nonrecourse Debt........................................................... 4
Nonrecourse Deductions..................................................... 4
Partner.................................................................... 4
Partner Minimum Gain....................................................... 4
Partner Nonrecourse Debt................................................... 4
Partner Nonrecourse Deductions............................................. 4
Partnership................................................................ 4
Partnership Minimum Gain................................................... 4
Percentage Interest........................................................ 4
Permitted Transferee....................................................... 19
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Person..................................................................... 4
Prime Rate................................................................. 5
Profit..................................................................... 5
Project.................................................................... 5
Project Percentage......................................................... 5
Purchase Date.............................................................. 5
Purchase Event............................................................. 14
Purchase Interest.......................................................... 14
Purchase Option............................................................ 14
Regulatory Allocations..................................................... 10
Related Construction Entity................................................ 6
Related Guarantor.......................................................... 6
Related Parties............................................................ 6
Required Interest.......................................................... 6
Seller..................................................................... 14
TCR........................................................................ 6
Transfer................................................................... 19
</TABLE>
iv
<PAGE>
This Agreement is entered into for the purpose of amending and restating
the Limited Partnership Agreement of the Partnership dated February 9, 1996 (the
"Prior Partnership Agreement."), to admit DESP General Partner, L.L.C. as a
---------------------------
substitute general partner, and to evidence the withdrawal of Extended Stay
Limited Partnership as a partner. This Agreement shall be effective upon the
merger of the Partnership with Homegate Hospitality, Inc., a Delaware
corporation, in connection with the initial public offering thereof (the "IPO").
---
If the IPO does not occur by December 31, 1996, this Agreement shall terminate
and the Prior Partnership Agreement shall remain in effect.
AGREEMENT
1. Definitions. As used in this Agreement, the following terms will have
-----------
the following meanings when used herein with initial capital letters:
"AAA" has the meaning set forth in Section 17.7(b).
---
"Act" means the Texas Revised Limited Partnership Act, as amended.
---
"1933 Act" means the Securities Act of 1933, as amended.
--------
"Adjusted Capital Account" means with respect to any Partner for any
------------------------
taxable year, the balance, if any, in such Partner's Capital Account as of the
end of such taxable year, after increasing such Capital Account by any amounts
that such Partner is deemed obligated to restore as described in the penultimate
sentences of Treasury Regulation Section 1.704-2(g)(1) and Treasury Regulation
Section 1.704-2(i)(5), or any successor provisions.
"Adjusted Capital Account Deficit" means with respect to any Partner
--------------------------------
for any taxable year, the deficit balance, if any, in such Partner's Capital
Account as of the end of such taxable year, after increasing such Capital
Account by any amounts that such Partner is actually obligated or deemed
obligated to restore as described in the penultimate sentences of Treasury
Regulation Section 1.704-2(g)(1) and Treasury Regulation Section 1.704-2(i)(5),
and reducing such Capital Account by any amounts described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The definition of
Adjusted Capital Account Deficit is intended to comply with the provisions of
Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Agreement" means this Limited Partnership Agreement as it may be
---------
amended from time to time.
"Book Basis" means with respect to any asset, the asset's adjusted
----------
basis for federal income tax purposes, provided, however, (a) if property is
contributed to the Partnership, the initial
1
<PAGE>
Book Basis of such property shall equal its fair market value on the date of
contribution as determined by the General Partner; and (b) if the Capital
Accounts of the Partnership are adjusted pursuant to Treasury Regulation Section
1.704-1(b) to reflect the fair market value of any Partnership asset, the Book
Basis of such asset shall be adjusted to equal its respective fair market value
as of the time of such adjustment in accordance with such Treasury Regulation.
The Book Basis of all assets shall be adjusted thereafter by depreciation and
amortization as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
Any adjustment to Book Basis to reflect the fair market value of an asset shall
be determined by the General Partner.
"Buyer" has the meaning set forth in Section 10.9(a).
-----
"Capital Account" means that capital account maintained for each
---------------
Partner pursuant to Section 7.2.
"Capital Contribution" means, with respect to any Partner, the amount
--------------------
of cash and the initial Book Basis of any property or other asset (net of
liabilities assumed by the Partnership resulting from such contribution, and
liabilities to which that property or asset is subject), contributed or deemed
contributed to the Partnership with respect to the Percentage Interest held by
the Partner.
"Company" means Homegate Hospitality, Inc., a Delaware corporation,
-------
which is the surviving entity of the merger between the Company and Extended
Stay Limited Partnership, a Delaware limited partnership.
"Completed Project" means a Project that has been Finally Completed.
-----------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Developer Partner" means, with respect to each Project, the Partner
-----------------
which has been designated as the Developer Partner therefor in accordance with
Section 10.2.
"Development Agreement" means an agreement entered into between the
---------------------
Company and a Partner (or its Related Construction Entity) for the development
and construction of a Project in accordance with the Master Development
Agreement (including Development Agreements entered into by Extended Stay
Limited Partnership before the IPO).
"Final Completion" or "Finally Completed" means a Project that has
---------------- -----------------
been finally completed in accordance with the plans and specifications approved
by the Company (including all punch-list items), free of mechanic's and
materialmen's liens or claims, for which a final, unconditional certificate of
occupancy has been issued by the appropriate governmental authority, and for
which an endorsement to the owners title insurance policy for the Project has
been issued
2
<PAGE>
deleting any exception for unpaid bills or claims for work performed or
materials furnished or fabricated in connection with the Project.
"General Partner" means DESP General Partner, L.L.C., a Texas limited
---------------
liability company, or any Person admitted hereafter as a General Partner in
accordance with the provisions of Section 15.
"Indemnified Persons" has the meaning set forth in Section 10.6.
-------------------
"Investment" means all of the common stock of the Company received by
----------
the Partnership in connection with the IPO.
"IPO" has the meaning set forth in the introductory paragraph of this
---
Agreement.
"Limited Partner" means any Partner designated as a Limited Partner on
---------------
the signature pages to this Agreement or admitted hereafter as a Limited Partner
in accordance with the provisions of Section 15.
"Loss" means, with respect to the Partnership, for each taxable year,
----
each item of the Partnership's taxable loss or deduction for such taxable year,
as determined under Section 703(a) of the Code, and Section 1.703-1 of the
Treasury Regulations (for this purpose, all items of deduction and loss required
to be stated separately pursuant to Section 703(a)(1) of the Code shall be
included in taxable loss), but with the following adjustments:
(a) Any expenditures of the Partnership described in Section 705(a)(2)(B)
of the Code, including any items treated under Section 1.704-
1(b)(2)(iv)(i) of the Treasury Regulations as items described in
Section 705(a)(2)(B) of the Code, shall be considered an item of
taxable deduction or loss;
(b) If the Book Basis of any Partnership asset is reduced as a result of
an adjustment to Book Basis under Treasury Regulation Section 1.704-
2(b) the amount of such reduction shall be taken into account as loss
from the disposition of such asset for purposes of computing Loss;
(c) Loss resulting from any disposition of property with respect to which
loss is recognized for federal income tax purposes shall be computed
by reference to the Book Basis of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs
from its Book Basis;
(d) Any items which are specially allocated pursuant to Section 8.2 shall
not be taken into account in computing Loss; and
3
<PAGE>
(e) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable loss or
deduction, there shall be taken into account depreciation and
amortization as determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(g), if applicable for such taxable year or other
period.
"Master Development Agreement" means the Master Development Assistance
----------------------------
Agreement dated as of February 9, 1996, between the Partnership, the Company,
the Limited Partners, and the other parties thereto.
"Net Profit" and "Net Loss" means for each taxable year or other period
---------- --------
the excess of items of Profit over items of Loss for such period, or the
items of Loss over the items of Profit for such period, as appropriate. Net
Profit and Net Loss shall not include items of Profit and Loss allocated
pursuant to Section 8.2.
"Nonrecourse Debt" has the meaning given to the term "nonrecourse
----------------
liability" by Treasury Regulation Section 1.704-2(b)(3).
"Nonrecourse Deductions" has the meaning set forth in Treasury
----------------------
Regulation Section 1.704-2.
"Partner" means a Person designated as a Limited Partner or a General
-------
Partner on the signature pages to this Agreement or admitted hereafter as a
Partner in accordance with Section 15.
"Partner Minimum Gain" means "partner nonrecourse debt minimum gain" as
--------------------
defined in Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
------------------------
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Treasury
------------------------------
Regulation Section 1.704-2(i).
"Partnership" means the partnership formed and governed by this Agreement.
-----------
"Partnership Minimum Gain" has the meaning set forth in Treasury
------------------------
Regulation Section 1.704-2(d).
"Percentage Interest" means, with respect to each Partner, the
-------------------
percentage set forth next to its name on Exhibit A hereto, as it may be adjusted
---------
from time to time.
4
<PAGE>
"Permitted Transferee" has the meaning set forth in Section 15.1.
--------------------
"Person" means an individual or an entity.
------
"Prime Rate" means the lesser of (i) the fluctuating rate per annum as
----------
in effect from time to time equal to the rate of interest announced publicly by
Citibank, N.A. in New York, New York as its base rate or by another financial
institution designated from time to time by the General Partner or (ii) the
maximum rate permitted to be charged under applicable law.
"Profit" means, with respect to the Partnership, for each taxable
------
year, each item of the Partnership's taxable income or gain for such taxable
year, as determined under Section 703(a) of the Code, and Section 1.703-1 of the
Treasury Regulations (for this purpose, all items of income and gain required to
be stated separately pursuant to Section 703(a)(1) of the Code shall be included
in taxable income or gain), but with the following adjustments:
(a) Any tax-exempt income, as described in Section 705(a)(1)(B) of the
Code, realized by the Partnership during such taxable year shall
be considered an item of taxable income;
(b) If the Book Basis of any Partnership asset is increased pursuant
to Treasury Regulation Section 1.704-2(b), the amount of such
adjustment shall be taken into account as gain from the
disposition of such asset for purposes of computing Profit;
(c) Gain resulting from any disposition of property for which gain is
recognized for federal income tax purposes shall be computed by
reference to the Book Basis of the property disposed of,
notwithstanding that the adjusted tax basis of such property
differs from its Book Basis; and
(d) Any items which are specially allocated pursuant to Section 8.2
shall not be taken into account in computing Profit.
"Project" means an extended-stay hotel developed or to be developed by
-------
the Company under a Development Agreement with one of the Limited Partners.
"Project Percentage" means, with respect to each Partner, the
------------------
percentage obtained by dividing the number of Completed Projects for which the
Partner was the Developer Partner by the number of all Projects. For purposes
hereof, if (a) the Company and a Partner have entered into a Development
Agreement for a Project, (b) the Project is sold before construction is Finally
Completed, and (c) such Partner has not been removed as the Developer Partner
for such Project under the Development Agreement therefor, then such Project
shall be included in the calculation
5
<PAGE>
of the Project Percentages, with such Partner being credited for that Project as
if the Project were a Completed Project at the time of such sale.
"Purchase Date" means the date a Purchase Event occurs, except with
-------------
respect to the event described in Section 10.9(a)(7) for which the Purchase Date
will mean the date the Buyer gives notice to Seller of Buyer's election to
Purchase Seller's Purchase Interest.
"Purchase Event" has the meaning set forth in Section 10.9(a).
--------------
"Purchase Interest" has the meaning set forth in Section 10.9(a).
-----------------
"Purchase Option" has the meaning set forth in Section 10.9(a).
---------------
"Regulatory Allocation" has the meaning set forth in Section 8.2(g).
---------------------
"Related Construction Entity" means, with respect to the Developer
---------------------------
Partner for a particular Project, the Person, if any, that has signed a
Development Agreement for that Project, which Person is controlled by, under
common control with, or controls the Developer Partner in question.
"Related Guarantor" means, with respect to the Developer Partner for a
-----------------
Project, the Persons guaranteeing that Partner's obligation to construct the
Project under the Development Agreement therefor.
"Related Parties" means, with respect to the Developer Partner for a
---------------
particular Project, that Partner's Related Construction Entity, if any, and its
Related Guarantors for the Project.
"Required Interest" means, at the time such determination is being
-----------------
made, Limited Partners holding all of the Project Percentages.
"Seller" has the meaning set forth in Section 10.9.
------
"TCR" means TCR Extended Stay I Limited Partnership, a Texas limited
---
partnership.
"Transfer" has the meaning set forth in Section 15.2.
--------
2. Continuation The Partners hereby continue the Partnership as a
------------
limited partnership under the Act pursuant to the terms of this Agreement. This
Agreement supersedes the Prior Partnership Agreement in all respects.
6
<PAGE>
3. Name. The name of the Partnership is on the cover page of this
----
Agreement. The General Partner may at any time change the name of the
Partnership.
4. Principal Office. The registered office of the Partnership is located
----------------
at 2001 Bryan Street, Suite 2300, Dallas, Texas 75201. The General Partner may
change the principal or registered office or agent of the Partnership from time
to time upon giving written notice of any such change to all of the other
Partners.
5. Purpose and Character of Business. The Partnership shall own and hold
---------------------------------
the Investment and exercise all rights in connection therewith, including voting
rights and rights to receive dividends and other distributions in respect
thereof. The Partnership may not engage in any other activity unless approved
by all Partners.
6. Term. The Partnership shall continue until dissolved and terminated
----
pursuant to the provisions of Section 16.
7. Capital.
-------
7.1 Capital Contributions. The Partners have contributed cash to the
---------------------
capital of the Partnership in the amounts set forth opposite the Partners' names
on Schedule 1 under the column Capital Contribution. The Partners shall not be
----------
obligated to make additional Capital Contributions to the Partnership.
7.2 Capital Accounts. A separate Capital Account will be maintained
for each Partner in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv). The Capital Account of each Partner will be
determined and adjusted as follows:
(a) Each Partner's Capital Account will be credited with:
(1) any contributions of cash made by such Partner to the
capital of the Partnership plus the Book Basis of any property contributed by
such Partner to the capital of the Partnership (net of any liabilities to which
such property is subject or which are assumed by the Partnership);
(2) the Partner's distributive share of Net Profit and
items thereof and items of income and gain specially allocated pursuant to
Section 8.2 (other than items allocated pursuant to Section 8.2(g)); and
(3) any other increases required by Treasury Regulation
Section 1.704-1(b)(2)(iv).
7
<PAGE>
(b) Each Partner's Capital Account will be debited with:
(1) any distributions of cash made from the Partnership to
such Partner plus the fair market value of any property distributed in kind to
such Partner (net of any liabilities to which such property is subject or which
are assumed by such Partner);
(2) the Partners' distributive share of Net Losses and
items thereof and items of deduction and loss specially allocated pursuant to
Section 8.2 (other than items allocated pursuant to Section 8.2(g)); and
(3) any other decreases required by Treasury Regulation
Section 1.704-1(b)(2)(iv).
The provisions of this Section 72 relating to the maintenance of Capital
Accounts have been included in this Agreement to comply with Section 704(b) of
the Code and the Treasury Regulations promulgated thereunder and will be
interpreted and applied in a manner consistent with those provisions. The
General Partner shall have the authority to determine all questions relating to
the maintenance of Partners' Capital Accounts, and the General Partner may
modify the manner in which the Capital Accounts are maintained under this
Section 7.2 in order to comply with the provisions of Treasury Regulation
Section 1.704-1(b) and any other applicable provisions of the Code or Treasury
Regulations to cause Partner Capital Accounts to be maintained in compliance
with the provisions of the Code and Treasury Regulations. The General Partner
shall determine whether any elective adjustments to Capital Accounts permitted
under Treasury Regulation Section 1.704-1(b)(2)(iv) shall be made.
7.3 Interest on and Return of Capital. No Partner shall be
---------------------------------
entitled to any interest on its Capital Account or on his contributions to the
capital of the Partnership, and no Partner shall have the right to demand or to
receive the return of all or any part of his Capital Account in the Partnership.
No Partner shall have the right to demand or receive property other than cash in
return for the contribution of such Partner to the Partnership.
7.4 Waiver of Right of Partition and Dissolution. No Partner has any
--------------------------------------------
interest in specific Partnership property. The interests of all Partners in the
Partnership are, for all purposes, personal property and each of the Partners
irrevocably waives any right or power to cause the appointment of a receiver for
the assets of the Partnership, to compel any sale of all or any portion of the
assets of the Partnership pursuant to any applicable law or laws, or to file a
complaint or to institute any proceeding at law or in equity to cause the
termination or dissolution of the Partnership except as expressly provided for
in this Agreement.
7.5 Negative Capital Accounts. No Limited Partner will be
-------------------------
obligated to contribute to the Partnership or to any other Partner any deficit
or negative balance which may exist
8
<PAGE>
from time to time in the Limited Partner's Capital Account, including, without
limitation, upon liquidation of the Partnership or the Limited Partner's
interest therein.
8. Profits and Losses.
------------------
8.1 Allocation of Profits and Losses. For any taxable year of the
--------------------------------
Partnership all Net Profits or Net Losses for such year will be allocated to the
Partners as follows:
(a) Net Profits. Except as provided in Section 8.2, Net Profits
-----------
for each taxable year will be allocated to the Partners in accordance with their
Percentage Interests.
(b) Net Loss. Except as provided in Section 8.2, Net Losses
--------
for each year will be allocated in the following manner:
(1) First, to the Partners in proportion to their
respective Adjusted Capital Account balances, but not in excess of the Adjusted
Capital Account balance of each such Partner before the allocation provided in
this Section 8.1(b)(1); and
(2) Thereafter, to the General Partner to the extent
further allocations of Losses to a Limited Partner under this Section 8.1(b)
would cause such Limited Partner to have an Adjusted Capital Account Deficit.
8.2 Compliance with Section 704(b). The following special allo-
------------------------------
cations shall, except as otherwise provided, be made in the following order:
(a) Minimum Gain Charge-Back. Notwithstanding any other
------------------------
provision of this Agreement, if there is a net decrease in Partnership Minimum
Gain or in any Partner Minimum Gain during any taxable year or other period,
prior to any other allocation pursuant hereto, the Partners shall be specially
allocated items of Profit for such year (and, if necessary, subsequent years) in
an amount and manner required by Treasury Regulation Section 1.704-2(f) or
1.704-2(i)(4). The items to be so allocated shall be determined in accordance
with Treasury Regulation Section 1.704-2.
(b) Qualified Income Offset. Any Partner who unexpectedly
-----------------------
receives an adjustment, allocation or distribution described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes or increases
an Adjusted Capital Account Deficit shall be allocated items of Profit in an
amount and manner sufficient to eliminate, to the extent required by such
Treasury Regulation, the Adjusted Capital Account Deficit of the Partner as
quickly as possible.
9
<PAGE>
(c) Deficit Balance Allocation. No Partner will be allocated
--------------------------
any Losses or items thereof if as a result of such allocation, such Partner
would have an Adjusted Capital Account Deficit. Such Losses or items thereof
will be reallocated among other Partners in accordance with their respective
Percentage Interests, subject to the limitations contained in this Section 8.2.
In the event any Partner has an Adjusted Capital Account Deficit each such
Partner shall be specially allocated items of Profit in the amount of such
Adjusted Capital Account Deficit as quickly as possible, provided that an
allocation pursuant to this Section 8.2(c) shall be made only if and to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Agreement have been tentatively made
as if this Section 8.2(c) was not in this Agreement.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any
----------------------
taxable year or other period will be specially allocated among the Partners pro
---
rata in proportion to their respective Percentages Interests in the Partnership.
- ----
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse
------------------------------
Deductions for any taxable year or other period will be allocated to the Partner
that made, guaranteed, or is otherwise liable with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with principles under Treasury Regulation Section 1.704-2(i).
(f) Section 704(c) Compliance. In accordance with Section
-------------------------
704(c) of the Code and the applicable Treasury Regulations thereunder, income,
gain, loss and deduction with respect to any property contributed to the capital
of the Partnership, solely for tax purposes, will be allocated among the
Partners so as to take account of any variation between the adjusted tax basis
of such property to the Partnership for federal income tax purposes and the Book
Basis of such Property. Any elections or other decisions relating to allocations
under this Section 8.2(f) will be made in any manner which the General Partner
shall determine is consistent with Section 704(c) of the Code and the Treasury
Regulations promulgated thereunder and reasonably reflects the purpose and
intention of this Agreement. Allocations under this Section 8.2(f) are solely
for purposes of federal, state and local taxes and will not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Profits, Losses or other items or distributions under any provision of this
Agreement.
(g) Curative Allocations. The "Regulatory Allocations"
-------------------- ----------------------
consist of allocations made to a Partner (or predecessor) under Sections 8.2(a)
through 8.2(e). Notwithstanding any other provision of this Section 8.2, other
items of income, gain, loss and deduction will be allocated among the Partners
so that, to the extent possible, the net amount of those allocations of other
items and the Regulatory Allocations to each Partner will be equal to the net
amount that would have been allocated to the Partner if the Regulatory
Allocations had not occurred. The
10
<PAGE>
General Partner shall take into account future Regulatory Allocations under
Section 8.2(a) that, although not yet made, are likely to offset Regulatory
Allocations under Sections 8.2(d) and 8.2(e).
(h) Partner Acknowledgment. The Partners agree to be bound by
----------------------
the provisions of this Section 8 in reporting their shares of Partnership
income and loss for income tax purposes.
8.3 Tax Matters Partner. The General Partner shall be the "tax
-------------------
matters partner" of the Partnership pursuant to section 6231(a)(7) of the Code.
The General Partner shall take such action as may be necessary to cause each
other Partner to become a "notice partner" within the meaning of section 6223 of
the Code. The General Partner shall inform each other Partner of all significant
matters that may come to its attention in its capacity as tax matters partner by
giving notice thereof within ten days after becoming aware thereof and, within
such time, shall forward to each other Partner copies of all significant written
communications it may receive in such capacity. The General Partner shall not
take any action contemplated by Sections 6222 through 6232 of the Code without
the consent of a Required Interest. This provision is not intended to authorize
the General Partner to take any action left to the determination of an
individual Partner under Sections 6222 through 6232 of the Code.
9. Distributions.
-------------
9.1 Distributions. Distributions shall be made to the Limited
-------------
Partners in the following manner:
(a) within 15 days after Final Completion of a Project, 1/60th of
the Investment shall be distributed to the Developer Partner for such Project;
(b) if, on December 31, 1998, construction has not been completed
or commenced on at least 60 Projects, a portion of the then-remaining Investment
equal to the product obtained by multiplying the initial Investment owned by the
Partnership as of the date hereof by a fraction whose numerator is 60 minus the
number of Projects that have been completed or for which construction has
commenced by December 31, 1998, and whose denominator is 60 shall be allocated
among the Partners based on their Project Percentages; and
(c) if, after December 31, 1998, the Developer Partner of any
Project on which construction had commenced by, but was not Finally Completed
on, December 31, 1998, ceases to be the Developer Partner thereof, then 1/60th
of the Investment held by the Partnership as of the date hereof shall be
distributed to the Partners in accordance with their Project Percentages within
30 days after such Partner ceases to be the Developer Partner of such Project,
unless another Limited Partner is designated as the Developer Partner therefor
under Section 10.2 and such Partner or its Related
11
<PAGE>
Party completes construction of such Project, in which case, such portion of the
Investment shall be allocated to such newly designated Partner.
9.2 Consent to Distributions. Each Partner consents to the distri-
------------------------
butions provided for in Section 9.1 and understands that because of differences
between income and cash flow, distributions to a Partner may constitute a return
of capital or may be less than a Partner's distributive share of Partnership
income.
10.0 Management of Partnership.
-------------------------
10.1 General Partner's Management Authority.
--------------------------------------
(a) Management. The Partnership shall be managed
----------
exclusively by the General Partner. Subject to Section 10.3, all decisions
relating to the business and affairs of the Partnership, including, without
limitation, all decisions required or permitted to be made by the General
Partner under this Agreement, and all decisions with respect to the Investment,
shall be made, and all action proposed to be taken by or on behalf of the
Partnership regarding the Investment shall be taken, by the General Partner. All
approvals, consents, or other actions or decisions required under this Agreement
may be prospective or retroactive. All such decisions or actions made or taken
by the General Partner under this Agreement will be binding upon all of the
Partners and the Partnership. The signed statement of the General Partner,
reciting that it has authority to undertake any act, when delivered to any third
party, shall be all of the evidence such third party shall need concerning the
capacity of the General Partner, and any such third party shall be entitled to
rely upon such statement and shall not be required to inquire further as to any
of the facts contained in such statement said facts being deemed to be true
insofar as such third party is concerned. After delivering such statement, the
General Partner, by its signature alone, may sign any instrument and bind the
Partnership and the Partnership property just as though all of the Partners had
also signed. Such statement shall not, however, have any effect between the
Partners unless the action in question was in fact authorized pursuant to this
Agreement.
10.2 Designation of the Developer Partners. The Developer
-------------------------------------
Partner for each Project shall be the Limited Partner designated as the
"Developer Partner" under the Master Development Agreement. If, however, a
Limited Partner which is designated as the Developer Partner for a Project
ceases to be the Developer Partner for that Project under the Development
Agreement therefor, then such Partner shall not be the Developer Partner for
such Project. In such case, the General Partner may appoint an existing Limited
Partner to be the Developer Partner for such Project to complete the
construction of the Project or may admit a new Person as a Limited Partner in
the Partnership and designate such Person as the Developer Partner for such
Project under this Agreement. If the General Partner fails to so designate a
substitute Developer Partner, then there shall be no Developer Partner for such
Project.
12
<PAGE>
10.3 Limitations on Powers and Authority of General Partner.
------------------------------------------------------
Notwithstanding the powers of the General Partner set forth in Section 10.1,
without the prior consent of a Required Interest, the General Partner shall not
have the right or power to do any of the following:
(a) to borrow money for and on behalf of the Partnership;
(b) to convey, mortgage, pledge, hypothecate, for and on
behalf of the Partnership all or any part of the Partnership's assets, including
all or any part of its interest in the Investment (except in connection with a
sale of all ownership interests in the Company or to secure any financing
provided to the Company for working capital purposes or to acquire or develop
Projects or any refinancings thereof);
(c) to guarantee debts or obligations of the Company
(except in connection with financings established for the Company to acquire or
develop Projects or for working capital purposes, or any refinancings thereof)
or any other Person; and
(d) filing of any petition or consenting to the filing of
any petition that would subject the Partnership to a bankruptcy or insolvency
proceeding.
10.4 Other Partners. The Limited Partners, in their capacities
--------------
as Limited Partners, may not act for or bind the Partnership and may not
participate in the general management, conduct or control of the Partnership's
business or affairs. Nothing contained in this Section 10.4 will prohibit any
Limited Partner from acting as an officer, director, employee, agent or other
representative of the General Partner or the Company or from appointing a
representative to the management committee of the Company.
10.5 Compensation of Partners. The General Partner shall not
------------------------
receive any compensation from the Partnership for its services hereunder, but
shall be entitled to reimbursement from the Partnership of all out-of-pocket
expenses incurred by it in performing its duties hereunder.
10.6 Liability of Partners. The Partners, in their capacities
---------------------
as such, shall not be liable or accountable, in damages or otherwise, to the
Partnership or to any other Partner for any error of judgment or for any mistake
of fact or law or for anything which they may do or refrain from doing hereafter
in connection with the business and affairs of the Partnership (INCLUDING THEIR
NEGLIGENCE AND FOR ANY ACTION FOR WHICH SUCH PERSON MAY INCUR STRICT LIABILITY)
except in the case of willful misconduct or gross negligence, and the
Partnership, to the extent of its assets legally available for the purpose, will
indemnify the Partners and their owners, managers, directors, agents and
affiliates (the "Indemnified Persons") from all loss, damage and expense
-------------------
(including costs and expenses of courts and professional advisors) or liability
incurred by reason of anything an Indemnified Person has done or refrained from
doing in connection with the
13
<PAGE>
business and affairs of the Partnership (INCLUDING ANY LOSS, DAMAGE, EXPENSE, OR
LIABILITY CAUSED BY OR ATTRIBUTABLE TO THE ORDINARY OR SIMPLE NEGLIGENCE, AS
OPPOSED TO GROSS NEGLIGENCE, OF THE INDEMNIFIED PERSON AND FOR ANY ACTION FOR
WHICH THE INDEMNIFIED PERSON MAY INCUR STRICT LIABILITY) except in the case of
willful misconduct or gross negligence. No Partner shall be obligated to
contribute any amounts to the Partnership to satisfy the indemnification
obligation of the Partnership under this Section 10.6.
10.7 Creditors Not Benefitted. Nothing contained herein is
------------------------
intended or will be deemed to benefit any creditor of the Partnership, and no
creditor of the Partnership will be entitled to require any Partner to solicit
or accept any loan or additional Capital Contribution for the Partnership or to
enforce any right which the Partnership or any Partner may have against any
Partner under this Agreement or otherwise.
10.8 Other Activities of Partners and Agreements with Related
--------------------------------------------------------
Parties. Subject to the provisions of any other agreements binding on the
- -------
parties, each Partner, in his individual capacity or otherwise, shall be free to
engage in, to conduct, or to participate in any business or activity whatsoever,
without any accountability, liability, or obligation whatsoever to the
Partnership or to any other Partner, even if such business or activity competes
with or is enhanced by the business of the Partnership. Further, the General
Partner, in the exercise of its power and authority under this Agreement, may
contract and otherwise deal with or otherwise obligate the Partnership to
entities in which any one or more of the Partners may have an ownership or other
financial interest.
10.9 Purchase Option.
---------------
(a) Purchase Events. If any of the following events (each,
---------------
a "Purchase Event") shall have occurred to or in respect of a Partner (the
--------------
"Seller"), then the Partners (as they may agree among themselves or in
------
proportion to their Project Percentages if there is no agreement among such
Partners) other than the Seller (the "Buyer") shall have the continuing right
-----
(the "Purchase Option") to purchase the entire Partnership interest of the
---------------
Seller including all debts and obligations of the Partnership owing to the
Seller (the "Purchase Interest") in an amount due and payable as determined
-----------------
below:
(1) any withdrawal or retirement from the Partnership
by the Seller;
(2) the Seller shall make an assignment for the
benefit of creditors, commence (as the debtor) a case in bankruptcy, or commence
(as the debtor) any proceeding under any other insolvency law;
14
<PAGE>
(3) a case in bankruptcy or any other proceeding
under any other insolvency law is commenced against the Seller (as the debtor)
and is consented to by the Seller or remains undismissed for 90 days, or the
Seller consents to or admits the material allegations against it in any such
case or proceeding;
(4) a trustee, receiver, agent, liquidator or
sequestrator (however named) is appointed or authorized to take charge of all or
substantially all of the property of the Seller for the purpose of enforcing a
lien against such property or for the purpose of general administration of such
property for the benefit of creditors and such appointment or authorization is
consented to by the Seller or is not overturned within 90 days;
(5) the Seller shall fail generally to pay its debts
as they become due, or suffer any writ of attachment or execution or any similar
process to be issued or levied against it or all or substantially all of its
property which is not released, stayed, bonded or vacated within 90 days after
its issue or levy;
(6) the Seller shall suffer any writ of attachment or
execution or any similar process to be issued or levied against the interests of
the Seller in the Partnership which is not released, stayed, bonded or vacated
within 90 days after its issue or levy;
(7) the Seller shall fail to perform any of its
material obligations under this Agreement;
(8) any attempted assignment or hypothecation by the
Seller of any of its rights or interest in the Partnership or this Agreement
except as permitted by Section 15;
(9) except in the case of the General Partner, the
Seller shall commence to dissolve or wind-up and liquidate the assets of its
business;
(10) the Seller shall die or be declared legally
incompetent to administer his affairs;
(11) the Seller, by entry of a final judgment, order
or decree of a court or governmental agency having proper jurisdiction, shall be
declared guilty of a felony involving moral turpitude, fraud or wrongdoing in
connection with any business activity; or
(12) the failure of a Seller to acquire any Percentage
Interest held by his or her spouse following a termination of marriage due to
divorce or death of the spouse within 30 days after the date of the death or the
date the divorce becomes final, in which event the Purchase Interest shall be
only that portion of the Percentage Interest not so acquired.
15
<PAGE>
(b) Exercise of Purchase Option. If the Buyer elects to
---------------------------
exercise its Purchase Option, it may give the Seller written notice of the
election at any time after the date on which the Buyer first has knowledge of
the occurrence of the Purchase Event. The amount of the purchase price for the
Seller's Purchase Interest (unless agreed upon by the Seller and the Buyer
within 30 days after the Buyer's notice to the Seller) shall be an amount equal
to the amount which the Seller would have received had all of the property of
the Partnership been sold at a price equal to the fair market value of the
property (determined, as of the date the Seller receives notice of Buyer's
election to purchase, in accordance with Section 10.9(f)) and the proceeds of
the sale had been distributed pursuant to Section 16.3.
(c) Closing and Terms. The closing of the sale shall take
-----------------
place within 60 days after the date of the determination of the purchase price,
and the time and place of the closing shall be designated by the Buyer within
the first 30 days of the 60-day period and the purchase price shall be payable
upon terms and conditions agreed to between the Buyer and the Seller, or in the
event the Buyer and the Seller are unable to agree, then as follows: (i) 10% of
the total purchase price shall be paid by the Buyer to the Seller in cash at the
closing, and (ii) the remaining portion of the purchase price shall be evidenced
by a promissory note given by the Buyer in favor of the Seller, which promissory
note shall bear interest on the unpaid principal balance at the Prime Rate and
require ten equal payments of principal plus all accrued and unpaid interest
thereon with the first payment being due on the first anniversary of the closing
date and each succeeding payment being due on each succeeding anniversary of the
closing date until the tenth and final payment is made on the tenth anniversary
of the closing date; however, the Buyer may prepay the promissory note at any
time without penalty. The unpaid principal balance and unpaid interest on the
promissory note at maturity shall be paid in cash.
(d) Effect on Seller's Interest. From the Purchase Date to
---------------------------
the date of the Transfer of the Purchase Interest under this Section 10.9, the
Percentage Interest represented by the Purchase Interest will be excluded from
any calculation of aggregate Percentage Interests for purposes of any approval
required of Partners under this Agreement, except for approvals required by
Section 17.2. All distributions of cash or assets due to the Seller by the
Partnership from the Purchase Date to the date of the closing of the purchase
may be applied against obligations of the Seller. Without limiting the
generality of any other provision of this Agreement, upon the exercise of the
Purchase Option, the Seller, without further action, will have no rights in the
Partnership or against the Partnership or any Partner other than the right to
receive payment for the Purchase Interest in accordance with Section 10.9(c). As
a condition to the closing of any purchase referenced in this Section 10.9,
which condition must be satisfied before the scheduled closing date, the Seller
will be indemnified by the Partnership for all liabilities and losses arising
from incidents or transactions occurring after the closing.
16
<PAGE>
(e) Term of Option. The term of the option provided in
--------------
this Section 10 shall expire 21 years after the death of the last to die of the
presently living grandchildren of former United States president, George W.
Bush.
(f) Procedure for Appraisal and Redetermination of Fair
---------------------------------------------------
Market Value. If the fair market value of all or any part of the property of the
- ------------
Partnership is required to be determined for any purpose under this Agreement,
then the fair market value, unless otherwise agreed upon by the Buyer and the
Seller or provided for in accordance with this Agreement, shall be determined as
provided in this Section 10.9(f). Within 10 days after an appraisal is required
under any provision hereof, the General Partner shall select an independent,
qualified valuation consultant (a "Consultant") which shall be one of the six
----------
major accounting firms or a nationally recognized investment banking firm. The
Consultant so selected shall proceed to determine promptly the fair market value
of the Investment in accordance with such methods and techniques as shall enable
the Consultant to complete the valuation of the Investment within 30 days of
appointment and in the least expensive manner reasonably possible while
obtaining a reasonable approximation of the fair market values of the
Investment. In this regard, the Consultant may limit his analysis to existing
materials and/or reports otherwise readily available without the need to gather
further data on comparable sales or activity since the latest date of the other
available data. The Consultant shall deliver a written report of its
determination of fair market value to all interested parties within 30 days
after its appointment. The determination of fair market value of the Partnership
property by the Consultant shall be final and binding upon all parties. After
determination of the fair market value of the Partnership property, the
Consultant shall determine the amount due to each Partner as provided in this
Agreement. The Consultant shall determine the amount due to each Partner as
provided in the preceding sentence with the aid of the Persons who customarily
keep the books of account of the Partnership, but the determination by the
Consultant of the amount due to each Partner shall be conclusive. The fees and
expenses of the Consultant shall be borne by the Seller.
10.10 Termination of Other Agreements. If a Partner's interest
-------------------------------
in the Partnership is purchased under Sections 10.9, all other agreements with
the Partner or its affiliates may be terminated by the Partnership on the date
the Partner's interest is purchased. Upon termination of any of those
agreements, the Partnership will pay any amounts then owed under the agreements.
11. Investment Representations of the Partners.
------------------------------------------
11.1 Investment Intent. Each of the Partners represents and
-----------------
warrants to the Partnership and to each of the other Partners that the Partner
has acquired its interest in the Partnership for investment, solely for its own
account, with the intention of holding the interest for investment, and without
any intention of participating directly or indirectly in any redistribution or
resale of any portion of the interest in violation of the 1933 Act or any
applicable state securities law.
17
<PAGE>
11.2 Unregistered Partnership Interests. Each of the Partners
----------------------------------
acknowledges that the Partner is aware that its interest in the Partnership has
not been registered under the 1933 Act in reliance upon exemptions contained in
the 1933 Act and that its interest in the Partnership has not been registered
under the securities law of any state in reliance upon the exemptions contained
in such state securities law. Each of the Partners further understands and
acknowledges that its representations and warranties contained in this Section
11 are being relied upon by the Partnership and by the Partners as the basis for
exemption of the issuance of the Partner's interest in the Partnership from
registration requirements of the 1933 Act and all applicable state securities
laws. Each of the Partners further acknowledges that the Partnership will not
and has no obligation to register the Partner's interest in the Partnership
under the 1933 Act or any state securities law and that the Partnership shall
have no obligation to recognize any sale, transfer or assignment of the
Partner's interest in the Partnership to any person unless the sale, transfer or
assignment is otherwise permitted under this Agreement.
11.3 Nature of Investment. Each of the Partners represents that
--------------------
it is familiar with this Agreement, and with the proposed business and affairs
of the Partnership, and that except as otherwise specifically provided in this
Agreement, the Partner does not desire any further information or data relating
to the Partnership. Each of the Partners acknowledges that it understands that
the acquisition of the Partner's interest in the Partnership is a speculative
investment involving a high degree of risk and represents that the Partner has a
net worth sufficient to bear the economic risk of the Partner's investment in
the Partnership and to justify the Partner investing in a highly speculative
venture of this type.
11.4 Legend on Agreement. Each of the Partners acknowledges that
-------------------
a legend reflecting the restrictions imposed upon the transfer of its interest
in the Partnership under this Agreement, under the 1933 Act and under applicable
state securities laws has been placed on the first page of this Agreement and
may be placed on any amendments to this Agreement.
12. Power of Attorney.
-----------------
12.1 Grant of Power. Each of the Partners irrevocably constitutes
--------------
and appoints each of the General Partner and its general partners and
partnership managers with full power of substitution and resubstitution, his
true and lawful attorney, in his name, place and stead, to make, execute,
consent to, swear to, acknowledge, deliver, record and file:
(a) assumed name certificates of the Partnership as appropriate
under the applicable laws of any jurisdiction;
(b) any other document, certificate or other instrument,
including a certificate or amended certificate of limited partnership, which may
be required to be filed by the
18
<PAGE>
Partnership or the Partners under the applicable laws of any jurisdiction to the
extent the General Partner deems such filing to be necessary or desirable; and
(c) all documents, certificates and other instruments which may
be required to effectuate or give notice of the dissolution and termination of
the Partnership pursuant to the provisions of this Agreement and the Act.
12.2 Irrevocability of Power. It is expressly understood, intended and
-----------------------
agreed by each of the Partners for himself or herself, his or her heirs,
administrators, legal representatives, successors and assigns that the grant of
the power of attorney to the General Partner and its managers pursuant to
Section 12.1 above (a) is coupled with an interest, (b) is irrevocable, and (c)
shall survive the death, legal incompetency, disability, bankruptcy, retirement
or withdrawal of any Partner or the assignment or other transfer of his or her
interest in the Partnership.
13. Banking. The funds of the Partnership shall be kept in such accounts
-------
as may be designated by the General Partner and may not be commingled with funds
of any other Person. All withdrawals therefrom shall be made on such signature
or signatures as shall be designated by the General Partner.
14. Accounting.
----------
14.1 Fiscal Year. The fiscal year of the Partnership shall end on the
-----------
last day of December of each year, unless another fiscal year end is selected by
the General Partner. The taxable year of the Partnership shall be the calendar
year unless a different year is required by the Code. The Partnership shall use
the accrual method of accounting for federal income tax purposes.
14.2 Books of Account. The Partnership books of account shall be
----------------
maintained at the principal office designated in Section 4 or at such other
locations and by such Persons as may be designated by the General Partner. The
Partnership shall pay the expense of maintaining its books of account. Each
Partner shall have, during reasonable business hours and upon reasonable notice,
access to the books of the Partnership and in addition, at his expense, shall
have the right to copy such books and to require an audit of the Partnership's
books of account. The General Partner will prepare at the expense of the
Partnership and furnish to each of the Partners within 45 calendar days if
reasonably possible, and in any event within 90 calendar days after the close of
each fiscal year of the Partnership a balance sheet of the Partnership dated as
of the end of the fiscal year, a related statement of income and expense, a
statement of cash flow and all other information reasonably required by each
Partner. In addition, promptly after the end of each fiscal year the General
Partner will use its best efforts to prepare and deliver to each Partner a
report setting forth in sufficient detail all such information and data as will
enable the Partnership and each Partner to timely prepare its federal, state and
local income tax returns in accordance with the laws, rules and regulations then
prevailing.
19
<PAGE>
14.3 Method of Accounting. The Partnership books of account shall be
--------------------
maintained, and its income, gains, losses, deductions and credits shall be
accounted for, in accordance with generally accepted accounting principles
consistently applied.
15. New Partners, Restrictions on Transfer of Partnership Interests and
-------------------------------------------------------------------
Other Matters, and Withdrawals.
- ------------------------------
15.1 Admission of Partners. No Person shall be admitted to the
---------------------
Partnership as a substitute or additional Partner without the prior written
consent of the General Partner (which consent may be withheld in the sole and
absolute discretion of such Partner). Any Person eligible to be admitted to the
Partnership as a substitute or additional Partner upon the consent of the
General Partner is hereinafter referred to as a "Permitted Transferee." Any
--------------------
Person admitted to the Partnership as a Partner shall be subject to this
Agreement and shall promptly, upon demand of the General Partner, execute and
deliver to the Partnership such documents as may be necessary or appropriate, in
the opinion of counsel for the Partnership, to reflect such Person's admission
to the Partnership as a Partner and to be bound by the terms of this Agreement.
The General Partner may admit, as a Limited Partner, any Person who is not then
a Partner and is designated as the developer for a Project. Such admission shall
be effected by the execution of an Admission to Partnership Agreement in
substantially the same form as Exhibit A, and such newly admitted partner shall
---------
have a Percentage Interest equal to 0%. Promptly after such admission, the
General Partner shall notify the other Limited Partners thereof.
15.2 Transfer of Partnership Interests. Except as herein provided, no
---------------------------------
Limited Partner may sell, assign, transfer, mortgage, pledge, encumber,
hypothecate, or otherwise dispose of, whether voluntarily, by operation of law
or otherwise (herein collectively referred to as a "Transfer") all or any part
--------
of the Partner's record or beneficial interest in the Partnership without the
prior consent of the General Partner and all of the other Limited Partners
(which consent may be given or withheld in such Partners sole discretion). The
General Partner may not Transfer all or any portion of its record or beneficial
interest in the Partnership without the prior written consent of all Limited
Partners.
15.3 Withdrawal. No Limited Partner shall have the right or power to
----------
voluntarily withdraw from the Partnership without the consent of the General
Partner. If a Limited Partner attempts to withdraw from the Partnership without
the prior written consent of the General Partner, then, at the option of the
General Partner, (a) in addition to any other damages suffered by the
Partnership and the other Partners, the Limited Partner shall forfeit its
interest in the Partnership to the Partnership, and (b) the Limited Partner
shall not be entitled to receive any sums in respect of the fair market value of
its interest in the Partnership.
20
<PAGE>
16. Liquidation and Dissolution of Partnership.
------------------------------------------
16.1 Dissolution Events. The Partnership shall not be dissolved upon
------------------
the death or incapacity of any Limited Partner, but the Partnership shall be
dissolved and terminated in the manner hereinafter provided upon the happening
of any of the following events:
(a) the close of business on the 100th anniversary date of this
Agreement;
(b) the written determination of the General Partner and a
Required Interest;
(c) the withdrawal or retirement from the Partnership by the
General Partner;
(d) the disposition of all or substantially all of the
Partnership's property;
(e) the entry of a final judgment, order or decree of a court of
competent jurisdiction adjudicating the Partnership to be a bankrupt, and the
expiration without appeal of the period, if any, allowed by applicable law in
which to appeal therefrom;
(f) the filing by the last remaining General Partner, or
consenting by answer or otherwise to the filing against such General Partner, of
a petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation (in connection with a bankruptcy or insolvency
proceeding) or to take advantage of any bankruptcy or insolvency law of any
jurisdiction; the general assignment by such General Partner for benefit of such
General Partner's creditors, consenting to the appointment of a custodian,
receiver, trustee or other officer with similar powers of a general partner; or
(g) the dissolution and liquidation of the Company.
16.2 Continuation. Upon the occurrence of any event described in
------------
Sections 16.1(c) or 16.1(f), the business of the Partnership will be continued
if within 90 days all of the Limited Partners elect to continue the business of
the Partnership and designate one or more Persons (including without limitation
any Limited Partner who consents) to be a General Partner of the Partnership,
upon terms consented to by all Limited Partners. If the business of the
Partnership is continued, the interest of the General Partner will be converted
to that of a Limited Partner, with no voting rights (other than on matters
described in Section 17.2) or other right to participate in the management of
the Partnership. If the Limited Partners fail to continue the Partnership's
business as provided in this Section 16.2, the Partnership will be liquidated
under Section 16.3.
21
<PAGE>
16.3 Method of Liquidation.
---------------------
(a) Generally. Upon the happening of any of the events specified
---------
in Section 16.1 and, if applicable, the failure to continue the business of the
Partnership under Section 16.2, the General Partner or, in the event dissolution
results from the withdrawal or retirement from the Partnership of the General
Partner, any liquidating trustee elected by Limited Partners holding no less
than a majority of the Project Percentage held by Limited Partners (either of
the General Partner or liquidating trustee being the "Liquidator"), shall
----------
immediately commence to wind up the Partnership's affairs and shall liquidate
the assets of the Partnership as promptly as possible to the extent necessary to
satisfy the debts and obligations of the Partnership. The Partners shall
continue to share cash flow, Profits and Losses during the period of liquidation
in the same manner as before dissolution. The proceeds from liquidation of the
Partnership, including repayment of any debts and obligations of Partners to the
Partnership, together with all remaining Partnership property, shall be applied
and distributed in the following manner and order of priority:
(1) first, to the payment of the debts and satisfaction of
the other obligations of the Partnership, including without limitation debts and
obligations to Partners;
(2) next, to the establishment of any reserves deemed
reasonably necessary or appropriate by the Liquidator for any contingent or
unforeseen liabilities or obligations of the Partnership;
(3) next, all remaining assets of the Partnership shall be
distributed to the Partners as follows:
(A) the Liquidator may sell any or all of the
Partnership property, and the sum of any resulting gain or loss from each sale
and with respect to all Partnership property that has not been sold, the fair
market value of such property shall be determined and (notwithstanding the
provisions of Section 8.2) income, gain, loss, and deduction inherent in such
property (that has not been reflected in the Capital Accounts previously) shall
be allocated in a manner to the extent possible to cause the Capital Account
balances of the Partners to be in proportion to their Project Percentages; and
(B) Partnership property shall be distributed to the
Partners in proportion to their respective Project Percentages.
(b) Distributions in Kind. If the Partnership, with the consent
of each Partner, makes distributions in kind of Partnership property which
secures indebtedness, each of the Partners receiving the distribution of
property subject to the indebtedness will be severally liable (as among each
other, but not for the benefit of others) for his proportionate share of the
indebtedness,
22
<PAGE>
provided that no Partner will be deemed to have assumed any liability on any
indebtedness secured by property distributed to any Partner for which the
Partner is not liable under the terms of the instrument creating the
indebtedness, and provided that the liability of each Partner to other Partners
for indebtedness secured by property distributed to him will be limited to the
value of his interest in the property. Indebtedness secured by property
distributed to Partners in kind need not be discharged out of the proceeds of
liquidation of the Partnership.
16.4 Deemed Distribution and Recontribution. Notwithstanding any other
--------------------------------------
provisions of this Section 16, if the Partnership is liquidated within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but the Partnership
is not to be liquidated pursuant to Section 16.3, the property of the
Partnership shall not be liquidated or distributed, the Partnership's
liabilities shall not be paid or discharged, and the Partnership's affairs shall
not be wound up. Instead, the Partnership shall be deemed to have distributed
all Partnership property in kind to the Partners, who shall be deemed to have
assumed and taken such property subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
Partners shall be deemed to have recontributed all Partnership property in kind
to the Partnership, which shall be deemed to have assumed and taken the
Partnership property subject to all such liabilities.
16.5 Date of Termination. The Partnership shall be terminated and
-------------------
dissolved when all of the cash or property available for application and
distribution under Section 16.3 above shall have been applied and distributed in
accordance with such Section. The establishment of any reserves in accordance
with the provisions of Section 16.3 above shall not have the effect of extending
the term of the Partnership, but any such reserve shall be distributed in the
manner provided in Section 16.3 upon expiration of the need for the reserve.
17. Miscellaneous.
-------------
17.1 Notices. The General Partner will notify the Partners of any
-------
change in the name, principal or registered office or registered agent of the
Partnership. Any notice or other communication required by this Agreement must
be in writing. Notices and other communications will be deemed to have been
given when dispatched by telegraph, telex or other means of electronic facsimile
transmission, or three business days after being deposited in the United States
mail, postage prepaid, addressed to the Partner to whom the notice is intended
to be given at his address set forth on the signature pages to this Agreement
or, in the case of the Partnership or the General Partner, to the Partnership's
principal office provided for in Section 4. A Person may change his notice
address by notice in writing to the Partnership and to each other Partner given
under this Section 17.1.
17.2 Amendments; Waivers. Except as maybe required in connection with
the admission of additional Limited Partners under Section 15.1, no amendment of
this Agreement will
23
<PAGE>
be valid or binding upon the Partners unless approved by all Partners, and no
waiver of any term of this Agreement will be effective unless approved by the
General Partner.
17.3 Binding Effect. This Agreement will inure to the benefit of and
--------------
will be binding upon the Partners, their legal representatives, Permitted
Transferees, heirs, administrators, and other successors and assigns.
17.4 Duplicate Originals. Any number of counterparts of this Agreement
-------------------
may be executed. Each counterpart will be deemed to be an original instrument
and all counterparts taken together will constitute one agreement.
17.5 Construction. The titles of the Articles and Sections in this
------------
Agreement have been inserted as a matter of convenience of reference only and do
not affect the meaning or construction of any of the provisions in this
Agreement.
17.6 Governing Law; Jurisdiction. This Agreement is to be governed by
---------------------------
the laws of the State of Texas, without giving effect to the principles of
conflict of laws, and is performable in Dallas County, Texas. Each of the
Partners consents to binding arbitration as provided in Section 17.7 for any
dispute among the Partners arising out of matters related to this Agreement or
the Partnership. Each of the Partners waives the right to commence an action in
connection with this Agreement in any court and expressly agrees to be bound by
the decision of the arbitrator determined in Section 17.7. The waiver in this
Section 17.6 will not prevent any Partner from commencing an action in any court
for the sole purposes of enforcing the obligation of a Partner to submit to
binding arbitration or the enforcement of an award granted by arbitration
herein.
17.7 Arbitration.
-----------
(a) General. Except as provided in Section 10.9(f), any dispute
-------
among the Partners as to the interpretation of any provision of this Agreement
or the rights and obligations of any Partner hereunder shall be resolved through
binding arbitration as hereinafter provided.
(b) Selection of Arbitrator. If arbitration is required to
-----------------------
resolve a dispute among the Partners, the General Partner will notify the Dallas
office of the American Arbitration Association ("AAA") and request AAA to select
---
one Person to act as the arbitrator for resolution of the dispute.
(c) Rules of Arbitration. The arbitrator selected pursuant to
--------------------
Section 17.7(b) will establish the rules for proceeding with the arbitration of
the dispute, which will be binding upon all parties to the arbitration
proceeding. The arbitrator may use the rules of the AAA for commercial
arbitration but is encouraged to adopt the rules the arbitrator deems
appropriate to accomplish the arbitration in the quickest and least expensive
manner possible. Accordingly, the
24
<PAGE>
arbitrator may (i) dispense with any formal rules of evidence and allow hearsay
testimony so as to limit the number of witnesses required, (ii) accept evidence
of property values or the values of Partnership interests without formal
appraisals and upon such information provided by Partners or other Persons and
otherwise minimize discovery procedures as the arbitrator deems appropriate,
(iii) act upon his understanding or interpretation of the law on any issue
without the obligation to research the issue or accept or act upon briefs of the
issue prepared by any party, (iv) limit the time for presentation of any party's
case as well as the amount of information or number of witnesses to be presented
in connection with any hearing, and (v) impose any other rules which the
arbitrator believes appropriate to effect a resolution of the dispute as quickly
and inexpensively as possible.
(d) Costs of Arbitration. The arbitrator will have the exclusive
--------------------
authority to determine and award costs of arbitration and the costs incurred by
any party for its attorneys, advisors and consultants.
(e) Award of Arbitrator. Any award made by the arbitrator shall
-------------------
be binding on the Partners, the Partnership and all parties to the arbitration
and shall be enforceable to the fullest extent of the law.
(f) Governing Law; Actual Damages; Etc. In reaching any
----------------------------------
determination or award, the arbitrator will apply the laws of the State of Texas
without giving effect to any principles of conflict of laws under the laws of
the State of Texas. Except as permitted under Section 17.7(d), the arbitrator's
award will be limited to actual damages and will not include punitive or
exemplary damages. Nothing contained in this Agreement will be deemed to give
the arbitrator any authority, power or right to alter, change, amend, modify,
add to or subtract from any of the provisions of this Agreement.
17.8 Other Instruments. The Partners will execute other agreements and
-----------------
instruments that the General Partner determines to be appropriate to carry out
this Agreement or any provision of this Agreement.
17.9 Gender; Etc. Words used in this Agreement in any gender will be
------------
deemed to include the masculine, feminine and neuter gender; singular words will
include the plural and plural words will include the singular; the word "or"
will be disjunctive but not necessarily exclusive, unless the context otherwise
requires; and the words "will" or "shall" indicate express determination and not
simple futurity.
17.10 Prior Agreements Superseded. This Agreement supersedes any prior
---------------------------
understandings or written or oral agreements between the parties respecting the
within subject matter and contains the entire understanding between the parties
with respect thereto.
25
<PAGE>
17.11 Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws during the term
hereof, that provision shall be fully severable, this Agreement shall be
construed and enforced as if that illegal, invalid or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as a part of this Agreement, a legal, valid and enforceable
provision as similar to the illegal, invalid and unenforceable provision as may
be possible.
17.12 Multiple Originals. The Agreement may be executed simultaneously
------------------
in two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
26
<PAGE>
SIGNATURE PAGE TO AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT OF DEVELOPER
EXTENDED STAY PARTNERS, L.P., DATED AUGUST 20, 1996
GENERAL PARTNER: DESP GENERAL PARTNER, L.L.C., a Texas limited
liability company
By: Greystar Holdings, Inc., its manager
By: /s/ Robert A. Faith
---------------------------------
Name: Robert A. Faith
--------------------------------
Its:
---------------------------------
LIMITED PARTNERS: TCR EXTENDED STAY I LIMITED PARTNERSHIP,
a Texas limited partnership
By: TCR Extended Stay, Inc.
By: /s/ Randy Pace
----------------------------------------
Name: Randy Pace
--------------------------------------
Its:
---------------------------------------
GREYSTAR REALTY SERVICES, L.P., a Delaware
limited partnership
By: Greystar Holdings, Inc., a Delaware limited
partnership
By: Robert A. Faith
----------------------------------------
Name: /s/ Robert A. Faith
--------------------------------------
Title:
-------------------------------------
27
<PAGE>
Schedule 1
----------
1. Capital Contributions/Percentage Interests
------------------------------------------
<TABLE>
<CAPTION>
Capital Percentage
Contribution Interest
------------ --------
<S> <C> <C>
General Partner:
Extended Stay Limited Partnership $ 1.00 1.00%
Limited Partners:
Greystar Realty Services, L.P. $24.75 24.75%
TCR Extended Stay I Limited $74.25 74.25%
Partnership
Total all Partners $100 100%
</TABLE>
<PAGE>
EXHIBIT A
---------
ADMISSION TO PARTNERSHIP AGREEMENT
----------------------------------
This Agreement (this "Agreement") is entered into by the undersigned, DESP
---------
GENERAL PARTNER, L.L.C. and DEVELOPER EXTENDED STAY PARTNERS, L.P. (the
"Partnership"), effective as of _________________. Unless otherwise specified,
- ------------
all capitalized terms used herein shall have the meanings assigned to them in
the Amended and Restated Agreement of Limited Partnership of Developer Extended
Stay Partners, L.P. dated as of August 20, 1996 (the "Partnership Agreement").
---------------------
For valuable consideration, whose receipt and sufficiency are acknowledged,
the undersigned is admitted as a Limited Partner in the Partnership and shall be
bound by the terms of the Partnership Agreement.
Executed as of the date first written above.
EXTENDED STAY DEVELOPER PARTNER, L.P.
By: DESP General Partner, L.L.C.
By: [Greystar Holdings, Inc. - or - Crow Family, Inc.]
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
DESP GENERAL PARTNER, L.P.
By: [Greystar Holdings, Inc. - or - Crow Family, Inc.]
By:
----------------------------------------------------
Name:
--------------------------------------------------
Title:
-------------------------------------------------
----------------------------------------------------------------
[NAME OF NEW PARTNER]
Exhibit 21.1
A-1
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated August 22, 1996, and
August 8, 1996, in the Registration Statement (Form S-1) and related Prospectus
of Homegate Hospitality, Inc. dated August 30, 1996, for the registration of
common stock.
ERNST & YOUNG LLP
Dallas, Texas
August 29, 1996
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated August 2, 1996, in the
Registration Statement (Form S-1) and related Prospectus of Homegate
Hospitality, Inc. dated August 30, 1996, for the registration of common stock.
ERNST & YOUNG LLP
San Antonio, Texas
August 27, 1996
<PAGE>
Exhibit 24.1
HOMEGATE HOSPITALITY, INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director
and/or officer of Homegate Hospitality, Inc., a Delaware corporation (the
"Company"), does hereby constitute and appoint Anthony W. Dona as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him, and in his name, place and stead, in any and all
capacities to do any and all acts and things and to execute any and all
instruments which said attorney-in-fact and agent may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, as
amended (the "Act"), and any rules, regulations and requirements of the
Securities and Exchange Commission (the "Commission") in respect thereof, as
well as any rules, regulations and requirements of any other regulatory
authority, in connection with an underwritten public offering by the Company
of shares of the Company's common stock, $.01 par value per share (the "Common
Stock"), including the execution of a registration statement on Form S-1 or
any other appropriate form, and any or all amendments (including, without
limitation, any amendment or amendments specifying or increasing the number of
shares of Common Stock for which registration is being sought) and post-
effective amendments thereto or supplements to the prospectuses contained
therein and any additional registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) of the Act
(collectively, the "Registration Statements"), with all exhibits and any and
all documents required to be filed as a part of, an exhibit to, or in
connection with said Registration Statements or any amendment thereto, with
the Commission or any other regulatory authority, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in order to effectuate
the same, as fully to all intents and purposes as he himself might or could do
if personally present, hereby ratifying and confirming all that said attorney-
in-fact and agent may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name this ___ day
of August, 1996.
/s/ Harlan R. Crow
----------------------------
(Signature)
Harlan R. Crow
----------------------------
(Please Print Full Name)
<PAGE>
HOMEGATE HOSPITALITY, INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director and/or
officer of Homegate Hospitality, Inc., a Delaware corporation (the "Company"),
does hereby constitute and appoint Anthony W. Dona as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him, and in his name, place and stead, in any and all
capacities to do any and all acts and things and to execute any and all
instruments which said attorney-in-fact and agent may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, as
amended (the "Act"), and any rules, regulations and requirements of the
Securities and Exchange Commission (the "Commission") in respect thereof, as
well as any rules, regulations and requirements of any other regulatory
authority, in connection with an underwritten public offering by the Company
of shares of the Company's common stock, $.01 par value per share (the "Common
Stock"), including the execution of a registration statement on Form S-1 or
any other appropriate form, and any or all amendments (including, without
limitation, any amendment or amendments specifying or increasing the number of
shares of Common Stock for which registration is being sought) and post-
effective amendments thereto or supplements to the prospectuses contained
therein and any additional registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) of the Act
(collectively, the "Registration Statements"), with all exhibits and any and
all documents required to be filed as a part of, an exhibit to, or in
connection with said Registration Statements or any amendment thereto, with
the Commission or any other regulatory authority, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in order to effectuate
the same, as fully to all intents and purposes as he himself might or could do
if personally present, hereby ratifying and confirming all that said attorney-
in-fact and agent may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name this ___ day of
August, 1996.
/s/ Leonard W. Wood
-------------------
(Signature)
Leonard W. Wood
-------------------
(Please Print Full Name)
<PAGE>
HOMEGATE HOSPITALITY, INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director and/or
officer of Homegate Hospitality, Inc., a Delaware corporation (the "Company"),
does hereby constitute and appoint Anthony W. Dona as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him, and in his name, place and stead, in any and all capacities to do any
and all acts and things and to execute any and all instruments which said
attorney-in-fact and agent may deem necessary or advisable to enable the Company
to comply with the Securities Act of 1993, as amended (the "Act"), and any
rules, regulations and requirements of the Securities and Exchange Commission
(the "Commission") in respect thereof, as well as any rules, regulations and
requirements of any other regulatory authority, in connection with an
underwritten public offering by the Company of shares of the Company's common
stock, $.01 par value per share (the "Common Stock"), including the execution of
a registration statement on Form S-1 or any other appropriate form, and any or
all amendments (including, without limitation, any amendment to amendments
specifying or increasing the number of shares of Common Stock for which
registration is being sought) and post-effective amendments thereto or
supplements to the prospectuses contained therein and any additional
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) of the Act (collectively, the "Registration
Statements"), with all exhibits and any and all documents required to be filed
as a part of, an exhibit to, or in connection with said Registration Statements
or any amendment thereto, with the Commission or any other regulatory authority,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in order
to effectuate the same, as fully to all intents and purposes as he himself might
or could do if personally present, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name this __ day of
August, 1996.
/s/ James D. Carreker
----------------------------------
(signature)
James D. Carreker
----------------------------------
(Please Print Full Name)
<PAGE>
GENERAL POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS:
That I, CHARLES E. NOELL, being over the age of 18, have made, constituted,
and appointed, and by these presents do make, constitute, and appoint ROBERT A.
FAITH, my true and lawful attorney, for me and in my name, place, and stead, to
do any and every act and exercise any and every power that I might or could do
or exercise through any other person, intending hereby to vest in him a full and
universal power of attorney, giving and granting unto my said attorney-in-fact
full power and authority to do and perform all and every act and thing
whatsoever that I might or could do if personally present. This power of
attorney shall not terminate on my disability.
I hereby agree and represent that the rights, powers, and authority of my
attorney-in-fact to exercise any and all of the rights and powers herein granted
shall commence and be in full force and effect on August 22, 1996, and shall
remain in full force and effect thereafter until August 30, 1996.*
WITNESS THE EXECUTION HEREOF, the _____ day of August, 1996.
/s/ Charles E. Noell
--------------------
CHARLES E. NOELL
*Notwithstanding the forgoing, this Power of Attorney is limited to the
execution of a registration statement on Form S-1 to be filed by
Homegate Hospitality, Inc. with the Securities & Exchange Commission
and any board of director resolutions of Homegate Hospitality, Inc. to
be executed in connection therewith.
<PAGE>
GENERAL POWER OF ATTORNEY
-------------------------------
KNOW ALL MEN BY THESE PRESENTS:
That I, JOHN MOORES, being over the age of 18, have made, constituted,
and appointed, and by these presents do make, constitute, and appoint ROBERT A.
FAITH, my true and lawful attorney, for me and in my name, place, and stead, to
do any and every act and exercise any and every power that I might or could do
or exercise through any other person, intending hereby to vest in him a full and
universal power of attorney, giving and granting unto my said attorney-in-fact
full power and authority to do and perform all and every act and thing
whatsoever that I might or could do if personally present. This power of
attorney shall not terminate on my disability.
I hereby agree and represent that the rights, powers, and authority of my
attorney-in-fact to exercise any and all of the rights and powers herein granted
shall commence and be in full force and effect on August 22, 1996, and shall
remain in full force and effect thereafter until August 30, 1996.*
WITNESS THE EXECUTION HEREOF, the _____ day of August, 1996.
/s/ John Moores
---------------
JOHN MOORES
*Notwithstanding the forgoing, this Power of Attorney is limited to the
execution of a registration statement on Form S-1 to be filed by
Homegate Hospitality, Inc. with the Securities & Exchange Commission
and any board of director resolutions of Homegate Hospitality, Inc. to
be executed in connection therewith.
