<PAGE>
DRAFT DATED APRIL 7, 1997
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as Permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Homegate Hospitality, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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<PAGE>
HOMEGATE HOSPITALITY, INC.
111 CONGRESS AVENUE, SUITE 2600
AUSTIN, TEXAS 78701
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 1997
To the Stockholders of Homegate Hospitality, Inc.:
Notice is hereby given that the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") of Homegate Hospitality, Inc., a Delaware corporation
("Homegate"), will be held on May 5, 1997, at 3:00 p.m., local time at 9721
Arboretum Blvd., Renaissance Hotel, Austin, Texas 78759, and thereafter as it
may from time to time be adjourned or postponed, for the following purposes:
1. To consider and elect three Class I directors nominated by the Board of
Directors to serve for the ensuing three years;
2. To ratify the selection of Ernst & Young LLP as independent auditors for
the Company for the fiscal year ending December 31, 1997; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
The Board of Directors of Homegate has fixed the close of business on April
1, 1997, as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting, and only stockholders of record
at such time will be entitled to notice of and to vote at the Annual Meeting.
A list of Homegate stockholders entitled to vote at the Annual Meeting will be
available for examination by stockholders of record for any purpose germane to
the Annual Meeting, during ordinary business hours, at Homegate's offices at
111 Congress Avenue, Suite 2600, Austin, Texas 78701, for ten (10) days prior
to the Annual Meeting.
You are cordially invited and urged to attend the Annual Meeting in person,
but if you are unable to do so, please complete, sign, date and promptly
return the enclosed Proxy in the enclosed, self-addressed, stamped envelope.
If you attend the Annual Meeting and desire to revoke your Proxy and vote in
person you may do so. In any event, a Proxy may be revoked at any time before
it is voted.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE ABOVE
PROPOSALS.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE READ
CAREFULLY THE PROXY STATEMENT AND COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE
ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. AN ADDRESSED RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT
PURPOSE.
By Order of the Board of Directors,
/s/ JOEL KINZIE OLDHAM IV
Joel Kinzie Oldham IV
Secretary
Dallas, Texas
April 9, 1997
<PAGE>
HOMEGATE HOSPITALITY, INC.
111 CONGRESS AVENUE, SUITE 2600
AUSTIN, TEXAS 78701
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING
The Board of Directors ("Board of Directors") of Homegate Hospitality, Inc.
(together with its predecessors, the "Company") requests your Proxy ("Proxy")
for use at the 1997 Annual Meeting of Stockholders (the "Annual Meeting") to
be held on May 5, 1997, at 3:00 p.m., local time at 9721 Arboretum Blvd.,
Renaissance Hotel, Austin, Texas 78759, or at any adjournment(s) thereof. By
executing and returning the enclosed Proxy, you authorize the persons named on
the Proxy to vote your shares at the Annual Meeting. This Proxy Statement
("Proxy Statement") and the associated Proxy were first mailed to stockholders
of the Company on or about Friday, April 11, 1997.
If you attend the Annual Meeting, you may vote in person. If you are not
present at the Annual Meeting, your shares can be voted only if you have
returned the properly executed Proxy or are represented by another proxy. The
enclosed Proxy, even though executed and returned, may be revoked at any time
prior to the voting of the Proxy (i) by the execution and submission of a
revised proxy, (ii) by written notice to the Secretary of the Company, or
(iii) by voting in person at the Annual Meeting. In the absence of such
revocation, shares represented by the Proxies will be voted at the Annual
Meeting.
VOTING AND QUORUM
The Company's only outstanding voting security is common stock, par value
$.01 per share ("Common Stock"). On April 1, 1997, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding 10,725,000 shares of Common Stock entitled to
be voted at the Annual Meeting.
Each outstanding share of Common Stock is entitled to one vote. Presence in
person or by proxy of a majority of the shares of Common Stock outstanding on
the record date is required to constitute a quorum at the Annual Meeting. If a
quorum is not present, the stockholders entitled to vote who are present in
person or represented by proxy at the Annual Meeting have the power to adjourn
the Annual Meeting from time to time, without notice other than an
announcement at the Annual Meeting, until a quorum is present or represented.
At any adjourned Annual Meeting at which a quorum is present, any business may
be transacted that might have been transacted at the Annual Meeting as
originally noticed.
ELECTION OF DIRECTORS
GENERAL
The Company's Certificate of Incorporation (the "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 Annual Meeting, the Class II directors until
the 1998 annual meeting and the Class III directors until the 1999 annual
meeting. The Board of Directors currently consists of nine (9) directors. The
Class I directors are Messrs. Carreker, Huff and Wood, the Class II directors
are Messrs. Buchanan, Crow and Moores, and the Class III directors are Messrs.
Faith, Dona and Noell.
<PAGE>
Three Class I directors are to be elected at the Annual Meeting to serve
until the annual meeting of stockholders of the Company in the year 2000 or
until their successors are elected and qualified. The Board of Directors has
designated James D. Carreker, John R. Huff, and Leonard W. Wood as nominees
(the "Nominees").
Votes authorized by the enclosed Proxy will be cast for the three Nominees.
If any of such persons are unavailable for election at the date of the Annual
Meeting, the stock represented by proxy will be voted for such nominees as the
Board of Directors shall designate. There is no family relationship between or
among any director, executive officer or person nominated or chosen to become
a director or executive officer of the Company. Management at this time has no
reason to believe that any of the Nominees will be unavailable for election.
The election of directors requires the affirmative vote of a plurality of
the shares of Common Stock present or represented by proxy and entitled to
vote at the Annual Meeting. Accordingly, under Delaware law, abstentions and
"broker non-votes" would not have the same legal effect as a vote against the
election of a particular director. A "broker non-vote" occurs if a broker or
other nominee does not have discretionary authority and has not received
instructions with respect to a particular item. Each "broker non-vote" would
reduce the absolute number, but not the percentage of affirmative votes
necessary for approval.
NOMINEES
Mr. Carreker was appointed as a director of the Company in August 1996. Mr.
Carreker has served as President and Chief Executive Officer of Wyndham Hotel
Corporation (together with its predecessors and affiliates, "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.
Mr. Huff was appointed as a director of the Company in January 1997. Mr.
Huff has been a director, President and Chief Executive Officer of Oceaneering
International, Inc. ("Oceaneering") since 1986. Mr. Huff was elected Chairman
of the Board of Oceaneering in August 1990. Prior to joining Oceaneering, Mr.
Huff served as Chairman and President of Western Oceanic, Inc., the offshore
drilling subsidiary of The Western Company of North America. Mr. Huff is also
a director of BJ Services Company, Triton Energy Limited and Production
Operators Corp.
Mr. Wood was appointed as a director of the Company in August 1996. Mr. Wood
is currently a Group Managing Partner for Trammell Crow Residential Company
(together with its affiliates, "TCR"), and oversees the activities of TCR
throughout Northern Florida and the Southeastern and Midwestern United States.
Mr. Wood joined TCR in 1982.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF
EACH OF THE NOMINEES LISTED ABOVE.
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent accountants for 1997. Ernst & Young LLP also served as the
Company's independent accountants for 1996. The Company expects that
representatives of Ernst & Young LLP will be present at the Annual Meeting to
respond to appropriate questions and will have an opportunity to make a
statement if they desire to do so. In the event the appointment is not
ratified, the Board of Directors will consider the appointment of other
independent accountants. The Board of Directors may terminate the appointment
of Ernst & Young LLP as independent accountants without the approval of the
Company's stockholders whenever the Board of Directors deems such termination
necessary or appropriate.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION
OF THE SELECTION OF ERNST & YOUNG LLP.
2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers, including their respective ages, at March
31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Robert A. Faith....................... 33 Chairman of the Board, Chief
Executive Officer and President
John C. Kratzer....................... 34 Chief Operating Officer and
Executive Vice President
Tim V. Keith.......................... 44 Chief Financial Officer and
Treasurer
Anthony W. Dona....................... 37 Senior Vice President and Director
Joel Kinzie Oldham IV................. 35 Senior Vice President and
Secretary
William B. Buchanan, Jr............... 38 Director
James D. Carreker..................... 49 Director
Harlan R. Crow........................ 47 Director
John R. Huff.......................... 51 Director
John J. Moores........................ 52 Director
Charles E. Noell...................... 45 Director
Leonard W. Wood....................... 50 Director
</TABLE>
ROBERT A. FAITH joined the Company in February 1996 as its Chairman of the
Board, Chief Executive Officer and President. 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 May 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 February 1994 to February 1996. From September 1993 to November
1994, Mr. Kratzer served as Vice President of Crow Family, Inc., a private
investment company. From September 1993 to February 1994, Mr. Kratzer served
as Vice President of Mill Spring Holdings, Inc., a private investment company,
and in such capacity served as an asset manager of residential properties held
in a limited partnership. During the period from September 1993 to February
1996, Mill Spring Holdings, Inc. was the general partner of a separate limited
partnership related to commercial properties, which held interests in
approximately 55 partnerships or corporations that filed for protection under
federal bankruptcy laws. In addition, during the same period, Mr. Kratzer 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. As an asset manager for
residential properties, Mr. Kratzer was not involved in the management of any
commercial properties which filed for bankruptcy or were placed in
receivership. 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 private 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 Canadian public 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.
3
<PAGE>
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 (together with its affiliates, "Crow"), 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 Interests Company. From 1985 until 1994, Mr. Dona served in various
capacities with the Crow entities including Chief 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 Trammell Crow 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 90 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 September 1992 to June 1993. Prior to joining Starwood, Mr. Oldham was a
Marketing Director with Trammell Crow Company, which he joined in 1988.
WILLIAM B. BUCHANAN, JR. is a director of the Company. Mr. Buchanan is
Deputy Head of the Equity Capital Markets Department of Smith Barney Inc.
("Smith Barney") and serves on the Issues and Valuation and Commitment
Committees of Smith Barney. Prior to joining Smith Barney, Mr. Buchanan was
Head of the Equity Capital Markets Group at Bear, Stearns & Co. Inc. and sat
on the Equity Sub-Committee. Prior to that, Mr. Buchanan was a director at The
First Boston Corporation responsible for originating and executing equity
transactions in the media, telecommunications, health care, real estate and
other high growth industries. At separate times during his career at First
Boston, Mr. Buchanan was Head of New Issue Marketing and Head of Syndication.
JAMES D. CARREKER is a Nominee. See "Election of Directors."
HARLAN R. CROW is a director of the Company. Mr. Crow is the Chief Executive
Officer of Crow Family Holdings, a private investment company managing
Executive Officer of Crow Family Holdings, a private 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 of
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 90 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 R. HUFF is a Nominee. See "Election of Directors."
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 of their technical divisions. Mr. Moores is Chairman of the Board of
the San Diego Padres, L.P., JMI Services, Inc., a private investment company,
Peregrine Systems, Inc., a computer software designer, and Neon Systems, Inc.,
a computer software designer, all of which are privately-held companies.
4
<PAGE>
CHARLES E. NOELL is a director of the Company. Mr. Noell is President of JMI
Services, 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 Nominee. See "Election of Directors."
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
GENERAL
During 1996, the Board of Directors held two regular meetings and one
special meeting. The Company has not yet completed a full fiscal year. Thus,
no determination can be made as to attendance by directors of at least 75% of
the aggregate of all meetings held by the Board of Directors.
DIRECTOR COMPENSATION
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 automatically receives an annual grant
of stock options to purchase 5,000 shares of Common Stock with an exercise
price equal to the fair market value of such shares on the date of grant. In
addition, each of the Company's directors receives 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Board of Directors has not established a nominating committee.
The Audit Committee was only recently established and has not yet held a
meeting. The Audit Committee reviews the adequacy of the Company's system of
internal controls and accounting practices. In addition, the Audit Committee
reviews the scope of the annual audit with the Company's independent public
accountants, Ernst & Young LLP, prior to commencement and reviews the types of
services for which the Company retains Ernst & Young LLP. Messrs. Buchanan and
Huff serve on the Audit Committee.
The Compensation Committee held one meeting in 1996. The functions of the
Compensation Committee are to: (i) review on behalf of, and make
recommendations to the Board of Directors concerning annual salary levels,
fringe benefits and any special compensation plans or programs for officers of
the Company, and (ii) administer the Homegate Hospitality, Inc. 1996 Long-Term
Incentive Plan (the "1996 Plan"). Messrs. Carreker, Buchanan and Noell serve
on the Compensation Committee.
Prior to the Company's inception, Messrs. Faith and Dona approved the terms
of compensation for the Company's executive officers in such officers'
capacities as employees of Extended Stay Limited Partnership, a predecessor of
the Company.
While on the Compensation Committee during 1996, Mr. Carreker, who is a
Nominee, served as the president and chief executive officer of Wyndham. The
Company and Wyndham are parties to the transactions as described below under
"Certain Transactions."
Certain other directors or Nominees are parties to transactions with the
Company, as described under the caption "Certain Transactions."
5
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
currently composed of one outside and two inside directors of the Company. The
Committee assists in the determination of the salaries and incentive bonuses
of the executive officers and reports its determination to the Board of
Directors. The Committee also administers the Homegate Hospitality, Inc. 1996
Long Term Incentive Plan (the "1996 Plan") and, subject to the provisions of
such plan, determines grants under it for all employees and consultants,
including executive officers.
The following report has been provided by the Committee to the Board of
Directors. The Company's initial public offering commenced on October 24,
1996. Prior to the Company's incorporation on August 16, 1996, Messrs. Faith
and Dona approved the terms of compensation for the Company's executive
officers in their capacity as officers of Extended Stay Limited Partnership, a
predecessor of the Company. Thereafter, the Committee was formed, initially
consisting of Messrs. Carreker and Noell. The Committee did not meet or make
recommendations with respect to base salary paid to senior executive officers
in 1996, because base salary amounts were set prior to the Company's initial
public offering in October 1996 and the establishment of the Committee. Awards
of stock options to certain executive officers and key employees of the
Company were made by the full Board of Directors prior to the initial public
offering. The Committee currently consists of Messrs. Carreker, Noell and
Buchanan, each of whom is a non-employee director of the Company. The
Committee held its first meeting in March 1997, and reviewed the Company's
traditional compensation practices and made awards of stock options to certain
executive officers and key employees of the Company.
Compensation Philosophy. The Company's executive compensation philosophy is
designed to provide competitive levels of compensation that integrate pay with
the Company's annual and long-term performance goals, reward above-average
corporate performance, recognize individual initiative and achievements,
assist the Company in attracting and retaining talented executives and align
the interests of executives with the long-term interests of the Company's
stockholders. In balancing the foregoing objectives, the Company believes that
the compensation of the senior executives and other executives of the Company
should consist of a combination of base salary, short-term annual incentive
bonus and long-term stock options. The Company's base salary component is
designed to be comparable to median base salaries of other organizations in
the hotel industry. The Company emphasizes performance-related incentive
compensation to reward the Company's executives for the creation of long-term
stockholder value. The Company believes that this balance reflects each
executive's position, tenure and experience, while providing them with strong
financial incentives to achieve key business and individual performance
objectives. The Company also believes that the resulting compensation package
rewards high levels of performance in excess of other comparable
organizations.
The Company takes into account various qualitative and quantitative
indicators of corporate and individual performance in determining the level of
compensation for the senior executives. The Company considers such corporate
performance measures as net income, earnings per share, revenues, operating
margins, hotel operating performance and the achievement of targeted hotel
unit growth, and may vary its quantitative measurements from employee to
employee and from year to year. The Company also recognizes the importance of
individual achievements that may be difficult to quantify, and accordingly
recognizes qualitative factors, such as demonstrated leadership ability and
overall contributions to the Company.
Base Salary. Base salaries for the senior executives are set at levels
considered appropriate in light of their position, tenure and performance.
Base salaries are reviewed annually by the Committee and adjusted based on
evaluations of the executives' past and projected contributions to the Company
and changes in competitive pay levels. To assist in establishing base
salaries, the Company hired a compensation consultant to advise the Company on
determining appropriate and competitive compensation levels for its executive
officers in comparison to compensation practices of other companies in the
hotel industry of approximately the Company's size. In general, base salaries
for executive officers are established at the median level of base salaries
for companies comparable to the Company.
6
<PAGE>
Incentive Compensation. The Company maintains an annual bonus plan that is
designed to link a substantial portion of annual executive compensation with
individual and corporate performance. At the beginning of each year, a
comprehensive business plan is established for the Company, and each senior
executive is responsible for certain goals and objectives within the business
plan depending upon his or her area of responsibility within the Company. Each
senior executive also is responsible for contributing to the achievement of
Company-wide financial and operating goals. The Chief Executive Officer's
goals and objectives are Company-wide and include growth in net income and
earnings per share, hotel unit growth and effective management and career
development of the Company's executive officers and key employees.
Under the Company's annual bonus plan, a target bonus is established for
each level of the Company's officers that results in the payment of a
specified percentage of the officer's salary if his or her annual goals and
objectives are achieved. A minimum performance level must be achieved by the
Company, the officer and his or her department or division before any bonus
may be earned. Thereafter, an established progression rewards higher levels of
achievement with greater bonus payments, subject to a predetermined maximum.
For the Company's chief executive officer and senior executives, bonus targets
are measured against each officer's achievement of the goals and objectives
outlined for such officer in the Company's annual business plan. The Company's
chief executive officer is eligible for an annual bonus of 0% to 100% of his
annual salary, depending upon his performance as determined by the Committee
and the Board of Directors. As a percentage of salary, bonuses for senior
executives range from 0% to 100%, depending upon performance, as evaluated by
the chief executive officer and the Committee.
1996 Plan. Homegate Hospitality, Inc. 1996 Long-Term Incentive Plan
authorizes the granting of incentive and non-qualified stock options and
restricted stock to key executives and other key employees and consultants of
the Company and its subsidiaries. To align the interests of senior executives
with the interests of stockholders, the Committee's current policy regarding
stock awards is to grant stock options. However, the Committee reserves the
right to grant restricted stock or other awards as it deems appropriate. The
Committee has used the 1996 Plan for periodic grants of stock options with an
exercise price equal to the fair market value of a share of Common Stock on
the date of the grant. To encourage retention, the ability to exercise options
granted under the 1996 Plan is generally subject to vesting restrictions.
In general, the Committee's practice is to award pro rata based upon
compensation a certain portion of the options available for awards in each
year to employees of the Company and to award the remaining available options
to eligible participants in the 1996 Plan. Based upon individual performance
and contribution to the Company. However, the Committee has the authority to
alter awards or consider additional factors for awards under the 1996 Plan.
The options granted to the senior executives in and for 1996 are set forth in
the table under the caption "Option Grants in Last Fiscal Year."
Chief Executive Officer Compensation. The Committee reviews the compensation
of the CEO, who is responsible for the strategic and financial performance of
the Company, and the Committee's recommendation is subject to approval by the
Board of Directors. Based on information of comparable companies, the
Committee believes that Mr. Faith's base salary was consistent with base
salaries being paid to other chief executive officers in the hotel industry.
In accordance with the Company's option philosophy, Mr. Faith received one
grant of options on the date of the Company's initial public offering.
Policy Concerning Tax Deductibility of Compensation. To the extent readily
determinable and as one of the factors in its consideration of compensation
matters, the Committee considers the anticipated tax treatment to the Company
and to its executives of various payments and benefits. Some types of
compensation payments and their deductibility (e.g., the spread on exercise of
non-qualified options) depend upon the timing of an executive's vesting or
exercise of previously granted rights. Further, interpretations of and changes
in the tax laws and other factors beyond the Committee's control also affect
the deductibility of compensation. For these and other reasons, the Committee
will not necessarily limit executive compensation to that deductible under
Section 162(m). The Company has structured the 1996 Plan to comply with the
requirements of Section 162(m). The
7
<PAGE>
Committee will consider various alternatives to preserving the deductibility
of compensation payments and benefits to the extent reasonably practicable and
to the extent consistent with its other compensation objectives.
The foregoing report has been approved by both the 1996 and 1997 members of
the Committee.
William B. Buchanan, Jr.
James D. Carreker
Charles E. Noell
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation of the Company's Chief Executive Officer and the Company's three
most highly compensated executive officers other than the Chief Executive
Officer (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
NAME AND PRINCIPAL ------------------ AWARDS- ALL OTHER
POSITION YEAR SALARY($) BONUS($) OPTIONS(1)(#) COMPENSATION($)
------------------ ---- --------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert A. Faith.......... 1996 $141,034 $ -- $
President and Chief
Executive Officer
John C. Kratzer.......... 1996 $128,347 $ -- $
Chief Operating Officer
Tim V. Keith............. 1996 $ 50,240 $ -- $50,000
Chief Financial Officer
Joel Kinzie Oldham IV.... 1996 $ -- $ -- $50,000
Secretary
</TABLE>
- --------
(1) Options to acquire shares of Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes options to acquire shares of Common Stock
granted to the Named Executives during 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS GRANTED RATES STOCK PRICE
SECURITIES EMPLOYEES IN APPRECIATION OPTION
UNDERLYING FISCAL YEAR EXERCISE TERM(2)
OPTIONS INDIVIDUAL PRICE EXPIRATION -------------------
NAME GRANTED(#)(1) GRANTS ($/SHARE) DATE 5% 10%
---- ------------- --------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Faith......... 125,000 24.0 11.50 10/24/2006 $901,250 $2,291,250
John C. Kratzer......... 93,750 17.1 11.50 10/24/2006 $675,937 $1,718,437
Tim V. Keith............ 62,500 12.1 11.50 10/24/2006 $450,625 $1,145,625
Joel Kinzie Oldham IV... 40,000 7.7 11.50 10/24/2006 $288,400 $ 733,200
</TABLE>
- --------
(1) All options were granted pursuant to the 1996 Plan. The exercise price
represents the fair market value of the Common Stock on the date of grant.
The options have a term of ten years.
(2) The potential realizable value portion of the table illustrates the values
that might be realized upon exercise of the options immediately prior to
the expiration of their term, assuming the specified compounded rates of
appreciation in Common Stock over the term of the options. The fair market
value of the Common Stock at the end of the ten-year option term would be
$18.71 assuming five percent annual appreciation and would be $29.83
assuming ten percent annual appreciation. These amounts represent assumed
rates of appreciation only. Actual gains, if any, on stock option
exercises depend on the future performance of the Common Stock and overall
market conditions. There can be no assurances that the potential values
set forth in this table reflect the actual values that may be obtained by
any of the Named Executives.
9
<PAGE>
OTHER COMPENSATION ARRANGEMENTS
NON-COMPETITION, EMPLOYMENT AND INDEMNITY AGREEMENTS
In October 1996, Mr. Faith entered into a non-compete agreement with the
Company. For the longer of (i) a period of 30 months after October 24, 1996,
and (ii) so long thereafter as Mr. Faith serves as an officer or director of
the Company, Mr. Faith has agreed not to compete, directly or indirectly, with
the Company in the extended-stay hotel business or serve as an officer,
director, consultant or stockholder of any competing company engaged in the
extended-stay hotel business.
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 September 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 by him for
any reason or by the Company for cause, Mr. Kratzer has agreed not to compete,
directly or indirectly, 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 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 earlier of the completion
or acquisition by the Company of its 60th hotel or December 31, 1998.
The Company has entered into indemnification agreements with each of its
executive officers and directors. Pursuant to such agreements, the Company
will, to the extent permitted by applicable law, indemnify such persons
against all expenses, judgments, fines and penalties incurred in connection
with the defense or settlement of any actions brought against them by reason
of the fact that they were directors or officers of the Company or assumed
certain responsibilities at the direction of the Company.
In addition, the Company's Certificate of Incorporation provides for certain
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.
THE 1996 PLAN
The Company has adopted the Homegate Hospitality, Inc. 1996 Long-Term
Incentive 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.
Stock Options. Options granted under the 1996 Plan may be incentive stock
options ("ISOs") or nonqualified stock options. A stock option entitles each
employee or consultant who is entitled to participate
10
<PAGE>
("Participants") 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 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.
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.
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
State Street Bank and Trust Company. 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.
11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 31, 1996 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>
NUMBER OF
SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
- ------------------------ ------------ --------
<S> <C> <C>
JMI/Greystar Extended
Stay Partners, L.P..... 2,274,992 21.2%
Two Riverway, Suite 850
Houston, TX 77056
Developer Extended Stay
Partners, L.P.(1)...... 1,055,759 9.8%
Two Riverway, Suite 850
Houston, TX 77056
CRI/ESH Partners,
L.P.(2)................ 2,033,424 18.9%
3200 Trammell Crow
Center
2001 Ross Avenue
Dallas, Texas 75201
Robert A. Faith(3)...... 3,720,923 34.6%
Two Riverway, Suite 850
Houston, TX 77056
William B. Buchanan,
Jr(4).................. 0 *
James D. Carreker(5).... 5,000 *
Harlan R. Crow(6)....... 3,206,739 29.8%
Anthony W. Dona......... 45,903 *
John R. Huff............ 2,000 *
John J. Moores(7)....... 390,172 3.6%
Charles E. Noell(5)..... 5,000 *
Leonard W. Wood(8)...... 126,777 1.2%
John C. Kratzer......... 229,513 2.1%
Tim V. Keith............ 4,348 *
Joel Kinzie Oldham IV... 4,348 *
Directors and Named
Executives of the
Company as a group..... 6,309,356 58.7%
</TABLE>
- --------
* Less than 1%.
(1) 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."
(2) Crow Investment Trust indirectly owns an approximate 74% limited partner
interest in such partnership.
(3) Includes 2,274,992 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 partner of
such partnership. Mr. Faith disclaims beneficial ownership of all such
shares held by such partnership beyond his percentage ownership therein.
Includes 1,055,759 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 390,172 shares owned by JMI/Greystar Realty Partners, L.P. as to
which Mr. Faith has
12
<PAGE>
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.
(4) Appointed to the Board of Directors subsequent to December 31, 1996.
(5) Includes fully vested options granted under the 1996 Plan to non-employee
directors to acquire 5,000 shares of Common Stock.
(6) Includes 13,865 shares owned by Crow Family, Inc., of which Mr. Crow is
the sole director. Includes 2,033,424 shares owned by CRI/ESH Partners,
L.P. and 98,691 shares owned by Crow Hotel Realty Investors, L.P., as Crow
Family, Inc. is the sole general partner of each such partnership. Also
includes 1,055,759 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, and fully vested options
granted under the 1996 Plan to non-employee directors to acquire 5,000
shares of Common Stock. Mr. Crow disclaims beneficial ownership of all
shares other than the shares subject to an option to acquire 5,000 shares
of Common Stock.
(7) Includes 390,172 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. Also includes fully
vested options granted under the 1996 Plan to non-employee directors to
acquire 5,000 shares of Common Stock. Excludes 574,436 shares owned by
JMI/Greystar Extended Stay Partners, L.P. attributable to Mr. Moores'
percentage interest in such partnership.
(8) Includes 121,777 shares held directly and fully vested options granted
under the 1996 Plan to non-employee directors to acquire 5,000 shares of
Common Stock.
13
<PAGE>
CORPORATE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Common Stock, with the
cumulative the cumulative total stockholder return on the Common Stock, with
the cumulative total return of the Nasdaq Stock Market (U.S. Companies) Index
and an index of companies in the lodging industry consisting of Extended Stay,
Studio Plus, Candlewood, Suburban Lodges and Homestead Village (collectively,
the "S&P Lodging-Hotels") for the period beginning October 24, 1996, and
ending December 31, 1996. The comparison assumes $100 was invested on October
24, 1996, in Common Stock and in each of the foregoing indices and assumes
reinvestment of dividends.
[CUMULATIVE TOTAL RETURN GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
INDEX DESCRIPTION 10/24/96 12/31/96
- ----------------- -------- --------
<S> <C> <C>
Homegate Hospitality, Inc..................................... 100 73
Nasdaq Stock Market (U.S. Companies).......................... 100 105
S&P Lodging-Hotels............................................ 100 97
</TABLE>
- --------
(1)The lines represent index levels derived from compounded daily returns that
include all dividends.
(2)If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
(3)The index level for all series was set to 100.00 on October 24, 1996.
14
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and any person who owns more than 10% of the
Company's Common Stock to file initial stock ownership reports and reports of
changes in ownership with the Securities and Exchange Commission. Based on a
review of these reports and on written representations from the reporting
persons that no other reports were required, the Company believes the
applicable Section 16(a) reporting requirements were complied with for all
transactions which occurred in 1996.
CERTAIN TRANSACTIONS
In connection with the formation of the Company, the current partners of
Extended Stay Limited Partnership, a predecessor of the Company which was
merged into the Company ("ESLP") in October 1996, received approximately
6,400,000 shares of Common Stock, constituting approximately 60.0% of the
outstanding Common Stock as a result of the merger of ESLP into the Company.
Prior to such merger, the partners of ESLP contributed an aggregate of $20
million in capital to ESLP. See "Principal Stockholders."
In connection with the Company's initial public offering, the Company issued
under the 1996 Plan stock options exercisable for 518,570 shares of Common
Stock and stock awards of 13,913 shares of Common Stock to certain employees
and Company advisors. The exercise price for such stock options was $11.50,
the initial public offering price of the Common Stock. The stock option grants
included the following grants to Named Executives: Mr. Faith, 125,000 option
shares, Mr. Kratzer, 93,570 option shares, Mr. Keith, 62,500 option shares and
Mr. Oldham, 40,000 option shares. Also included in the option grants were
options for 175,000 shares of Common Stock granted to employees of Greystar
Capital Partners and its affiliates ("Greystar") (25,000 shares), TCR (55,000
shares), Crow (45,000 shares) and Wyndham (50,000 shares) who have served as
consultants to the Company. The restricted stock awards included awards to the
following Named Executives: Mr. Keith, 4,348 shares and Mr. Oldham, 4,348
shares. In addition, employees of Crow received 870 shares.
The Company has entered into a master development agreement with the
Development Partnership (herein so called) comprised of TCR and Greystar (the
"Developer Affiliates"), 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 and 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. Development fees paid
to TCR and Greystar Realty Services ("GRS"), an affiliate of Greystar, were
$460,175 and $50,000, respectively, during 1996. The Company may terminate a
development and construction agreement upon the failure of the Developer
Affiliate to meet certain performance standards.
In connection with the formation of the Company, the Developer Partnership
received 1,055,759 shares of Common Stock, constituting 9.8% of the
outstanding Common Stock. The Developer Partnership received its interest in
ESLP in exchange for entering into the master development agreement. Pursuant
to the partnership
15
<PAGE>
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 has entered into a master management assistance agreement (the
"Management Agreement") with 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 management
contract with respect to the 60th Company hotel or December 31,1998. The
Company has paid 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.
Management fees paid to Wyndham were $69,265 in 1996. Payables to affiliates
includes $51,710 due to Wyndham at December 31, 1996 for management fees and
marketing fees.
Wyndham administered and funded payroll and insurance benefits for all
employees of the Company through September 30, 1996 and continues to
administer payroll for the employees of the Studio Suites and Westar hotels.
Payables to affiliates includes $46,267 due to Wyndham at December 31, 1996,
for reimbursement
16
<PAGE>
of payroll and insurance expenditures. Payroll and insurance expenditures
reimbursed to Wyndham was $179,123 during 1996.
Payables to affiliates includes $879,523, $28,420 and $126,353 due to TCR,
Wyndham, and Greystar, respectively, at December 31, 1996, for reimbursement
of construction costs and out-of-pocket expenditures incurred in conjunction
with the pursuit and acquisition of land and property.
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.
STOCKHOLDER PROPOSALS
Any proposals that the Company stockholders desire to have presented at the
1998 annual meeting of stockholders must be received by the Company at its
principal offices no later than December 1, 1997, for inclusion in the
Company's proxy statement and proxy unless the Company notifies the
stockholders otherwise. Only those proposals that are proper for stockholder
action and otherwise proper may be included in the Company's proxy statement.
OTHER MATTERS
The Board of Directors does not intend to bring any other matters before the
Annual Meeting and does not know of any matters which will be brought before
the Annual Meeting by others. However, if any other matters properly come
before the Annual Meeting, it is the intention of the persons named in the
accompanying Proxy to vote such Proxy in accordance with their judgment on
such matters.
By Order of the Board of Directors,
/s/ JOEL KINZIE OLDHAM IV
Joel Kinzie Oldham IV
Secretary
Dallas, Texas
April 9, 1997
17
<PAGE>
-----
Please mark | |
your votes as | X |
indicated in | |
this example -----
1. To elect three 2. Proposal to ratify the 3. In their discretion to
Class I Directors appointment of Ernst & vote upon such other
Young LLP, certified public business as may
FOR all WITHHOLD accountants, as independent properly come before
nominees AUTHORITY auditors for the fiscal the meeting.
listed to vote for year ending December 31,
below all nominees 1997.
(except listed below
as marked FOR AGAINST ABSTAIN
to the ----- ----- -----
contrary | | | | | |
below) | | | | | |
----- ----- ----- ----- -----
| | | |
| | | |
----- -----
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
------------------------------------------------------------------
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
- -------------------------------------------------
James D. Carreker
John R. Huff
Leondard W. Wood
The Board of Directors recommends that
you vote FOR the nominees and the pro-
posal listed above. This proxy when
properly executed will be voted in the
manner directed herein by the under-
signed shareholder. If no direction is
given, this proxy will be voted FOR
the nominees and the proposal.
DATED: , 1997
---------------------------
----------------------------------------
(SIGNATURE OF SHAREHOLDER)
----------------------------------------
(SIGNATURE IF HELD JOINTLY)
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HOMEGATE HOSPITALITY, INC.
The undersigned hereby appoints Robert A. Faith and Anthony W. Dona, or
either of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes each of them to represent and to vote, as designated on the
reverse side, all the shares of Common Stock of Homegate Hospitality, Inc. held
of record by the undersigned on April 1, 1997 at the Annual Meeting of
Shareholders to be held on May 5, 1997, or any adjournment thereof.
(Please See Reverse Side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
