<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File Number 000-21509
HOMEGATE HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-0511313
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
111 CONGRESS AVENUE, SUITE 2600
AUSTIN, TEXAS 78701
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (512) 477-6400
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of August 14, 1997: 10,725,000 shares.
<PAGE>
HOMEGATE HOSPITALITY, INC.
Page
----
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated balance sheets -
June 30, 1997 and December 31, 1996.............................. 3
Consolidated statements of operations -
Three and Six months ended June 30, 1997 and June 30, 1996....... 4
Consolidated statements of cash flows -
Six months ended June 30, 1997 and June 30, 1996................. 5
Notes to consolidated financial statements - June 30, 1997......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................... 18
Signatures
2
<PAGE>
Part I - Financial Information
Item 1. - Consolidated Financial Statements
Homegate Hospitality, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1997 December 31,
------------- ------------
1996
----
<S> <C> <C>
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 3,087,424 $31,475,679
Restricted cash 824,098 959,198
Accounts receivable
Hotel 339,148 241,403
Other 194,307 256,939
Interest 138,263 208,411
Earnest money deposits 501,000 546,000
Prepaid expenses 511,547 552,054
-------------------------------
Total current assets 5,595,787 34,239,684
Property and equipment, net (Note 2) 84,549,655 51,106,541
Loans receivable (Note 3) 3,094,337 1,900,500
Deferred loan costs, net 358,783 335,547
Other assets, net 737,960 951,136
-------------------------------
Total assets $94,336,522 $88,533,408
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 878,376 $ 1,101,225
Accrued expenses 399,842 224,694
Payables to affiliates 720,557 1,132,274
Current maturities of mortgage and
other notes payable 782,614 425,738
-------------------------------
Total current liabilities 2,781,389 2,883,931
Mortgage and other notes payable (Note 4) 27,767,199 20,961,009
Stockholders' equity (Note 5)
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued - -
Common stock, $.01 par value;
20,000,000 shares authorized;
10,725,000 shares issued and outstanding 107,250 107,250
Additional paid in capital 65,447,625 65,447,625
Retained earnings (deficit) (1,766,941) (866,407)
-------------------------------
Total stockholders' equity 63,787,934 64,688,468
-------------------------------
Total liabilities and stockholders'
equity $94,336,522 $88,533,408
===============================
</TABLE>
See accompanying notes.
3
<PAGE>
Homegate Hospitality, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Room revenue $ 2,105,812 $ 24,803 $ 4,021,929 $ 24,803
Other revenue 45,662 1,703 103,393 1,703
Interest income 221,603 - 603,218 -
-------------------------- -------------------------
Total revenues 2,373,077 26,506 4,728,540 26,506
COSTS AND EXPENSES
Property operating expenses 1,421,580 30,313 2,709,680 30,313
Corporate operating expenses 628,132 204,273 1,415,755 204,273
Depreciation and amortization 354,468 9,533 623,498 9,533
Interest 395,628 21,457 880,145 21,457
-------------------------- -------------------------
Total costs and expenses 2,799,808 265,576 5,629,078 265,576
-------------------------- -------------------------
Net loss $ (426,731) $ (239,070) $ (900,538) $ (239,070)
========================== =========================
Net loss per share $(.04) $(.02) $(.08) $(.02)
========================== =========================
Weighted average number
of shares outstanding 10,725,000 10,725,000 10,725,000 10,725,000
========================== =========================
</TABLE>
See accompanying notes.
4
<PAGE>
Homegate Hospitality, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
OPERATING ACTIVITIES 1997 1996
---- ----
<S> <C> <C>
Net loss $ (900,538) $ (239,070)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation and amortization 623,498 9,533
Amortization of loan costs 15,833 -
Accrued interest added to 40,319 21,457
mortgage note payable
Changes in operating assets
and liabilities
Restricted cash 135,100 -
Accounts receivable 35,035 (7,184)
Prepaid expenses 40,507 (3,078)
Accounts payable (65,392) 136,403
Accrued expenses 175,148 45,803
Payables to affiliates (46,339) 348,789
--------------------------
Net cash provided by operating
activities 53,171 312,653
--------------------------
INVESTING ACTIVITIES
Acquisition of land (14,347,211) (2,911,123)
Acquisition of hotel facility - (4,991,486)
Construction in progress, net of
development costs payable (14,546,258) -
Additions to property and equipment,
net of payables (4,813,337) (133,038)
Additions to loan receivable (793,837) -
Additions to earnest money deposits (371,000) (95,000)
Additions to other assets (583,026) (133,734)
--------------------------
Net cash used in investing activities (35,454,669) (8,264,381)
--------------------------
FINANCING ACTIVITIES
Proceeds from mortgage and other notes
payable 7,360,325 2,847,930
Principal payments on mortgage and
other notes payable (237,578) -
Payment of deferred loan costs (109,504) (17,240)
Contributions from partners - 6,394,920
--------------------------
Net cash provided by financing
activities 7,013,243 9,225,610
--------------------------
Net decrease in cash and cash
equivalents (28,388,255) 1,273,882
Cash and cash equivalents at beginning
of period 31,475,679 -
--------------------------
Cash and cash equivalents at end of
period $ 3,087,424 $ 1,273,882
==========================
</TABLE>
See accompanying notes.
5
<PAGE>
Homegate Hospitality, Inc.
Notes to Consolidated Financial Statements
(unaudited)
June 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Homegate Hospitality, Inc. (the "Company") was organized in Delaware on August
16, 1996. The Company was capitalized with the issuance of 10 shares of common
stock to Extended Stay Limited Partnership ("ESLP"). The Company was formed to
continue the extended-stay lodging facility development, acquisition and
management operations of ESLP, and to acquire, develop and maintain extended-
stay lodging facilities throughout the United States.
ESLP, a Delaware limited 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. On October
24, 1996, ESLP was merged with and into the Company. Accordingly, the financial
results of ESLP, the predecessor to the Company, for the period from inception
(February 9, 1996) through June 30, 1996, have been included herein. ESLP had
no operations for the three month period ended March 31, 1996.
The financial statements included herein have been prepared in accordance with
instructions to Form 10-Q and Article 10 of Regulation S-X and therefore do not
include all disclosures required under generally accepted accounting principles
for complete financial statements. In the opinion of management, the financial
statements reflect all adjustments which consist only of normal recurring
adjustments necessary for a fair presentation of the financial statements for
the interim periods presented. Interim results of operations are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
6
<PAGE>
HOMEGATE HOSPITALITY, INC.
2. PROPERTY AND EQUIPMENT
At June 30, 1997 and December 31, 1996, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Land $31,236,509 $16,473,296
Buildings and improvements 32,144,175 28,300,127
Construction in progress 17,537,328 4,623,153
Furniture, fixtures, and equipment 4,492,000 1,985,837
--------------------------------
85,410,012 51,382,413
Less accumulated depreciation 860,357 275,872
--------------------------------
$84,549,655 $51,106,541
================================
</TABLE>
During the second quarter of 1997, the Company acquired one land parcel in
Webster, Texas that is under development for hotel construction. Additionally,
the Company acquired one land parcel in each of the following cities:
Indianapolis; Phoenix; Portland; Pompano Beach, Florida; and Las Vegas for
future development of hotel facilities. As of June 30, 1997, the Company had
entered into agreements, letters of intent, contracts, or other arrangements for
the future purchase of eleven additional land parcels.
Trammell Crow Residential (TCR) and Greystar Realty Services (GRS) are
developing the hotel facilities under an agreement that expires at the earlier
of the completion of the sixtieth hotel or December 31, 1998.
3. LOANS RECEIVABLE
During 1996, the Company advanced $1,900,500 under two promissory notes to an
unrelated party for the purchase of two parcels of land in Austin, Texas (the
"Rutherford and Jolleyville sites"), on which extended-stay hotel facilities are
to be developed. During the first quarter and second quarters of 1997, the
Company advanced an additional $400,000 and $793,837, respectively, under the
notes for various development costs. These notes accrue interest at ten percent
and mature on the sooner of November 2000 or five business days after demand.
Monthly interest payments of $15,838 were to begin on February 1, 1997. The
accrued interest of $107,167 was not paid during the second quarter. On June
30, 1997, the Company and the unrelated party entered an agreement whereby the
Company would purchase the Rutherford and Jolleyville sites for a total purchase
price of $508,713 and extinguishment of the debt and the related accrued
interest (See Note 6).
7
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. MORTGAGE AND OTHER NOTES PAYABLE
MORTGAGE NOTES PAYABLE
The Company has entered into a Master Loan Agreement (the "Note") with Bank One,
Arizona, N.A. ("BOA"). 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 was committed under the Note in
connection with the acquisition of Studio Suites. This loan, secured by Studio
Suites, accrues interest at either LIBOR plus 2.25% or prime plus .5% based on
the election of the Company (LIBOR plus 2.25%; 8.00% at June 30, 1997), and
requires interest payments for the first ten months of the loan, followed by
principal and interest payments based upon a fifteen year amortization until
maturity, May 31, 1999. The outstanding balance at June 30, 1997 was $2,884,987.
On March 7, 1997, the Company borrowed $5,070,000 under the Note, secured by the
Austin Town Lake hotel facility. The funding of this loan by BOA occurred on May
12, 1997. This loan accrues interest at either LIBOR plus 2.25% or prime plus
.5% based on the election of the Company (LIBOR plus 2.25%; 8.00% at June 30,
1997), and requires principal and interest payments based upon a fifteen year
amortization until maturity, February 4, 2000. The outstanding balance at June
30, 1997 was $4,901,404.
Another loan, in the amount of $3,509,885, was committed under the Note in
connection with the construction of the hotel in Phoenix, Arizona. This loan,
secured by the hotel at 44/th/ and Oak, accrues interest at either LIBOR plus
2.5% or prime plus .5% based on the election of the Company (LIBOR plus 2.5%;
8.25% at June 30, 1997), 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, August 15, 1998. The maturity date
may be extended for thirty-six months with the payment of an extension fee of
.25% of the loan amount. The outstanding balance at June 30, 1997 was
$2,505,805.
In connection with the acquisition of Westar, the Company assumed an $18,100,000
mortgage note due to Nomura Asset Capital Corporation ("Nomura"), with interest
at 9.71% through January 11, 2011 and thereafter at the greater of 14.71% or the
Treasury Rate plus 9%. The note is due in monthly installments of $160,789,
including interest, from February 1996 through January 2021, and is secured by
the Westar hotel properties and improvements. The outstanding balance at June
30, 1997 was $17,876,318.
Restricted cash includes cash retained by Nomura's mortgage servicer for payment
of taxes, insurance and debt service.
The mortgage note payable to Nomura 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.
8
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
OTHER NOTES PAYABLE
The Company has two unsecured notes payable for the purchase of directors and
officers insurance. The notes accrue interest at 6.98% and require monthly
principal and interest payments of $16,497 through July 1999. The outstanding
balance at June 30, 1997 was $381,299.
5. STOCKHOLDERS' EQUITY
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"),
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating earnings per share, the dilutive effect of stock options will be
excluded. Management believes that adoption of SFAS No. 128 will not have a
material effect on earnings per share.
6. SUBSEQUENT EVENTS
On July 3, 1997, the Company purchased the Rutherford and Jolleyville sites from
an unrelated party for a purchase price of $508,713 and extinguishment of debt
owed by the unrelated party to the Company (See Note 3).
On July 25, 1997, the Company entered a definitive agreement to merge with a
wholly owned subsidiary of Prime Hospitality Corp. (Prime). Under the
agreement, Prime will issue 0.6073 shares of its common stock for each of the
10,725,000 outstanding shares of the Company. The merger is expected to close
in the fourth quarter of 1997. In conjunction with the merger agreement, Prime
has executed a commitment letter with respect to its provision to the Company of
a $65 million construction term loan facility to the Company to facilitate
uninterrupted development of the Company's extended stay hotels.
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
9
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
GENERAL
Homegate Hospitality, Inc. ("Homegate") was incorporated in August 1996, to
succeed to the business of Extended Stay Limited Partnership ("ESLP"), which was
organized in February 1996, to become a provider of high quality mid-price
extended-stay hotels. In October 1996, ESLP was merged into Homegate, in
exchange for 6,386,087 shares of common stock. Hereinafter, Homegate, its
predecessor ESLP, and its subsidiaries are collectively referred to as the
"Company." On October 29, 1996, the Company completed an initial public
offering of 4,325,000 shares of common stock at $11.50 per share.
The Company, during the period from its inception through June 30, 1997,
completed its concept and product design, market study and initial site
selection activities, and acquired and/or constructed its first properties. As
of June 30, 1997, the Company had 23 employees.
The Company operated eight hotels during the second quarter of 1997. Three of
the hotels were operated as extended-stay facilities and the remaining five
hotels ("Westar") were operated as nightly stay hotels. Seven of the eight
hotels have been reflagged as HOMEGATE Studios & Suites.
As of June 30, 1997, the Company has 22 hotels under construction and
development, consisting of 2,791 units. The sites were located in the following
metropolitan areas:
Austin, Texas 2
Dallas, Texas 2
Denver, Colorado 1
Pompano Beach, Florida 1
Houston, Texas 3
Indianapolis, Indiana 2
Kansas City, Kansas 2
Las Vegas, Nevada 1
Orlando, Florida 1
Phoenix, Arizona 3
Portland, Oregon 2
Raleigh, North Carolina 1
Webster, Texas 1
--
22
==
10
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The 22 sites currently under construction and development are due to be
completed at various times during 1997 and 1998. As of June 30, 1997, the
Company has 11 sites subject to letters of intent, contracts, or other purchase
arrangements and is evaluating another 15 sites.
11
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
RESULTS OF OPERATIONS
PROPERTY OPERATIONS
Homegate's results of operations reflect the operation of eight hotels for the
second quarter, with Phoenix's 44/th/ and Oak property beginning operations on
April 4, 1997. The Company's predecessor ESLP had limited operations in the
second quarter of 1996 opening its first hotel (the Grand Prairie hotel) on June
17, 1996.
The Company generated $2,106,000 in room revenue for the quarter ended June 30,
1997. This represented a $190,000 increase over the first quarter of 1997 or a
10% increase. The Phoenix 44/th/ and Oak hotel opening contributed heavily
towards this increase. Overall occupancy rose to 60% in the second quarter of
1997 from 59.3% in the first quarter of 1997; however, Company weekly REVPAR
decreased to $155.12 from $165.62, or a 6% decrease, and the Average Weekly Rate
dropped to $258.46 from $279.36, or a 7% decrease. These decreases are
primarily due to the loss of 15% of available room nights due to the Westar
renovations (see below). After reducing the available room nights by the
number of Westar rooms under renovation, REVPAR would have been $180.88 and
$180.53 in the first quarter and second quarter of 1997, respectively.
The three hotels being operated as extended-stay hotels increased their average
occupancy to 77.2% in the second quarter of 1997 from 75.4% in the first quarter
of 1997. However, weekly REVPAR decreased to $196.70 from $208.81 in the first
quarter or a 6% decrease and the Average Weekly Rate dropped to $254.64 from
$276.78 or a 8% decrease. The Phoenix 44/th/ and Oak contributed heavily to
these decreases during its start-up period, with weekly REVPAR of $119.49 and
Average Weekly Rate of $212.49 for the second quarter of 1997.
Four of the five Westar hotels have been reflagged as HOMEGATE Studios & Suites;
however, the renovation and refurbishment program is still in process at all
five hotels. During the second quarter of 1997, the Westar hotels lost 14,199
room nights out of a possible 56,602 room nights due to rooms being renovated.
This represented a 25% loss of potential revenue from these hotels, with an
additional loss of revenue due to guests not wanting to stay at hotels under
construction. Occupancy dropped to 48.3% in the second quarter of 1997 from
51.8% in the first quarter. Average daily rates fell from $40.16 in the first
quarter to $37.52 in the second quarter, or 7%, for the Westar hotels. The
renovation and refurbishment program is anticipated to be completed during the
third quarter of 1997. At that time the properties will begin operations as
extended-stay hotels.
12
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Property operating expenses rose from $1,288,000 in the first quarter to
$1,422,000 in the second quarter, an increase of 10%, which reflects the
addition of the Phoenix 44/th/ and Oak property. Net operating margins for the
Company stayed constant at 33% reflecting the daily operating nature of the five
Westar hotels. Net operating margins for the three extended stay hotels
averaged 51.7% for the second quarter of 1997.
CORPORATE OPERATIONS
Corporate operating expenses include all expenses related to the administration
of the corporate offices and all expenses not directly related to individual
developments and hotels. Corporate operating expenses were $628,000 for the
quarter ended June 30, 1997. This was a decrease of $160,000 compared with the
first quarter of 1997. The decrease was primarily due to a number of one time
expenses incurred in the first quarter of 1997.
13
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of $3,087,000. Cash
balances are currently deposited in a money market account invested in Treasury
obligations and in short-term investment grade interest bearing securities.
The Company owes approximately $17.9 million on a 9.71% secured promissory note
for the purchase of the Westar hotels. This debt is payable on a fixed 25-year
amortization schedule in monthly installments through January 11, 2021.
The Company has a $30 million mortgage loan facility (the "Existing Mortgage
Facility") with Bank One, Texas, N.A. ("BOA"), which provides the Company with
construction financing for eight extended-stay hotels. The Company is permitted
to borrow under the Existing Mortgage Facility through November 30, 1997. Each
project may be funded under the Existing 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 either the BOA
prime rate plus 0.5% or LIBOR plus 2.25%. 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 on 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 be obligated 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, 1997, the Company had incurred indebtedness under the Existing
Mortgage Facility of approximately $10.3 million of which $4.9 million was
attributed to the Town Lake hotel in Austin, $2.9 million was attributed to the
Studio Suites hotel in Grand Prairie and $2.5 million was attributed to the
44/th/ and Oak hotel in Phoenix. The Austin Town Lake hotel and Grand Prairie
hotel loans bear interest at LIBOR plus 2.25% and the Phoenix hotel loan bears
interest at LIBOR plus 2.5%. The Austin debt is due on February 4, 2000 and the
Grand Prairie debt is due on May 31, 1999. The Phoenix debt is
14
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
due on August 15, 1998; however, the debt may be extended for an additional
three years as described above.
On July 25, 1997, the Company entered into a definitive merger agreement
("Merger Agreement") with Prime Hospitality Corp. ("Prime") pursuant to which
the Company will merge with a wholly owned subsidiary of Prime. Under the Merger
Agreement, Prime will issue 0.6073 shares of its common stock for each of the
10,725,000 outstanding shares of the Company's common stock. In connection with
the Merger Agreement, the Company and Prime executed a loan commitment pursuant
to which Prime is expected to provide a $65 million interim secured construction
term loan facility ("Construction Term Loan Facility") to the Company. While
Prime's obligation to make advances under the Construction Term Loan Facility is
subject to the execution of definitive loan documents, as of August 6, 1997,
Prime had advanced $5.4 million to the Company in anticipation of the loan
closing. The Construction Term Loan Facility is to be used for the acquisition
and hotel development of specific sites. The Construction Term Loan Facility
matures and all amounts outstanding thereunder are due at the earlier of (a)
April 1, 1998, (b) the date on which the Company enters into any agreement
(other than the Merger Agreement) with respect to any alternative proposal or
otherwise relating to the merger or sale of substantially all of the assets of
the Company and (c) four months after the termination of the Merger Agreement.
The Company will pay a loan fee of 1% of the aggregate principal amount of the
Construction Term Loan Facility. Monthly interest payments commence December
15, 1997 at a rate of the one month LIBOR plus 3.5%; provided that the interest
rate will increase to the one month LIBOR plus 5% on the date that is the
earlier of (a) November 30, 1997 and (b) the date of the termination of the
Merger Agreement (other than a termination as a result of a breach by Prime).
The loans will be secured by a first priority perfected security interest in the
specified sites. The amount of any loan under the facility may not exceed 75%
of the total project costs of the related project.
Although the Company has access to financing under the Existing Mortgage
Facility and expects to have access to additional financing under the
Construction Term Loan Facility, the Company may need to procure substantial
additional financing over time to complete its Initial Hotel Program, which
calls for 65 hotels to be opened or under construction by December 31, 1998.
The exact amount of 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. In particular, the Company anticipates spending an
aggregate of approximately $6.6 million to renovate the Westar facilities, of
which approximately $3.7 million had been spent through June 30, 1997, to
conform to the HOMEGATE
15
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Studios & Suites prototype, and expects that it will spend between $4 million
and $9 million on each development or acquired hotel.
The Existing Mortgage Facility, Construction Term Loan 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. In addition, future debt
facilities may materially limit the Company's ability to pay dividends.
In connection with the execution of the Merger Agreement, the Company, Prime,
Crow Hotel Realty Investors, L.P. ("Crow"), and Wyndham Hotel Corporation and
certain of its affiliates (collectively, "Wyndham") entered into an Agreement
Regarding Termination of Management Agreements pursuant to which, upon
completion of the Merger, either the Company or Wyndham will have the right to
terminate all management agreements providing for Wyndham's management of the
Company's properties, thereby obligating the Company to pay to Wyndham $8
million and Crow to deliver to Wyndham a $4 million, six-month, secured
promissory note, which payment and delivery will be in full satisfaction of any
and all claims Wyndham may have against the Company relating to termination of
the management agreements.
16
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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.
FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS
The Company's future results of operations may be impacted by a number of
factors. Among such factors are local, regional and national 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 and adverse changes in zoning laws.
SPECIAL NOTE ON FORWARD LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. The forward looking
statement made in Item 2 with respect to the Company's expectation of
construction and developing 22 hotels by the end of 1998 is subject to the risks
of weather-induced construction delays. The forward looking statements made in
Item 2 with regard to the Company's 11 sites with letters of intent, contracts
or other agreements to purchase and the other 15 sites under evaluation are
subject to the risks of the Company's ability to identify, negotiate the
acquisition of and close on such sites (to the extent it has not already done
so) in a timely
17
<PAGE>
HOMEGATE HOSPITALITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
fashion, the risks associated with the various entitlements processes, the risks
of inclement weather and the risks associated with the Company's ability to
obtain the required capital (to the extent it has not already done so). The
forward looking statement made in Item 2 with respect to the Company's
expectations of obtaining additional financing is subject to the risk of the
Company's ability to identify, negotiate and execute a definitive agreement
related to such financing.
18
<PAGE>
HOMEGATE HOSPITALITY, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
----------- -----------
10.1 Agreement and Plan of Merger by and among Prime
Hospitality Corp., PH Sub Corporation and
Homegate Hospitality, Inc. dated as of July 25,
1997 (incorporated by reference to Exhibit 99.1
to the Schedule 13D with respect to Homegate
Hospitality, Inc. filed by CRI/ESH Partners,
L.P. et al on August 8, 1997)
10.2 Financing commitment letter agreement dated July
25, 1997 between Prime Hospitality Corp. and
Homegate Hospitality, Inc.
10.3 Agreement Regarding Termination of Management
Agreements dated as of July 25, 1997 among
Homegate Hospitality, Inc., VPS I, L.P., Prime
Hospitality Corp., Wyndham Management
Corporation, Wyndham Hotel Corporation and
Wyndham IP Corporation
27 Article 5 Financial Data Schedule for the Six
Months Ended June 30, 1997
(b) Reports on Form 8-K:
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOMEGATE HOSPITALITY, INC.
By: /s/ ROBERT A. FAITH
------------------------------------------------
Robert A. Faith, President, Chief
Executive Officer and Chairman of
the Board (Principal Executive Officer)
By: /s/ TIM V. KEITH
------------------------------------------------
Tim V. Keith, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 14, 1997
20
<PAGE>
EXHIBIT 10.2
PRIME HOSPITALITY CORP.
July 25, 1997
Homegate Hospitality, Inc.
111 Congress Avenue
Suite 2600
Austin, Texas 78701
Re: $65,000,000 Interim Secured Construction Term Loan Facility
-----------------------------------------------------------
Dear Sirs:
On the date hereof, Homegate Hospitality, Inc. ("you", "Homegate" or the
--------
"Acquired Company"), a subsidiary of Prime Hospitality Corp. ("Prime Sub") and
---------------- ---------
we ("we", "us", "Prime" or the "Lender") are executing an Agreement and Plan of
----- ------
Merger dated as of the date hereof (the "Merger Agreement") pursuant to which
----------------
Homegate and Prime Sub will merge (the "Merger"), with Homegate being the
------
surviving corporation. Pursuant to the Merger Agreement, Prime has agreed to
enter into this Commitment Letter. You have further advised us that you intend
to form a new, bankruptcy remote, wholly-owned direct subsidiary (the
"Borrower") for the purpose of acquiring certain hotel sites and hotel
--------
development of certain existing sites specified on Schedule 1 hereto, and
pending the consummation of the Merger desire to obtain a $65,000,000 interim
secured construction term loan facility (the "Facility"). The obligations of the
--------
Borrower under the Facility will be fully guaranteed on a full recourse basis by
Homegate.
In connection with the foregoing, Prime is pleased to advise you of its
commitment to provide 100% of the total principal amount of the Facility as
described in the term sheet attached hereto as Annex I (the "Term Sheet") and
----------
subject to the conditions set forth below and in the Term Sheet. All
capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Term Sheet.
The commitment of Prime hereunder is subject to satisfaction of each of the
following in a manner acceptable to Prime:
(a) satisfaction of each of the terms and conditions set forth herein;
(b) satisfaction of each of the terms and conditions set forth in the
Term Sheet; and
(c) the negotiation, execution and delivery of definitive
documentation with respect to the Facility consistent with the Term Sheet
and otherwise reasonably satisfactory to Prime.
Furthermore, the commitment of Prime hereunder is based upon the financial
and other information regarding the Borrower and the Acquired Company previously
provided to Prime in connection with the Merger Agreement, and the commitment of
Prime hereunder is subject to the condition, among others, that there shall not
have occurred after the date hereof any material adverse change in the business,
assets, liabilities (actual or contingent), operations, condition (financial or
<PAGE>
July 25, 1997
Page 2
otherwise) or prospects of the Borrower and the Acquired Company and their
subsidiaries taken as a whole. You acknowledge and agree that Prime may share
with any of its lenders any information relating to the Facility, Homegate, the
Borrower and their subsidiaries and affiliates.
It is understood and agreed that Prime intends to obtain all or part of the
funds necessary to fulfill its obligations under this Commitment Letter to
provide the Facility by entering into new credit agreements with various
institutions or amending its existing credit agreements, although the execution
and delivery of such credit agreements or amendments (or the availability of
funds thereunder) are not in any way a condition to the obligations of Prime
hereunder. Homegate and the Borrower will cooperate (including by making
management available to such institutions and lenders and by providing financial
and other information to such lenders) in all respects with Prime's lenders in
connection with such credit agreements or amendments.
You hereby represent and warrant that all the representations and
warranties of Homegate in the Merger Agreement are true and correct.
By executing this Commitment Letter, Homegate agrees to reimburse Prime
from time to time on demand for all reasonable out-of-pocket fees and expenses
(including, but not limited to, the reasonable fees, disbursements and other
charges of Willkie Farr & Gallagher, counsel to Prime) incurred in connection
with the Facility and the preparation of definitive documentation for the
Facility and the other transactions contemplated hereby (including the Interim
Loans).
The provisions of the immediately preceding paragraph shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this Commitment
Letter or the commitment of Prime hereunder.
Prime further agrees to provide to Homegate interim secured loans ("Interim
Loans") of (a) $2,000,000 on July 25, 1997, which shall bear interest at 9.18%
per annum, and (b) up to $3,400,000, which shall bear interest a a rate equal to
one month LIBOR (London interbank offerred rate as published in the Wall Street
-----------
Journal) as of the business day prior to the making of the loan plus 3.50%;
- -------
provided, however, Prime shall not be obligated to make Interim Loans in excess
- -------- -------
of 50% of the value (as determined by Prime in its sole discretion but will not
exceed the cost basis of Homegate) of hotel development properties (the
"Interim Loan Sites") provided by Homegate acceptable to Prime in its sole
------------------
discretion (it being understood that the sites listed on Exhibit A hereto are
acceptable). The Interim Loans shall mature on the earlier of the closing of
the Facility or September 15, 1997, and will be secured by the Interim Loan
Sites. The form of documentation to evidence the Interim Loans (including the
collateral for such loans) shall be reasonably acceptable to Prime and Homegate
and subject to such reasonable closing conditions (including receipt of legal
opinions and irrevocable commitments of title insurance companies to issue title
insurance policies) as Prime shall reasonably require. The initial drawings
under the Facility will be used to repay the Interim Loans.
This Commitment Letter may not be assigned by Homegate or the Borrower
without the prior written consent of Prime.
This Commitment Letter shall be effective only upon the execution and
delivery of this Commitment Letter by the parties hereto and of the Merger
Agreement by all parties thereto.
<PAGE>
July 25, 1997
Page 3
This Commitment Letter may be executed in counterparts which, taken
together, shall constitute an original. This Commitment Letter, together with
the Term Sheet, embodies the entire agreement and understanding between Prime,
Homegate and the Borrower with respect to the Facility and supersedes all prior
agreements and understandings relating to the Facility. No party has been
authorized by Prime to make any oral or written statements inconsistent with
this letter.
THIS COMMITMENT LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW. EACH PARTY HERETO WAIVES TRIAL BY JURY IN CONNECTION WITH ANY
DISPUTE WHICH MAY ARISE OUT THIS COMMITMENT LETTER.
Very truly yours,
PRIME HOSPITALITY CORP.
By:
-----------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
July 25, 1997
Page 4
ACCEPTED AND AGREED TO AS OF
July 25, 1997:
HOMEGATE HOSPITALITY, INC.
By:
-----------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
Annex I
-------
HOMEGATE SPECIAL PURPOSE CORP.
SUMMARY OF TERMS & CONDITIONS
$65,000,000 INTERIM SECURED CONSTRUCTION TERM LOAN FACILITY
JULY 25, 1997
BORROWER: A newly formed, special purpose, bankruptcy remote company
wholly owned by Homegate Hospitality, Inc. ("Homegate"),
whose sole purpose will be to own and develop certain
collateral assets described below and borrow the Loan
Proceeds.
GUARANTOR: The Facility will be guaranteed by Homegate Hospitality,
Inc. (the "Homegate Guarantee"). The guarantee shall be a
guarantee of payment and not of collection.
LENDER: Prime Hospitality Corp. ("Prime" or the "Lender") or a
wholly owned subsidiary of Prime.
FACILITY: An aggregate principal amount of up to $65,000,000 interim
secured construction term loan to be available under the
conditions hereinafter set forth. All Loans may be prepaid,
as set forth herein, but no amount prepaid may be
reborrowed.
USE OF PROCEEDS: The proceeds of the Facility shall be used: (i) to refinance
the outstanding principal balance of all indebtedness owed
by the Borrower or Homegate to Prime, and (ii) for
acquisition of sites and hotel development of sites
(collectively, the "Sites") set forth on Schedule 1 hereto
or as approved from time to time by the Lender in its sole
discretion.
MATURITY: The Facility shall terminate and all amounts outstanding
thereunder shall be due and payable in full at the earlier
of (i) April 1, 1998, (ii) the date on which Homegate enters
into any agreement (other than the Merger Agreement (as
defined below)) with respect to any Alternative Proposal (as
defined in the Merger Agreement) or otherwise relating to
the merger or sale of substantially all of the assets of
Homegate and (iii) four months after the termination of the
Merger Agreement.
SECURITY: The Homegate Guarantee will be secured by a first priority
perfected security interest in all of the capital stock of
the Borrower (or, if the Borrower is a limited partnership,
in the capital stock of the general partner of the Borrower
and all general and limited partnership interests of the
Borrower). The Loans will be secured by a first priority
perfected security interest in all real and personal
property, now owned or hereafter acquired, wherever located,
of the Borrower, including the Sites (collectively, the
"Collateral").
<PAGE>
July 25, 1997
Page 2
FACILITY FEE: The Borrower will pay to the Lender on the Closing Date a
facility fee equal to 1.00% of the aggregate principal
amount of the aggregate amount of the Facility.
INTEREST RATE One month LIBOR plus 3.50%; provided that the interest rate
shall increase to one month LIBOR plus 5% on the date (the
"Interest Increase Date") that is the earlier of (a)
November 30, 1997 and (b) the date of any termination of the
Merger Agreement (other than a termination as a result of a
breach by Prime). Prior to the Interest Increase Date all
interest on the Loans shall accrue and be added to the
principal amount of the Loans; from and after the Interest
Increase Date, all interest shall be payable monthly,
commencing December 15, 1997. As used herein, "LIBOR" means
the London Interbank Offered Rate as determined from time to
time by Prime.
The interest rate on LIBOR Loans shall be calculated on the
basis of the actual number of days elapsed in a year of 360
days.
A default rate shall apply on all Loans in the event of
default at a rate per annum of 2% above the otherwise
applicable interest rate.
VOLUNTARY
PREPAYMENTS: At its option, the Borrower may prepay Loans in whole or in
part (subject to minimum principal prepayments to be agreed
upon) without premium or penalty limited to the last day of
the applicable interest period for Loans bearing interest at
the LIBOR rate (unless the Borrower pays break-funding costs
as provided in the documentation executed in connection with
the Facility).
MANDATORY
PREPAYMENTS: The Facility will be prepaid by the amount of any insurance
or condemnation proceeds received in respect of the
Collateral in excess of $500,000 in the aggregate for all
the Collateral.
AVAILABILITY: The outstanding Loans may not, in any event, exceed a
borrowing base, which will restrict availability to no
greater than 75% of cost basis retained in the Borrower of
the Collateral. No Loans will be made after the earlier of
(a) November 30, 1997 and (b) the date of any termination of
the Merger Agreement (except solely as a result of a breach
by the Lender under the Merger Agreement). Funding of the
Loans will not, as of any particular date, be in excess of
amounts set forth in the budget (previously approved by
Prime and Homegate) as of such date.
CONDITIONS
PRECEDENT
<PAGE>
July 25, 1997
Page 3
TO CLOSING: The funding of the Facility will be subject to satisfaction
of the conditions precedent reasonably deemed appropriate by
Prime for construction loans and for this transaction in
particular, including but not limited to the following:
(i) The negotiation, execution and delivery of definitive
documentation with respect to the Facility satisfactory to
Prime and its counsel and the payment of fees required to be
paid to the Prime in connection with the Facility.
(ii) The Lenders shall have received (a) satisfactory
opinions of counsel to the Borrower and the Guarantor, (b)
such corporate resolutions, certificates, and other
documents as the Lender shall reasonably require and (c)
satisfactory evidence that the Lender holds a perfected,
first priority lien in all collateral for the Facility and
the Homegate Guarantee, subject to no other liens except for
permitted liens.
(iii) The Lender shall have received reports prepared in
usual and customary form and scope by the Borrower's
environmental consultants with respect to all the existing
Sites and such reports shall not disclose any material
adverse condition that was not disclosed in the Merger
Agreement dated as of July 24, 1997 (the "Merger Agreement")
among Prime, Homegate and a wholly owned subsidiary of
Prime.
(iv) The Loan Documents will provide for conditions to each
borrowing which are usual and customary for construction
loans, including evidence of feasibility of the project to
be constructed on each site and the availability of
sufficient funds and governmental and nongovernmental
consents, approvals and permits in order to complete
construction of the related project, availability of
utilities.
(v) The Lender shall be satisfied that the Borrower is a
special purpose, bankruptcy remote, corporation or limited
partnership wholly owned by Homegate.
(vi) Receipt of all governmental, shareholder and material
third party consents and approvals necessary or desirable in
connection with the Facility.
(viii) There shall not have occurred a material adverse
change since December 31, 1996 in the financial, business,
results of operations or prospects of the Guarantor and its
Subsidiaries taken as a whole except as may be otherwise
disclosed in the Merger Agreement.
(ix) Absence of (a) any order, decree, judgment, ruling or
injunction by any court or governmental authority which
restrains the
<PAGE>
July 25, 1997
Page 4
consummation of the transactions contemplated by the
definitive loan documents and (b) any pending or threatened
action, suit, investigation or proceeding which could
materially adversely affect the ability of the Borrower or
the Guarantor to perform any of their respective obligations
under the loan documents for the Facility or the ability of
the Lender to exercise their rights thereunder.
(x) The Lender shall have received evidence of the issuance
of title insurance policies issued by title insurance
companies acceptable to it and on such form as is acceptable
to the Lender, including endorsements required by the Lender
or irrevocable commitments to issue such policies.
(xi) All representations and warranties shall be true and
correct as of the date of each borrowing except to the
extent that such representations relate to an earlier date.
At the time of each borrowing there shall not exist any
event of default or any event (other than certain immaterial
events) which, upon the giving of notice or the lapse of
time, shall constitute an event of default.
REPRESENTATIONS &
WARRANTIES: Usual and customary for transactions of this type, to
include without limitation as to the Guarantor and the
Borrower: (i) corporate status; (ii) corporate power and
authority/enforceability; (iii) no violation of law or
contracts or organizational documents; (iv) no material
litigation; (v) specified financial statements fairly
present financial condition and results of operations,
projections based on reasonable assumptions and no material
adverse change; (vi) no required governmental or third party
approvals; (vii) use of proceeds/compliance with margin
regulations; (viii) status under the Investment Company Act;
(ix) ERISA; (x) environmental matters; (xi) perfected
security interests; (xii) payment of taxes; and (xiii)
representations and warranties in the Merger Agreement are
true and correct.
COVENANTS: Usual and customary for transactions of this type, which
shall be applicable to Homegate and the Borrower and shall
include without limitation: (i) delivery of financial
statements and other reports; (ii) delivery of compliance
certificates; (iii) delivery of notices of default, material
litigation and material governmental and environmental
proceedings; (iv) compliance with laws; (v) payment of
taxes; (vi) maintenance of insurance; (vii) prohibition on
liens; (viii) prohibition on mergers, consolidations and
sales of assets (except as contemplated by the Merger
Agreement); (ix) limitations on debt; (x) limitations on
dividends and stock redemptions and the redemption and/or
prepayment of other debt; (xi) limitations on loans and
investments; (xii) limitations on sale-leaseback
transactions; (xiii) an agreement to
<PAGE>
July 25, 1997
Page 5
make books and records available for inspection; (xiv)
compliance with covenants and agreements contained in the
Merger Agreement; (xv) an agreement that the only business
activity of the Borrower shall be the ownership and
development of the Sites; (xvi) ERISA; (xvii) no funding of
the Loans except in accordance with a budget to be agreed
upon; (xviii) limitation on transactions with affiliates;
(xix) limitation on modification of material agreements. All
covenants relating to the Guarantor shall contain exceptions
to the extent that similar covenants contained in the Merger
Agreement contain exceptions.
EVENTS OF DEFAULT: Usual and customary in transactions of this nature, which
shall be applicable to Homegate and the Borrower and shall
include, without limitation: (i) nonpayment of principal or
nonpayment within five days when due of interest, fees or
other amounts; (ii) violation of covenants in the definitive
loan documents or in the Merger Agreement and continuation
of such violation for 30 days after notice thereof from the
Lender to the Borrower; (iii) inaccuracy of representations
and warranties; (iv) failure to pay debt service on other
indebtedness when due or acceleration of such other
indebtedness; (v) bankruptcy; (vi) material judgments; (vii)
Homegate Guarantee ceasing to be in full force and effect;
(viii) failure of lien on Collateral to be first priority
perfected lien; and (ix) material adverse change in the
financial condition of the Guarantor or the Borrower.
WAIVERS &
AMENDMENTS: Only by consent of all parties to the definitive credit
documentation.
INCREASED COSTS/
CHANGE OF
CIRCUMSTANCES: The credit agreement for the Facility will contain customary
provisions protecting the Lender in the event of
unavailability of funding, illegality, capital adequacy
requirements, increased costs (all of which provisions shall
permit the Lender to impose costs on the Borrower solely to
the extent that such costs are similarly imposed on the
Lender by the institutions providing funds to the Lender),
withholding taxes, prepayments and funding or breakage
losses.
INDEMNIFICATION: The Lender will be indemnified against all losses,
liabilities, claims, damages or expenses relating to their
loans, the Borrower's use of loan proceeds or the
commitments, including but not limited to reasonable
attorneys' fees and settlement costs. This indemnification
shall survive the termination of the credit agreement for
the Facility.
GOVERNING LAW: New York
EXPENSES: Borrower will pay all reasonable costs and expenses
associated with the preparation and enforcement of all
documents executed in connection with the Facility,
including without limitation, the legal fees of Willkie
<PAGE>
July 25, 1997
Page 6
Farr & Gallagher, counsel to Prime, regardless of whether or
not the Facility is closed.
THIS TERM SHEET IS PROVIDED AS AN OUTLINE ONLY AND DOES NOT PURPORT TO SUMMARIZE
ALL THE CONDITIONS, COVENANTS, REPRESENTATIONS, WARRANTIES AND OTHER PROVISIONS
WHICH WOULD BE CONTAINED IN DEFINITIVE LEGAL DOCUMENTATION FOR THE FACILITY
CONTEMPLATED HEREBY.
<PAGE>
July 25, 1997
Page 7
Schedule 1
Approved Sites
--------------
(1) Beaverton, Oregon
(2) Park Central Mall, Phoenix, Arizona
(3) Indianapolis (Michigan Road), Indiana
(4) Durham (Miami Boulevard & I-40), North Carolina
(5) Houston Medical Center, Houston, Texas
(6) Webster, Houston, Texas
(7) Overland Park, Kansas
(8) 44th & Oak, Phoenix, AZ
(9) Lenexa, Kansas
(10) Denver Tech, Colorado
(11) Park Central, Dallas, TX
(12) Chandler & I-10, Arizona
(13) Indianapolis (Airport Site), Indiana
(14) Towne Lake Site, Austin, Texas
(15) Stafford, Fort Bend County, Texas
(16) Las Colinas, Irving, Texas
(17) Orlando (Maitland), Florida
(18) 1-10 (Galleria Site), Houston, Texas
(19) Metro Center (I-17 & Cholla), Phoenix, Arizona
(20) Cypress Spring, Florida
(21) Las Vegas, Nevada
(22) Hillsboro, Oregon
(23) Jolleyville, Austin, Texas
(24) Rutherford, Austin, Texas
<PAGE>
July 25, 1997
Page 8
Exhibit A
Interim Sites
-------------
(1) Beaverton, Oregon
(2) Park Central Mall, Phoenix, Arizona
(3) Hillsboro, Oregon
(4) Durham (Miami Boulevard & I-40), North Carolina
(5) Houston Medical Center, Houston, Texas
(6) Webster, Houston, Texas
<PAGE>
EXHIBIT 10.3
AGREEMENT REGARDING TERMINATION
OF MANAGEMENT AGREEMENTS
------------------------
This Agreement Regarding Termination of Management Agreements (this
"AGREEMENT") is entered into as of July 25, 1997, between HOMEGATE HOSPITALITY,
- ----------
INC., a Delaware corporation ("HOMEGATE"), and VPS I, L.P., a Delaware limited
--------
partnership ("VPS"); PRIME HOSPITALITY CORP., a Delaware corporation ("PRIME");
--- -----
CROW HOTEL REALTY INVESTORS, L.P., a Texas limited partnership ("CHRI"); and
----
WYNDHAM MANAGEMENT CORPORATION, a Delaware corporation ("MANAGER"), WYNDHAM
-------
HOTEL CORPORATION, a Delaware corporation ("WHC"), and WYNDHAM IP CORPORATION, a
---
Delaware corporation ("IP"). Manager, WHC, IP and their respective affiliates
--
are herein collectively called the "WYNDHAM PARTIES." Homegate, VPS and their
---------------
respective affiliates are herein collectively called the "HOMEGATE PARTIES."
----------------
Prime and its affiliates are herein collectively called the "PRIME PARTIES."
-------------
For purposes of this Agreement, an "AFFILIATE" of a party shall be an entity in
---------
which the party in question, directly or indirectly, owns more than 30% of the
voting or economic interests therein.
RECITALS
--------
A. Representatives of Homegate have had discussions with representatives
of the Wyndham Parties regarding a loan from IP to Homegate and certain
amendments to the Extended-Stay Management Assistance Agreement dated as of
August 26, 1996, between Homegate, which succeeded to the interests of Extended
Stay Limited Partnership, and Manager (the "MANAGEMENT ASSISTANCE AGREEMENT")
-------------------------------
and to all management agreements now and hereafter executed in connection
therewith (collectively, the "MANAGEMENT AGREEMENTS"), including, without
---------------------
limitation, the management agreements set forth on Schedule 1 hereto. The
----------
proposed loan and proposed amendments are herein called the "PROPOSED
--------
TRANSACTIONS."
- ------------
B. Homegate has entered into an Agreement and Plan of Merger dated as of
July 25, 1997 (as such agreement may be amended from time to time, the "MERGER
------
AGREEMENT"), with Prime.
- ---------
C. A dispute has arisen between the Homegate Parties and the Wyndham
Parties as to whether an agreement was reached regarding the Proposed
Transactions. The parties desire to enter into this Agreement to resolve such
dispute, without admitting any wrongdoing or liability on any party's part, and
to settle other matters.
1
<PAGE>
AGREEMENT
---------
For valuable consideration, whose receipt and sufficiency are acknowledged,
CHRI, the Homegate Parties, the Prime Parties, and the Wyndham Parties agree as
follows:
1. TERMINATION.
-----------
(a) TERMINATION. Notwithstanding anything contained in the
-----------
Management Related Agreements (defined below) to the contrary, Homegate (on
behalf of itself and all other Homegate Parties) or Manager (on behalf of itself
and all other Wyndham Parties) may terminate the Management Related Agreements
upon the consummation of the merger contemplated by the Merger Agreement (the
"MERGER"), by delivering to the other party (with a copy to CHRI) written notice
------
thereof at least five business days before the termination date specified
therein (the "TERMINATION DATE"). The Termination Date shall not be sooner than
----------------
the date the Merger is consummated nor later than 30 days after the date the
Merger is consummated. Except as provided in this Section 1, neither the
Homegate Parties nor the Wyndham Parties may terminate the Management Related
Agreements solely because of the Merger. "MANAGEMENT RELATED AGREEMENTS" means
-----------------------------
the Management Assistance Agreement, the Management Agreements, and all other
agreements under which a Wyndham Party now or hereafter provides services to a
Homegate Party, including, without limitation, any MIS service agreements, any
purchasing agreements and any technical services agreements.
(b) SETTLEMENT FEE. If the Management Related Agreements are
--------------
terminated as provided in Section 1.(a), then Manager shall be paid $12,000,000
(the "SETTLEMENT FEE") in the following manner:
--------------
(1) $8,000,000, which shall be payable in cash by Homegate or
Prime by making payment directly to WHC or its Permitted Assigns (defined
below), which shall thereafter distribute such cash to the Wyndham Parties or
other persons in a manner agreed upon by such parties.
(2) $4,000,000, which shall be payable pursuant to a Promissory
Note whose form is attached as Exhibit A, executed by CHRI and payable to WHC or
---------
its Permitted Assigns (the "NOTE"). The Note shall be secured by all common
----
stock of Prime received by CHRI in connection with the Merger (the "CHRI STOCK")
----------
and such other collateral as may be reasonably satisfactory to WHC, pursuant to
a Security Agreement whose terms and conditions are reasonably acceptable to
Manager and CHRI (the "SECURITY AGREEMENT"). "PERMITTED ASSIGNS" means (A)
------------------ -----------------
affiliates of WHC or, following its merger with Patriot American Hospitality,
Inc., a Delaware corporation ("PATRIOT"), any affiliate of Patriot or the entity
-------
with which its common stock is paired or (B) any lender in connection with
providing security for bona fide indebtedness. All amounts payable under the
Note shall be payable to WHC or a Permitted Assign, which shall distribute such
amounts to the Wyndham Parties or other persons in a manner agreed upon by such
parties. The Wyndham Parties hereby acknowledge receipt of the Note.
The Settlement Fee shall be paid to and accepted by the Wyndham Parties in
complete settlement of all amounts owing to any Wyndham Party by any Prime Party
or Homegate Party
2
<PAGE>
in respect of the termination of the Management Agreements (including, without
limitation, any "Termination Fee" under the Management Agreements) and as part
of the consideration for the Wyndham Parties' release of their respective Claims
(defined below). The Settlement Fee shall not, however, constitute payment of
any amounts that have accrued under the Management Related Agreements before the
Termination Date (including the "Management Fees" under the Management
Agreements) or satisfaction of any indemnification obligations under the
Management Agreements.
(c) ONGOING OPERATIONS. The Homegate Parties and the Wyndham Parties
------------------
shall continue to perform their respective obligations from and after the date
hereof under the Management Related Agreements. Upon the termination of the
Management Related Agreements pursuant to Section 1 hereof, Manager shall, in
addition to its obligations under Section 12.7 of each of the Management
Agreements, (1) deliver to Homegate or its designee all standard operating
procedure manuals (other than those which are proprietary to Manager), business
plans, marketing plans, bookings and other records relating to the ownership,
operation, and maintenance of the hotels under the Management Agreements (the
"HOTELS") and (2) assign and convey to Homegate or its designee all of the
- -------
Wyndham Parties' rights, titles, and interests, if any, in and to all management
information systems, technical systems and other property at each Hotel paid for
by Homegate (but specifically excluding any centralized system which is located
off-site and is operated by Manager), and shall execute such documents as
Homegate may reasonably request to evidence such assignments and conveyances and
use commercially reasonable efforts to obtain any necessary consents therefor.
2. MUTUAL RELEASE.
--------------
(a) DELIVERY OF DOCUMENTS. On or before the Termination Date and as
---------------------
a condition to the effectiveness of the termination, the following shall be
delivered to WHC or its Permitted Assigns (the "RELEASE CONDITIONS"):
------------------
(1) the Cash Payment;
(2) the Note, receipt of which is hereby acknowledged by the
Wyndham Parties;
(3) the Security Agreement;
(4) the CHRI Stock certificates, together with stock powers duly
executed in blank, and/or such other documents or evidence as WHC or
its Permitted Assigns may reasonably request to perfect WHC's or its
Permitted Assigns' security interests in such stock and in all other
collateral securing the Note as first-priority security interests. The
Wyndham Parties (on behalf of themselves and their Permitted Assigns)
agree they shall not foreclose their security interest against the
CHRI Stock until six months after the Termination Date.
Prime and Homegate hereby agree for the benefit of the Wyndham Parties and CHRI
to deliver the Cash Payment on the Termination Date, and CHRI hereby agrees for
the benefit of the Wyndham Parties, the Homegate Parties, and the Prime Parties
to deliver the Note, the Security Agreement and the other documents required
under clause (4) above on or before the Termination Date. If the Cash
3
<PAGE>
Payment is made but the documents specified in clauses (3) and (4) of the
Release Conditions have not been executed and delivered as required therein,
then the Cash Payment shall be returned to the party making such payment and the
termination notice in question shall thereafter be ineffective. If the documents
set forth in clauses (2), (3), and (4) of the Release Conditions have been
delivered, but the Cash Payment is not made, then such documents shall be
returned to the party which delivered them and the termination notice in
question shall thereafter be ineffective. Unless and until the Merger and
termination occur and the Release Conditions have been satisfied, none of the
Claims (defined below) shall be released. However, no party hereto shall
institute (or permit any of its affiliates to institute) any legal proceeding to
enforce any Claims until the earliest of (A) the Merger Agreement being
terminated, (B) if the Merger is consummated and a termination is given, the
Release Conditions having not been satisfied on the Termination Date, (C) if the
Merger is consummated but the termination right provided in Section 1 is not
timely exercised, or (D) March 31, 1998 if neither the Merger Agreement is
terminated nor the Merger is consummated by such date.
(b) MUTUAL RELEASE. Upon satisfaction of the Release Conditions (but
--------------
not before then), the releases set forth in this Section 2.(b) shall become
effective. Each of the Wyndham Parties hereby releases and forever discharges
each of Homegate, VPS, Prime, their respective parent companies, successors,
predecessors, subsidiaries, and affiliates and each of such party's directors,
officers, employees, partners, agents, and attorneys (collectively, the
"HOMEGATE RELEASED PARTIES") from all Claims (defined below) it may have against
- --------------------------
all or any of the Homegate Released Parties. Each of the Prime Parties and each
of the Homegate Parties hereby releases and forever discharges each of the
Wyndham Parties, their parent companies, successors, predecessors, subsidiaries,
and affiliates and each of such party's respective directors, officers,
employees, partners, agents, and attorneys (the "WYNDHAM RELEASED PARTIES") from
------------------------
all Claims it may have against all or any of the Wyndham Released Parties. Each
of Homegate, VPS, Prime, Manager, WHC and IP hereby releases and forever
discharges CHRI and its affiliates and each of such parties' directors,
officers, employees, partners, agents, and attorneys (collectively the "CHRI
----
RELEASED PARTIES") from all Claims it may have against all or any of the CHRI
- ----------------
Released Parties. CHRI hereby releases and forever discharges the Homegate
Released Parties and the Wyndham Released Parties from all Claims it may have
against all or any of such parties. As used in this Section 2, the term
"CLAIMS" means all possible claims, demands, actions, causes of actions, costs,
- -------
expenses, and liabilities whatsoever, known or unknown, suspected or
unsuspected, anticipated or unanticipated, foreseeable or unforeseeable, at law
or in equity, relating to or arising out of, in whole or in part, the Proposed
Transactions, the failure to consummate such transactions, and/or the Merger
based on any event or circumstance existing on or before the date of this
Agreement regardless of whether any such Claim arises out of contract, tort,
violation of laws, or otherwise including, without limitation, any claim for
tortious interference with contract, breach of contract, fraud or breach of
fiduciary duty, except as provided in Section 2.(c). Subject to Section 2.(c),
it is the express intention of each releasing party that it absolutely and fully
releases any and all claims, causes of action, and liabilities of any nature
whatsoever, it may or might now have against the parties being released by such
party relating to the Proposed Transactions, the failure to consummate such
transactions, and/or the Merger based on any event or circumstances existing on
or before the date hereof to the maximum extent permitted by law, even if same
are wholly unknown, unsuspected or unanticipated, intending hereby to conclude a
full and complete mutual release as to all such matters. Each of the parties
hereto represents and warrants to the other that it is the current legal and
beneficial owner of all Claims
4
<PAGE>
released by it hereunder and it has not assigned, pledged, or contracted to
assign or pledge any such Claim to any other person. If any party being released
hereunder is not a party hereto, then it shall be a third party beneficiary
hereof with respect to such release.
(c) EXCLUDED MATTERS. Nothing in this Section 2 shall release any
----------------
party hereto from any claims or obligations arising under the individual
Management Related Agreements whether now existing or hereafter arising (other
than the Termination Fees under the Management Agreements upon payment of the
Settlement Fee), any claims or obligations arising under this Agreement, the
Note or the Security Agreement or, with respect to the releases between CHRI,
the Homegate Parties, and the Prime Parties, obligations arising under the
Merger Agreement.
3. REPRESENTATIONS AND WARRANTIES.
------------------------------
(a) WYNDHAM PARTIES. Each of the Wyndham Parties which is a
---------------
signatory hereto hereby represents and warrants that (1) it has authority to
bind its affiliates to the terms hereof; (2) the maximum number of employees
hired by Manager for any particular Hotel is less than fifty; and (3) the
execution, delivery and performance of this Agreement has been duly authorized
and this Agreement constitutes the legal, valid and binding obligation of the
Wyndham Parties;
(b) HOMEGATE PARTIES. Each of the Homegate Parties which is a
----------------
signatory hereto represents and warrants that (1) it has authority to bind its
affiliates to the terms hereof; and (2) the execution, delivery and performance
of this Agreement has been duly authorized and this Agreement constitutes the
legal, valid and binding obligation of the Homegate Parties;
(c) PRIME PARTIES. Each of the Prime Parties which is a signatory
-------------
hereto represents and warrants that it (1) has authority to bind its affiliates
to the terms hereof; and (2) the execution, delivery and performance of this
Agreement has been duly authorized and this Agreement constitutes the legal,
valid and binding obligation of the Prime Parties; and
(d) CHRI PARTIES. CHRI represents and warrants that (1) the
------------
execution, delivery and performance of this Agreement and the Note have been
duly authorized and this Agreement and the Note constitutes (and the Security
Agreement will constitute upon its execution and delivery) the legal, valid and
binding obligation of CHRI and (2) it will receive not less than 59,000 shares
of common stock of Prime in connection with the Merger (subject to adjustment of
the exchange ratio in accordance with Merger Agreement).
4. BINDING EFFECT. Except as modified hereby, the Management Related
--------------
Agreements shall remain in full effect. This Agreement shall be binding on the
Prime Parties, the Wyndham Parties, CHRI and the Homegate Parties and their
respective successors and assigns, and shall be governed by New York law.
5
<PAGE>
5. NO ADMISSION. The execution of this Agreement by each of the parties
------------
hereto shall not be construed as an admission of liability on the part of any
party hereto. Except as expressly provided in the last sentence of Section
2(a), neither the execution and delivery of this Agreement nor any provision
hereof shall prejudice any party's position with respect to any dispute unless
until the Release Conditions have been satisfied.
6. WYNDHAM PARTY EXPENSES. Homegate shall pay all third party expenses
----------------------
incurred by the Wyndham Parties before the date hereof in connection with the
Proposed Transactions (not to exceed $50,000), as soon as reasonably
practicable, but in any event by September 15, 1997.
[INTENTIONALLY LEFT BLANK]
6
<PAGE>
Signature Pages to the Agreement Regarding Termination of Management
Agreements dated July 25, 1997.
HOMEGATE HOSPITALITY, INC., a Delaware corporation
By: /s/ ROBERT A. FAITH
-----------------------------------------------
Name: Robert A. Faith
---------------------------------------------
Title: Chairman of the Board, Chief Executive
--------------------------------------------
Officer and President
VPS I, L.P., a Delaware limited partnership
By: VPS, Inc., a Delaware corporation, its
general partner
By: /s/ ROBERT A. FAITH
-----------------------------------------
Name: Robert A. Faith
---------------------------------------
Title:
--------------------------------------
PRIME HOSPITALITY CORP., a Delaware corporation
By: /s/ JOHN M. ELWOOD
-----------------------------------------------
Name: John M. Elwood
---------------------------------------------
Title: Executive Vice President and
--------------------------------------------
Chief Financial Officer
WYNDHAM MANAGEMENT CORPORATION,
a Delaware corporation
By: /s/ ANN RAYMOND
-----------------------------------------------
Name: Ann Raymond
---------------------------------------------
Title: Vice President
--------------------------------------------
7
<PAGE>
WYNDHAM HOTEL CORPORATION, a Delaware corporation
By: /s/ ANN RAYMOND
-----------------------------------------------
Name: Ann Raymond
---------------------------------------------
Title: Executive Vice President
--------------------------------------------
WYNDHAM IP CORPORATION, a Delaware corporation
By: /s/ ANN RAYMOND
-----------------------------------------------
Name: Ann Raymond
---------------------------------------------
Title: Vice President
--------------------------------------------
CROW HOTEL REALTY INVESTORS, L.P., a Texas limited
partnership
By: Crow Family, Inc., its general partner
By: /s/ ANTHONY W. DUNN
-----------------------------------------
Name: Anthony W. Dunn
---------------------------------------
Title: Executive Vice President
--------------------------------------
8
<PAGE>
SCHEDULE 1
----------
Management Agreement dated September 6, 1996 for Fiesta Park in San Antonio, TX
Management Agreement dated September 6, 1996 for Airport Site in San Antonio, TX
Management Agreement dated September 6, 1996 for Site in Amarillo, TX
Management Agreement dated September 6, 1996 for Site in El Paso, TX
Management Agreement dated September 6, 1996 for Site in Irving, TX
Management Agreement dated November 1, 1996 for 44th & Oaks in Phoenix, AZ
Management Agreement dated June 14, 1996 for Studio Suites in Grand Prairie, TX
Management Agreement dated January 1, 1997 for Towne Lake Hotel in Austin, TX
Schedule 1-1
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
---------------
$4,000,000 July 25, 1997
FOR VALUE RECEIVED CROW HOTEL REALTY INVESTORS, L.P. ("Maker"), promises
-----
to pay to WYNDHAM HOTEL CORPORATION, a Delaware corporation, or its Permitted
Assigns (defined below) ("Payee"), the principal sum of $4,000,000, together
-----
with interest accruing on the principal balance outstanding hereunder from the
Effective Date (defined below) until maturity (or until paid, if prior to
maturity) at the lesser of (a) 7% per annum or (b) the maximum lawful rate of
interest. All past due amounts of principal and interest shall bear interest
until paid at the lesser of 12% per annum or the maximum lawful rate of
interest.
The principal balance of this Note and all accrued, unpaid interest hereon
shall be payable six months after the Effective Date. This Note may be prepaid
in whole or in part, without premium or penalty. All payments made hereunder
shall be applied first to accrued unpaid interest and then to reduction of the
outstanding principal balance hereof. Payments of principal and interest are to
be made at the office of Payee at 2001 Bryan Street, Suite 2300, Dallas, Texas
75201, or such other place as the holder hereof shall designate to Maker in
writing, in lawful money of the United States of America.
"Permitted Assigns" means (a) any affiliate of Wyndham Hotel Corporation
-----------------
or, following its merger with Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot"), any affiliate of Patriot or the entity with which its
-------
common stock is paired or (b) any lender in connection with providing security
for bona fide indebtedness. The term "affiliate," as to any party, means any
---------
entity in which such party, directly or indirectly, owns more than thirty
percent (30%) of the voting or economic interests.
If a default is made in the performance of any covenant or agreement
contained in any security agreement executed by Maker in favor Payee, under
which Maker grants to Payee security interests in collateral to secure payment
of this Note (a "Security Agreement") and such default continues for a period of
------------------
15 days after Payee has delivered to Maker written notice thereof, then, while
such default is continuing, the holder of this Note may, without notice or
demand, declare the entire unpaid principal balance hereof and unpaid accrued
interest at once due; however, Payee's right to foreclose on certain collateral
before six months after the Effective Date is prohibited as provided in Section
2(a)(4) of the Termination Agreement (defined below). If this Note is placed in
the hands of an attorney for collection, or suit is filed hereon, or
proceedings are had in bankruptcy, probate, receivership, reorganization, or
other judicial proceedings for the establishment or collection of any amount
called for hereunder, or any amount payable or to be payable hereunder is
collected through any such proceedings, Maker shall pay to the holder of this
Note a reasonable amount as attorneys' fees. Payee's delay in enforcing or
failure to enforce its rights and recourses under this Note or a Security
Agreement, shall not constitute a waiver of such rights, nor shall Payee's
acceptance of any partial or late payment relieve Maker of its obligation to
timely and fully pay all indebtedness evidenced by this Note when due.
1
<PAGE>
Maker, co-makers, signers, sureties, endorsers and guarantors, and each of
then, expressly waive demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of intent to accelerate
the maturity hereof, notice of the acceleration of the maturity hereof, bringing
of suit and diligence in taking any action to collect amounts called for
hereunder and in the handling of securities at any time existing in connection
herewith; and are and shall be directly and primarily liable for the payment of
all sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder or in connection with any right, lien, interest or property
at any and all times had or existing as security for any amount called for
hereunder.
It is the intention of Maker and Payee to conform strictly to applicable
usury laws. Accordingly, if the transactions contemplated hereby would be
usurious under applicable law (including the laws of the State of Texas and the
laws of the United States of America), then: (i) the aggregate of all
consideration which constitutes interest under applicable law that is taken,
reserved, contracted for, charged or received under this Note or under any of
the other aforesaid agreements or otherwise in connection with this Note shall
under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on the Note by the Holder
hereof (or, if this Note shall have been paid in full, refunded to the Maker);
and (ii) in the event that maturity of this Note is accelerated by reason of an
election by the holder hereof resulting from any default hereunder or otherwise,
or in the event of any required or permitted prepayment, then such consideration
that constitutes interest may never include more than the maximum amount allowed
by applicable law, and excess interest, if any, provided for in this Note or
otherwise shall be cancelled automatically as of the date of such acceleration
or prepayment and, if theretofore prepaid, shall be credited on this Note (or if
this Note shall have been paid in full, refunded to the Maker).
This Note has been executed and delivered and shall be construed in
accordance with and governed by the laws of the State of Texas and the United
State of America. Unless changed in accordance with law, the applicable rate
ceiling under Texas law shall be the indicated (weekly) rate ceiling from time
to time in effect as provided in TEX.REV.CIV.STAT.ANN.art.5069-1.04, as amended.
The liability of the general partner of Maker shall be limited to its
interest in Maker, accordingly, no other assets of the general partner of Maker
shall be subject to recourse for the obligations under this Note or any document
executed in connection herewith.
2
<PAGE>
This Note shall be effective if and only if the "Management Related
Agreements" (as defined in the Termination Agreement) have been terminated
pursuant to Section 1.a of the Termination Agreement and the "Release
Conditions" under the Termination Agreement have been satisfied. The date on
which such events occur is herein called the "Effective Date." "Termination
-------------- -----------
Agreement" means the Agreement Regarding Termination of Management Agreements of
- ---------
even date herewith among Payee, Maker, Homegate Hospitality, Inc., Prime
Hospitality Corp., and the other parties thereto. If the Effective Date has not
occurred by March 31, 1998, then this Note shall be ineffective and Payee shall
deliver to Maker this Note, all collateral delivered to secure this Note and all
documents executed to evidence or secure the obligations of Maker hereunder.
[INTENTIONALLY LEFT BLANK]
3
<PAGE>
Signature page to the $4,000,000 Promissory Note dated July 25, 1997
executed by Crow Hotel Realty Investors, L.P., payable to Wyndham Hotel
Corporation or its Permitted Assigns.
CROW HOTEL REALTY INVESTORS, L.P., a
Texas limited partnership
By: Crow Family, Inc.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
4
<PAGE>
WYNDHAM HOTEL CORPORATION, a
Delaware corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
WYNDHAM IP CORPORATION, a Delaware
corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
CROW HOTEL REALTY INVESTORS, L.P., a
Texas limited partnership
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,911,522
<SECURITIES> 0
<RECEIVABLES> 3,766,055
<ALLOWANCES> 0
<INVENTORY> 5,595,787
<CURRENT-ASSETS> 85,549,655
<PP&E> 84,549,655
<DEPRECIATION> 860,357
<TOTAL-ASSETS> 94,336,522
<CURRENT-LIABILITIES> 2,781,389
<BONDS> 0
0
0
<COMMON> 107,250
<OTHER-SE> 63,680,684
<TOTAL-LIABILITY-AND-EQUITY> 94,336,522
<SALES> 4,021,929
<TOTAL-REVENUES> 4,728,540
<CGS> 0
<TOTAL-COSTS> 4,125,435
<OTHER-EXPENSES> 623,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 880,145
<INCOME-PRETAX> (900,538)
<INCOME-TAX> 0
<INCOME-CONTINUING> (900,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (900,538)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
