-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PouahrgBzV2XGP5waWS36SC8hMmPaVMXCqXsgKOCBWrSFHDMsyMIbshmNuSM5Ckh 8PKm/zNYg0ZLJxZacxNvMA== 0000950123-97-010387.txt : 19971217 0000950123-97-010387.hdr.sgml : 19971217 ACCESSION NUMBER: 0000950123-97-010387 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971201 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971216 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME HOSPITALITY CORP CENTRAL INDEX KEY: 0000080293 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 222640625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-06869 FILM NUMBER: 97738921 BUSINESS ADDRESS: STREET 1: 700 RTE 46 E CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 2018821010 MAIL ADDRESS: STREET 1: 700 RTE 46 EAST CITY: FAIRFIELD STATE: NJ ZIP: 07004 FORMER COMPANY: FORMER CONFORMED NAME: PRIME MOTOR INNS INC DATE OF NAME CHANGE: 19920609 FORMER COMPANY: FORMER CONFORMED NAME: PRIME EQUITIES INC DATE OF NAME CHANGE: 19731120 8-K 1 PRIME HOSPITALITY CORP. 1 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 1, 1997 PRIME HOSPITALITY CORP. (Exact name of Registrant as specified in its charter) COMMISSION FILE NO. 1-6869 DELAWARE 22-2640625 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 700 ROUTE 46 EAST, FAIRFIELD, NEW JERSEY 07004 (address of principal executive offices) (zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973)882-1010 - ------------------------------------------------------------------------------- 2 Item 2. Acquisition of Assets On December 1, 1997, Prime Hospitality Corp. ("Prime") completed its merger with Homegate Hospitality, Inc. ("Homegate"). Pursuant to the merger, Prime has exchanged 6,513,292 shares of its common stock for the 10,725,000 outstanding shares of Homegate and Homegate has now become a wholly owned subsidiary of Prime. The transaction is valued at approximately $125 million based on the closing price of Prime's common stock as of November 30, 1997 and will be accounted for as a pooling of interests. The consideration was based on an arm's length negotiation between the two parties. Factors involved in arriving at the consideration included analyses of Homegate's projected financial and operating performance, similar merger and acquisition transactions, market value and replacement costs for similar hotels, potential synergies between the companies and other relevant information. In order to facilitate uninterrupted development of the Homegate hotels, the Company agreed to provide up to $65.0 million of interim loans to Homegate pending completion of the merger. The interim loans bore interest at a rate per annum equal to the one month London Interbank Offered Rate plus 3.50%. As of November 30, 1997, an aggregate amount of $43.9 million of interim loans was outstanding. For financial statement purposes, the interim loans will be classified as intercompany loans and eliminated in consolidation. With the merger, Prime now owns or operates 133 hotels nationwide, which includes hotels under its proprietary AmeriSuites, Homegate and Wellesley Inns trade names as well as a portfolio of upscale full-service hotels. Prime is rapidly developing its AmeriSuites all-suite hotel brand, with 59 hotels open and another 47 under development. Prime also intends to aggressively develop the Homegate chain through strategic alliances with Trammell Crow Residential and Greystar Capital Partners. The Homegate hotels are high-quality, mid-price extended-stay hotels, with 12 hotels in operation and another 42 hotels under development. As of year end 1997, Prime expects that it will operate a portfolio of approximately 150 hotels, with approximately 75 more AmeriSuites and Homegate properties under development. Item 7. Financial Statements and Exhibits (a) Unaudited financial statements of Homegate Hospitality, Inc. for the three and nine months ended September 30, 1997 and 1996 and audited financial statements of Homegate Hospitality, Inc. for the period from inception (February 9, 1996) through December 31, 1996. (b) Pro forma financial statements for the combined companies for the three and nine months ended September 30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994. (c) Reference is made to the Agreement and Plan of Merger, dated as of July 25, 1997, among Prime Hospitality Corp., PH Sub Corporation and Homegate Hospitality, Inc. filed as an Exhibit to the Company's Form S-4, dated October 27, 1997, which is incorporated herein by reference. -1- 3 Homegate Hospitality, Inc. Consolidated Balance Sheets
ASSETS September 30, 1997 December 31, 1996 ------------------ ----------------- (unaudited) Current assets Cash and cash equivalents $ 1,534,752 $ 31,475,679 Restricted cash 680,747 959,198 Accounts receivable Hotel 288,727 241,403 Other 156,125 256,939 Interest -- 208,411 Earnest money deposits 490,000 546,000 Prepaid expenses 461,680 552,054 -------------- -------------- Total current assets 3,612,031 34,239,684 Property and equipment, net (Note 2) 121,428,027 51,106,541 Loans receivable (Note 3) -- 1,900,500 Deferred loan costs, net 1,027,155 335,547 Other assets, net 641,523 951,136 -------------- -------------- Total assets $ 126,708,736 $ 88,533,408 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 1,069,305 $ 1,101,225 Accrued expenses 704,464 224,694 Payables to affiliates 1,703,447 1,132,274 Note payable - Prime Hospitality (Note 4) 23,894,000 -- Current maturities of mortgage and other notes payable 720,214 425,738 -------------- -------------- Total current liabilities 28,091,430 2,883,931 Mortgage and other notes payable (Note 5) 35,662,582 20,961,009 Stockholders' equity (Note 6) 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) (2,600,151) (866,407) -------------- -------------- Total stockholders' equity 62,954,724 64,688,468 -------------- -------------- Total liabilities and stockholders' equity $ 126,708,736 $ 88,533,408 ============== ==============
See accompanying notes. 2 4 Homegate Hospitality, Inc. Consolidated Statements of Operations (unaudited)
Three months ended Nine months ended September 30, September 30, 1997 1996 1997 1996 ---- ---- ---- ---- REVENUES Room revenue $ 1,954,579 $ 630,051 $ 5,976,507 $ 654,854 Other revenue 49,134 4,844 152,526 6,548 Interest income 32,225 - 635,443 - -------------- -------------- -------------- -------------- Total revenues 2,035,938 634,895 6,764,476 661,402 COSTS AND EXPENSES Property operating expenses 1,463,214 461,239 4,172,895 491,552 Corporate operating expenses 532,913 314,309 1,947,001 518,582 Depreciation and amortization 428,097 103,267 1,053,262 112,800 Interest 444,920 168,803 1,325,065 190,260 -------------- -------------- -------------- -------------- Total costs and expenses 2,869,144 1,047,618 8,498,223 1,313,194 -------------- -------------- -------------- -------------- Net loss $ (833,206) $ (412,723) $ (1,733,747) $ (651,792) ============== ============== ============== ============== Net loss per share $ (.08) $ (.04) $ (.16) $ (.06) ============== ============== ============== ============== Weighted average number of shares outstanding 10,725,000 10,725,000 10,725,000 10,725,000 ============== ============== ============== ==============
See accompanying notes. 3 5 Homegate Hospitality, Inc. Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, OPERATING ACTIVITIES 1997 1996 ---- ---- Net loss $ (1,733,747) $ (651,793) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 1,053,262 112,800 Amortization of loan costs 25,519 - Accrued interest added to mortgage note payable 155,459 70,000 Changes in operating assets and liabilities Restricted cash 278,452 -- Accounts receivable 261,900 (652,418) Prepaid expenses 90,374 (93,389) Property taxes payable 315,121 -- Other current liabilities 14,089 -- Accounts payable (203,671) 1,029,882 Accrued expenses 479,771 411,923 Payables to affiliates (33,089) 202,596 -------------- -------------- Net cash provided by operating activities 703,440 429,601 -------------- -------------- INVESTING ACTIVITIES Acquisition of land (21,895,896) (30,004,529) Acquisition of hotel facility (2,773,410) (6,049,645) Construction in progress, net of payables to affiliates (28,361,841) -- Additions to property and equipment, net of development costs payable (14,585,900) (1,284,775) Additions to earnest money deposits (420,000) -- Additions to development costs (262,255) -- Additions to other assets (226,611) (754,698) -------------- -------------- Net cash used in investing activities (68,525,913) (38,093,647) -------------- -------------- FINANCING ACTIVITIES Proceeds from mortgage and other notes payable 39,127,752 20,849,854 Principal payments on mortgage and other notes payable (393,162) -- Payment of deferred loan costs (853,044) (351,741) Contributions from partners -- 18,669,920 -------------- -------------- Net cash provided by financing activities 37,881,546 39,168,033 -------------- -------------- Net increase/(decrease) in cash and cash equivalents (29,940,927) 1,503,987 Cash and cash equivalents at beginning of period 31,475,679 -- -------------- -------------- Cash and cash equivalents at end of period $ 1,534,752 $ 1,503,987 ============== ==============
See accompanying notes. 4 6 Homegate Hospitality, Inc. Notes to Consolidated Financial Statements (unaudited) September 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 September 30, 1996, have been included herein. ESLP had no operations until June 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. 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. The Merger Agreement is subject to the approval of the stockholders of the Company and other customary terms and conditions. A meeting of the Company's stockholders has been called for on December 1, 1997 and the merger is expected to be completed promptly thereafter. 5 7 2. PROPERTY AND EQUIPMENT At September 30, 1997 and December 31, 1996, property and equipment consisted of the following:
September 30, 1997 December 31, 1996 ------------------ ----------------- Land $ 41,565,767 $ 16,473,296 Buildings and improvements 42,308,785 28,300,127 Construction in progress 32,780,024 4,623,153 Furniture, fixtures, and equipment 6,036,495 1,985,837 -------------- -------------- 122,691,071 51,382,413 Less accumulated depreciation 1,263,044 275,872 -------------- -------------- $ 121,428,027 $ 51,106,541 ============== ==============
During the third quarter of 1997, the Company acquired three land parcels in Austin, Texas, and one in Tampa, Florida that are under development for hotel construction. Additionally, the Company acquired one land parcel in each of the following cities: Aurora, Colorado; Orlando, Florida; Columbia, Maryland; and Columbus, Ohio for future development of hotel facilities. On August 12, 1997 the company purchased an existing corporate housing project in Charlotte, North Carolina. The Company is intending to convert this project to an extended stay hotel in 1998. The Company must first obtain the proper zoning for this conversion to occur. As of September 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 being 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 accrued interest at ten percent and matured on the sooner of November 2000 or five business days after demand. On July 3, 1997, the Company purchased the Rutherford and Jolleyville sites for a total purchase price of $508,713, net of the two promissory notes and the related accrued interest. 4. NOTE PAYABLE - PRIME HOSPITALITY In accordance with a commitment letter executed by the Company and Prime contemporaneously with the execution of the Merger Agreement, the Company and Prime thereafter executed a loan agreement pursuant to which Prime provided a $65 million interim secured construction term loan facility ("Construction Term Loan Facility") to the Company. The Construction Term Loan Facility is 6 8 HOMEGATE HOSPITALITY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) to be used for the acquisition and 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 paid a loan fee of 1% of the aggregate principal amount of the Construction Term Loan Facility. Monthly interest payments commence December 15, 1997. The interest accrues monthly 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 loan is secured by a first priority perfected security interest in specified sites. The amount of any loan under the facility may not exceed 75% of the total project costs of the related project. The outstanding balance at September 30, 1997 was $23,894,000. 5. 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. As of September 30, 1997, six loans have been committed under the Note with aggregate note amounts equaling $24,611,067. On May 31, 1996, a loan, in the amount of $3,448,250, was committed under the Note in connection with the acquisition of the hotel in Grand Prairie, Texas. This loan, secured by the hotel in Grand Prairie, accrues interest at either LIBOR plus 2.25% or prime plus .5% based on the election of the Company (7.91% at September 30, 1997), and required 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 September 30, 1997 was $2,861,194. On August 15, 1996, a 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 44th and Oak, accrues interest at either LIBOR plus 2.5% or prime plus .5% based on the election of the Company (8.13% at September 30, 1997), and required 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 September 30, 1997 was $3,168,839. 7 9 HOMEGATE HOSPITALITY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) On February 4, 1997, a loan, in the amount of $5,070,000, was committed 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 (7.91% at September 30, 1997), and requires principal and interest payments based upon a fifteen year amortization until maturity, February 4, 2000. The outstanding balance at September 30, 1997 was $4,859,006. On July 21, 1997, a loan, in the amount of $3,961,379, was committed under the Note in connection with the construction of the hotel in Denver, Colorado. This loan, secured by the hotel at Denver Tech Center, accrues interest at either LIBOR plus 2.5% or prime plus .5% based on the election of the Company (8.13% at September 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, July 21, 1999. 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 September 30, 1997 was $2,477,954. On August 6, 1997, a loan, in the amount of $4,294,828, was committed under the Note in connection with the construction of the hotel in Phoenix, Arizona. This loan, secured by a hotel at Phoenix Interstate 10 & Chandler, accrues interest at either LIBOR plus 2.5% or prime plus .5% based on the election of the Company (8.16% at September 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 6, 1999. 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 September 30, 1997 was $1,858,231. On August 18, 1997, a loan, in the amount of $4,326,725, was committed under the Note in connection with the construction of the hotel in Dallas, Texas. This loan, secured by a hotel at Dallas Park Central (Vantage Point Drive), accrues interest at either LIBOR plus 2.5% or prime plus .5% based on the election of the Company (8.16% at September 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 18, 1999. 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 September 30, 1997 was $1,084,082. In connection with the acquisition of the 511 Queens corporate housing project in Charlotte, North Carolina, the Company entered into a $1,900,000 mortgage note due to Morgan Guaranty Trust Company of New York, with interest at 7.97% through September 1, 2007. The note is due in monthly installments of $14,626.77, including interest, from October 1997 through September 2007, and is secured by the 511 Queens property and improvements. The outstanding balance at September 30, 1997 was $1,897,992. 8 10 HOMEGATE HOSPITALITY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 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 September 30, 1997 was $17,837,175. 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. Restricted cash includes cash retained by Nomura's mortgage servicer for payment of taxes, insurance and debt service. 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 September 30, 1997 was $338,323. 6. 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. 9 11 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Homegate Hospitality, Inc. We have audited the accompanying balance sheet of Homegate Hospitality, Inc. as of December 31, 1996, and the related statements of operations, changes in stockholders' equity and cash flows for the period from inception (February 9, 1996) through December 31, 1996. Our audit also included the financial statement schedule listed in the index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Homegate Hospitality, Inc. as of December 31, 1996, and the results of its operations and its cash flows for the period from inception (February 9, 1996) through December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Dallas, Texas February 20, 1997 10 12 HOMEGATE HOSPITALITY, INC. BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets: Cash and cash equivalents..................................................... $31,475,679 Restricted cash............................................................... 959,198 Accounts receivable Hotel......................................................................... 241,403 Other......................................................................... 256,939 Interest...................................................................... 208,411 Prepaid insurance............................................................. 552,054 ----------- Total current assets.................................................. 33,693,684 Property and equipment, net (Note 2).......................................... 51,106,541 Loans receivable (Note 3)..................................................... 1,900,500 Deferred loan costs, net of accumulated amortization of $16,113............... 335,547 Other assets, net of accumulated amortization of $68,586...................... 1,497,136 ----------- Total assets.......................................................... $88,533,408 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.............................................................. $ 1,101,225 Accrued expenses.............................................................. 224,694 Payables to affiliates (Note 6)............................................... 1,132,274 Current maturities of mortgage and other notes payable........................ 425,738 ----------- Total current liabilities............................................. 2,883,931 Mortgage and other notes payable (Note 4)..................................... 20,961,009 Stockholders' equity (Note 7) 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 Additional paid in capital.................................................... 65,447,625 Retained earnings (deficit)................................................... (866,407) ----------- Total stockholders' equity................................................. 64,688,468 ----------- Total liabilities and stockholders' equity............................ $88,533,408 ===========
See accompanying notes. 11 13 HOMEGATE HOSPITALITY, INC. STATEMENT OF OPERATIONS PERIOD FROM INCEPTION (FEBRUARY 9, 1996) THROUGH DECEMBER 31, 1996 Revenues: Room revenue.................................................................. $ 2,233,391 6,770 Interest income............................................................... 450,536 ---------- 2,690,697 Costs and expenses: Property operating expenses................................................... 1,675,936 Corporate operating expenses.................................................. 951,261 Depreciation and amortization................................................. 344,459 Interest...................................................................... 585,448 ---------- 3,557,104 ---------- Net loss........................................................................ $ (866,407) ========== Pro forma net loss per share.................................................... $ (.08) ========== Pro forma weighted average number of shares outstanding......................... 10,725,000
See accompanying notes. 12 14 HOMEGATE HOSPITALITY, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL NUMBER COMMON PAID IN RETAINED PARTNERS' OF SHARES STOCK CAPITAL EARNINGS CAPITAL TOTAL ---------- -------- ----------- --------- ------------ ----------- Capital contributed at inception (February 9, 1996)................. -- $ -- $ -- $ -- $ 20,000,000 $20,000,000 Net loss of ESLP (February 9, 1996 through October 23, 1996)................. -- -- -- -- (732,642) (732,642) Issuance of common stock to ESLP partners...... 6,386,087 63,861 19,936,139 (732,642) (19,267,358) -- Sale of common stock in initial public offering, net of offering costs........ 4,325,000 43,250 45,351,625 -- -- 45,394,875 Issuance of common stock to employees and others................ 13,913 139 159,861 -- -- 160,000 Net loss of the Company (October 24, 1996 through December 31, 1996)................. -- -- -- (133,765) -- (133,765) --------- ----------- Balance at December 31, 1996.................. 10,725,000 $107,250 $65,447,625 $(866,407) $ -- $64,688,468 ========== ======== =========== ========= ============ ===========
See accompanying notes. 13 15 HOMEGATE HOSPITALITY, INC. STATEMENT OF CASH FLOWS PERIOD FROM INCEPTION (FEBRUARY 9, 1996) THROUGH DECEMBER 31, 1996 Operating activities Net loss..................................................................... $ (866,407) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization................................................ 344,459 Amortization of loan costs................................................... 16,113 Accrued interest added to mortgage note payable.............................. 70,000 Changes in operating assets and liabilities: Restricted cash.............................................................. (959,198) Accounts receivable.......................................................... (706,753) Prepaid insurance, net of financing.......................................... (67,368) Accounts payable............................................................. 1,101,225 Accrued expenses............................................................. 224,694 Payables to affiliates....................................................... 126,623 ------------ Net cash used in operating activities................................ (716,612) Investing activities Acquisition of hotel facilities, net of debt assumed......................... (19,501,988) Acquisition of land.......................................................... (8,835,000) Additions to property and equipment, net of development costs payable........ (4,037,851) Advances under loans receivable.............................................. (1,900,500) Additions to other assets.................................................... (1,533,061) ------------ Net cash used in investing activities........................................ (35,808,400) ------------ Financing activities Proceeds from mortgage note payable.......................................... 2,893,092 Principal payments on mortgage and other notes payable....................... (62,955) Payment of deferred loan costs............................................... (384,322) Capital contribution from ESLP partners...................................... 20,000,000 Payment of initial public offering costs..................................... (861,997) Proceeds from issuance of common stock....................................... 46,416,873 ------------ Net cash provided by financing activities............................ 68,000,691 ------------ Net increase in cash and cash equivalents.................................... 31,475,679 Cash and cash equivalents at beginning of period............................. -- Cash and cash equivalents at end of period................................... $ 31,475,679 ============
See accompanying notes. 14 16 HOMEGATE HOSPITALITY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. ORGANIZATION AND ACCOUNTING POLICIES ORGANIZATION 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 (see Note 7). Accordingly, the financial results of ESLP, the predecessor to the Company, for the period from inception (February 9, 1996) through October 23, 1996, have been included herein. CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, VPS I, L.P. All material intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in financial statements and accompanying notes. Actual results could differ from these estimates. REVENUE RECOGNITION Room revenue and other income are recognized when earned, utilizing the accrual method of accounting. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. PROPERTY AND EQUIPMENT The Company capitalizes costs directly related to the acquisition, renovation or development of property and equipment while maintenance and repairs are charged to operating expense when incurred. Interest costs during construction periods are also capitalized. Property and equipment is recorded at cost. The building and improvements and furniture and fixtures are depreciated over their estimated useful lives, which are 40 years and 7 years, respectively, using the straight-line method. DEFERRED LOAN COSTS Costs incurred in obtaining financing have been deferred and are amortized over the life of the loan. 15 17 HOMEGATE HOSPITALITY, INC. NOTES TO FINANCIAL STATEMENTS -- CONTINUED OTHER ASSETS Other assets include site deposits, pursuit costs, pre-opening costs, and organization costs. Site deposits have been paid to escrow agents in conjunction with executed purchase agreements, whereby the Company is considering the purchase of certain land parcels. Costs related to the acquisition of property sites are capitalized when it is probable that a site will be acquired and are reclassified to property and equipment upon acquisition. In the event the acquisition is not consummated, the costs are expensed. Compensation, promotional and other costs relating to the opening of new properties are capitalized. Amortization is provided using the straight line method over a twelve-month period. Organization costs incurred in conjunction with the formation of the ESLP have been capitalized and are being amortized over sixty months using the straight-line method. PRO FORMA NET LOSS PER SHARE The pro forma net loss per share was calculated by dividing the net loss by the pro forma weighted average shares outstanding which assume the initial public offering occurred as of the beginning of the period. 2. PROPERTY AND EQUIPMENT At December 31, 1996, property and equipment consists of the following: Land............................................................ $ 16,473,296 Buildings and improvements...................................... 28,300,127 Construction in progress........................................ 4,623,153 Furniture, fixtures, and equipment.............................. 1,985,837 ----------- 51,382,413 Less accumulated depreciation................................... 275,872 ----------- $ 51,106,541 ===========
On May 31, 1996, ESLP acquired Studio Suites in Grand Prairie, Texas. Operations of the Studio Suites commenced during June 1996 and are included in the accompanying statement of operations since acquisition. During 1996, the Company acquired two land parcels in Phoenix, one parcel of land in Denver, two parcels of land in Kansas, and one parcel of land in Dallas, all of which are under development for hotel construction. Estimated costs to complete development on these projects total approximately $24.9 million. Additionally, the Company acquired one parcel in Indianapolis, for future development of a hotel facility. As of December 31, 1996, the Company has entered into agreements, letters of intent, contracts, or other arrangements to purchase eighteen additional land parcels. Long-lived assets are evaluated when indicators of impairment are present and provisions for possible losses are recorded when the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. ACQUISITION OF WESTAR On September 6, 1996, ESLP acquired all the interests in VPS I, L.P. an unaffiliated Delaware limited partnership that owned five hotels in several Texas cities operating under the name Westar Suites ("Westar"). ESLP paid $7,738,696 and assumed debt of $18,001,924 (See Note 4). The acquisition was accounted for as a purchase with the excess of the purchase price over the net book value of the Westar assets acquired allocated 16 18 HOMEGATE HOSPITALITY, INC. NOTES TO FINANCIAL STATEMENTS -- CONTINUED to property and equipment. The Company's statement of operations includes the operations of Westar from the date of acquisition. Assuming that Westar had been acquired at the beginning of the period presented (February 9, 1996), operating results of the Company would have been as follows: Room revenue..................................................... $6,854,060 Net income (loss)................................................ (746,024) Proforma earnings (loss) per share (.07)
ACQUISITION OF INNHOME AMERICA -- TOWNE LAKE On December 31, 1996, the Company acquired, from an unrelated party, an extended-stay hotel in Austin, Texas operating under the name InnHome America -- Towne Lake ("InnHome") for a total purchase price of $7.7 million. The acquisition was accounted for as a purchase with the excess of the purchase price over the net book value of the InnHome assets acquired allocated to property and equipment. Assuming that InnHome had been acquired at the beginning of the period presented (February 9, 1996), operating results of the Company would have been as follows: Room revenue..................................................... $3,916,343 Net income (loss)................................................ (198,465) Proforma earnings (loss) per share............................... (.02)
3. LOANS RECEIVABLE The Company advanced $1,900,500 under two promissory notes to two unrelated parties for the purchase of two parcels of land in Austin, Texas, on which extended-stay hotel facilities will be developed. 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 begin on February 1, 1997. The Company has a letter agreement to purchase the hotels upon completion for a total price equal to the lesser of $14.1 million or actual costs. 4. MORTGAGE AND OTHER NOTES PAYABLE MORTGAGE NOTES PAYABLE The Company has entered into a Master Loan Agreement (the "Note") with Bank One, Arizona. The Note provides up to $30 million in construction/mini-perm mortgage loans for the acquisition and development of land and hotel facilities for up to five years. A loan 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 (7.75% at December 31, 1996), 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 December 31, 1996, includes $2,847,930 of original principal borrowed and $70,000 of accrued interest added from an interest reserve. 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 44th and Oak, accrues interest at either LIBOR plus 2.25% or prime plus .5% based on the election of the Company (7.75% at December 31, 1996), and requires interest payments for the first twelve months of the loan, followed by principal and interest payments based upon a fifteen year amortization until maturity, 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 December 31, 1996 was $45,162. 17 19 HOMEGATE HOSPITALITY, INC. NOTES TO FINANCIAL STATEMENTS -- CONTINUED In connection with the acquisition of Westar, the Company assumed an $18,100,000 mortgage note due to Nomura Asset Capital Corporation, with interest at 9.71% through January 11, 2011 and the greater of 14.71% or the Treasury Rate plus 9% thereafter. The note is due in monthly installments of $160,789, including interest, commencing February 1996 through January 2021, and is secured by the Westar hotel properties and improvements. The outstanding balance at December 31, 1996 was $17,961,075. Restricted cash includes cash retained by the mortgage servicer for payment of taxes, insurance and debt service. The mortgage note payable to Nomura Asset Capital Corporation does not allow for prepayment of the debt until January 11, 2011, except by providing the lender with U.S. obligations that produce payments which replicate the payment obligations of the Company under the note. This restriction represents a substantial prepayment penalty. On or after January 11, 2011, the loan can be prepaid at any time with no prepayment penalty. 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 December 31, 1996 was $462,580. Principal maturities of the mortgages and other notes payable at December 31, 1996, are as follows:
MORTGAGE OTHER NOTES NOTES TOTAL ----------- --------- ------------ 1997.................................. $ 257,582 $ 168,156 $ 425,738 1998.................................. 300,549 183,089 483,638 1999.................................. 2,920,239 111,335 3,031,574 2000.................................. 221,514 -- 221,514 2001.................................. 249,377 -- 249,377 Thereafter............................ 16,974,906 -- 16,974,906 ----------- -------- ----------- $20,924,167 $ 462,580 $ 21,386,747 =========== ======== ===========
Interest incurred during 1996 was $718,298, of which $132,850 was capitalized. The Company paid interest totaling $532,596 during 1996. The carrying value of the mortgage and other notes payable as of December 31, 1996 approximates fair value as the interest rate approximates market rate for similar debt instruments. 5. INCOME TAXES The Company accounts for income taxes using the liability method. Deferred income taxes result from temporary differences between the carrying amounts of assets for financial reporting purposes and the amounts used for income tax purposes and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The portion of the loss included in the accompanying financial statements that was incurred by ESLP prior to its merger into the Company will be included in a separate partnership tax return. The loss incurred by the Company subsequent to the merger will be reflected in its corporate income tax return. 18 20 HOMEGATE HOSPITALITY, INC. NOTES TO FINANCIAL STATEMENTS -- CONTINUED The differences between the provision for income taxes ($0) and the amounts computed by applying the statutory federal income tax rates to loss before income taxes are: Statutory rate applied to loss before income taxes............... $(294,578) ESLP partnership loss............................................ 249,098 --------- (45,480) Provision for valuation allowance................................ 45,480 --------- $ -- ========= The components of the Company's deferred taxes at December 31, 1996, are: Deferred tax asset -- net operating loss carryforward............ $ 45,480 Valuation allowance.............................................. (45,480) --------- Net deferred tax asset (liability)............................... $ -- =========
At December 31, 1996, the Company has unused net operating loss carryforwards of approximately $134,000 for income tax purposes, that expire in the year 2011. No tax payments were made in 1996. 6. RELATED PARTY TRANSACTIONS Wyndham Management Corporation ("Wyndham") an affiliate of Crow, 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 of payroll and insurance expenditures. Payroll and insurance expenditures reimbursed to Wyndham was $179,123 during 1996. Wyndham is entitled to receive a management fee equal to 3% of gross revenues, as defined, for management of the Company's hotels. Management fees were $69,265 in 1996. Payables to affiliates includes $51,710 due to Wyndham at December 31, 1996, for management fees and marketing fees. Trammell Crow Residential (TCR), an affiliate of Crow, and Greystar Realty Services (GRS), an affiliate of Greystar, have collectively agreed to develop up to 60 hotel facilities for the Company, under an agreement that expires at the earlier of the completion of the sixtieth hotel or December 31, 1998. Development fees paid to TCR and GRS were $460,175 and $50,000, respectively, 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. 7. STOCKHOLDERS' EQUITY COMMON STOCKHOLDERS VOTING RIGHTS Common stockholders are entitled to one vote for each share held on all matters presented for a vote of stockholders. Stockholders are entitled to receive pro rata, such dividends, if any, as may be declared by the Board of Directors in their discretion from funds legally available. Upon liquidation or dissolution, stockholders are entitled to receive pro rata, all of the remaining assets of the Company available for distribution to its stockholders. 19 21 HOMEGATE HOSPITALITY, INC. NOTES TO FINANCIAL STATEMENTS -- CONTINUED ISSUANCE OF COMMON STOCK TO ESLP PARTNERS On October 24, 1996, ESLP merged with and into the Company. The Company issued 6,386,087 shares of common stock to the partners of ESLP in exchange for their partnership interests. The cost basis of the partnership interests acquired for stock was $19,267,358. INITIAL PUBLIC OFFERING On October 24, 1996, the Company completed an initial public offering of 4,325,000 shares of its common stock at a public offering price of $11.50 per share (the "Offering"). The proceeds to the Company from the offering were $45,394,875, net of offering expenses. LONG-TERM INCENTIVE PLAN The Company has adopted the 1996 Long-Term Incentive Plan (the "1996 Plan") to attract and retain employees and consultants. Under the plan, options and stock awards may be granted with respect to a total of not more than 1,250,000 shares of common stock, subject to antidilution and other adjustment provisions. The options generally vest over a four-year period and may be exercised over a period of 10 years from the date of grant, subject to the vesting provisions. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. On October 24, 1996, the Company granted options to acquire an aggregate of 511,250 shares of common stock to certain employees and Company advisors. The exercise price for these options is the initial public offering price of $11.50. The stock option grants include 336,250 shares granted to Company officers and employees, 25,000 shares granted to advisors from Greystar, 55,000 shares granted to advisors from TCR, 45,000 shares granted to advisors from Crow Realty Investors, L.P., and 50,000 shares granted to advisors from Wyndham Hotel Company. The options granted to advisors from TCR vested immediately and the remaining stock options will vest ratably over a four-year period. No options were exercised, forfeited or expired in 1996. The effect of applying the fair value method prescribed by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" to the Company's stock based awards to employees would have increased net loss by $146,000 or $.01 per share. The fair value was estimated using the Black- Scholes option-pricing model based on the weighted average market price at grant date of $11.50 and the following weighted average assumptions: risk-free interest rate of 6.12%, volatility of 10% and dividend yield of 0%. COMMON STOCK AWARDS In connection with the Offering, the Company granted 13,913 shares of common stock under the Plan to certain employees and consultants of the Company. As a result, $64,998 has been recorded to compensation expense and $34,995 has been capitalized to property and equipment for stock granted to employees. In addition, $60,007 has been recorded to offering costs for services provided by consultants in connection with the Offering. 8. PROFIT SHARING AND SAVINGS PLAN The Company has a 401(k) plan for all full-time employees. Employees may contribute up to 15% of their gross pay, subject to certain limitations. The Company's 401(k) plan was effective December 1, 1996. 20 22 HOMEGATE HOSPITALITY, INC. NOTES TO FINANCIAL STATEMENTS -- CONTINUED The Company matches 50% of the amount contributed by each employee, up to 6% of the employee's gross pay. In 1996, expenses included $2,298 representing the employer's matching contribution to the plan. 9. SUBSEQUENT EVENTS Subsequent to December 31, 1996, the Company purchased three land sites for an aggregate purchase price of $3,224,066. Additionally, the Company began development on two more hotel facilities. Total expected development costs for the two facilities are approximately $8,077,374. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Unaudited summarized financial data by quarter for 1996 is as follows:
QUARTER ENDED --------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- --------- ------------ ----------- Total revenues.................. $-- $ 24,803 $ 634,895 $ 2,029,296 Net loss........................ -- (239,070) (412,723) (214,614) Pro forma loss per share........ -- (.02) (.04) (.02)
21 23 PRIME HOSPITALITY CORP. PROFORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 1997 (IN THOUSANDS)
HISTORICAL PROFORMA PROFORMA PRIME HOMEGATE ADJUSTMENTS COMBINED ----- -------- ----------- -------- Current assets: Cash and cash equivalents $22,850 $1,535 $24,385 Accounts receivable, net of reserves 15,408 681 16,089 Restricted cash 445 445 Current portion of mortgage and notes receivables 25,526 (23,894)(C) 1,632 Other current assets 17,823 952 18,775 ----------- --------- --------- ----------- Total current assets 81,607 3,613 (23,894) 61,326 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization 900,414 121,428 1,021,842 Mortgages and notes receivable, net of current portion 19,941 19,941 Other assets 28,514 1,668 30,182 ----------- --------- --------- ----------- Total assets $1,030,476 $126,709 ($23,894) $1,133,291 =========== ========= ========= =========== Current liabilities: Current portion of long-term debt $3,079 $24,614 ($23,894)(C) $3,799 Other current liabilities 61,403 3,477 64,880 ----------- --------- --------- ----------- Total current liabilities 64,482 28,091 (23,894) 68,679 Long-term debt, net of current portion 492,485 35,663 528,148 Other liabilities 16,343 16,343 ----------- --------- --------- ----------- Total liabilities 573,310 63,754 (23,894) 613,170 Stockholders' equity: Preferred stock Common stock 406 107 (42)(A) 471 Capital in excess of par value 344,039 65,448 42 (A) 409,529 Retained earnings(deficit) 113,759 (2,600) 0 111,159 Treasury stock (1,038) (1,038) ----------- --------- --------- ----------- Total stockholders' equity 457,166 62,955 0 520,121 ----------- --------- --------- ----------- Total liabilities and stockholders' equity $1,030,476 $126,709 ($23,894) $1,133,291 =========== ========= ========= ===========
24 PRIME HOSPITALITY CORP. PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ------------------------- PROFORMA PROFORMA PRIME HOMEGATE ADJUSTMENTS COMBINED ----- -------- ----------- -------- Total revenue $ 85,803 $ 2,002 (534) $ 87,271 Costs and expenses: Direct hotel operating expenses 41,741 1,251 -- 42,992 Occupancy and other operating 5,438 211 -- 5,649 General and administrative 5,201 532 -- 5,733 Depreciation and amortization 8,203 428 -- 8,631 -------- -------- ------- -------- Total costs and expenses 60,583 2,422 0 63,005 -------- -------- ------- -------- Operating income (loss) 25,220 (420) (534) 24,266 Investment income 763 32 -- 795 Interest expense (7,011) (445) 534 (6,922) Other income 23 -- -- 23 -------- -------- ------- -------- Income (loss) before income taxes and extraordinary items 18,995 (833) 0 18,162 Income tax expense 7,598 -- -- 7,598 -------- -------- ------- -------- Income (loss) before extraordinary items 11,397 (833) 0 10,564 Extraordinary items, net -- -- -- 0 -------- -------- ------- --------- Net income (loss) $11,397 ($833) $0 $10,564 ======== ======== ======= ========= Fully diluted earnings (loss) per common share $0.25 ($0.08) -- $0.21 Number of shares used in fully diluted earnings (loss) per common share calculations 49,158 10,725 (4,212)(B) 55,671
23 25 PRIME HOSPITALITY CORP. PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL -------------------------- PROFORMA PROFORMA PRIME HOMEGATE ADJUSTMENTS COMBINED ----- -------- ----------- -------- Total revenue $ 245,290 $ 6,129 (534) $ 250,885 Costs and expenses: Direct hotel operating expenses 120,467 3,525 -- 123,992 Occupancy and other operating 16,693 648 -- 17,341 General and administrative 15,306 1,947 -- 17,253 Depreciation and amortization 23,304 1,053 -- 24,357 --------- -------- --------- --------- Total costs and expenses 175,770 7,173 0 182,943 --------- -------- --------- --------- Operating income (loss) 69,520 (1,044) (534) 67,942 Investment income 2,391 635 -- 3,026 Interest expense (18,772) (1,325) 534 (19,563) Other income 1,881 -- -- 1,881 --------- -------- --------- --------- Income (loss) before income taxes and extraordinary items 55,020 (1,734) 0 53,286 Income tax expense 22,008 -- -- 22,008 --------- -------- --------- --------- Income (loss) before extraordinary items 33,012 (1,734) 0 31,278 Extraordinary items, net 75 -- -- 75 --------- -------- --------- --------- Net income (loss) $ 33,087 ($1,734) $0 $31,353 ========= ======== ========= ========= Fully diluted earnings (loss) per common share $0.73 ($0.16) -- $0.62 Number of shares used in fully diluted earnings (loss) per common share calculations 49,047 10,725 (4,212)(B) 55,560
24 26 PRIME HOSPITALITY CORP. PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ------------------------- PROFORMA PROFORMA PRIME HOMEGATE ADJUSTMENTS COMBINED ----- -------- ----------- -------- Total revenue $ 68,847 $ 635 -- $ 69,482 Costs and expenses: Direct hotel operating expenses 37,393 384 -- 37,777 Occupancy and other operating 4,185 78 -- 4,263 General and administrative 4,330 314 -- 4,644 Depreciation and amortization 6,100 103 -- 6,203 -------- -------- ------- -------- Total costs and expenses 52,008 879 0 52,887 -------- -------- ------- -------- Operating income (loss) 16,839 (244) 0 16,595 Investment income 1,765 -- -- 1,765 Interest expense (5,982) (169) -- (6,151) Other income 869 -- -- 869 -------- -------- ------- -------- Income (loss) before income taxes and extraordinary items 13,491 (413) 0 13,078 Income tax expense 5,396 -- -- 3,396 -------- -------- ------- -------- Income (loss) before extraordinary items 8,095 (413) 0 7,682 Extraordinary items, net 7 -- -- 7 -------- -------- ------- -------- Net income (loss) $8,102 ($413) $0 $7,689 ======== ======== ======= ======== Fully diluted earnings (loss) per common share $0.20 ($0.04) -- $0.17 Number of shares used in fully diluted earnings (loss) per common share calculations 45,760 10,725 (4,212)(B) 52,273
25 27 PRIME HOSPITALITY CORP. PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL -------------------------- PROFORMA PROFORMA PRIME HOMEGATE ADJUSTMENTS COMBINED ----- -------- ----------- -------- Total revenue $ 197,353 $ 661 -- $ 198,014 Costs and expenses: Direct hotel operating expenses 106,875 409 -- 107,284 Occupancy and other operating 11,769 83 -- 11,852 General and administrative 13,087 519 -- 13,606 Depreciation and amortization 17,202 112 -- 17,314 --------- -------- ------- --------- Total costs and expenses 148,933 1,123 0 150,056 --------- -------- ------- --------- Operating income (loss) 48,420 (462) 0 47,958 Investment income 3,886 -- -- 3,886 Interest expense (18,191) (190) -- (18,381) Other income 4,301 -- -- 4,301 --------- -------- ------- --------- Income (loss) before income taxes and extraordinary items 38,416 (652) 0 37,764 Income tax expense 15,366 15,366 --------- -------- ------- --------- Income (loss) before extraordinary items 23,050 (652) 0 22,398 Extraordinary items, net 183 -- -- 183 --------- -------- ------- --------- Net income (loss) $ 23,233 ($652) $ 0 $22,581 ========= ======== ======= ========= Fully diluted earnings (loss) per common share $0.62 ($0.06) -- $0.53 Number of shares used in fully diluted earnings (loss) per common share calculations 42,045 10,725 (4,936)(B) 47,834
26 28 PRIME HOSPITALITY CORP. PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL --------------------- PRO FORMA PRO FORMA PRIME HOMEGATE ADJUSTMENTS COMBINED -------- -------- ------------ --------- Total revenue................................. $268,868 $ 2,232 $ -- $ 271,100 Costs and expenses: Direct hotel operating expenses............. 145,419 1,438 -- 146,857 Occupancy and other operating............... 16,833 238 -- 17,071 General and administrative.................. 17,813 951 -- 18,764 Depreciation and amortization............... 23,632 344 -- 23,976 -------- -------- -------- -------- Total costs and expenses...................... 203,697 2,971 -- 206,668 -------- -------- -------- -------- Operating income (loss)....................... 65,171 (739) -- 64,432 Investment income............................. 4,610 451 -- 5,061 Interest expense.............................. (22,564) (585) -- (23,149) Other income.................................. 4,306 7 -- 4,313 -------- -------- -------- -------- Income (loss) before income taxes and extraordinary items......................... 51,523 (866) -- 50,657 Income tax expense............................ 20,609 -- -- 20,609 -------- -------- -------- -------- Income (loss) before extraordinary items...... 30,914 (866) -- 30,048 Extraordinary items, net...................... 202 -- -- 202 -------- -------- -------- -------- Net income (loss)............................. $ 31,116 ($ 866) -- $ 30,250 ======== ======== ======== ======== Fully diluted earnings (loss) per common share....................................... $ 0.80 ($ 0.08) $ -- $ 0.69 Number of shares used in fully diluted earnings (loss) per common share calculations................................ 43,794 10,725 (4,755)(B) 49,764
27 29 PRIME HOSPITALITY CORP. PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL -------------------- PRO FORMA PRO FORMA PRIME HOMEGATE ADJUSTMENTS COMBINED -------- -------- ------------ --------- Total revenue.................................... $205,628 $ -- $ -- $ 205,628 Costs and expenses: Direct hotel operating expenses................ 116,565 -- -- 116,565 Occupancy and other operating.................. 11,763 -- -- 11,763 General and administrative..................... 15,515 -- -- 15,515 Depreciation and amortization.................. 15,227 -- -- 15,227 Other expenses................................. 2,200 -- -- 2,200 -------- -------- -------- -------- Total costs and expenses......................... 161,270 -- -- 161,270 -------- -------- -------- -------- Operating income................................. 44,358 -- -- 44,358 Investment income................................ 4,861 -- -- 4,861 Interest expense................................. (22,350) -- -- (22,350) Other income..................................... 2,239 -- -- 2,239 -------- -------- -------- -------- Income before income taxes and extraordinary items.......................................... 29,108 -- -- 29,108 Income tax expense............................... 11,643 -- -- 11,643 -------- -------- -------- -------- Income before extraordinary items................ 17,465 -- -- 17,465 Extraordinary items, net......................... 104 -- -- 104 -------- -------- -------- -------- Net income....................................... $ 17,569 $ -- $ -- $ 17,569 ======== ======== ======== ======== Fully diluted earnings per common share.......... $ 0.54 $ -- $ -- $ 0.54 Number of shares used in fully diluted earnings per common share calculations.................. 37,423 -- -- 37,423
28 30 PRIME HOSPITALITY CORP. PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL --------------------- PRO FORMA PRO FORMA PRIME HOMEGATE ADJUSTMENTS COMBINED -------- -------- ------------ --------- Total revenue................................. $134,303 $ -- $ -- $ 134,303 Costs and expenses: Direct hotel operating expenses............. 66,620 -- -- 66,620 Occupancy and other operating............... 9,799 -- -- 9,799 General and administrative.................. 15,089 -- -- 15,089 Depreciation and amortization............... 9,384 -- -- 9,384 -------- -------- -------- -------- Total costs and expenses...................... 100,892 -- -- 100,892 -------- -------- -------- -------- Operating income.............................. 33,411 -- -- 33,411 Investment income............................. 1,966 -- -- 1,966 Interest expense.............................. (14,036) -- -- (14,036) Other income.................................. 9,089 -- -- 9,089 -------- -------- -------- -------- Income before income taxes and extraordinary items....................................... 30,430 -- -- 30,430 Income tax expense............................ 12,172 -- -- 12,172 -------- -------- -------- -------- Income before extraordinary items............. 18,258 -- -- 18,258 Extraordinary items, net...................... 172 -- -- 172 -------- -------- -------- -------- Net income.................................... $ 18,430 $ -- $ -- $ 18,430 ======== ======== ======== ======== Fully diluted earnings per common share....... $0.58 $ -- $ -- $0.58 Number of shares used in fully diluted earnings per common share calculations...... 32,022 -- -- 32,022
29 31 NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION The Merger between Prime and Homegate is intended to be accounted for as a pooling of interests. Accordingly, the pro forma financial statements have been prepared assuming the companies have been together for all periods presented. Shares issued by Prime for the acquisition of Homegate have been assumed to be outstanding from the inception date of Homegate's predecessor, ESLP (February 9, 1996). The pro forma financial information contains no adjustments to conform the accounting policies of the companies because any such adjustments have been determined to be immaterial. Certain reclassifications have been made to the December 31, 1994, 1995 and 1996 financial information to conform them to the nine months ended September 30, 1996 and 1997 presentations. The following adjustments are necessary to reflect the Merger (in thousands): The pro forma combined statements of operations for the three and nine months ended September 30, 1997, do not reflect nonrecurring costs and charges resulting directly from the Merger nor their related tax effect. These costs and charges are estimated as follows: Cost of terminating the management agreement............................... $12,000 Transaction related costs.................................................. 3,433 Transition costs........................................................... 325 ------ Total............................................................ $15,758 ======
Costs to terminate the management agreement represent amounts paid to Wyndham Hotel Corporation pursuant to a termination agreement. These amounts are: $8.0 million by Prime and $4.0 million by a shareholder of Homegate. The amount paid by the shareholder will be reflected as a contribution to capital and will be included as a Merger expense. Transaction related costs primarily represent management's best estimate of fees to be paid for investment banking, legal, accounting and other professional services. Transition costs represent management's best estimate of the costs to consolidate operations. This plan was formulated by Prime and Homegate management in order to more efficiently provide services in markets where multiple locations will exist as a result of the Merger. The plan of consolidation calls for affected operations to be merged over a period of three months. These costs include costs associated with the merging of Prime and Homegate operations, including the combining of systems, facilities and management resources as well as costs associated with the formation of a regional operating and reporting infrastructure. Included are $175,000 related to severance and related benefits. These costs represent anticipated payments to identified employees, as required by their respective employment agreements, who will be terminated after the Merger and certain other anticipated payments to be made to certain employees. A. To reflect the exchange of approximately 6.5 million shares of Prime Common Stock for all the issued and outstanding shares of Homegate Common Stock. Cash paid for fractional shares has been ignored, since the amounts are not expected to be material. B. To adjust pro forma amounts based on historical share amounts, converting each outstanding share of Homegate Common Stock into Prime Common Stock based on the fixed Exchange Ratio of 0.6073 per share. For the nine months ended September 30, 1996 and the year ended December 31, 1996, the adjusted pro forma share amounts were prorated to reflect the inception date of Homegate's predecessor, ESLP, as of February 9, 1996. C. To eliminate interim loans from Prime to Homegate. 30 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRIME HOSPITALITY CORP. Date: December 15, 1997 By: /s/ David A. Simon --------------------------------------- David A. Simon President and Chief Executive Officer Date: December 15, 1997 By: /s/ John M. Elwood --------------------------------------- John M. Elwood, Executive Vice President and Chief Financial Officer 31 -----END PRIVACY-ENHANCED MESSAGE-----