PRIME HOSPITALITY CORP, S-3/A, 1995-12-21

PRIME HOSPITALITY CORP
S-3/A, 1995-12-21
HOTELS & MOTELS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1995

REGISTRATION NO.33-64685

- -===============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 22-2640625
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
</TABLE>

------------------------

700 ROUTE 46 EAST

FAIRFIELD, NEW JERSEY 07007-2700

(201) 882-1010
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------

JOSEPH BERNADINO
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
PRIME HOSPITALITY CORP.
700 ROUTE 46 EAST

FAIRFIELD, NEW JERSEY 07007-2700

(201) 882-1010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------

Copies to:

<TABLE>
<S> <C>
WILLIAM N. DYE JOHN D. WATSON, JR.
WILLKIE FARR & GALLAGHER LATHAM & WATKINS
ONE CITICORP CENTER 1001 PENNSYLVANIA AVENUE, N.W.
153 EAST 53RD STREET SUITE 1300
NEW YORK, NEW YORK 10022 WASHINGTON, D.C. 20004
(212) 821-8000 (202) 637-2200
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box: / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the offering: / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

================================================================================
<PAGE> 2

SUBJECT TO COMPLETION, DATED DECEMBER 21, 1995

$120,000,000

PRIME LOGO

% FIRST MORTGAGE NOTES DUE 2006
------------------

The % First Mortgage Notes due 2006 (the "Notes") are being offered
hereby (the "Offering") by Prime Hospitality Corp. ("Prime" or the "Company").
Interest on the Notes will be payable semiannually on and
, commencing , 1996. The Notes will mature on
, 2006 and will not be redeemable, in whole or in part, prior to
, 2001. On or after , 2001, the Notes will be redeemable
at the Company's option, in whole or in part, at the prices set forth herein
plus accrued and unpaid interest, if any, to the redemption date. In addition,
prior to , 1999, the Company may redeem, on any one or more occasions,
with the net cash proceeds of any public offering of its common equity (within
60 days of the consummation of any such public offering), up to $30.0 million in
aggregate principal amount of the Notes at a redemption price equal to % of
the principal amount of such Notes plus accrued and unpaid interest thereon, if
any, to the redemption date; provided, however, that at least $100.0 million in
principal amount of Notes (including certain additional Notes which may, under
certain circumstances, be issued under the Indenture (as defined herein)) must
remain outstanding immediately following any such redemption. In the event of a
Change of Control (as defined herein), the Company will be required to offer to
purchase all of the Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date.

The Notes will be secured by a first mortgage lien on 15 of the Company's
57 Owned Hotels (as defined herein). The Notes will rank pari passu in right of
payment to all existing and future senior Indebtedness (as defined herein) of
the Company and will rank senior in right of payment to all subordinated
Indebtedness of the Company. See "Description of Notes." As of September 30,
1995, after giving effect to the issuance of the Notes in the Offering and the
application of certain of the net proceeds therefrom to repay Indebtedness, the
Company and its Subsidiaries would have had approximately $275.0 million of
outstanding senior Indebtedness (of which approximately $152.7 million would
have been secured by assets not securing the Notes), and the Company would have
had approximately $86.3 million of outstanding subordinated Indebtedness. See
"Risk Factors -- Leverage" and "-- Effective Subordination under Certain
Circumstances."

The Notes have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.

------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note % % %
- -----------------------------------------------------------------------------------------------------------
Total $120,000,000 $ $
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>

(1) Plus accrued interest, if any, from the date of issuance.

(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(3) Before deducting expenses of the Offering payable by the Company, estimated
at $500,000.
------------------

The Notes are being offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain conditions. It is expected that delivery of
the Notes will be made at the offices of Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, on or about January , 1996.

------------------
SMITH BARNEY INC.
BT SECURITIES CORPORATION
MONTGOMERY SECURITIES
January , 1996

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 3

[MAP]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN MARKET PRICES OF THE NOTES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4

[PHOTOGRAPHS]
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in or incorporated by reference in this Prospectus.
Unless the context indicates or requires otherwise, references in this
Prospectus to the "Company" or "Prime" are to Prime Hospitality Corp. and its
subsidiaries.

THE COMPANY

Prime is a leading hotel owner/operator with a portfolio of 93 hotels
totaling 13,443 rooms. Located primarily in secondary markets in 22 states and
the U.S. Virgin Islands, Prime's hotels operate either under franchise
agreements with hotel brands such as Marriott, Radisson, Sheraton, Holiday Inn,
Ramada and Howard Johnson, or under the Company's proprietary brand names,
AmeriSuites(R) and Wellesley Inns(R). The Company owns or leases 57 hotels (the
"Owned Hotels") and manages 36 hotels for third parties (the "Managed Hotels").
Prime holds financial interests in the form of mortgages on or profit
participations in 16 of the Managed Hotels. In total, the Company has equity or
financial interests in 73 hotels containing 10,815 rooms.

The Company operates in three major lodging industry segments:
full-service, all-suites and limited-service. Approximately 50% of Prime's hotel
rooms are in full-service hotels. The Company's 19 AmeriSuites hotels, which
comprise approximately 17% of the Company's hotel rooms, are mid-priced,
all-suites hotels, situated near office parks and travel destinations in the
Southern and Central United States. The Company is expanding its operation of
AmeriSuites hotels and expects to have at least 40 AmeriSuites hotels in
operation by the end of 1996. Prime competes in the limited-service segment,
which comprises approximately 33% of its hotel rooms, primarily through its
economically priced Wellesley Inns, which are located in Florida, the Middle
Atlantic and the Northeast.

As a leading owner/operator of hotels, Prime believes that it is well
positioned to benefit from the continuing strong performance of the lodging
industry. Industry improvements in recent years have been driven by a favorable
supply/demand imbalance resulting primarily from increased economic activity and
the sharp decline in the growth of the supply of new hotel rooms since 1991.
Demand growth exceeded new supply growth during each year in the period from
1991 to 1994, and in 1995 demand growth is expected to exceed supply growth by
1.8%, as reported by Smith Travel Research. This trend has resulted in an
increase in industry-wide occupancy levels from 60.9% in 1991 to an anticipated
66.4% for 1995. Higher occupancy levels have allowed the industry to increase
rates. The industry-wide average daily rate ("ADR") is anticipated to increase
in 1995 by 4.2% over 1994 levels. Revenue per available room ("REVPAR"), which
measures the combined impact of rate and occupancy, is anticipated to increase
by 6.1% for 1995. Because of the operating leverage inherent in the lodging
industry, increases in REVPAR have had a major impact on hotel operating
performance, with industry pretax profits growing from breakeven levels in 1992
to approximately $5.5 billion in 1994, as estimated by Smith Travel Research.

Prime intends to continue to capitalize on its strengths and improve its
position in the lodging industry through the implementation of the following
strategies:

Hotel Equity Ownership. Prime is fundamentally committed to hotel equity
ownership, which it believes assures consistent high quality standards at its
hotels. Significant elements of Prime's ownership strategy are strong in-house
hotel management and control of its proprietary brands, both of which have
contributed to improved hotel operating performance. Reflecting Prime's
operating strengths, the Company's hotels generated average operating profit
margins that exceeded comparable industry averages for 1994, as reported by
industry sources, by approximately 19% for full-service hotels, 8% for
all-suites hotels and 2% for limited-service hotels.

3
<PAGE> 6

operating leverage, for the nine months ended September 30, 1995, REVPAR
increased 9.7% while net operating income (i.e., operating income plus
depreciation and amortization, minus an imputed management fee and a reserve for
capital replacements) increased 15.3%, as compared to the prior period for
Company-owned comparable hotels, which are hotels that have been open for each
of the nine months ended September 30, 1995 and 1994. The Company expects
further improvement for the lodging sector and continued improvement in the
performance of its existing hotels.

Opportunistic Acquisition of Full-Service Hotels. The Company seeks to
capitalize on its strength as a hotel owner/operator by continuing to pursue the
acquisition of hotels, particularly in the upscale, full-service segment. In
1994 the Company acquired four hotels with approximately 1,000 rooms and, to
date in 1995, the Company has acquired seven hotels with approximately 1,000
rooms. With a continued industry outlook for limited new room supply, steady
demand growth and acquisition prices generally at discounts to replacement cost,
Prime believes that hotel acquisitions will continue to provide growth
opportunities.

Expand AmeriSuites All-Suites Hotel Brand. Prime is committed to expanding
its AmeriSuites all-suites hotel brand. The Company believes that its
AmeriSuites brand is well-positioned within the rapidly-growing all-suites
segment, providing an excellent guest experience and offering desirable suite
accommodations and other amenities at mid-scale prices. In the all-suites
segment, demand growth has exceeded new supply growth in the period from 1991 to
1994 by a compound annual rate of 4.6%, which is approximately twice the rate by
which demand growth exceeded supply for the lodging industry as a whole. The
operating performance of the AmeriSuites hotels is benefiting from this
favorable trend. For the eight owned AmeriSuites hotels which were open for each
of the nine months ended September 30, 1995 and 1994, REVPAR increased by 12.1%
during the nine months ended September 30, 1995, resulting in a 15.9% increase,
for the comparable period, in net operating income.

In addition to the 19 existing AmeriSuites hotels located in 13 states, the
Company has an additional 8 AmeriSuites hotels under construction and 15
AmeriSuites sites under contract. The Company plans to have at least 40
AmeriSuites hotels in operation by the end of 1996. The Company believes that
AmeriSuites provide attractive economic returns due to their low cost of
approximately $50,000 to $55,000 per room, a construction period of
approximately seven to nine months and a low operating cost structure. The
Company's AmeriSuites have generally achieved positive net operating income
within 12 months after opening.

The Company believes it has the financial resources available to execute
its growth and hotel acquisition strategy. The net proceeds of this Offering are
estimated to be approximately $115.9 million, of which approximately $54.7
million is expected to be used to repay outstanding debt. See "Use of Proceeds."
In addition, the Company had cash and cash equivalents and marketable securities
totaling approximately $60.1 million as of September 30, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

4
<PAGE> 7

THE OFFERING

Securities Offered......... $120,000,000 principal amount of % First
Mortgage Notes due 2006.

Maturity Date.............. , 2006.

Interest Payment Dates..... and , commencing , 1996.

Ranking.................... The Notes will rank pari passu in right of payment
to all existing and future senior Indebtedness of
the Company and will rank senior in right of
payment to all subordinated Indebtedness of the
Company. As of September 30, 1995, after giving
effect to the issuance of the Notes in the Offering
and the application of certain of the net proceeds
therefrom to repay Indebtedness, the Company and
its Subsidiaries would have had approximately
$275.0 million of outstanding senior Indebtedness
(of which approximately $152.7 million would have
been secured by assets not securing the Notes) and
approximately $86.3 million of outstanding
subordinated Indebtedness.

Collateral................. The Notes will be secured by (i) a first mortgage
lien on 15 of the Company's 57 Owned Hotels (the
"Collateral Hotels") and any and all related real
property thereto, (ii) property consisting of
furniture, furnishings, fixtures, equipment and
machinery forming a part thereof or used in
connection therewith, (iii) trademarks, to the
extent assignable (other than the Company's
proprietary trade names including, without
limitation, "AmeriSuites" and "Wellesley Inns"),
(iv) assignments of rents, contracts and franchise
rights, to the extent assignable, all as provided
in the Collateral Documents (as defined herein),
(v) after-acquired personal property and
improvements relating to the properties listed in
clause (i), (vi) Substitute Collateral (as defined
herein), if any, and (vii) proceeds of the
foregoing. See "Description of Notes --
Collateral."

Optional Redemption........ The Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or
after , 2001, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the redemption date. In addition, prior to
, 1999, the Company may redeem, on any
one or more occasions, with the net cash proceeds
of any public offering of its common equity (within
60 days of the consummation of any such public
offering), up to $30.0 million in aggregate
principal amount of the Notes at a redemption price
equal to % of the principal amount of such Notes
plus accrued and unpaid interest thereon, if any,
to the redemption date; provided, however, that at
least $100.0 million in principal amount of Notes
(including certain additional Notes which may,
under certain circumstances, be issued under the
Indenture) must remain outstanding immediately
following any such redemption. See "Description of
Notes -- Optional Redemption."

Change of Control.......... In the event of a Change of Control, the Company
will be required to offer to purchase all of the
Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the purchase date. See "Description of
Notes -- Repurchase at the Option of Holders."

Asset Sales................ The indenture governing the Notes (the "Indenture")
will permit the Company to conduct Asset Sales (as
defined herein) provided that certain conditions
are satisfied. The Indenture will allow the
Company, with respect to an Asset Sale of assets
which constitute Collateral, to (a) reinvest all or
a portion of the Net Proceeds (as defined herein)
of such Asset Sale in Substitute Collateral or (b)
redesignate, at the time

5
<PAGE> 8

of such Asset Sale, an existing hotel property of
the Company as Substitute Collateral and to treat
the proceeds of such Asset Sale as Net Proceeds of
an Asset Sale of an asset not constituting
Collateral; provided that certain conditions are
complied with. If the Net Proceeds from an Asset
Sale involving Collateral are not so invested, the
Company will be required to make an offer to all
Holders of Notes to purchase the maximum amount of
Notes that may be purchased out of such proceeds at
the following offer price: (i) if the purchase is
required to be consummated between the Issuance
Date (as defined herein) and the First Redemption
Date (as defined herein), the greater of (a)100% of
the principal amount thereof, plus accrued and
unpaid interest thereon to the date of purchase,
plus the Make-Whole Amount (as defined herein) or
(b) the principal amount thereof multiplied by the
Redemption Percentage (as defined herein) on the
First Redemption Date, plus accrued and unpaid
interest thereon to the date of purchase and (ii)
if the purchase is required to be consummated after
the First Redemption Date, the principal amount
thereof multiplied by the Redemption Percentage
corresponding to the applicable redemption period
in which the date of purchase is required to occur,
plus accrued and unpaid interest thereon to the
date of purchase. If the assets that are the
subject of an Asset Sale do not constitute
Collateral, the Company will be permitted to apply
the Net Proceeds from such Asset Sale (i) toward
investments in one or more businesses, capital
expenditures or other tangible assets, in each
case, engaged, used or useful in a Hospitality-
Related Business (as defined herein) or (ii) to
permanently reduce indebtedness of the Company or a
Restricted Subsidiary of the Company that is a
Guarantor that ranks by its terms pari passu in
right of payment with the Notes, or pari passu
indebtedness of a Restricted Subsidiary to the
extent of the proceeds of the Asset Sale by such
Restricted Subsidiary. If the Net Proceeds from an
Asset Sale not involving Collateral are not so
invested, the Company will be required to make an
offer to all Holders of Notes to purchase the
maximum amount of Notes that may be purchased out
of such proceeds at an offer price equal to 100% of
the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase.
See "Description of Notes -- Repurchase at the
Option of Holders."

Certain Covenants.......... The Indenture, among other things, will contain
certain covenants that, subject to certain
exceptions, limit the ability of the Company and
its Subsidiaries to incur Indebtedness and issue
Disqualified Stock (as defined herein) and limit
the ability of the Company and its Restricted
Subsidiaries to pay dividends or other
distributions, repurchase Equity Interests and
subordinated Indebtedness, engage in transactions
with affiliates, incur or suffer to exist certain
liens, make investments, sell assets and engage in
mergers and consolidations. See "Description of
Notes -- Certain Covenants."

Use of Proceeds............ The estimated net proceeds from the Offering of
$115.9 million will be used to finance the
development or acquisition of hotels or hotel
portfolios, to repay existing mortgage debt
(including related prepayment and other fees) and
for general corporate purposes. See "Use of
Proceeds."

Listing.................... The Notes have been approved for listing on the New
York Stock Exchange, subject to official notice of
issuance.

6
<PAGE> 9

SUMMARY RECENT CONSOLIDATED FINANCIAL AND OTHER DATA

The table below presents summary recent consolidated financial and other
data derived from the Company's historical financial statements as of and for
the years ended December 31, 1993 and 1994 and the nine months ended September
30, 1994 and 1995. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements, related notes and other financial
information included and incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
--------------------- --------------------------
1993 1994 1994 1995
-------- -------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND MARGIN AND
RATIO DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA (1):
Total revenues........................... $108,860 $134,303 $ 97,336 $ 152,643
Costs and expenses:
Direct hotel operating expenses....... 50,115 65,158 47,266 86,311
Occupancy and other operating......... 11,047 11,261 7,638 8,216
General and administrative............ 15,685 15,089 11,269 11,410
Depreciation and amortization......... 7,117 9,427 6,287 11,907
-------- -------- ---------- -----------
Total costs and expenses......... 83,964 100,935 72,460 117,844
-------- -------- ---------- -----------
Operating income......................... 24,896 33,368 24,876 34,799
Interest expense......................... (16,116) (13,993) (10,397) (15,933)
Net income:
Income from recurring operations...... 5,928 12,805 9,423 13,647
Other income
(expense) -- non-recurring.......... 2,247 5,453 4,403 (464)
-------- -------- ---------- -----------
Income before extraordinary items .... 8,175 18,258 13,826 13,183
Extraordinary items(2)................ 3,989 172 172 73
-------- -------- ---------- -----------
Net income............................... $ 12,164 $ 18,430 $ 13,998 $ 13,256
======== ======== ========== ===========
Net income per common share:
Income from recurring operations...... $ .20 $ .40 $ .29 $ .42
Other income
(expense) -- non-recurring.......... .07 .17 .14 (.01)
-------- -------- ---------- -----------
Income before extraordinary items .... .27 .57 .43 .41
Extraordinary items................... .13 .01 .01 --
-------- -------- ---------- -----------
Net income per common share.............. $ .40 $ .58 $ .44 $ .41
======== ======== ========== ===========
Weighted average shares outstanding...... 30,721 32,022 31,969 32,118
OTHER DATA:
EBITDA(3)................................ $ 32,013 $ 42,795 $ 31,163 $ 46,706
Net cash provided by operating
activities............................ 19,728 28,672 18,169 26,026
Net cash provided by (used in) investing
activities............................ 2,281 (34,248) 2,508 (104,800)
Net cash provided by (used in) financing
activities............................ (17,056) (23,469) (37,623) 100,954
MARGIN AND RATIO DATA:
EBITDA margin(1)(3)...................... 29.4% 31.9% 32.0% 30.6%
Ratio of EBITDA to interest
expense(3)(4)......................... 1.99x 3.06x 3.00x 2.93x
Ratio of earnings to fixed charges(5)
...................................... 1.77x 2.78x 2.84x 2.05x
</TABLE>

7
<PAGE> 10

<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
---------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities............ $ 60,104 $121,230
Property, equipment and leasehold improvements................. 384,400 384,400
Mortgages and notes receivable, net of current portion......... 65,040 65,040
Total assets................................................... 568,477 633,803
Current portion of debt........................................ 6,784 5,103
Long-term debt, net of current portion......................... 289,102 356,109
Total stockholders' equity..................................... 225,123 225,063
</TABLE>

- ---------------
(1) In December 1994, the Company acquired ownership of the Marriott's
Frenchman's Reef Beach Resort (the "Frenchman's Reef") as a result of the
restructuring of a mortgage note receivable, which was secured by the hotel.
This transaction has not had a material impact on operating income but has
affected operating margins significantly. For the years ended December 31,
1993 and 1994 and the nine months ended September 30, 1994 the Company
recorded revenues related to the Frenchman's Reef in the form of interest
income and management fees of $5.1 million, $5.7 million and $4.1 million,
respectively, with no corresponding operating expenses. For the nine months
ended September 30, 1995, the Company recorded operating revenues of $26.7
million and operating expenses of $20.9 million related to the Frenchman's
Reef.

(2) Extraordinary items consist of gains on discharges of indebtedness, net of
income taxes of $2.8 million in 1993 and $120,000 in 1994 and $120,000 and
$48,000 for the nine months ended September 30, 1994 and 1995.

(3) EBITDA represents earnings before extraordinary items, interest expense,
provision for income taxes (if applicable) and depreciation and amortization
and excludes interest income on cash investments and other income. EBITDA is
used by the Company for the purpose of analyzing its operating performance,
leverage and liquidity. Such data are not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
The EBITDA margin is calculated by dividing EBITDA by total revenues.

(4) The pro forma interest expense for the Company, after giving effect to the
Offering and the use of certain proceeds thereof to repay debt, for the nine
months ended September 30, 1995 was $20.2 million. See "Use of Proceeds."
The pro forma ratio of EBITDA to interest expense for the nine months ended
September 30, 1995 was 2.31x. The pro forma interest expense for the nine
months ended September 30, 1995 assumes an annual interest rate for the
Notes of 9.25%. A 50 basis point increase in such interest rate would
increase the pro forma interest expense for the nine months ended September
30, 1995 by $450,000 and decrease the pro forma ratio of EBITDA to interest
expense for the nine months ended September 30, 1995 to 2.26x. A 50 basis
point decrease in such interest rate would decrease the pro forma interest
expense for the nine months ended September 30, 1995 by $450,000 and
increase the pro forma ratio of EBITDA to interest expense for the nine
months ended September 30, 1995 to 2.36x.

(5) Earnings used in computing the ratio of earnings to fixed charges consist of
income before income taxes, fixed charges and extraordinary items. Fixed
charges consist of interest expense, including amounts capitalized and the
amortization of deferred financing fees, and that portion of rental expense
representative of interest (deemed to be one third of rental expense).

(6) As adjusted to reflect the Offering and the use of certain proceeds to repay
debt. See "Use of Proceeds" and "Capitalization."

The following table sets forth for the five years ended December 31, 1994
and the nine months ended September 30, 1994 and 1995, operating data for the 56
Owned Hotels in the Company's portfolio at September 30, 1995. Operating data
for the Owned Hotels built or acquired during the period are presented from the
dates such hotels commenced operations or became Owned Hotels. For purposes of
showing operating trends, the results of seven Owned Hotels that were managed by
the Company prior to their acquisition by the Company during the period are
presented as if they had been Owned Hotels from the dates the Company began
managing the hotels.

8
<PAGE> 11

OWNED HOTEL OPERATING DATA:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------- ---------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C> <C> <C> <C>
Number of locations...................... 34 35 38 42 49 46 56
Number of rooms.......................... 5,169 5,299 5,647 6,136 7,202 6,598 8,050
Occupancy %.............................. 64.4% 64.1% 65.6% 69.4% 68.1% 69.3% 69.8%
ADR(1)................................... $ 68.55 $ 63.93 $ 64.54 $ 66.50 $ 69.02 $ 69.25 $ 73.11
REVPAR(2)................................ $ 44.12 $ 40.96 $ 42.34 $ 46.14 $ 46.97 $ 47.98 $ 51.06
Room revenues............................ $ 73,821 $ 78,894 $ 85,906 $ 99,574 $111,011 $ 82,962 $102,925
Total hotel revenues..................... $117,937 $119,650 $125,394 $142,911 $155,691 $114,634 $137,095
Gross operating profit(3)................ $ 44,173 $ 38,478 $ 36,503 $ 44,247 $ 51,773 $ 38,471 $ 49,862
Gross operating profit %(3).............. 37.5% 32.2% 29.1% 31.0% 33.3% 33.6% 36.4%
</TABLE>

- ---------------
(1) "ADR" means average daily rate, which is equal to total room revenue divided
by number of occupied rooms.

(2) "REVPAR" means revenues per available room, which is equal to total room
revenue divided by the number of rooms available for sale.

(3) Gross operating profit is defined as total hotel revenues less direct hotel
operating expenses, including room, food and beverage and selling and
general expenses.

The following table sets forth for the five years ended December 31, 1994
and the nine months ended September 30, 1994 and 1995, operating data of the 36
Managed Hotels in the Company's portfolio at September 30, 1995. The results of
operations for the Managed Hotels are not consolidated in the Company's
consolidated financial statements. The Company records only the management fees
and interest income, where applicable, on the Managed Hotels. Operating data for
the Managed Hotels is presented from the dates such hotels became Managed
Hotels.

MANAGED HOTELS WITH FINANCIAL INTEREST OPERATING DATA:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------- ---------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C> <C> <C> <C>
Number of locations...................... 15 16 16 16 16 16 16
Number of rooms.......................... 2,395 2,639 2,639 2,639 2,639 2,639 2,639
Occupancy %.............................. 72.8% 65.4% 71.5% 73.1% 72.4% 73.0% 74.0%
ADR...................................... $ 59.65 $ 58.53 $ 60.06 $ 61.78 $ 65.89 $ 65.51 $ 67.74
REVPAR................................... $ 43.42 $ 38.28 $ 42.92 $ 45.18 $ 47.68 $ 47.80 $ 50.10
Room revenues............................ $ 39,117 $ 35,894 $ 42,537 $ 44,553 $ 47,007 $ 35,258 $ 36,107
Total hotel revenues..................... $ 58,395 $ 53,088 $ 59,838 $ 60,899 $ 62,983 $ 46,712 $ 47,152
Gross operating profit................... $ 24,225 $ 18,669 $ 20,121 $ 20,713 $ 23,101 $ 16,909 $ 17,567
Gross operating profit %................. 41.5% 35.2% 33.6% 34.0% 36.7% 36.2% 37.3%
</TABLE>

OTHER MANAGED HOTELS OPERATING DATA:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------- ---------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C> <C> <C> <C>
Number of locations...................... 17 17 17 18 20 20 20
Number of rooms.......................... 2,228 2,228 2,228 2,343 2,628 2,628 2,628
Occupancy %.............................. 68.2% 65.7% 69.3% 72.5% 72.1% 73.3% 73.5%
ADR...................................... $ 59.77 $ 59.79 $ 59.52 $ 60.19 $ 61.88 $ 61.74 $ 65.61
REVPAR................................... $ 40.78 $ 39.31 $ 41.24 $ 43.61 $ 44.60 $ 45.27 $ 48.24
Room revenues............................ $ 32,857 $ 32,054 $ 33,749 $ 35,686 $ 42,788 $ 32,486 $ 34,607
Total hotel revenues..................... $ 42,673 $ 42,046 $ 44,142 $ 46,087 $ 53,635 $ 40,361 $ 42,610
Gross operating profit................... $ 16,768 $ 15,730 $ 14,936 $ 15,887 $ 19,275 $ 14,652 $ 16,296
Gross operating profit %................. 39.3% 37.4% 33.8% 34.5% 35.9% 36.3% 38.2%
</TABLE>

9
<PAGE> 12

RISK FACTORS

Prospective purchasers of Notes should carefully consider, among other
things, the following risk factors before purchasing the Notes offered hereby.

LEVERAGE

As of September 30, 1995, as adjusted for the issuance of the Notes and the
application of certain proceeds thereof to repay debt, the Company's total
long-term debt (including current portion) would have been $361.2 million. The
Company expects it will incur additional Indebtedness, including additional
secured Indebtedness, in connection with the implementation of its growth
strategy. The Company's ability to satisfy its obligations will be dependent
upon its future performance, which is subject to prevailing economic conditions
and financial, business and other factors, including factors beyond the
Company's control. There can be no assurance that the Company's operating cash
flow will be sufficient to meet its debt service requirements or to repay the
Notes at maturity or that the Company will be able to refinance the Notes or
other indebtedness at maturity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

SECURITY FOR THE NOTES; BANKRUPTCY CONSIDERATIONS

The Notes will be secured by a first mortgage lien on the 15 Collateral
Hotels and related personal property and rents. The holders of the Notes will
not have a security interest in any other assets or after-acquired property of
the Company, except under certain limited circumstances. See "Description of
Notes -- Collateral." The book value of the Collateral Hotels is approximately
$109.5 million, which amount is less than the $120.0 million in principal amount
of the Notes. Although no recent appraisals have been prepared with respect to
the Collateral Hotels, the Company believes that the fair market value of the
Collateral Hotels exceeds the aggregate principal amount of the Notes. There can
be no assurance, however, that the proceeds from any sale of the Collateral
would be sufficient to satisfy the amounts due on the Notes. To the extent that
proceeds from any sale of the Collateral would be insufficient to satisfy the
amounts due on the Notes, the holders of the Notes would become unsecured
creditors of the Company with respect to its other assets.

The right of the Trustee under the Indenture and under the Collateral
Documents (as defined herein) to foreclose upon and sell the Collateral after an
Event of Default (as defined herein) is likely to be significantly impaired by
applicable bankruptcy laws if a bankruptcy case were to be commenced by or
against the Company, prior to or possibly even after the Trustee had foreclosed
upon and sold the Collateral. Under applicable federal bankruptcy law, secured
creditors are prohibited from repossessing their security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such a debtor,
without bankruptcy court approval. Moreover, the debtor is generally permitted
to continue to retain and to use collateral, including, if bankruptcy court
approval is obtained, cash collateral, even though the debtor is in default
under the applicable debt instruments; provided, generally, that the secured
creditor is given "adequate protection." The meaning of the term "adequate
protection" may vary according to the circumstances, but it is intended in
general to protect the value of the secured creditor's interest in the
collateral and may include cash payments or the granting of additional security,
if and at such times as the court is requested by such creditor to determine
whether there has been any diminution in the value of the collateral as a result
of the stay of repossession or disposition or any use of the collateral by the
debtor during the pendency of the bankruptcy case. In view of the lack of a
precise definition of the term "adequate protection" and the broad discretionary
powers of a bankruptcy court, it is impossible to predict if payments under the
Notes would be made following commencement of and during a bankruptcy case,
whether or when the Trustee could foreclose upon or sell the Collateral or
whether or to what extent holders of the Notes would be compensated for any
delay in payment or loss of value of the Collateral through the requirement of
"adequate protection." Furthermore, in the event the bankruptcy court determines
the value of the Collateral is not sufficient to repay all amounts due on the
Notes (see "Description of Notes -- Ranking and Security"), the holders of the
Notes would hold "undersecured claims." Federal bankruptcy law does not
generally permit the payment and/or accrual of interest, costs and attorneys'
fee for "undersecured claims" during the pendency of a debtor's bankruptcy case.

10
<PAGE> 13

EFFECTIVE SUBORDINATION UNDER CERTAIN CIRCUMSTANCES

The Notes will be effectively subordinated to (i) all Indebtedness of the
Company and its Subsidiaries secured by assets which do not constitute security
for the Notes, as to such assets, (ii) all Indebtedness of Restricted
Subsidiaries of the Company which are not Guarantors (as defined herein) of the
Notes and (iii) all Indebtedness of Unrestricted Subsidiaries (as defined
herein) of the Company. At the Issuance Date, none of the Company's Subsidiaries
will be required to act as Guarantors and, in the event that any Subsidiary is
required to guarantee the Company's obligations under the Notes in the future,
any such guarantee may be subject to challenge under applicable fraudulent
conveyance or other bankruptcy laws. At September 30, 1995, the Company's
Subsidiaries had outstanding indebtedness of approximately $106.6 million, of
which approximately $47.0 million is expected to be repaid with the proceeds of
this Offering. After giving pro forma effect to the debt to be repaid with the
proceeds of this Offering, the Notes will be effectively subordinated to
approximately $59.6 million of secured Indebtedness of the Company's
Subsidiaries and approximately $93.1 million of Indebtedness of the Company
secured by assets which do not constitute security for the Notes.

RISKS OF THE LODGING INDUSTRY; COMPETITION

The Company's business is subject to all of the risks inherent in the
lodging industry. These risks include, among other things, adverse effects of
general and local economic conditions, changes in local market conditions,
oversupply of hotel space, a reduction in local demand for hotel rooms, changes
in travel patterns, changes in governmental regulations that influence or
determine wages, prices or construction costs, changes in interest rates, the
availability of credit and changes in real estate taxes and other operating
expenses. The Company's ownership of real property, including hotels, is
substantial. Real estate values are sensitive to changes in local market and
economic conditions and to fluctuations in the economy as a whole. Due in part
to the strong correlation between the lodging industry's performance and
economic conditions, the lodging industry is subject to cyclical changes in
revenues and profits.

The lodging industry is highly competitive. During the 1980s, construction
of lodging facilities in the United States resulted in an excess supply of
available rooms. This oversupply had an adverse effect on occupancy levels and
room rates in the industry, although the oversupply has largely been absorbed.
Competitive factors in the industry include reasonableness of room rates,
quality of accommodations, brand recognition, service levels and convenience of
locations. The Company's hotels generally operate in areas that contain numerous
other competitors. There can be no assurance that demographic, economic or other
changes in markets will not adversely affect the convenience or desirability of
the sites in which the Company's hotels are located. Furthermore, there can be
no assurance that, in the markets in which the Company's hotels operate,
competing hotels will not pose greater competition for guests than presently
exists, or that new hotels will not enter such locales. See "Business -- Lodging
Industry."

HOTEL DEVELOPMENT AND ACQUISITION RISKS

The Company's growth strategy of developing new hotels and acquiring hotels
with repositioning potential will subject the Company to pre-opening,
pre-stabilization and repositioning costs. As the Company opens additional
Company-owned hotels, such costs may adversely affect the Company's results of
operations. Newly opened hotels historically begin with lower occupancy and room
rates that improve over time. While the Company has in the past successfully
opened or repositioned new hotels, there can be no assurance that the Company
will be able to continue to do so successfully. Construction, acquisition and
repositioning of hotels involves certain risks, including the possibility of
construction cost overruns and delays, site acquisition cost and availability,
uncertainties as to market potential, market deterioration after commencement of
the acquisition or repositioning, possible unavailability of financing on
favorable terms and the emergence of market competition from unanticipated
sources. Although the Company seeks to manage its construction, acquisition and
repositioning activities so as to minimize such risks, there can be no assurance
that such projects will perform in accordance with the Company's expectations.
Furthermore, there can be no assurance that suitable hotel acquisition
candidates will be located, that hotel acquisitions can be consummated
successfully or that acquired hotels can be operated profitably or integrated
successfully into the Company's

11
<PAGE> 14

operations. Growth through acquisition entails certain risks that the acquired
hotels could be subject to unanticipated business uncertainties or legal
liabilities.

As part of its growth strategy, the Company is committed to expanding its
AmeriSuites hotel brand to meet growing demand in the all-suites hotel segment.
The Company will be required to expend significant management and financial
resources to expand the AmeriSuites hotel brand and develop brand name
identification. The Company competes with other companies in the all-suites
segment, some of which have greater brand recognition, financial resources and
experience than the Company. As a result, there is no assurance that the Company
can successfully expand the AmeriSuites hotel brand or compete effectively with
these other franchises.

GEOGRAPHIC CONCENTRATION OF HOTELS

Many of the Company's hotels are located in Florida, New Jersey and New
York, and such geographic concentration exposes the Company's operating results
to events or conditions which specifically affect those areas, such as local and
regional economic, weather and other conditions. Adverse developments which
specifically affect those areas may have a material adverse effect on the
results of operations of the Company.

In addition, the Company owns the Marriott's Frenchman's Reef Beach Resort
(the "Frenchman's Reef") in St. Thomas, U.S. Virgin Islands. The Company
obtained ownership and control of this hotel in December 1994 pursuant to the
restructuring of a note receivable. The Frenchman's Reef accounted for $5.8
million of the Company's operating income for the nine months ended September
30, 1995. The Frenchman's Reef's operating results have been adversely affected
in recent years by hurricanes and a disruption in airline service. As a resort
hotel primarily operated for leisure travelers, operating results at the
Frenchman's Reef also are subject to adverse developments in general economic
conditions and changes in travel patterns. Adverse developments with respect to
the Frenchman's Reef may have a material adverse effect on the results of
operations of the Company.

In September 1995, the Frenchman's Reef suffered damage when Hurricane
Marilyn struck the U.S. Virgin Islands. Due to extensive property and business
interruption insurance, the Company believes that its capital resources will be
impacted only to the extent of its insurance deductibles, which the Company
estimates at $2.2 million. The majority of damaged rooms at the Frenchman's Reef
have been repaired on an interim basis and approximately 95% of the rooms are
currently available for occupancy. The Company anticipates that extensive
renovation at the Frenchman's Reef in 1996 will reduce the number of rooms
available for occupancy. Such reduction in rooms available and related revenue
will be a component of the Company's claim under its business interruption
insurance. The Company is engaged in discussions with its insurance carrier
regarding the amount of insurance proceeds to be paid and is assessing the
extent of further refurbishments required at the Frenchman's Reef. See
"Business -- Prime's Lodging Operations."

RISKS ASSOCIATED WITH ROSE AND COHEN SETTLEMENT

In April 1995, the Company received a favorable ruling in its litigation
with Financial Security Assurance, Inc. ("FSA") in which FSA sought
approximately $31.2 million previously received by the Company in settlement of
a note and guaranty from Allan V. Rose ("Rose") and Arthur G. Cohen ("Cohen").
In an order dated April 25, 1995, the U.S. District Court for the Southern
District of Florida affirmed a lower court ruling approving the Company's
settlement with Rose and Cohen and finding that the Company alone was entitled
to the settlement proceeds. FSA had asserted that, under the terms of an
intercreditor agreement, it was entitled to receive the settlement proceeds
otherwise payable to the Company. The Company used the settlement proceeds plus
accrued interest to prepay senior secured notes. On May 23, 1995, FSA filed a
notice of appeal with the U.S. Court of Appeals for the 11th Circuit. If the
favorable decision of the District Court were reversed, the Company could be
required to pay over the $31.2 million in settlement proceeds to FSA, which
could have a material adverse effect on the Company. In such event, the Company
anticipates that it would finance the potential award of settlement proceeds to
FSA through existing cash balances, mortgage financings on unencumbered
properties or conversions of mortgages and notes

12
<PAGE> 15

receivable to cash. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

EMPLOYMENT AND OTHER GOVERNMENT REGULATION

The lodging industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverage (such as health and liquor license laws) and building and
zoning requirements. Also, the Company is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions and work permits requirements. The failure to obtain or
retain liquor licenses or an increase in the minimum wage rate, employee benefit
costs or other costs associated with employees, could adversely affect the
Company. Both at the federal and state level, there are proposals under
consideration to increase the minimum wage and introduce a system of mandated
health insurance. Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations are required to meet certain federal requirements
related to access and use by disabled persons. While the Company believes its
hotels are substantially in compliance with these requirements, a determination
that the Company is not in compliance with the ADA could result in the
imposition of fines or an award of damages to private litigants. These and other
initiatives could adversely affect the Company as well as the lodging industry
in general.

ENVIRONMENTAL REGULATION

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Certain environmental laws and common law
principles could be used to impose liability for release of asbestos-containing
materials ("ACMs") into the air, and third parties may seek recovery from owners
or operators of real properties for personal injury associated with exposure to
released ACMs. Environmental laws also may impose restrictions on the manner in
which property may be used or businesses may be operated, and these restrictions
may require expenditures. In connection with the ownership or operation of
hotels, the Company may be potentially liable for any such costs. Although the
Company is currently not aware of any material environmental claims pending or
threatened against it, no assurance can be given that a material environmental
claim will not be asserted against the Company or against the Company and its
managed hotels. The cost of defending against claims of liability or of
remediating a contaminated property could have a material adverse effect on the
results of operations of the Company.

MANAGEMENT AGREEMENTS

The Company currently manages 36 hotels under agreements with third party
hotel owners, including 16 Wellesley Inns for which the Company provides the
brand name. Terms of the management agreements vary but the majority are
short-term and, therefore, there are risks associated with termination of these
agreements. Furthermore, management agreements may be terminated in connection
with a change in ownership of the underlying hotels. Although such risks may be
limited due to the Company's role as lender or provider of the Wellesley Inn
brand name, 18 of the Managed Hotels, including the 16 Wellesley Inns referenced
above, are highly leveraged with debt which matured on December 15, 1995 and is
currently in default. There can be no assurance that such debt can be repaid or
restructured by the third party hotel owners in a manner that would permit the
Company to continue as manager of such properties. For the nine months ended
September 30, 1995, the Company received approximately $900,000 in management
and other fees with respect to these 18 Managed Hotels.

IMPORTANCE OF FRANCHISOR RELATIONSHIPS

The Company currently enjoys good relationships with its major franchisors,
Marriott, Radisson, Sheraton, Holiday Inn, Ramada and Howard Johnson, and the
Company has no reason to believe that such relationships will not continue.
However, under the applicable franchise agreements, the franchisor can

13
<PAGE> 16

terminate the agreement if, among other things, its quality standards are not
maintained or if payments due are not made in a timely fashion. If any of the
franchise agreements were terminated by the franchisor, the Company could
explore entering into a franchise agreement with another franchisor. There can
be no assurance, however, that a desirable replacement relationship would be
available.

DEPENDENCE ON KEY EMPLOYEES

The Company is dependent on its President, Chief Executive Officer and
Chairman of the Board, David A. Simon, its Executive Vice President and Chief
Financial Officer, John M. Elwood, its Executive Vice President of Operations,
Paul H. Hower, and on certain other key members of its executive management
staff, the loss of whose services could have a material adverse effect on the
Company's business and future operations. See "Management."

CHANGE OF CONTROL

The Indenture governing the Notes provides that, upon the occurrence of a
Change of Control, the Holders of the Notes will have the right to require the
Company to repurchase their Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. A Change of Control may also constitute a change of control or
event of default under other Indebtedness of the Company. Therefore, upon the
occurrence of a Change of Control, the Company may be required to repurchase the
Notes and repay such other outstanding Indebtedness. Should a Change of Control
occur and a substantial amount of the Notes be presented for purchase, there can
be no assurance that the Company or the acquiring party would have sufficient
financial resources to enable it to purchase such Notes. In the event the
Company is required to purchase outstanding Notes pursuant to a Change of
Control Offer, the Company expects that it would seek third party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing. See "-- Leverage" and "Description of Notes -- Repurchase at the
Option of Holders -- Change of Control."

The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. Consummation of any such transaction may require redemption or
purchase of the Notes under the Indenture and there can be no assurance that the
Company or the acquiring entity, if any, will have sufficient resources to
effect such redemption or purchase. The Change of Control purchase feature
resulted from negotiations between the Company and the Underwriters and is not
the result of management's knowledge of any specific effort to obtain control of
the Company.

ABSENCE OF PUBLIC MARKET FOR THE NOTES

The Notes are a new issue of securities for which there is currently no
public market. Although the Notes have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, there can be no
assurance as to the liquidity of the market for the Notes that may develop, the
ability of the holders to sell their Notes or the prices at which holders of the
Notes would be able to sell their Notes. If a market for the Notes does develop,
the Notes may trade at a discount from their initial public offering price,
depending on prevailing interest rates, the market for similar securities,
performance of the Company, performance of the lodging sector and other factors.
No assurance can be given as to whether an active trading market will develop or
be maintained for the Notes. See "Underwriting."

14
<PAGE> 17

THE COMPANY

The Company is a leading hotel owner/operator with a portfolio of 93 hotels
totaling 13,443 rooms. Located primarily in secondary markets in 22 states and
the U.S. Virgin Islands, the Company's hotels operate either under franchise
agreements with hotel brands such as Marriott, Radisson, Sheraton, Holiday Inn,
Ramada and Howard Johnson, or under the Company's proprietary brand names,
AmeriSuites and Wellesley Inns. The Company owns or leases the 57 Owned Hotels
and manages the 36 Managed Hotels for third parties. The Company holds financial
interests in the form of mortgages on or profit participations in 16 of the
Managed Hotels. In total, the Company has equity or financial interests in 73
hotels containing 10,815 rooms.

The Company is a Delaware corporation incorporated in 1985. The business of
the Company is conducted primarily by the Company directly, and each of the 15
hotels serving as Collateral for the Notes is owned by the Company. The Company
is the successor in interest to Prime Motor Inns, Inc. and certain of its
subsidiaries (collectively, "PMI"), which emerged from chapter 11 reorganization
on July 31, 1992. See "Business -- The Company." The principal office of the
Company is located at 700 Route 46 East, Fairfield, New Jersey 07007-2700 and
its telephone number is (201) 882-1010.

USE OF PROCEEDS

The net proceeds from the sale of the Notes offered hereby are estimated to
be approximately $115.9 million after deducting the underwriting discounts and
commissions and estimated expenses related to the Offering. The Company intends
to use the net proceeds to finance the development or acquisition of hotels or
hotel portfolios, to repay certain existing mortgage debt (including related
prepayment and other fees) and for general corporate purposes. The Company is
engaged in an ongoing program of evaluating and acquiring hotels and hotel
portfolios in selected markets in the United States. However, the Company has no
agreement, understanding or arrangement with any person to effect any material
acquisition. The mortgage debt expected to be repaid with a portion of the net
proceeds from the sale of the Notes consists of debt with an outstanding balance
of $54.7 million at September 30, 1995, which bears interest at rates which
range from 6.67% to 14.90%, with a weighted average interest rate of 10.19%, and
matures from 1997 to 2002. Approximately $6.4 million of such mortgage debt was
incurred within one year prior to the date hereof to finance acquisitions and
development. Until used, the net proceeds of this Offering will be invested in
short-term investment grade marketable securities or money market funds.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1995, and as adjusted to give effect to the Offering. This table
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included and incorporated by reference in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of debt(1).................................................. $ 6,784 $ 5,103
======== ========
% First Mortgage Notes due 2006......................................... -- 120,000
10% Senior Secured Notes due 1999......................................... 37,431 37,431
Notes and Mortgages payable, less current portion(1)...................... 165,421 112,428
7% Convertible Subordinated Notes due 2002................................ 86,250 86,250
-------- --------
Total long-term debt.............................................. 289,102 356,109
Stockholders' equity:
Preferred stock, par value $.10 per share; 20,000,000 shares authorized;
none issued............................................................ -- --
Common stock, par value $.01 per share; 75,000,000 shares authorized;
30,945,125 shares issued and outstanding............................... 309 309
Capital in excess of par value............................................ 179,571 179,571
Retained earnings(2)...................................................... 45,243 45,183
-------- --------
Total stockholders' equity........................................ 225,123 225,063
-------- --------
Total capitalization.............................................. $514,225 $ 581,172
======== ========
</TABLE>

- ---------------
(1) See Note 6 of Notes to Consolidated Financial Statements as to interest
rates and maturities on long-term debt, including current portion.

(2) Retained earnings, as adjusted, reflects prepayment and other fees in
connection with the repayment of certain mortgage debt with certain proceeds
of this Offering.

15
<PAGE> 18

RECENT CONSOLIDATED FINANCIAL AND OTHER DATA

The table below presents recent consolidated financial and other data
derived from the Company's historical financial statements as of and for the
years ended December 31, 1993 and 1994 and the nine months ended September 30,
1994 and 1995. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Selected Consolidated Financial Data of the Company and its Predecessor" and
the Consolidated Financial Statements, related notes and other financial
information included and incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------- ---------------------
1993 1994 1994 1995
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues:
Lodging.................................... $ 69,487 $ 88,753 $ 64,832 $108,157
Food and beverage.......................... 12,270 18,090 11,883 28,096
Management and other fees.................. 10,831 10,021 7,505 6,080
Interest on mortgages and notes
receivable............................... 14,765 15,867 12,134 9,268
Rental and other........................... 1,507 1,572 982 1,042
-------- -------- -------- --------
Total revenues........................ 108,860 134,303 97,336 152,643
-------- -------- -------- --------
Costs and expenses:
Direct hotel operating expenses:
Lodging.................................. 19,456 24,539 18,347 28,561
Food and beverage........................ 10,230 13,886 9,488 21,165
Selling and general...................... 20,429 26,733 19,431 36,585
Occupancy and other operating.............. 11,047 11,261 7,638 8,216
General and administrative................. 15,685 15,089 11,269 11,410
Depreciation and amortization.............. 7,117 9,427 6,287 11,907
-------- -------- -------- --------
Total costs and expenses.............. 83,964 100,935 72,460 117,844
-------- -------- -------- --------
Operating income.............................. 24,896 33,368 24,876 34,799
Investment income............................. 1,267 1,966 1,492 3,879
Interest expense.............................. (16,116) (13,993) (10,397) (15,933)
Other income.................................. 3,809 9,089 7,463 1,427
Other expense................................. -- -- -- (2,200)
-------- -------- -------- --------
Income before income taxes and extraordinary
items...................................... 13,856 30,430 23,434 21,972
Provision for income taxes.................... 5,681 12,172 9,608 8,789
-------- -------- -------- --------
Income before extraordinary items............. 8,175 18,258 13,826 13,183
Extraordinary items(2)........................ 3,989 172 172 73
-------- -------- -------- --------
Net income.................................... $ 12,164 $ 18,430 $ 13,998 $ 13,256
======== ======== ======== ========
Net income per common share:
Income before extraordinary items..... $ .27 $ .57 $ .43 $ .41
Extraordinary items................... .13 .01 .01 --
-------- -------- -------- --------
Net income per common share................... $ .40 $ .58 $ .44 $ .41
======== ======== ======== ========
Weighted average shares outstanding........... 30,721 32,022 31,969 32,118
</TABLE>

16
<PAGE> 19

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ---------------------
1993 1994 1994 1995
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT MARGIN AND RATIO DATA)
<S> <C> <C> <C> <C>
OTHER DATA:
EBITDA(3)..................................... $ 32,013 $ 42,795 $ 31,163 $ 46,706
Net cash provided by operating activities..... 19,728 28,672 18,169 26,026
Net cash provided by (used in) investing
activities................................. 2,281 (34,248) 2,508 (104,800)
Net cash provided by (used in) financing
activities................................. (17,056) (23,469) (37,623) 100,954
MARGIN AND RATIO DATA:
EBITDA margin(1)(3)........................... 29.4% 31.9% 32.0% 30.6%
Ratio of EBITDA to interest expense(3)(4)..... 1.99x 3.06x 3.00x 2.93x
Ratio of earnings to fixed charges(5)......... 1.77x 2.78x 2.84x 2.05x
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1993 1994 AS OF SEPTEMBER 30, 1995
-------- -------- ------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable
securities.................................. $ 41,569 $ 13,641 $ 60,104
Property, equipment and leasehold
improvements................................ 172,786 299,291 384,400
Mortgages and other notes receivable, net of
current portion............................. 163,033 81,260 65,040
Total assets................................... 410,685 434,932 568,477
Current portion of debt........................ 19,282 5,284 6,784
Long-term debt, net of current portion......... 168,618 178,545 289,102
Total stockholders' equity..................... 171,364 204,065 225,123
</TABLE>

- ---------------

(1) In December 1994, the Company acquired ownership of the Frenchman's Reef as
a result of the restructuring of a mortgage note receivable, which was
secured by the hotel. This transaction has not had a material impact on
operating income but has affected operating margins significantly. For the
years ended December 31, 1993 and 1994 and the nine months ended September
30, 1994 the Company recorded revenues related to the Frenchman's Reef in
the form of interest income and management fees of $5.1 million, $5.7
million and $4.1 million, respectively, with no corresponding operating
expenses. For the nine months ended September 30, 1995, the Company recorded
operating revenues of $26.7 million and operating expenses of $20.9 million
related to the Frenchman's Reef.

(4) The pro forma interest expense for the Company, after giving effect to the
Offering and the use of certain proceeds thereof to repay debt, for the nine
months ended September 30, 1995 was $20.2 million. See "Use of Proceeds."
The pro forma ratio of EBITDA to interest expense for the nine months ended
September 30, 1995 was 2.31x. The pro forma interest expense for the nine
months ended September 30, 1995 assumes an annual interest rate for the
Notes of 9.25%. A 50 basis point increase in such interest rate would
increase the pro forma interest expense for the nine months ended September
30, 1995 by $450,000 and decrease the pro forma rate of EBITDA to interest
expense for the nine months ended September 30, 1995 to 2.26x. A 50 basis
point decrease in such interest rate would decrease the pro forma interest
expense for the nine months ended September 30, 1995 by $450,000 and
increase the pro forma ratio of EBITDA to interest expense for the nine
months ended September 30, 1995 to 2.36x.

17
<PAGE> 20

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is a leading hotel owner/operator which owns or leases 57
hotels (the "Owned Hotels") and manages 36 hotels (the "Managed Hotels") for
third parties. The Company has a financial interest in the form of mortgages or
profit participations (primarily incentive management fees) in 16 of the Managed
Hotels. The Company consolidates the results of operations of its Owned Hotels
and records management fees (including incentive management fees) and interest
income, where applicable, on the Managed Hotels.

The Company has implemented a growth strategy which focuses on improving
results at existing hotels through increased revenues and operating leverage,
acquiring hotels with potential for operating and marketing improvements and
expanding its AmeriSuites hotel brand in the all-suites segment. For the nine
months ended September 30, 1995, earnings from recurring operations have
increased by 44.8% reflecting a 9.7% REVPAR increase at comparable hotels, the
addition of 19 hotels through acquisition, construction or note settlements in
the past two years and improved expense margins due to increased operating
efficiencies. Although future results of operations may be adversely affected in
the short-term by the costs associated with the acquisition and construction of
new hotels, it is expected that this impact will be offset, after an initial
period, by revenues generated by these new hotels. The Company believes that it
is well positioned to benefit from the expected continued improvements in the
lodging industry due to its hotel equity ownership position and its growth
strategy.

In December 1994, the Company acquired ownership of the Frenchman's Reef
hotel as a result of the restructuring of a mortgage note receivable, which was
secured by the hotel. This transaction has not had a material impact on
operating income but has affected operating margins significantly. For the years
ended December 31, 1993 and 1994 and the nine months ended September 30, 1994
the Company recorded revenues related to the Frenchman's Reef in the form of
interest income and management fees of $5.1 million, $5.7 million and $4.1
million, respectively, with no corresponding operating expenses. For the nine
months ended September 30, 1995, the Company recorded operating revenues of
$26.7 million and operating expenses of $20.9 million related to the Frenchman's
Reef.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1995

The following table presents the components of operating income, operating
expense margins and other data for the Company and the Company's comparable
Owned Hotels for the nine months ended September 30, 1994 and 1995. The results
of the four hotels divested during 1994 and 1995 are not material to an
understanding of the results of the Company's operations in such periods and,
therefore, are not separately discussed.

18
<PAGE> 21

<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
------------------- -------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1994 1995
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND
REVPAR)
<S> <C> <C> <C> <C>
Revenues:
Lodging............................................. $ 64,832 $108,157 $ 58,295 $ 63,400
Food and Beverage................................... 11,883 28,096 9,778 9,435
Management and Other Fees........................... 7,505 6,080
Interest on Mortgages and Notes Receivable.......... 12,134 9,268
Rental and Other.................................... 982 1,042
-------- --------
Total Revenues.............................. 97,336 152,643
Direct Hotel Operating Expenses:
Lodging............................................. 18,347 28,561 15,558 16,429
Food and Beverage................................... 9,488 21,165 7,822 7,620
Selling and General................................. 19,431 36,585 17,226 18,159
Occupancy and Other Operating......................... 7,638 8,216
General and Administrative............................ 11,269 11,410
Depreciation and Amortization......................... 6,287 11,907
-------- --------
Operating Income...................................... 24,876 34,799
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue......... 28.3% 26.4% 26.7% 25.9%
Food and Beverage, as a percentage of food and
beverage revenue................................. 79.8% 75.3% 80.0% 80.8%
Selling and General, as a percentage of lodging and
food and beverage revenue........................ 25.3% 26.9% 25.3% 24.9%
Occupancy and Other Operating, as a percentage of
lodging and food and beverage revenue............... 10.0% 6.0%
General and Administrative, as a percentage of
total revenue....................................... 11.6% 7.5%
OTHER DATA:
Occupancy........................................... 70.8% 70.5% 71.4% 73.2%
Average daily rate ("ADR").......................... $ 60.42 $ 73.13 $ 60.16 $ 64.42
Revenue per available room ("REVPAR")............... $ 42.78 $ 51.58 $ 42.97 $ 47.14
Gross Operating Profit.............................. $ 29,449 $ 49,942 $ 27,467 $ 30,627
</TABLE>

- ------------------------

(1) For purposes of this discussion of results of operations, comparable Owned
Hotels refers to the 37 Owned Hotels that were owned or leased by the
Company during all of the nine months ended September 30, 1994 and 1995.

Lodging revenues increased by $43.3 million, or 66.8%, during the nine
months ended September 30, 1995 over the same period of the prior year. The
increase was primarily due to incremental lodging revenues of $39.4 million for
the nine months ended September 30, 1995 from the addition of the Frenchman's
Reef and the 18 new hotels added during 1994 and 1995 and continued growth in
revenues at comparable Owned Hotels. Lodging revenues for comparable Owned
Hotels increased by $5.1 million or 8.8%, for the nine months ended September
30, 1995 as compared to the same period of the prior year.

19
<PAGE> 22

The Company operates in three major segments of the industry: full-service,
all-suites and limited-service. The following table sets forth the growth in
REVPAR at the comparable Owned Hotels for the nine months ended September 30,
1995, as compared to the same period in the prior year, by industry segment:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1995
------------------
<S> <C>
Full-service.............................................. 7.8%
All-suites................................................ 12.1%
Limited-service........................................... 10.2%
Total........................................... 9.7%
</TABLE>

The REVPAR growth at comparable Owned Hotels reflects strong results in all
of the Company's industry segments: full-service, its all-suite AmeriSuites and
its limited-service Wellesley Inns. In addition, repositioning efforts at both
full-service and limited-service hotels also contributed to the REVPAR
increases. The improvements in REVPAR were generated by increases in ADR, which
rose by 7.1%, and gains in occupancy of 2.5%, for the nine month period, as
compared to the same period in the prior year.

Food and beverage revenues increased by $16.2 million, or 136.4%, for the
nine months ended September 30, 1995 compared to the same period in the prior
year. These increases were primarily due to the additional food and beverage
operations related to the Frenchman's Reef and six other full-service hotels
acquired since January 1, 1994. Food and beverage revenues for comparable Owned
Hotels decreased by $343,000, for the nine months ended September 30, 1995
compared to the same period in the prior year. The decrease was primarily due to
decreased banquet business and lower beverage revenues at the Company's sports
lounges.

Management and other fees consist of base and incentive fees earned under
management agreements, fees for additional services rendered to Managed Hotels
and sales commissions earned by the Company's national sales group, Market
Segments, Inc. ("MSI"). Management and other fees decreased by $1.4 million, or
19.0%, for the nine months ended September 30, 1995 as compared to the same
period in the prior year. The decrease was primarily due to the loss of
management fees on five Managed Hotels acquired by the Company during 1994 and
1995 and six additional hotels which were sold by a third party hotel owner in
1994. Partially offsetting these decreased management fees were increased base
and incentive management fees associated with the remaining Managed Hotels and
increased revenues generated by MSI in the third quarter.

Interest on mortgages and notes receivable during the periods primarily
related to mortgages secured by certain Managed Hotels. Interest on mortgages
and notes receivable decreased by $2.9 million, or 23.6%, for the nine months
ended September 30, 1995 primarily due to the Company's conversion of a $50.0
million note receivable secured by the Frenchman's Reef into an operating hotel
asset in December 1994. Partially offsetting the decrease was interest income
related to the purchase of $17.4 million of first mortgages secured by two
hotels for $12.7 million in June 1995.

Direct lodging expenses increased by $10.2 million, or 55.7%, for the nine
months ended September 30, 1995 compared to the same period in the prior year,
due primarily to the addition of new hotels. Direct lodging expenses, as a
percentage of lodging revenue, decreased from 28.3% to 26.4% for the nine month
period. This decrease was primarily due to increases in ADR which had minimal
corresponding increases in expenses. For comparable Owned Hotels, direct lodging
expenses as a percentage of lodging revenues decreased from 26.7% to 25.9% for
the nine month period.

Direct food and beverage expenses increased by $11.7 million or 123.1%, for
the nine months ended September 30, 1995 as compared to the same period in the
prior year primarily due to the addition of seven new full-service hotels. As a
percentage of food and beverage revenues, direct food and beverage expenses
decreased from 79.8% to 75.3% for the nine month period. The decrease was
primarily due to increased revenues in higher margin areas such as banquet
departments at the new hotels. For comparable Owned Hotels, direct food and
beverage expenses as a percentage of food and beverage revenue increased
slightly from 80.0% to 80.8% for the nine month period.

20
<PAGE> 23

Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
increased by $17.2 million or 88.3%, for the nine months ended September 30,
1995 as compared to the same period in the prior year due primarily to the
addition of new hotels. As a percentage of hotel revenues (defined as lodging
and food and beverage revenues), direct hotel selling and general expenses
increased from 25.3% to 26.9% for the nine month period due to the addition of
new full-service properties which generally require higher levels of unallocated
expenses. For comparable Owned Hotels, direct selling and general expenses as a
percentage of revenues decreased from 25.3% to 24.9% for the nine month period.

Occupancy and other operating expenses consist primarily of insurance, real
estate and other taxes and rent expense. For the nine months ended September 30,
1995, occupancy and other operating expenses increased by $578,000 as the
additional costs associated with the new hotels were offset by real estate tax
refunds of approximately $600,000 for the nine month period. As a percentage of
hotel revenues, occupancy and other operating expenses decreased from 10.0% to
6.0% for the nine month period primarily due to operating leverage.

General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned and Managed
Hotels and general corporate expenses. General and administrative expenses
increased by $141,000 or 1.3% for the nine months ended September 30, 1995, as
ordinary-course increases were largely offset by home office payroll reductions.
As a percentage of total revenues, general and administrative expenses decreased
from 11.6% to 7.5% for the nine month period due to operating leverage.

Depreciation and amortization expense increased by $5.6 million or 89.4%,
for the nine months ended September 30, 1995 due to the impact of new hotel
properties acquired in the past year and refurbishment efforts at several
hotels.

Interest expense increased by $5.5 million, or 53.2%, for the nine months
ended September 30, 1995 primarily due to new mortgage borrowings of $39.0
million incurred in February 1995 and $86.3 million of 7% Convertible
Subordinated Notes due 2002 (the "Convertible Notes") issued in April 1995.
Investment income increased by $2.4 million for the nine months primarily due to
higher average cash balances generated by the new borrowings.

Other income consists of items which are not part of the Company's
recurring operations. For the nine months ended September 30, 1995 other income
consisted of a gain on the settlement of a note receivable of $822,000 and a
gain on the sale of land of $605,000. Other income for the nine months ended
September 30, 1994 consisted of a gain on the settlement of the Rose and Cohen
note receivable of $5.9 million and gains on property sales of $1.1 million.
Other expense of $2.2 million for the nine months ended September 30, 1995
consists of a reserve for insurance deductibles related to hurricane damage at
the Frenchman's Reef hotel in St. Thomas, U.S. Virgin Islands.

Pretax extraordinary gains of approximately $121,000 for the nine months
ended September 30, 1995 relate to the retirement of secured notes with a face
value of $15.2 million. Pretax extraordinary gains of approximately $291,000 for
the nine months ended September 30, 1994 relate to the retirement of debt with a
face value of $8.3 million.

21
<PAGE> 24

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1993

The following table presents the components of operating income, operating
expense margins and other data for the Company and the Company's comparable
Owned Hotels for 1993 and 1994. The results of the four hotels divested during
1993 and 1994 are not material to an understanding of the results of the
Company's operations in such periods and, therefore, are not separately
discussed.

<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
--------------------- -------------------
1993 1994 1993 1994
-------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
Revenues:
Lodging......................................... $ 69,487 $ 88,753 $62,305 $66,821
Food and Beverage............................... 12,270 18,090 10,875 11,410
Management Fees................................. 10,831 10,021
Interest on Mortgages and Notes Receivable...... 14,765 15,867
Rental and Other................................ 1,507 1,572
-------- --------
Total Revenues.......................... 108,860 134,303
Direct Hotel Operating Expenses:
Lodging......................................... 19,456 24,539 16,870 17,281
Food and Beverage............................... 10,230 13,886 9,029 9,143
Selling and General............................. 20,429 26,733 17,779 18,889
Occupancy and Other Operating..................... 11,047 11,261
General and Administrative........................ 15,685 15,089
Depreciation and Amortization..................... 7,117 9,427
-------- --------
Operating Income.................................. 24,896 33,368
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue..... 28.0% 27.6% 27.1% 25.9%
Food and Beverage, as a percentage of food and
beverage revenue............................. 83.4% 76.8% 83.0% 80.1%
Selling and General, as a percentage of lodging
and food and beverage revenue................ 25.0% 25.0% 24.3% 24.1%
Occupancy and Other Operating, as a percentage of
lodging and food and beverage revenue........... 13.5% 10.5%
General and Administrative, as a percentage of
total revenue................................... 14.4% 11.2%
OTHER DATA:
Occupancy....................................... 70.4% 68.0% 73.2% 73.1%
ADR............................................. $ 56.14 $ 60.36 $ 56.84 $ 61.16
REVPAR.......................................... $ 39.52 $ 41.04 $ 41.61 $ 44.71
Gross Operating Profit.......................... $ 31,642 $ 41,685 $29,500 $32,917
</TABLE>

- ---------------
(1) For purposes of this discussion of results of operations for 1994 compared
to 1993, comparable Owned Hotels refers to the 31 Owned Hotels that were
owned or leased by the Company during all of 1994 and 1993.

Lodging revenues increased by $19.3 million, or 27.7%, from $69.5 million
in 1993 to $88.8 million in 1994. This increase was primarily due to incremental
lodging revenues of $17.6 million from hotels acquired or built in 1993 and 1994
and an increase in lodging revenues at comparable Owned Hotels. Lodging revenues
for comparable Owned Hotels increased by $4.5 million, or 7.2%, in 1994 compared
to 1993 due to improvements in ADR. ADR increased by $4.22 or 7.5% for all
hotels and $4.32 or 7.6% for comparable Owned Hotels due to repositioning and
refurbishment efforts at several full-service hotels and the continued
improvements in the lodging industry. In 1994, the industry continued its
recovery, as demand growth continued to outpace new hotel supply growth,
resulting in higher occupancy levels which have allowed the industry to increase
room

22
<PAGE> 25

rates. The Company has pursued a strategy of increasing ADR, which has a greater
impact on net operating income than changes in occupancy. Occupancy rates for
all hotels decreased from 70.4% in 1993 to 68.0% in 1994 due to the lower
occupancy rates normally associated with new hotels, including both newly
constructed hotels and repositioned hotels during the refurbishment period.
Occupancy rates for comparable Owned Hotels remained constant in 1994 compared
to 1993.

The Company operates in three major segments of the industry: full-service,
all-suites and limited-service. The following table sets forth the growth in
REVPAR at the comparable Owned Hotels for the year ended December 31, 1994 as
compared to the prior year, by industry segment:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Full-service............................................... 7.7%
All-suites................................................. 13.1%
Limited-service............................................ 4.1%
Total............................................ 7.5%
</TABLE>

Food and beverage revenues increased by $5.8 million, or 47.4%, from $12.3
million in 1993 to $18.1 million in 1994. This increase was primarily due to the
impact of incremental revenues of $5.6 million from additional food and beverage
operations of four full-service hotels acquired in 1994. Food and beverage
revenues for comparable Owned Hotels increased by $535,000, or 4.9%, in 1994
compared to 1993 primarily as a result of increased banquet sales and the
repositioning of three lounges to a sports bar theme.

Management and other fees consist of base and incentive fees earned under
management agreements, fees for additional services rendered to Managed Hotels
and sales commissions earned by the Company's national sales group, Market
Segments, Inc. Management and other fees decreased by $810,000, or 7.5%, from
$10.8 million in 1993 to $10.0 million in 1994 primarily due to the loss of
management fees on four Managed Hotels acquired by the Company during 1994. In
addition, the Company's management contracts covering six additional hotels were
terminated during 1994 upon divestiture of those hotels by the third party hotel
owners. Partially offsetting these decreased management fees were the addition
of two new management contracts and increased revenues associated with the
remaining Managed Hotels.

Interest on mortgages and notes receivable in 1993 and 1994 primarily
related to mortgages secured by certain Managed Hotels including the Frenchman's
Reef. Interest income on mortgages and notes receivable increased by $1.1
million, or 7.5%, from $14.8 million in 1993 to $15.9 million in 1994 primarily
due to interest recognized on the Company's cash flow notes, which are
subordinated or junior mortgages which remit payment based on hotel cash flow.
In accordance with fresh start reporting adopted on the Effective Date, assets
and liabilities were recorded at their then-current fair market values. As these
cash flow notes bear many of the characteristics and risks of operating hotel
equity investments, no value was assigned to these notes on the Company's
balance sheet due to substantial doubt as to their recoverability. The Company's
policy is to recognize interest on cash flow notes when cash is received. In
1994, the portion of interest on mortgages and other notes receivable
attributable to cash flow notes increased to $2.0 million from $1.0 million in
1993 primarily due to the execution of revised cash flow note agreements on
three hotels and the improved operating performance of the underlying hotels.
See "Business -- Mortgages and Notes Receivable."

Approximately $4.3 million and $4.6 million of interest on mortgages and
notes receivable in 1993 and 1994, respectively, was derived from the Company's
$50.0 million note receivable secured by the Frenchman's Reef. This note was
restructured in December 1994 and pursuant to such restructuring, the Company
obtained ownership and control of the Frenchman's Reef (see "-- Liquidity and
Capital Resources").

Direct lodging expenses increased by $5.0 million, or 26.1%, from $19.5
million in 1993 to $24.5 million in 1994 due primarily to the addition of new
hotels. As a percentage of lodging revenue, direct lodging expenses decreased
from 28.0% in 1993 to 27.6% in 1994 primarily due to increases in ADR which had
minimal corresponding increases in expenses. For comparable Owned Hotels, direct
lodging expenses increased $411,000, or 2.4%, but decreased as a percentage of
comparable lodging revenue from 27.1% in 1993 to 25.9% in 1994.

23
<PAGE> 26

Direct food and beverage expenses increased by $3.7 million, or 35.7%, from
$10.2 million in 1993 to $13.9 million in 1994 due primarily to the addition of
new full-service hotels. As a percentage of food and beverage revenue, direct
food and beverage expenses decreased from 83.4% in 1993 to 76.8% in 1994
primarily due to increased revenues in higher margin areas such as banquet
departments and sports lounges. For comparable Owned Hotels, direct food and
beverage expenses increased $114,000, or 1.3%, but decreased as a percentage of
food and beverage revenue from 83.0% in 1993 to 80.1% in 1994.

Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
increased by $6.3 million, or 30.9%, from $20.4 million in 1993 to $26.7 million
in 1994 due primarily to the addition of 11 new hotels. Of these 11 hotels, four
were managed by the Company in 1993 or during a portion of 1994, while the other
seven had no previous relationship to the Company. As a percentage of hotel
revenues (defined as rooms and food and beverage revenues), direct hotel selling
and general expenses remained relatively constant at 25.0% in 1994 and 1993. For
comparable Owned Hotels, direct selling and general expenses increased $1.1
million, or 6.2%, but decreased slightly as a percentage of comparable Owned
Hotel revenues from 24.3% in 1993 to 24.1% in 1994.

Occupancy and other operating expenses, which consist primarily of
insurance, real estate and other taxes, and rent expense, increased by $214,000,
or 1.9%, from $11.0 million in 1993 to $11.3 million in 1994. As a percentage of
hotel revenues, occupancy and other operating expenses decreased from 13.5% in
1993 to 10.5% in 1994 primarily due to operating leverage, lower property and
liability insurance charges based on favorable claims experiences and reductions
in real estate taxes as a result of successful tax appeals on certain
properties.

General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned and Managed
Hotels and general corporate expenses. General and administrative expenses
decreased by $596,000, or 3.8%, from $15.7 million in 1993 to $15.1 million in
1994 primarily due to savings realized from the restructuring of the Company's
centralized management operations in 1993. As a percentage of total revenues,
general and administrative expenses decreased from 14.4% in 1993 to 11.2% in
1994.

Depreciation and amortization expense increased by $2.3 million, or 32.5%,
from $7.1 million in 1993 to $9.4 million in 1994, due to the impact of new
hotel properties acquired in the past year and refurbishment efforts at several
hotels.

Interest expense decreased by $2.1 million, or 13.2%, from $16.1 million in
1993 to $14.0 million in 1994, primarily due to the net reduction of
approximately $27.4 million of debt over the past two years. Interest income on
cash investments increased by approximately $700,000, or 55.2%, from $1.3
million in 1993 to $2.0 million in 1994 due to higher average cash balances in
1994.

Other income for 1994 consisted primarily of a gain of approximately $6.2
million related to the settlement of the Rose and Cohen note receivable (see
"-- Liquidity and Capital Resources"), gains on sales of other hotel assets of
approximately $1.0 million and rebates of prior years' insurance premiums of
$1.2 million.

Pretax extraordinary gains of approximately $292,000 for 1994 relate to the
retirement of secured notes with a face value of $8.3 million. Pretax
extraordinary gains of approximately $6.8 million in 1993 relate to the
retirement of debt with a face value of $25.8 million.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1992

The Company is the successor in interest to PMI, which emerged from chapter
11 reorganization on July 31, 1992 (the "Effective Date"). During its
approximately two-year reorganization, PMI restructured its assets, operations
and capital structure. As a result, the Company (i) eliminated numerous
unprofitable lease and management agreements, (ii) revalued its assets to
reflect the then approximate current fair market value of such assets on its
financial statements and (iii) reduced its liabilities by $448.8 million. On the
Effective Date, the Company emerged from chapter 11 reorganization with 75 Owned
or Managed Hotels (as

24
<PAGE> 27

compared to 141 hotels prior to the chapter 11 reorganization), $135.6 million
of total equity and $266.4 million of long-term debt.

The Company implemented "fresh start" reporting in accordance with
Statement of Position 90-7 of the American Institute of Certified Public
Accountants upon its emergence from reorganization on the Effective Date. Under
"fresh start" reporting, the purchase method of accounting was used and the
assets and liabilities of the Company were restated to reflect their approximate
fair value at the Effective Date. In addition, during the reorganization period
(September 18, 1990 to the Effective Date), the Company's financial statements
were prepared under accounting principles for entities in reorganization which
include reporting interest expense only to the extent paid and recording
transactions and events directly associated with the reorganization proceedings.
Accordingly, the consolidated financial statements of the Company are not
comparable in all material respects to any such financial statement as of any
date or for any period prior to the Effective Date. Subsequent to the Effective
Date, the Company elected to change its fiscal year end from June 30 to December
31.

25
<PAGE> 28

The financial information below should be read in conjunction with the
Consolidated Financial Statements of the Company included elsewhere in this
report. Since the Company changed its fiscal year in 1992, management has
compiled unaudited data for the calendar year ended December 31, 1992.

The following table presents the components of operating income, operating
expense margins and other data for the Company and the Company's comparable
Owned Hotels for 1992 and 1993:

<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
--------------------- ---------------------
1992 1993 1992 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
Revenues:
Lodging....................................... $ 62,379 $ 69,487 $ 51,679 $ 55,219
Food and Beverage............................. 13,062 12,270 9,549 10,055
Management Fees............................... 11,452 10,831
Interest on Mortgages and Notes Receivable.... 20,063 14,765
Rental and Other.............................. 2,232 1,507
-------- --------
Total Revenues........................ 109,188 108,860
Direct Hotel Operating Expenses:
Lodging....................................... 17,858 19,456 14,003 14,848
Food and Beverage............................. 11,402 10,230 8,278 8,480
Selling and General........................... 22,119 20,429 16,004 16,200
Occupancy and Other Operating................... 13,043 11,047
General and Administrative...................... 17,162 15,685
Depreciation and Amortization................... 7,224 7,117
-------- --------
Operating Income................................ 20,380 24,896
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue... 28.6% 28.0% 27.1% 26.9%
Food and Beverage, as a percentage of food and
beverage revenue........................... 87.3% 83.4% 86.7% 84.3%
Selling and General, as a percentage of
lodging and food and beverage revenue...... 29.3% 25.0% 26.1% 24.8%
Occupancy and Other Operating, as a percentage
of lodging and food and beverage revenue...... 17.3% 13.5%
General and Administrative, as a percentage of
total revenue................................. 15.7% 14.4%
OTHER DATA:
Occupancy..................................... 67.9% 70.4% 68.1% 72.2%
ADR........................................... $ 54.66 $ 56.14 $ 54.66 $ 55.96
REVPAR........................................ $ 37.11 $ 39.52 $ 37.23 $ 40.38
Gross Operating Profit........................ $ 24,062 $ 31,642 $ 22,943 $ 25,746
</TABLE>

- ---------------
(1) For purposes of this discussion of results of operations for the year ended
December 31, 1993 compared to the year ended December 31, 1992, Comparable
Owned Hotels refers to the 29 Owned Hotels that were owned or leased by the
Company during all of 1993 and 1992.

Lodging revenue increased by $7.1 million, or 11.4%, from $62.4 million in
1992 to $69.5 million in 1993. This increase was primarily due to incremental
lodging revenues of $10.9 million from hotels acquired or built during 1993 and
1992 and increased occupancy and ADR at comparable hotels. The increase was
partially offset by a decrease in lodging revenues of $7.4 million resulting
from the divestiture of four hotels in 1992 and s1993. Lodging revenues for
comparable Owned Hotels increased by $3.5 million, or 6.8%, in 1993 compared to
1992, primarily due to an increase in occupancy of 5.9% for 1993, reflecting
improved economic conditions and continued limited new room supply. ADR
increased $1.30, or 2.4%, in 1993.

26
<PAGE> 29

The Company operates in three major segments of the industry: full-service,
all-suites and limited-service. The following table sets forth the growth in
REVPAR at the comparable Owned Hotels for the year ended December 31, 1993 as
compared to the prior year, by industry segment:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
-----------------
<S> <C>
Full-service............................................... 7.3%
All-suites................................................. 12.6%
Limited-service............................................ 6.6%
Total............................................ 8.5%
</TABLE>

Food and beverage revenues decreased by $792,000, or 6.1%, from $13.1
million in 1992 to $12.3 million in 1993. The decrease was primarily due to the
loss of food and beverage operations at divested hotels which was partially
offset by an increase in food and beverage revenue at comparable Owned Hotels of
$506,000, or 5.3%, in 1993.

Management and other fees decreased by $621,000, or 5.4%, from $11.5
million in 1992 to $10.8 million in 1993. The decrease was primarily
attributable to the loss of five management contracts due to property
divestitures by independent owners, of which two properties were acquired by the
Company. This decrease was partially offset by increases in management fees
attributable to improved operating results of the Managed Hotels.

Interest on mortgages and notes receivable decreased by $5.3 million, or
26.4%, from $20.1 million in 1992 to $14.8 million in 1993. This decrease was
primarily due to the Company's early collection of a $58.0 million note
receivable in August 1992. The decrease was partially offset by interest income
of $1.0 million recognized on cash flow notes in 1993 due to the improved
performance of the underlying hotels.

Rental and other revenues decreased by $725,000, or 32.5% from $2.2 million
in 1992 to $1.5 million in 1993. The decrease was primarily attributable to the
loss of rental revenues on properties which the Company converted into operating
hotel assets.

Direct lodging expenses increased by $1.6 million, or 8.9%, from $17.9
million in 1992 to $19.5 million in 1993. As a percentage of lodging revenue,
direct lodging expenses decreased from 28.6% in 1992 to 28.0% in 1993, primarily
due to increases in ADR which had minimal corresponding increases in expenses.
Direct lodging expenses for comparable Owned Hotels increased by $845,000, or
6.0%, but decreased as a percentage of lodging revenue from 27.1% in 1992 to
26.9% in 1993.

Direct food and beverage expenses decreased by $1.2 million, or 10.3%, from
$11.4 million in 1992 to $10.2 million in 1993. As a percentage of food and
beverage revenue, direct food and beverage expenses decreased from 87.3% in 1992
to 83.4% in 1993 which reflected an increase in higher margin beverage sales.
For comparable hotels, direct food and beverage expenses increased by $202,000,
or 2.4%, but decreased as a percentage of food and beverage revenue from 86.7%
in 1992 to 84.3% in 1993.

Direct selling and general expenses decreased by $1.7 million, or 7.6%,
from $22.1 million in 1992 to $20.4 million in 1993. As a percentage of hotel
revenue, direct selling and general expenses decreased from 29.3% in 1992 to
25.0% in 1993, primarily due to the divestiture of four full-service hotels in
1992 and 1993, which generally required increased overhead costs. For comparable
Owned Hotels, direct selling and general expenses decreased as a percentage of
hotel revenue from 26.1% in 1992 to 24.8% in 1993, primarily due to the
restructuring of the Company's centralized operations which eliminated certain
allocated central office charges. These cost savings were offset by higher
utility charges as a result of an unusually warm summer in 1993.

Occupancy and other operating expenses decreased by $2.0 million, or 15.3%,
from $13.0 million in 1992 to $11.0 million in 1993 primarily due to the
divestiture of two properties operated under lease agreements.

General and administrative expenses decreased by $1.5 million, or 8.6%,
from $17.2 million in 1992 to $15.7 million in 1993. As a percentage of total
revenue, general and administrative charges decreased from 15.7% in 1992 to
14.4% in 1993. These decreases were primarily due to the restructuring of the
Company's centralized management operations in February 1993, which eliminated
approximately $2.5 million of annual costs.

27
<PAGE> 30

Depreciation expense decreased by $107,000, or 1.5%, from $7.2 million in
1992 to $7.1 million in 1993. In accordance with fresh start reporting,
property, equipment and leasehold improvements were valued at their fair market
value as of the Effective Date. Prior to the Effective Date, property, equipment
and leasehold improvements were recorded at cost. Accordingly, a meaningful
comparison of depreciation expense cannot be made.

Interest expense increased by $5.0 million, or 44.9%, from $11.1 million in
1992 to $16.1 million in 1993. Prior to the Effective Date, the Company's
financial statements were prepared under accounting principles for entities in
reorganization, which includes reporting interest expense only to the extent
paid. Additionally, the Company restructured its debt obligations pursuant to
the reorganization which was completed on the Effective Date. Accordingly, a
meaningful comparison of interest expense cannot be made.

Other income in 1993 consisted primarily of a gain on the sale of a hotel
of $1.0 million, settlement of closing adjustments of $625,000 related to the
sale of a hotel in a prior year, interest of $1.2 million received as part of a
federal tax refund and $500,000 received in settlement of prior year's fees on a
Managed Hotel.

Pretax extraordinary gains of $6.8 million in 1993 relate to the repurchase
of debt.

LIQUIDITY AND CAPITAL RESOURCES

The Company's growth strategy focuses on increasing its equity ownership in
hotels, particularly in the full-service and all-suites segments of the market.
The Company plans to expand its AmeriSuites hotel brand and expects to increase
the total number of AmeriSuites from its current level of 19 hotels to at least
40 hotels by the end of 1996. Additionally, the Company intends to actively
pursue acquisitions of full-service hotels or hotel portfolios which may also
require additional capital for the costs of any necessary renovation or
refurbishment. As a result of the Company's focus on its AmeriSuites and
full-service hotels, the Company is exploring the sale of its 14 owned Wellesley
Inns and the Wellesley Inn trade name at a purchase price that justifies the
disposition of these properties.

The Company is funding its development and acquisition program currently
with the proceeds from the issuance of $86.3 million of Convertible Notes and
mortgage financings of $39.0 million incurred in 1995. The Company intends to
finance future acquisitions and development with current cash balances, the
proceeds of this Offering, other secured financings and/or public equity
offerings. In addition, any proceeds generated from the sale of the Wellesley
Inns would also be utilized to fund development. The Company believes that these
sources will be adequate to fund the implementation of its growth strategy
through 1996. Additionally, the Company believes that its cash flow from
operations is sufficient to fund its anticipated working capital needs, routine
capital expenditures and debt service obligations through 1996.

The Company believes it has the financial resources available to execute
its growth and hotel acquisition strategy. The net proceeds of this Offering are
estimated to be approximately $115.9 million, of which approximately $54.7
million is expected to be used to repay outstanding debt. At September 30, 1995,
the Company had cash and cash equivalents of $34.7 million, current marketable
securities of $25.4 million and restricted cash, which is primarily collateral
for various debt obligations, of $9.4 million. Cash and cash equivalents and
current marketable securities increased by $46.5 million during the nine months
ended September 30, 1995 primarily due to the new borrowings offset by
development and acquisition spending.

Cash flow from operations was approximately $26.0 million for the nine
months ended September 30, 1995 as compared to $18.2 million for the same period
of the prior year. Cash flow from operations was positively impacted by the
utilization of net operating loss carryforwards ("NOLs") of $5.9 and $2.3
million for the nine months ended September 30, 1995 and 1994, respectively. At
September 30, 1995, the Company had federal NOLs relating to its predecessor,
PMI, of approximately $106.6 million which are subject to annual utilization
limitations and expire beginning in 2005 and continuing through 2007.

The Company's other major sources of cash for the nine months ended
September 30, 1995 were net proceeds of approximately $83.2 million from the
issuance of the Convertible Notes, mortgage financings of $39.0 million and
collections of mortgages and notes receivable of $14.7 million. The Company's
major uses of cash for the nine months ended September 30, 1995 were purchases
of marketable securities of $24.1 million, capital expenditures of $88.0
million, debt payments of $20.7 million and the purchase of first mortgage notes
from a private investment partnership for $12.7 million.

28
<PAGE> 31

Debt. In April 1995, the Company issued $86.3 million of 7% Convertible
Subordinated Notes due 2002. The Convertible Notes bear interest at 7%, are
convertible into common stock of the Company at a price of $12 per share at the
option of the holder and mature April 15, 2002. The Convertible Notes are
redeemable, in whole or in part, at the option of the Company after three years
at premiums to principal which decline on each anniversary date. The Company is
using the proceeds primarily to finance the development and acquisition of
hotels or hotel portfolios.

In February 1995, the Company obtained $39.0 million of mortgage financing
on 11 of its hotels under two separate loan agreements. Both loans bear interest
at variable rates (approximately 10.5% at September 30, 1995) and have five-year
maturities. The funds are being used to finance the Company's acquisition and
development program. The Company also incurred an additional $3.6 million of
debt in connection with the ShoLodge transaction. See "-- Capital Investments."

During 1995, the Company prepaid and retired $15.2 million of its senior
secured notes through September 30, 1995, resulting in pre-tax extraordinary
gains of $121,000. In October 1995, the Company retired an additional $7.1
million of its senior secured notes. A pre-tax extraordinary gain of $53,000
will be recorded in the fourth quarter.

As of September 30, 1995, the Company has $37.5 million of debt related to
the Frenchman's Reef which matures in December 1996. The Company and the lender
are currently negotiating an amendment to the mortgage loan. The amendment will
extend the loan maturity for a period of five years on terms similar to those
currently in effect. While lender approval has not been finalized, management
expects the amendment to become effective during the first quarter of 1996,
although there can be no assurance that the mortgage loan will be so amended.

At September 30, 1995, the Company had $295.9 million in debt outstanding.
Of this debt, approximately $83.0 million bears interest at floating rates. In
August 1995, the Company entered into an interest rate protection agreement with
a major financial institution which reduces the Company's exposure to
fluctuations in interest rates by effectively fixing interest rates on $40.0
million of variable interest rate debt. Under the agreement, on a monthly basis
the Company will pay a fixed rate of interest of 6.18% per annum and will
receive a floating interest rate payment equal to the 30-day LIBOR rate on a
$40.0 million notional principal amount. The agreement commences in November
1995 and expires in 1999.

For a discussion of the risks associated with the leveraged nature of the
Company, see "Risk Factors -- Leverage."

Capital Investments. The Company has implemented a hotel development and
acquisition program which focuses on the development of its AmeriSuites hotel
chain and the acquisition of strategically positioned full-service hotels or
hotel portfolios. In connection with this program, the Company spent
approximately $71.7 million in cash on the acquisition and construction of
hotels, purchased first mortgage notes for $12.7 million and assumed $3.6
million of debt in the nine months ending September 30, 1995. The cash portion
was funded by a combination of existing cash balances, cash flow from
operations, mortgage financings and the Convertible Notes offering.

The Company plans to have at least 40 AmeriSuites hotels in operation by
the end of 1996. To date in 1995, AmeriSuites hotels were opened in Atlanta and
Greensboro, bringing the number of AmeriSuites owned and operated by the Company
to 15. The Company also expects to convert four recently-acquired Bradbury
Suites hotels to AmeriSuites in the fourth quarter of 1995. The Company
currently has eight AmeriSuites hotels under construction in Miami, Cleveland,
Dallas, Detroit, Baltimore and Richmond. The Company also has 15 additional
AmeriSuites sites under contract and scheduled for the commencement of
development in early 1996.

In March 1995, the Company purchased an AmeriSuites hotel in Richmond,
Virginia and ShoLodge Inc.'s option to acquire a 50% interest in 11 of the
Company's 12 AmeriSuites hotels. The total consideration payable by the Company
in the transaction was $19.7 million and is comprised of (i) $16.1 million which
was paid during the first half of 1995 plus (ii) $18.5 million which will be
paid in notes maturing in 1997 less (iii) $14.9 million of existing debt on five
hotels which was forgiven at face value. The transaction resulted in a net
increase of $3.6 million of long-term debt. As a result of the transaction, the
Company now manages these 12 AmeriSuites hotels.

In August 1995, the Company purchased four Bradbury Suites hotels for $18.7
million. The hotels, comprising 447 rooms, are located in Augusta, Georgia;
Columbia, South Carolina; Arlington Heights, Illinois and

29
<PAGE> 32

Jacksonville, Florida. The Company will convert these hotels to the AmeriSuites
brand in the fourth quarter of 1995, bringing the total number of AmeriSuites
hotels to 19. In August 1995, the Company also purchased the 149 room full
service, all-suite St. Tropez Hotel and Shopping Center in Las Vegas for $15.2
million.

In June 1995, the Company purchased $17.4 million in face amount of first
mortgage notes for $12.7 million in cash. These first mortgage notes were
secured by the 324-room Holiday Inn Hampton Coliseum and an adjacent 132-room
Hampton Inn in Hampton, Virginia. The Company acquired the mortgage notes from a
private investment partnership. The purchase of such notes was intended to
provide the Company with the opportunity to acquire the underlying properties.
On December 21, 1995, the Company received $12.7 million as payment in full on
the first mortgage notes.

In September 1995, the Frenchman's Reef hotel suffered damage when
Hurricane Marilyn struck the U.S. Virgin Islands. Due to extensive property and
business interruption insurance, the Company believes that its liquidity will be
affected only to the extent of its insurance deductibles which the Company
estimates at $2.2 million. The majority of damaged rooms at the Frenchman's Reef
have been repaired on an interim basis and approximately 95% of the rooms are
currently available for occupancy. The Company anticipates that extensive
renovation at the Frenchman's Reef in 1996 will reduce the number of rooms
available for occupancy. Such reduction in rooms available and related revenue
will be a component of the Company's claim under its business interruption
insurance. The Company is engaged in discussions with its insurance carrier
regarding the amount of insurance proceeds to be paid and is assessing the
extent of further refurbishments required at the Frenchman's Reef.

During the first nine months of 1995, the Company spent approximately $15.8
million on capital improvements at its Owned Hotels, of which approximately $8.4
million related to refurbishments and repositionings of recently acquired
hotels. The Company intends to spend a total of approximately $22.0 million on
capital improvements for all of 1995, of which approximately $12.0 million
relates to the refurbishing and repositioning of recently acquired hotels.

Asset Realizations. The Company has pursued a strategy of converting the
mortgage notes receivable and other assets that it owns into cash or operating
hotel assets. Since July 31, 1992, the Company has received $100.7 million in
cash and added seven operating hotel assets through note settlements and lease
terminations. The Company will continue to pursue settlements with mortgage and
note obligors and will utilize the cash for debt repayments or general corporate
purposes. During 1995, the Company has received $13.1 million in cash in
settlement of notes receivable resulting in gains of $822,000. In May 1995, the
Company obtained control of the 240-room Princeton Holiday Inn by converting its
$2.7 million mortgage note receivable into a long-term leasehold position and
assuming $1.5 million of debt. The hotel was recently repositioned to a Holiday
Inn from a Ramada Inn.

In April 1995, the Company received a favorable ruling in its litigation
with Financial Security Assurance, Inc. ("FSA") in which FSA sought
approximately $31.2 million previously received by the Company in settlement of
a note and guaranty from Rose and Cohen. In an order dated April 25, 1995, the
U.S. District Court for the Southern District of Florida affirmed a lower court
ruling approving the Company's settlement with Rose and Cohen and finding that
the Company alone was entitled to the settlement proceeds. The Company had
previously reached a settlement in 1993 with Rose and Cohen which provided for
Rose or his affiliate to pay the Company $25.0 million plus proceeds from the
sale of approximately 1.1 million shares of the Company's common stock held by
Rose, bringing the total settlement proceeds to approximately $31.2 million. FSA
asserted that, under the terms of an intercreditor agreement, it was entitled to
receive the settlement proceeds otherwise payable to the Company. The U.S.
Bankruptcy Court for the Southern District of Florida ruled in favor of the
Company in April 1994 and the Company used $25.0 million of the settlement
proceeds to retire certain senior secured notes. FSA appealed to the District
Court, which affirmed the Bankruptcy Court's ruling. On May 12, 1995, the
Company used the remaining proceeds plus accrued interest to prepay senior
secured notes. On May 23, 1995, FSA filed a notice of appeal with the U.S. Court
of Appeals for the 11th Circuit. See "Risk Factors -- Risks Associated with Rose
and Cohen Settlement."

30
<PAGE> 33

SELECTED CONSOLIDATED FINANCIAL DATA
OF THE COMPANY AND ITS PREDECESSOR

The Company is the successor in interest to the Company's predecessor, PMI,
which emerged from chapter 11 reorganization on the Effective Date, July 31,
1992. PMI had filed for protection under chapter 11 of the United States
Bankruptcy Code in September 1990. The Company implemented "fresh start"
reporting pursuant to the Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" of the American Institute
of Certified Public Accountants, as of the Effective Date. Accordingly, the
consolidated financial statements of the Company are not comparable in all
material respects to any such financial statement as of any date or for any
period prior to the Effective Date. Subsequent to the Effective Date, the
Company changed its fiscal year end from June 30 to December 31. The table below
presents selected consolidated financial data derived from: (i) the Company's
historical financial statements for the years ended December 31, 1993 and 1994
and each of the nine months ended September 30, 1994 and 1995, (ii) the
Company's historical financial statements as of and for the five-month period
ended December 31, 1992, (iii) the Company's "fresh start" balance sheet as of
the Effective Date, and (iv) the historical consolidated financial statements of
PMI for the one month ended July 31, 1992 and for the years ended June 30, 1990,
1991 and 1992. This data should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information included and
incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
PRE-REORGANIZATION POST-REORGANIZTION
--------------------------------------------- -----------------------------------------------------------------
FOR THE AS OF AND AS OF AND FOR THE
ONE FOR THE AS OF AND FOR NINE
AS OF AND FOR THE YEAR ENDED MONTH FIVE MONTHS THE YEAR ENDED MONTHS ENDED
JUNE 30, ENDED AS OF ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- JULY 31, JULY 31, DEC. 31, ------------------- ------------------
1990(1)(2) 1991(1) 1992(1) 1992(1) 1992(1) 1992 1993 1994 1994 1995
---------- --------- --------- -------- -------- ----------- -------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations
data:
Total
revenues... $ 277,239 $ 205,699 $ 134,190 $ 8,793 -- $ 41,334 $108,860 $134,303 $97,336 $152,643
Valuation
writedowns
and
reserves.. (240,855 ) (59,149) (62,123) (13,000) -- -- -- -- -- --
Reorganization
items..... -- (181,655) (23,194) 1,796 -- -- -- -- -- --
Other income
(expense)... -- -- -- -- -- -- 3,809 9,089 7,463 (773)
Income
(loss)
from
continuing
operations
before
extraordinary
items(3)... (280,387 ) (246,110) (71,965) (10,274) -- 1,393 8,175 18,258 13,826 13,183
Extraordinary
items-gains
on
discharge
of
indebtedness
(net of
income
taxes).... -- -- -- 249,600 -- -- 3,989 172 172 73
Net income
(loss).... (267,075 ) (227,188) (71,965) 239,326 -- 1,393 12,164 18,430 13,998 13,256
Balance sheet
data:
Total
assets.... $ 934,116 $ 679,916 $ 554,118 -- $468,650 $ 403,314 $410,685 $434,932 $568,477
Long-term
debt, net
of current
portion... 368,925 2,851 8,921 -- 204,438 192,913 168,618 178,545 289,102
Stockholders'
equity
(deficiency)... 66,681 (157,327) (229,292) -- 135,600 137,782 171,364 204,065 225,123
</TABLE>

- ---------------
(1) PMI filed for chapter 11 bankruptcy protection on September 18, 1990, at
which time it owned or managed 141 hotels. During its approximately two-year
reorganization, PMI restructured its assets, operations and capital
structure. On the Effective Date, the Company emerged from chapter 11
reorganization with 75 Owned or Managed Hotels, $135.6 million of
stockholders' equity and $266.4 million of total debt.

(2) PMI effectively discontinued the operations of its franchise segment on July
1, 1990 with the sales of the Howard Johnson, Ramada and Rodeway franchise
businesses in July, 1990.

(3) Approximately $2.3 million, $28.0 million and $25.3 million of contractual
interest expense during the one month ended July 31, 1992 and for the fiscal
years ended June 30, 1992 and 1991, respectively, was not accrued and was
not paid due to the chapter 11 proceeding.

31
<PAGE> 34

BUSINESS

THE COMPANY

Prime is a leading hotel owner/operator with a portfolio of 93 hotels
totaling 13,433 rooms. Located primarily in secondary markets in 22 states and
the U.S. Virgin Islands, Prime's hotels operate either under franchise
agreements with hotel brands such as Marriott, Radisson, Sheraton, Holiday Inn,
Ramada and Howard Johnson, or under the Company's proprietary brand names,
AmeriSuites and Wellesley Inns. The Company owns or leases 57 hotels and manages
36 hotels for third parties. Prime holds financial interests in the form of
mortgages on or profit participations in 16 of the Managed Hotels. In total, the
Company has equity or financial interests in 73 hotels containing 10,815 rooms.

As a leading owner/operator of hotels, Prime believes that it is well
positioned to benefit from the continuing strong performance of the lodging
industry. Industry improvements in recent years have been driven by a favorable
supply/demand imbalance resulting primarily from increased economic activity and
the sharp decline in the growth of the supply of new hotel rooms since 1991.
Demand growth exceeded new supply growth during each year in the period from
1991 to 1994, and in 1995 demand growth is expected to exceed supply growth by
1.8%, as reported by Smith Travel Research. This trend has resulted in an
increase in industry-wide occupancy levels from 60.9% in 1991 to an anticipated
66.4% for 1995. Higher occupancy levels have allowed the industry to increase
rates. The industry-wide ADR is anticipated to increase in 1995 by 4.2% over
1994 levels. REVPAR, which measures the combined impact of rate and occupancy,
is anticipated to increase by 6.1% for 1995. Because of the operating leverage
inherent in the lodging industry, increases in REVPAR have had a major impact on
hotel operating performance, with industry pretax profits growing from breakeven
levels in 1992 to approximately $4.6 billion in 1994, as estimated by Smith
Travel Research.

Prime intends to continue to capitalize on its strengths and improve its
position in the lodging industry through the implementation of the following
charges:

Enhance Operating Performance at Existing Hotels. The Company's strategy
for improving results at its existing hotels includes using sophisticated
operating, marketing and financial systems and capitalizing on the operating
leverage inherent in the lodging industry. Implementation of the Company's
strategy, together with positive industry trends, has produced improved
performance in recent years. Exemplifying the Company's operating leverage, for
the nine months ended September 30, 1995, REVPAR increased 9.7% while net
operating income increased 15.3%, as compared to the prior period, for
Company-owned comparable hotels, which are hotels that have been open for each
of the nine months ended September 30, 1995 and 1994. The Company expects
further improvement for the lodging sector and continued improvement in the
performance of its existing hotels.

32
<PAGE> 35

Opportunistic Acquisition of Full-Service Hotels. The Company seeks to
capitalize on its strength as a hotel owner/operator by continuing to pursue the
acquisition of hotels, particularly in the upscale, full-service segment. In
1994 the Company acquired four full-service hotels with approximately 1,000
rooms and, to date in 1995, the Company has acquired seven hotels with
approximately 1,000 rooms. With a continued industry outlook for limited new
room supply, steady demand growth and acquisition prices generally at discounts
to replacement cost, Prime believes that hotel acquisitions will continue to
provide growth opportunities.

The Company believes it has the financial ability to execute its growth and
hotel acquisition strategy. The net proceeds of this Offering are estimated to
be approximately $115.9 million, of which approximately $54.7 million is
expected to be used to repay outstanding debt. In addition, the Company had cash
and cash equivalents and marketable securities totaling approximately $60.1
million as of September 30, 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

The Company is the successor in interest to PMI. PMI restructured its
operations and capital structure pursuant to a bankruptcy reorganization
completed on July 31, 1992. Under its restructuring, PMI recruited new
management and directors, reduced its liabilities by $448.8 million, revalued
its assets to reflect fair market value and eliminated unprofitable contract
commitments. During the period from July 31, 1992 through December 31, 1994, the
Company further reduced its debt by $82.6 million from $266.4 million to $183.8
million, and reduced its portfolio of notes receivable through cash collections
and collateral recoveries by $143.4 million from $226.6 million to $83.2
million. In the process, the Company increased its investment in hotel fixed
assets by $138.9 million from $160.4 million to $299.3 million, and increased
stockholders' equity by $68.5 million from $135.6 million to $204.1 million.
With a strengthened balance sheet, a diminished note receivable portfolio and a
significantly increased base of Owned Hotels, the Company believes that it is
well positioned to implement its growth strategy.

LODGING INDUSTRY

Lodging industry analysts expect further improvement for the lodging
sector. The primary reasons contributing to continued growth include:

- Overall supply growth is expected to remain modest in 1996 as
replacement costs continue to exceed acquisition prices and the
availability of construction financing remains limited.

- Room demand growth is expected to continue due to continued economic
growth, expected increases in leisure and international travel and
favorable demographics.

- Higher occupancy rates have provided the industry with pricing power
as evidenced by the 4.2% anticipated increase in ADR in 1995, which has
outpaced the growth in the consumer price index.

33
<PAGE> 36

The following table was compiled from industry operating data as reported
by Smith Travel Research and highlights industry data for the United States and
the regions in which most of the Company's hotels are located: the Middle
Atlantic region, which is comprised of New Jersey, New York and Pennsylvania;
and the South Atlantic region, which is comprised of Florida, Georgia, South
Carolina, North Carolina, Virginia, West Virginia, Maryland and Delaware. The
table also includes operating data concerning the three price levels (of the
five price levels classified by Smith Travel Research) in which the Company
competes: upscale, mid-price and economy. REVPAR data was calculated by the
Company based on occupancy and ADR data supplied by Smith Travel Research.

<TABLE>
<CAPTION>
% CHANGE IN:
------------------------------------------------------------------------------------------------------
ROOM SUPPLY ROOM DEMAND REVPAR
-------------------------------- -------------------------------- --------------------------------
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1995
V. NINE MONTHS V. NINE MONTHS V. NINE MONTHS
ENDED ENDED ENDED
1993V. 1994V. SEPTEMBER 30, 1993V. 1994V. SEPTEMBER 30, 1993V. 1994V. SEPTEMBER 30,
1992 1993 1994 1992 1993 1994 1992 1993 1994
------ ------ -------------- ------ ------ -------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States........... 1.0% 1.4% 1.5% 4.0% 4.7% 3.0% 4.8 % 7.3% 6.1%
BY REGION:
Middle Atlantic......... 0.6 0.4 1.0 4.8 4.0 1.1 6.3 10.5 4.8
South Atlantic.......... 0.7 1.1 1.3 4.1 3.2 3.7 4.1 4.9 6.7
BY SERVICE
(PRICE LEVEL):
Upscale................. 0.9 2.0 1.6 2.9 3.8 2.2 1.7 5.0 4.2
Mid-Price............... 1.4 2.0 2.4 2.9 4.2 3.9 3.5 5.5 6.1
Economy................. 0.8 1.1 1.8 1.6 2.6 3.3 (2.7 ) 5.0 6.5
</TABLE>

PRIME'S LODGING OPERATIONS

The following table sets forth information with respect to the Owned and
Managed Hotels as of November 30, 1995:

<TABLE>
<CAPTION>
MANAGED WITH
FINANCIAL
OWNED(1) INTEREST(2) OTHER MANAGED TOTAL
---------------- ---------------- ---------------- -----------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ----- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service:
Marriott................... 1 517 0 0 1 525 2 1,042
Radisson................... 1 272 1 204 1 192 3 668
Sheraton................... 4 944 0 0 0 0 4 944
Holiday Inn................ 3 602 4 810 0 0 7 1,412
Ramada..................... 8 1,214 3 672 2 276 13 2,162
Howard Johnson............. 0 0 2 326 1 115 3 441
Independent................ 1 149 0 0 0 0 1 149
-- -- -- --
----- ----- ----- ------
Total Full-Service.... 18 3,698 10 2,012 5 1,108 33 6,818
All-Suites:
AmeriSuites(3)............. 19 2,319 0 0 0 0 19 2,319
Limited-Service:
Wellesley Inn.............. 14 1,505 5 478 11 1,030 30 3,013
Howard Johnson............. 5 514 1 149 2 285 8 948
Other...................... 1 140 0 0 2 205 3 345
-- -- -- --
----- ----- ----- ------
Total
Limited-Service..... 20 2,159 6 627 15 1,520 41 4,306
Total............. 57 8,176 16 2,639 20 2,628 93 13,443
== ===== == ===== == ===== == ======
</TABLE>

- ---------------
(1) Of the 57 Owned Hotels, nine are leased. The leases covering the Company's
leased hotels provide for fixed lease rents and, in most instances,
additional percentage rents based on a percentage of room

34
<PAGE> 37

revenues. The leases also generally require the Company to pay the cost of
repairs, insurance and real estate taxes. In addition, some of the Company's
Owned Hotels are located on land subject to long-term leases, generally for
terms in excess of the depreciable lives of the improvements. None of the
Company's leased assets will constitute Collateral.

(2) Sixteen Managed Hotels in which the Company holds a mortgage or profit
participation on the property.

(3) Includes the four Bradbury Suites hotels which the Company expects to
convert to AmeriSuites in the fourth quarter of 1995.

The following table sets forth the location of the Company's hotels as of
November 30, 1995:

<TABLE>
<CAPTION>
MANAGED WITH
FINANCIAL
OWNED INTEREST OTHER MANAGED TOTAL
-------------- -------------------- -------------- ---------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ----- ------------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona................................ 1 118 -- -- -- -- 1 118
Arkansas............................... 1 130 -- -- -- -- 1 130
California............................. -- -- -- -- 1 96 1 96
Connecticut............................ 4 589 -- -- -- -- 4 589
Delaware............................... 1 142 -- -- -- -- 1 142
Florida................................ 14 1,529 3 395 5 527 22 2,451
Georgia................................ 3 351 -- -- 1 189 4 540
Illinois............................... 1 113 -- -- -- -- 1 113
Indiana................................ 1 126 -- -- -- -- 1 126
Kansas................................. 1 126 -- -- -- -- 1 126
Kentucky............................... 1 123 -- -- -- -- 1 123
Maryland............................... -- -- -- -- 2 609 2 609
Nevada................................. 2 350 -- -- -- -- 2 350
New Jersey............................. 12 1,948 9 1,782 4 558 25 4,288
New York............................... 3 481 1 99 4 361 8 941
North Carolina......................... 1 126 -- -- -- -- 1 126
Ohio................................... 3 380 -- -- -- -- 3 380
Oregon................................. 1 161 -- -- -- -- 1 161
Pennsylvania........................... 1 272 3 363 1 90 5 725
South Carolina......................... 1 111 -- -- -- -- 1 111
Tennessee.............................. 2 251 -- -- -- -- 2 251
US Virgin Islands...................... 1 517 -- -- -- -- 1 517
Virginia............................... 2 232 -- -- 2 198 4 430
-- ----- -- ----- -- ----- -- ------
Total......................... 57 8,176 16 2,639 20 2,628 93 13,443
</TABLE>

35
<PAGE> 38

The following table sets forth for the five years ended December 31, 1994
and the nine months ended September 30, 1994 and 1995, operating data for the 92
hotels in the Company's portfolio as of September 30, 1995. Operating data for
the Owned Hotels built or acquired during the period are presented from the
dates such hotels commenced operations or became Owned Hotels. For purposes of
showing operating trends, the results of seven Owned Hotels that were managed by
the Company prior to their acquisition by the Company during the period are
presented as if they had been Owned Hotels from the dates the Company began
managing the hotels.

<TABLE>
<CAPTION>
MANAGED WITH
OWNED FINANCIAL INTEREST OTHER MANAGED TOTAL
------------------------- ------------------------- ------------------------- -------------------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990............... 34 5,169 15 2,395 17 2,228 66 9,792
1991............... 35 5,299 16 2,639 17 2,228 68 10,166
1992............... 38 5,647 16 2,639 17 2,228 71 10,514
1993............... 42 6,136 16 2,639 18 2,343 76 11,118
1994............... 49 7,202 16 2,639 20 2,628 85 12,469
*1994.............. 46 6,598 16 2,639 20 2,628 82 11,865
*1995.............. 56 8,050 16 2,639 20 2,628 92 13,317
</TABLE>

<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------ --------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990............... 64.4% $68.55 $44.12 72.8% $59.65 $43.42 68.2% $59.77 $40.78 67.5% $63.88 $43.14
1991............... 64.1 63.93 40.96 65.4 58.53 38.28 65.7 59.79 39.31 64.8 61.61 39.91
1992............... 65.6 64.54 42.34 71.5 60.06 42.92 69.3 59.52 41.24 67.9 62.23 42.26
1993............... 69.4 66.50 46.14 73.1 61.78 45.18 72.5 60.19 43.61 71.0 63.96 45.38
1994............... 68.1 69.02 46.97 72.4 65.89 47.68 72.1 61.88 44.60 69.9 66.64 46.60
*1994.............. 69.3 69.25 47.98 73.0 65.51 47.80 73.3 61.74 45.27 71.1 66.61 47.33
*1995.............. 69.8 73.11 51.06 74.0 67.74 50.10 73.5 65.61 48.24 71.5 70.34 50.28
</TABLE>

- ---------------
* Through September 30.

Full-Service Hotels

The Company currently operates 33 full-service hotels under franchise
agreements with Marriott, Radisson, Sheraton, Holiday Inn (including Crowne
Plaza), Ramada and Howard Johnson. The full-service hotels are concentrated in
the Northeast region of the United States. The hotels are generally positioned
along major highways within close proximity to corporate headquarters, office
parks, airports, convention or trade centers and other major facilities. The
customer base for full-service hotels consists primarily of business travelers
and tourists. Consequently, the Company's sales force markets to companies which
have a significant number of employees traveling in the Company's operating
regions who consistently produce a high volume demand for hotel room nights. In
addition, the Company's sales force actively markets meeting and banquet
services to groups and individuals for seminars, business meetings, holiday
parties and weddings.

The Company owns and operates one resort hotel, the Frenchman's Reef in St.
Thomas, U.S. Virgin Islands. The Frenchman's Reef is a 517-room resort hotel
which includes a 421-room eight-story building and 96 rooms in the adjacent
Morningstar Beach Resort. The Frenchman's Reef has seven restaurants, extensive
convention facilities, complete sports and beach facilities and a self-contained
total energy and desalinization system. Certain of these facilities were damaged
in the September 1995 hurricane described in the following paragraph. The
Frenchman's Reef is marketed directly through its own sales force in New York
City and at the hotel, and through the Marriott reservation system. The
Frenchman's Reef markets primarily to tour groups, corporate meetings,
conventions and individual vacationers.

36
<PAGE> 39

capital resources will be impacted only to the extent of its insurance
deductibles, which the Company estimates at $2.2 million. The majority of
damaged rooms at the Frenchman's Reef have been repaired on an interim basis and
approximately 95% of the rooms are currently available for occupancy. The
Company anticipates that extensive renovation at the Frenchman's Reef in 1996
will reduce the number of rooms available for occupancy. Such reduction in rooms
available and related revenue will be a component of the Company's claim under
its business interruption insurance. The Company is engaged in discussions with
its insurance carrier regarding the amount of insurance proceeds to be paid and
is assessing the extent of further refurbishments required at the Frenchman's
Reef.

The full-service hotels generally have between 150 and 300 rooms, pool,
restaurant, lounge, banquet and meeting facilities. Other amenities include
fitness rooms, room service, remote-control cable television and facsimile
services. In order to enhance guest satisfaction, the Company has recently
introduced or expanded theme concept lounges such as sports bars, fifties clubs
and country and western bars in a number of its hotels. In recent years, the
Company has received recognition from various franchisors and associations for
its hotel quality and service.

The following table sets forth for the five years ended December 31, 1994
and the nine months ended September 30, 1994 and 1995, operating data for the 33
full-service hotels in the Company's portfolio as of September 30, 1995.
Operating data for the hotels built or acquired during the period are presented
from the dates such hotels commenced operations or became Owned Hotels. For
purposes of showing operating trends, the results of six Owned Hotels that were
managed by the Company prior to their acquisition by the Company during the
five-year period are presented as if they had been Owned Hotels from the dates
the Company began managing the hotels.

<TABLE>
<CAPTION>
MANAGED WITH
OWNED FINANCIAL INTEREST OTHER MANAGED TOTAL
------------------------- ------------------------- ------------------------- -------------------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990............... 16 3,194 9 1,768 4 993 29 5,955
1991............... 16 3,194 10 2,012 4 993 30 6,199
1992............... 16 3,194 10 2,012 4 993 30 6,199
1993............... 16 3,194 10 2,012 5 1,108 31 6,314
1994............... 17 3,549 10 2,012 5 1,108 32 6,669
*1994.............. 16 3,194 10 2,012 5 1,108 31 6,314
*1995.............. 18 3,698 10 2,012 5 1,108 33 6,818
</TABLE>

<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------ --------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990............... 62.5% $80.85 $50.53 71.7% $63.87 $45.81 60.5% $84.77 $51.27 65.1% $75.55 $49.16
1991............... 62.1 76.08 47.23 63.8 61.88 39.50 61.5 82.44 50.74 62.5 72.55 45.37
1992............... 63.0 78.16 49.23 71.2 63.24 45.02 66.2 82.83 54.81 66.2 73.63 48.72
1993............... 68.0 81.87 55.63 72.6 65.22 47.35 67.2 84.09 56.47 69.3 76.51 53.06
1994............... 66.2 87.22 57.76 72.5 70.00 50.73 69.3 86.69 60.08 68.8 81.28 55.90
*1994.............. 67.4 87.34 58.91 73.0 69.59 50.77 70.7 86.05 60.86 69.8 81.09 56.61
*1995.............. 66.4 91.33 60.64 74.8 71.70 53.63 71.1 90.73 64.47 69.7 84.89 59.17
</TABLE>

- ---------------

* Through September 30.

The Company believes opportunities exist for acquisitions of full-service
hotels at attractive multiples of cash flow or at significant discounts to
replacement values. During 1994, the Company acquired the 183-room Ramada Inn in
Clifton, New Jersey, the 272-room Ramada Inn in Trevose, Pennsylvania, which the
Company has since converted to a Radisson, the 355-room Sheraton in Hasbrouck
Heights, New Jersey and the 225-room Sheraton hotel in Mahwah, New Jersey. In
addition, the Company obtained ownership of the 517-room Frenchman's Reef hotel
through a note receivable settlement in 1994. The Company does not anticipate
the acquisition of other resort hotels. The Company has continued its
acquisition program in 1995 with the acquisition of the 240-room Princeton
Ramada Inn in New Jersey, which the Company has since converted to a Holiday
Inn, and the 149-room St. Tropez Hotel and Shopping Center in Las Vegas, Nevada.

37
<PAGE> 40

With a continued outlook for limited new room supply, steady demand growth and
acquisition prices at discounts to replacement cost in the full-service segment,
Prime believes that the acquisition of full-service hotels will continue to
provide significant growth opportunities.

The majority of the Company's repositioning efforts have been performed at
the full-service hotels. Since 1993, the Company successfully completed the
repositioning of ten of its full-service hotels which included changing the
franchise affiliations of five such hotels. The Company is in the process of
repositioning the Hasbrouck Heights Sheraton.

All-Suites Hotels

The Company currently owns 19 AmeriSuites hotels, including the four
Bradbury Suites hotels which the Company expects to convert to AmeriSuites in
the fourth quarter of 1995. AmeriSuites are positioned in the all-suites segment
of the lodging industry. AmeriSuites hotels offer guests an attractively
designed suite unit with a complimentary continental breakfast in a spacious
lobby cafe, remote-control cable television and facsimile/computer service.
AmeriSuites is a limited service concept which offers group meeting space, but
does not include restaurant or lounge facilities. AmeriSuites attract customers
who typically stay in mid-market limited-service and full-service hotels
principally because of the quality of the guest suites, which offer distinct
living, sleeping and kitchen areas. AmeriSuites contain approximately 125 suites
and two to four meeting rooms. AmeriSuites are primarily located near corporate
office parks and travel destinations in the Southern and Central parts of the
United States. The target customer is primarily the business traveler with an
average length of stay of two to three nights. AmeriSuites are marketed on a
local level primarily through direct sales and use the ShoLodge reservation
system.

The following table sets forth for the five years ended December 31, 1994
and the nine months ended September 30, 1994 and 1995, certain data with respect
to AmeriSuites hotels owned by the Company. Operating data for the hotels built
during the period are presented from the dates such hotels commenced operations.

<TABLE>
<CAPTION>
HOTELS ROOMS OCCUPANCY ADR REVPAR
------ ----- --------- ------ ------
<S> <C> <C> <C> <C> <C>
1990......................... 3 367 37.9% $60.23 $22.81
1991......................... 4 497 48.5 55.33 26.83
1992......................... 6 749 59.9 54.99 32.97
1993......................... 8 993 64.1 56.21 36.01
1994......................... 12 1,494 65.9 59.90 39.50
*1994........................ 10 1,245 69.0 59.72 41.21
*1995........................ 18 2,193 70.2 65.78 46.17
</TABLE>

-----------------------
*Through September 30.

The Company believes that the all-suites segment will continue to be a high
growth segment of the industry. In the all-suites segment, demand growth has
exceeded new supply growth in the period 1991 to 1994 by a compound annual rate
of 4.6%, which is approximately twice the rate by which demand growth exceeded
supply for the lodging industry as a whole. The operating performance of the
AmeriSuites hotels is benefitting from this favorable trend. For the eight owned
AmeriSuites hotels which were open for each of the nine months ended September
30, 1995 and 1994, REVPAR increased by 12.1% during the nine months ended
September 30, 1995, resulting in a 15.9% increase, for the comparable period, in
net operating income.

The Company plans to develop the AmeriSuites brand primarily through new
construction. Fifteen of the 19 AmeriSuites were constructed within the past
five years. The Company believes that AmeriSuites provide attractive economic
returns due to their low cost of approximately $50,000 to $55,000 per room, a
construction period of approximately seven to nine months and a low cost
structure. The Company's AmeriSuites have generally achieved positive net
operating income within 12 months after opening. The Company plans to have at
least 40 AmeriSuites hotels in operation by the end of 1996. In 1995,
AmeriSuites hotels were opened in Atlanta and Greensboro bringing the number of
AmeriSuites owned and operated by the Company to 15. In

38
<PAGE> 41

addition, the Company purchased four Bradbury Suites hotels which the Company
expects to convert to AmeriSuites in the fourth quarter of 1995. The Company
took advantage of an attractive opportunity to acquire the four Bradbury Suites,
which had been constructed with a very similar room layout to the AmeriSuites
model and could therefore be easily converted. The Company currently has 8
AmeriSuites hotels under construction and 15 additional AmeriSuites sites under
contract and scheduled for the commencement of development in early 1996.

In March 1995 the Company purchased an AmeriSuites hotel in Richmond,
Virginia and ShoLodge Inc.'s option to acquire a 50% interest in 11 of the
Company's 12 AmeriSuites hotels. As a result of the transaction, the Company now
manages these 12 AmeriSuites hotels.

Limited-Service Hotels

The Company's limited service hotels consist of 30 Wellesley Inns and 11
other hotels operated under franchise agreements primarily with Howard Johnson.
Of the Company's 30 Wellesley Inns, 16 are located in Florida and the remainder
in the Middle Atlantic and Northeast United States. The Company owns and
operates 14 Wellesley Inns and manages 16 Wellesley Inns for independent owners.
Of the Company-owned Wellesley Inns, ten are located in Florida and four are
located in the Middle Atlantic and the Northeast. The Company has developed
separate strategies for the Wellesley Inns located in Florida and the Wellesley
Inns outside of Florida. In Florida, where the population has grown rapidly and
development opportunities continue to exist, the Company has built a
geographically concentrated group of Wellesley Inns, thereby developing brand
name recognition in Florida. In 1994, the comparable Florida Wellesley Inns
average occupancy was approximately 84.7% and gross operating profits averaged
52% of hotel revenues. The prototypical Florida Wellesley Inn has 105 rooms and
is distinguished by its classic stucco exterior, spacious lobby and amenities
such as continental breakfast, remote control cable television and facsimile
services. The Florida properties are operated through the Company's Florida
regional office. Marketing efforts rely heavily on direct marketing and
billboard advertising. In the Middle Atlantic and Northeast where the Company
believes new development opportunities are limited, the Company has focused on
building the Wellesley Inns system through acquisition and conversion of
existing properties. In 1994, the comparable Wellesley Inns outside of Florida
had an average occupancy of 71.1% and average gross operating profits of 47%.

As a result of the Company's focus on its AmeriSuites and full-service
hotels, the Company is exploring the sale of its 14 owned Wellesley Inns and the
Wellesley Inn trade name at a purchase price that justifies the disposition of
these properties.

The Company's other limited-service hotels have an average of between 100
and 120 rooms and offer complimentary continental breakfast, remote control
cable television, pool facilities and facsimile services, generally with
restaurant facilities within a short distance of the hotel. They are designed to
appeal primarily to business travelers.

The following table sets forth for the five years ended December 31, 1994
and the nine months ended September 30, 1994 and 1995, operating data for the 41
limited-service hotels in the Company's portfolio as of September 30, 1995.
Operating data for the Owned Hotels built or acquired during the period are
presented from the dates such hotels commenced operations or became Owned
Hotels.

39
<PAGE> 42

<TABLE>
<CAPTION>
MANAGED WITH
OWNED FINANCIAL INTEREST OTHER MANAGED TOTAL
------------------------- ------------------------- ------------------------- -------------------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990............... 15 1,608 6 627 13 1,235 34 3,470
1991............... 15 1,608 6 627 13 1,235 34 3,470
1992............... 16 1,704 6 627 13 1,235 35 3,566
1993............... 18 1,949 6 627 13 1,235 37 3,811
1994............... 20 2,159 6 627 15 1,520 41 4,306
*1994.............. 20 2,159 6 627 15 1,520 41 4,306
*1995.............. 20 2,159 6 627 15 1,520 41 4,306
</TABLE>

<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------ --------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990............... 71.7% $45.82 $32.87 76.0% $48.03 $36.49 74.2% $43.97 $32.65 73.5% $45.55 $33.49
1991............... 71.9 44.03 31.66 70.2 49.17 34.54 69.1 43.68 30.18 70.6 44.83 31.65
1992............... 73.2 44.12 32.31 72.4 49.71 36.01 71.8 42.29 30.35 72.6 44.48 32.28
1993............... 74.7 45.16 33.72 74.8 50.80 38.02 76.8 43.20 33.16 75.4 45.45 34.27
1994............... 72.2 47.26 34.12 72.0 52.26 37.61 74.1 44.94 33.30 72.9 47.14 34.35
*1994.............. 72.4 47.39 34.32 73.0 52.04 38.00 75.2 45.06 33.90 73.5 47.22 34.72
*1995.............. 75.3 51.82 39.01 71.3 54.39 38.78 75.3 48.31 36.39 74.7 50.93 38.05
</TABLE>

- ---------------
* Through September 30.

The majority of the Florida Wellesley Inns were constructed within the past
five years. The Company historically has constructed these properties at a cost
of approximately $40,000 per room and a construction period of approximately
seven to nine months. Florida Wellesley Inns have a low cost structure and have
had rapid stabilization periods generally within six to twelve months of
opening. During 1994, the Company completed construction of Wellesley Inns in
Fort Lauderdale and Lakeland, Florida and converted a Howard Johnson's hotel in
Penns Grove, New Jersey to a Wellesley Inn.

REFURBISHMENT PROGRAM

The Company continuously refurbishes its Owned Hotels in order to maintain
consistent quality standards. The Company generally spends approximately 4% to
6% of hotel revenue on capital improvements at its Owned Hotels and typically
refurbishes each hotel approximately every five years. The Company believes that
its Owned Hotels are in generally good physical condition, with over half of the
Owned Hotels being five years old or less. The Company recommends the
refurbishment and repair projects on its Managed Hotels although spending
amounts vary based on the financial strength of the hotel and its owner and the
significance of the Company's interest as a mortgagee.

In addition to making normal capital improvements, the Company reviews on
an on-going basis each hotel's competitive position in the local market in order
to decide the types of product that will best meet the market's demand
characteristics. During the past two years, the Company has implemented a
program of repositioning its Owned Hotels. Repositioning a hotel generally
requires renovation and refurbishment of the exterior and interior of the
building and may result in a change of brand name. In 1993 and 1994, the Company
spent $2.8 million and $8.9 million, respectively, on the repositioning of 12 of
its Owned Hotels, which included changing the franchise affiliation of six of
such hotels. While the major refurbishment efforts at the Company's existing
hotels have substantially been completed, the Company's future refurbishment
spending will focus on newly acquired hotels. For the nine months ended
September 30, 1995, the Company has spent approximately $8.4 million to
reposition or refurbish recently acquired hotels.

MORTGAGES AND NOTES RECEIVABLE

As of September 30, 1995, mortgages and notes receivable totaled $79.4
million (including current portion) and consisted of an aggregate principal
amount of $57.3 million of mortgages and notes secured by Managed Hotels and
hotels that are leased by the Company from third parties and $22.1 million of
other mortgages and notes secured primarily by other hotels. The Company has
pursued a strategy of converting its

40
<PAGE> 43

mortgage and notes receivable into cash or operating hotel assets. Since July
31, 1992, the Company has received $100.7 million in cash and added seven
operating hotel assets through note settlements and lease terminations. The
Company will continue to pursue settlements with mortgage and note obligors and
will utilize the cash for debt repayments or for general corporate purposes. For
the nine months ended September 30, 1995, the Company has received $13.1 million
in cash in settlements of notes receivable resulting in gains of $822,000. In
May 1995, the Company obtained control of the 240-room Princeton Holiday Inn by
converting its $2.7 million mortgage note receivable into a long-term leasehold
position and assuming $1.5 million of debt. The hotel was recently repositioned
to a Holiday Inn from a Ramada Inn.

The Company's mortgage notes secured by hotel properties consist primarily
of notes with a book value of $43.1 million secured by mortgages on nine Managed
Hotels. These notes currently bear interest at rates ranging from 8.5% to 13.5%
per annum and have various maturities through 2017. The mortgages were primarily
derived from the sales of hotel properties. The Company has restructured
approximately $30.0 million of these mortgages and notes to receive the majority
of available cash flow and a participation in the future excess cash flow of
such hotel properties. The restructurings generally include senior mandatory-
payment notes and junior notes payable annually based on cash flow. The Company
believes that these senior, mandatory-payment notes generally do not exceed the
current realizable value of the hotels they encumber. However, the Company
believes that, taken together, the restructured senior and junior mortgage notes
often exceed the value of the properties they encumber. As a result, these
junior notes bear many of the characteristics and risks of operating hotel
equity investments.

In addition to the mortgage positions referred to above, the Company also
holds the junior, accruing or cash flow notes and other interests on other
properties managed by the Company. With regard to these properties, third
parties generally hold significant senior mortgages.

In accordance with the adoption of fresh start accounting, mortgages and
note receivables were recorded at their fair value as of July 31, 1992. Because
there was substantial doubt at that time that the Company would recover any of
the value on the junior portion of the restructured notes or its junior notes,
these subordinated financial interests were assigned no value on the Company's
balance sheet. For the nine months ended September 30, 1995, the Company
received interest income of $1.6 million relating to these mortgages.

In addition to mortgages and notes receivable, as of September 30, 1995,
the Company had other assets that totaled $14.1 million, which consisted of real
property not related to Owned Hotels (approximately $9.7 million of which
consisted of two office buildings).

MANAGEMENT AGREEMENTS

The Company provides hotel management services to third party hotel owners
of 36 Managed Hotels including 16 Wellesley Inns for which the Company provides
the brand name. Management fees are derived from the Managed Hotels based on
fixed percentages of the property's total revenues and performance related
incentive payments based on certain measures of hotel income. Additional fees
are also generated from the rendering of specific services such as accounting
services, construction services, design services and sales commissions. The
Company's fixed management fee percentages range from 1.0% to 5.0% and average
3.5% of the Managed Hotel's total revenues before giving consideration to
performance related incentive payments. The base and incentive fees comprised
approximately 55.0%, or $3.3 million, of the total management and other fees for
the nine months ended September 30, 1995. Terms of the management agreements
vary but the majority are short-term and, therefore, there are risks associated
with termination of these agreements.

41
<PAGE> 44

Furthermore, management agreements may be terminated in connection with a change
in ownership of the underlying hotels. Although such risks may be limited due to
the Company's role as lender or provider of the Wellesley Inn brand name, 18 of
the Managed Hotels, including the 16 Wellesley Inns referenced above, are highly
leveraged with debt which matured on December 15, 1995 and is currently in
default. There can be no assurance that such debt can be repaid or restructured
by the third party hotel owners in a manner that would permit the Company to
continue as manager of such properties. For the nine months ended September 30,
1995, the Company received approximately $900,000 in management and other fees
with respect to these 18 Managed Hotels. The Company holds financial interests
in the form of mortgages or profit participations in 16 of the 36 Managed Hotels
and other interests and control rights (primarily brand control) in 13 of the
remaining 20 Managed Hotels.

OPERATIONS

As a leading domestic hotel operating company, the Company enjoys a number
of operating advantages over other lodging companies. With 93 hotels covering a
number of price points and broad geographic regions, the Company possesses the
critical mass to support sophisticated operating, marketing and financial
systems. The Company believes that its broad array of central services permits
on-site hotel general managers to effectively focus on providing guest services,
results in economies of scale and leads to above-market hotel profit margins. As
a result of these operating strategies, the Company's hotels generated average
operating profit margins that exceeded comparable industry averages for 1994, as
reported by industry sources, by approximately 19% for full-service hotels,
approximately 8% for all-suites hotels and approximately 2% for limited-service
hotels.

The Company's operating strategy combines operating service and guidance
from its central management team, with decentralized decision-making authority
delegated to each hotel's on-site management. The on-site hotel management teams
focus on providing guest services and consist of a general manager and,
depending on the hotel's size and market positioning, managers of sales and
marketing, food and beverage, front desk services, housekeeping and engineering.
The Company's operating objective is to exceed guest expectations by providing
quality services and comfortable accommodations at the lowest cost consistent
with each hotel's market position. On-site hotel management is responsible for
efficient expense controls and uses operating standards provided by the Company.
Within parameters established in the operating and capital planning process,
on-site management possesses broad decision-making authority on operating issues
such as guest services, marketing strategies, hiring practices and incentive
programs. Each hotel's management team is empowered to take all necessary steps
to ensure guest satisfaction within established guidelines. Key on-site
personnel participate in an incentive program based on hotel revenues and
profits.

The central management team, located in Fairfield, New Jersey, provides
four major categories of services: (i) operations management, (ii) sales and
marketing management, (iii) financial reporting and control and (iv) hotel
support services.

Operations Management. Operations management consists of the development,
implementation and monitoring of hotel operating standards and is provided by a
network of regional operating officers who are each responsible for the
operations of 10 to 15 hotels. They are supported by training, food and beverage
and human resources departments, each staffed full-time by specialized
professionals. The cornerstone of operations management is employee training,
with a staff of professionals dedicated to training in sales, housekeeping, food
service, front desk services and leadership. The Company believes these efforts
increase employee effectiveness, reduce turnover and improve the level of guest
services.

The Company's cost-effective centralized management services benefit not
only its existing operations but also provide additional opportunities for
growth and development from acquisitions. In all of the recently acquired
hotels, the Company's headquarters have assumed certain of the operational
responsibilities which previously had been performed by the on-site hotel
management. In addition, the Company believes it has improved operating
efficiencies for each of these hotels that it has acquired.

Sales and Marketing Management. Aggressive sales and marketing is a top
operating priority. Sales and marketing management is directed by a corporate
staff of 20 professionals, including regional marketing

42
<PAGE> 45

directors who are responsible for each hotel's sales and marketing strategies,
and the Company's national sales group, Market Segments, Inc. ("MSI"). In
cooperation with the regional marketing and organization staff, on-site sales
management develops and implements short- and intermediate-term marketing plans.
The Company focuses on yield management techniques, which optimize the
relationship between hotel rates and occupancies and seek to maximize
profitability. In addition, the Company assumes prominent roles in franchise
marketing associations to obtain maximum benefit from franchise affiliations.
The Company's in-house creative department creates hotel advertising materials
and programs at cost-effective rates.

Complementing regional and on-site marketing efforts, MSI's marketing team
targets specific hotel room demand generators including tour operators, major
national corporate accounts, athletic teams, religious groups and others with
segment-specialized sales initiatives. MSI's primary objective is to book hotel
rooms at the Company's hotels and its secondary objective is to market its
services on a commission basis to major operators throughout the industry. Sales
activities on behalf of non-affiliated hotels increase the number of hotels
where bookings can be made to support marketing efforts and defray the costs of
the marketing organization.

Financial Reporting and Control. The Company's system of centralized
financial reporting and control permits management to closely monitor
decentralized hotel operations without the cost of financial personnel on site.
Centralized accounting personnel produce detailed financial and operating
reports for each hotel. Additionally, central management directs budgeting and
analysis, processes payroll, handles accounts payable, manages each hotel's
cash, oversees credit and collection activities and conducts on-site hotel
audits.

Hotel Support Services. The Company's hotel support services combine a
number of technical functions in central, specialized management teams to attain
economies of scale and minimize costs. Central management handles purchasing,
directs construction and maintenance and provides design services. Technical
staff teams support each hotel's information and communication systems needs.
Additionally, the Company directs safety/risk management activities and provides
central legal services.

FRANCHISE AGREEMENTS

The Company enters into non-exclusive franchise licensing agreements with
various franchisors, which agreements typically have a ten year term and allow
the Company to benefit from franchise brand recognition and loyalty. The
non-exclusive nature of the franchise agreement allows the Company the
flexibility to continue to develop properties with the brands that have shown
success in the past or to develop in conjunction with other brand names. This
flexibility also plays an important role in the Company's repositioning strategy
for continued earnings growth which emphasizes proper positioning of its
properties within these respective markets to maximize their return on
investment. Over the past two years, the Company has repositioned several hotels
that were either owned or managed or recently acquired. These repositionings
include the Portland, Oregon Crowne Plaza (formerly Howard Johnson), the Las
Vegas, Nevada Crowne Plaza (formerly Howard Johnson), the Saratoga Springs, New
York Sheraton (formerly Ramada Renaissance), the Fairfield, New Jersey Radisson
(formerly Sheraton), the Orlando, Florida Shoney's Inn (formerly Howard
Johnson), the Trevose, Pennsylvania Radisson (formerly Ramada) and the
Princeton, New Jersey Holiday Inn (formerly Ramada). The Company believes its
relationships with numerous nationally recognized franchisors provides
significant benefits for both its existing hotel portfolio and prospective hotel
acquisitions. While the Company currently enjoys good relationships with its
franchisors, there can be no assurance that a desirable replacement would be
available if any of the franchise agreements were to be terminated.

The franchise agreements require the Company to pay annual fees, to
maintain certain standards and to implement certain programs which require
additional expenditures by the Company such as remodeling or redecorating. The
payment of annual fees, which typically total 7% to 8% of room revenues, cover
royalty fees and the costs of marketing and reservation services provided by the
franchisors. The use of franchisor reservation systems typically result in
increased occupancy. Franchise agreements, when initiated, generally provide for
an initial fee in addition to annual fees payable to the franchisor.

43
<PAGE> 46

THE COLLATERAL HOTELS
The following is a summary of operating and financial information with
respect to the 15 Collateral Hotels:

<TABLE>
<CAPTION>
NUMBER
OF OPENING
LOCATION ROOMS FRANCHISE DATE HOTEL TYPE
-------- ------ ------------- --------------- ------------------------------
<S> <C> <C> <C> <C>
Atlanta Duluth, GA.............................. 114 AmeriSuites July 1990 Limited-Service All-Suites
Brentwood, TN................................... 126 AmeriSuites April 1993 Limited-Service All-Suites
Cincinnati Blue Ash, OH......................... 128 AmeriSuites June 1990 Limited-Service All-Suites
Cincinnati Forest Park, OH...................... 126 AmeriSuites June 1992 Limited-Service All-Suites
Columbus, OH.................................... 126 AmeriSuites May 1994 Limited-Service All-Suites
Danbury, CT..................................... 181 Ramada January 1973 Full-Service
Flagstaff, AZ................................... 118 AmeriSuites September 1993 Limited-Service All-Suites
Las Vegas, NV................................... 201 Crowne Plaza July 1990 Full-Service All-Suites
Little Rock, AR................................. 130 AmeriSuites October 1991 Limited-Service All-Suites
Meriden, CT..................................... 150 Ramada August 1986 Full-Service
Nashville Opryland, TN.......................... 125 AmeriSuites July 1990 Limited-Service All-Suites
Overland Park, KS............................... 126 AmeriSuites April 1994 Limited-Service All-Suites
Richmond, VA.................................... 126 AmeriSuites August 1992 Limited-Service All-Suites
St. Tropez Las Vegas, NV........................ 149 Independent December 1987 Full-Service Rooms and Suites
Tampa, FL....................................... 126 AmeriSuites November 1994 Limited-Service All-Suites
-----
Total......................................... 2,052
</TABLE>

The following table sets forth selected financial information for the years
ended December 31, 1993 and 1994 and the nine months ended September 30, 1994
and 1995 with respect to the 15 Collateral Hotels. Operating data for the
Collateral Hotels built during the periods presented is included from the date
such hotels commenced operations.

<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995
----------------- ----------------- ------------------ ------------------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING STATISTICS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating Revenues:
Lodging........................................ $25,533 $32,196 $ 24,126 $ 29,247
Food and beverage.............................. 3,107 3,463 2,434 2,603
------- ------- ------- -------
Total Revenues........................... 28,640 35,659 26,560 31,850
Costs and Expenses:
Direct hotel operating costs and expenses:
Lodging........................................ 7,702 9,202 6,787 8,022
Food and beverage.............................. 2,293 2,437 1,795 1,805
Selling and general............................ 4,100 4,944 3,641 4,337
Occupancy and other operating.................... 3,822 4,119 3,108 3,697
------- ------- ------- -------
Total Costs and Expenses................. 17,917 20,702 15,331 17,861
------- ------- ------- -------
EBITDA(1)........................................ $10,723 $14,957 $ 11,229 $ 13,989
======= ======= ======= =======
OPERATING STATISTICS:
Number of rooms.................................. 1,675 2,052 1,927 2,052
Available rooms.................................. 571,235 675,604 494,067 560,196
Occupied rooms................................... 387,275 460,312 346,929 398,234
Occupancy %...................................... 67.8% 68.1% 70.2% 71.1%
Average daily room rate (ADR).................... $ 63.07 $ 66.72 $ 66.39 $ 70.15
Revenue per available room (REVPAR).............. $ 42.76 $ 45.46 $ 46.62 $ 49.87
</TABLE>

- ---------------

(1) EBITDA represents earnings before extraordinary items, interest expense,
provision for income taxes (if applicable) and depreciation and amortization
and excludes interest income on cash investments and other income. EBITDA is
used by the Company for the purpose of analyzing its operating performance,
leverage and liquidity. Such data are not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
EBITDA for the Collateral Hotels does not reflect any deductions for an
imputed management fee to cover an allocable share of the Company's general
and administrative expenses.

44
<PAGE> 47

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the names, ages and positions of the directors and
executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -----------------------------------------------------------
<S> <C> <C>
David A. Simon.............. 43 President, Chief Executive Officer and Chairman of the
Board of Directors
John M. Elwood.............. 41 Executive Vice President, Chief Financial Officer and
Director
Howard M. Lorber(1)......... 47 Director
Herbert Lust, II(1)......... 69 Director
Jack H. Nusbaum............. 55 Director
Allen J. Ostroff(1)......... 59 Director
A.F. Petrocelli(1).......... 52 Director
Paul H. Hower............... 61 Executive Vice President
Timothy E. Aho.............. 52 Senior Vice President/Development
Denis W. Driscoll........... 51 Senior Vice President/Human Resources
John H. Leavitt............. 43 Senior Vice President/Sales and Marketing
Joseph Bernadino............ 48 Senior Vice President, Secretary and General Counsel
Richard T. Szymanski........ 38 Vice President and Corporate Controller
Douglas W. Vicari........... 36 Vice President and Treasurer
</TABLE>

- ---------------
(1) Member of the Compensation and Audit Committee.

The following is a biographical summary of the experience of the directors
and executive officers of the Company:

David A. Simon has been President, Chief Executive Officer and a Director
since 1992 and Chairman of the Board of Directors of the Company since 1993. Mr.
Simon was a director of PMI from 1990 to 1992. Mr. Simon was the Chief Executive
Officer of PMI from 1990 to 1992.

John M. Elwood has been a Director and Executive Vice President of the
Company since 1992 and Chief Financial Officer since 1993. Mr. Elwood was the
Director of Reorganization of PMI from September 1990 through the Effective Date
of the PMI reorganization.

Howard M. Lorber has been a Director and a member of the Compensation and
Audit Committee since 1994. Mr. Lorber is Chairman of the Board of Directors of
Nathan's Famous, Inc. and Hallman & Lorber Associates, Inc. and a director of
New Valley Corporation, United Capital Corp. and Alpine Lace Brands, Inc. Mr.
Lorber has been Chief Executive Officer of Hallman & Lorber Associates, Inc. for
more than the past five years, President and Chief Operating Officer of New
Valley Corporation since 1994 and Chief Executive Officer of Nathan's Famous,
Inc. since 1993. Mr. Lorber has also been a general partner or shareholder of a
corporate general partner of various limited partnerships organized to acquire
and operate real estate properties. Several of these partnerships filed for
protection under the federal bankruptcy laws in 1990 and 1991.

Herbert Lust, II has been a Director since 1992 and Chairman of the
Compensation and Audit Committee of the Company since 1993. Mr. Lust was a
member of the Committee of Unsecured Creditors of PMI from 1990 to 1992. Mr.
Lust has been a private investor and President of Private Water Supply Inc. for
more than the past five years. Mr. Lust is a director of BRT Realty Trust.

Jack H. Nusbaum has been a Director since 1994. Mr. Nusbaum has been a
senior partner and Co-Chairman of the law firm of Willkie Farr & Gallagher for
more than the past five years. He also is a director of W.R. Berkley
Corporation, The Topps Company, Inc., Pioneer Companies, Inc. and Signet Star
Holdings, Inc.

45
<PAGE> 48

Allen J. Ostroff has been a Director since 1992 and a member of the
Compensation and Audit Committee since 1993. Mr. Ostroff has been a Managing
Director of the Prudential Realty Group, a subsidiary of The Prudential
Insurance Company of America, since June 1994 and was a Senior Vice President of
the Prudential Realty Group from 1990 to June 1994.

A.F. Petrocelli has been a Director since 1992 and a member of the
Compensation and Audit Committee since 1993. Mr. Petrocelli has been the
Chairman of the Board of Directors and Chief Executive Officer of United Capital
Corp. for more than the past five years. He is also a director of Nathan's
Famous, Inc.

Paul H. Hower has been an Executive Vice President of the Company since
1993. Mr. Hower was President of Integrity Hospitality Services from 1991 to
1993 and Vice President and Hotel Division Manager of B.F. Saul Co. from 1990 to
1991.

Timothy E. Aho has been a Senior Vice President of the Company since 1994.
Mr. Aho was a Senior Vice President of Development for Boykin Management Company
from 1993 to 1994 and Vice President of Development for Interstate Hotels
Corporation from 1990 to 1993.

Denis W. Driscoll has been a Senior Vice President of the Company since
1993. Mr. Driscoll was President of Driscoll Associates, a human resources
consulting organization, from 1990 to 1993.

John H. Leavitt has been a Senior Vice President of the Company since 1992.
Mr. Leavitt was a Senior Vice President of PMI from 1991 to 1992 and a Senior
Vice President of Medallion Hotel corporation from 1990 to 1991.

Joseph Bernadino has been Senior Vice President, Secretary and General
Counsel of the Company since 1992. Mr. Bernadino was an Assistant Secretary and
Assistant General Counsel of PMI from 1990 to 1992.

Richard T. Szymanski has been a Vice President and Corporate Controller of
the Company since 1992. Mr. Szymanski was Corporate Controller of PMI from 1990
to 1992.

Douglas W. Vicari has been a Vice President and Treasurer of the Company
since 1992 and was Vice President and Treasurer of PMI during 1992. Mr. Vicari
was the Director of Budget and Financial Analysis of PMI from 1990 to 1992.

46
<PAGE> 49

DESCRIPTION OF NOTES

GENERAL

The Notes will be issued pursuant to an Indenture (the "Indenture") between
the Company and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee"). References to the "Company" in this "Description of Notes" refer
only to Prime Hospitality Corp. without including any of its Subsidiaries.

The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act") as in effect on the date of the Indenture.
The Notes are subject to all such terms, and Holders of the Notes are referred
to the Indenture and the Trust Indenture Act for a statement thereof. The
following summary of certain provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. A copy of the
proposed form of Indenture is being filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available as set forth under
"-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions."

For purposes of the Indenture, the Company's Subsidiaries are divided into
two categories -- Restricted Subsidiaries, which generally are subject to the
restrictive covenants set forth in the Indenture, and Unrestricted Subsidiaries,
which generally are not. On the date of the Indenture, none of the Company's
Subsidiaries will be designated as an Unrestricted Subsidiary. None of the
Company's Restricted Subsidiaries is presently required to guarantee the Notes,
although under certain future circumstances the Company may be required to cause
one or more Restricted Subsidiaries to do so. See "-- Subsidiary Guarantees."
Subsidiaries that are properly designated and maintained as Unrestricted
Subsidiaries by the Company will not be required to guarantee the Notes under
any circumstances and, accordingly, the Company's obligations in respect of the
Notes will be effectively subordinated to the claims of the creditors of such
entities.

RANKING AND SECURITY

The Notes will rank pari passu in right of payment with all existing and
future senior Indebtedness of the Company and will rank senior in right of
payment to all existing and future subordinated Indebtedness of the Company,
including the Convertible Notes. Any future Subsidiary Guarantee will rank pari
passu in right of payment with all existing and future senior Indebtedness of
the applicable Guarantor and senior in right of payment to all existing and
future subordinated Indebtedness of such Guarantor. The Notes will be secured by
the Collateral, as described under "-- Collateral." The Indenture will permit
the Company and the Guarantors, if any, to incur certain senior Indebtedness
secured by other assets not constituting Collateral under the Indenture, and any
such senior secured Indebtedness will rank senior to the Notes and Subsidiary
Guarantees, if any, with respect to the assets constituting the collateral in
respect thereof.

The right of the Trustee to realize upon and sell the Collateral may be
impaired by applicable bankruptcy and insolvency laws if a proceeding under such
laws were commenced in respect of the Company. Such laws may impose limitations
or prohibitions on the exercise of rights and remedies under the Collateral
Documents for a substantial or indefinite period of time. See "Risk
Factors -- Security for the Notes; Bankruptcy Considerations."

The Trustee may appoint one or more collateral agents, who may be delegated
any one or more of the duties or rights of the Trustee under the Collateral
Documents or which are specified in any Collateral Documents.

PRINCIPAL, MATURITY AND INTEREST

The Notes will be senior secured obligations of the Company, limited in
aggregate principal amount to $200,000,000, and will mature on ,
2006. An aggregate of $120,000,000 in principal amount of Notes will be issued
in the Offering contemplated by this Prospectus and an aggregate of $80,000,000
in principal amount of Notes may be issued in the future pursuant to the
provisions described in the next paragraph. Interest on the Notes will accrue at
the rate of % per annum and will be payable semi-annually

47
<PAGE> 50

in arrears on and , commencing on , 1996, to
Holders of record on the immediately preceding and .
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the Issuance Date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. The Notes will be payable both as to principal and interest at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest may be
made by check mailed to the Holders of the Notes at their respective addresses
set forth in the register of Holders of Notes. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in registered
form, without coupons, and in denominations of $1,000 and integral multiples
thereof.

The Indenture will provide that the Company may issue additional Notes
under the Indenture in an aggregate principal amount not to exceed $80.0 million
(the "Additional Notes"); provided that (a) the Company would be permitted,
after giving pro forma effect to any issuance of the Additional Notes and the
application of the proceeds therefrom, to incur at least $1.00 of Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock," (b)
the Additional Notes are secured by first mortgage liens on otherwise
unencumbered hotel properties owned by the Company which constitute Qualified
Collateral (the "Additional Properties"), (c) the aggregate principal amount of
Additional Notes does not exceed 75% of the fair market value of such Additional
Properties as set forth in a written opinion of an independent, qualified
appraiser that is a member of the American Institute of Real Estate Appraisers
(a "Qualified Appraiser") and (d) the aggregate principal amount of the
Additional Notes issued does not exceed 75% of the product of (A) ten times (B)
the combined Consolidated Cash Flow of the Additional Properties for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which the
Additional Notes are issued. If issued, the Additional Notes will be equally and
ratably secured by the Collateral securing the Notes offered pursuant to this
Prospectus, and the Notes offered pursuant to this Prospectus will be equally
and ratably secured by first mortgage liens on the Additional Properties. See
"-- Collateral." Holders of any Additional Notes will be entitled to all the
benefits of the Indenture granted to Holders of Notes offered pursuant to this
Prospectus. Additional Notes, if any, will be treated for all purposes as
"Notes" under the Indenture.

OPTIONAL REDEMPTION

The Notes are not redeemable at the Company's option prior to ,
2001 (the "First Redemption Date"). Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, at any time upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below (the "Redemption
Percentages") plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
of the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.............................................. %
2002.............................................. %
2003.............................................. %
2004 and thereafter............................... 100.000%
</TABLE>

Notwithstanding the foregoing, prior to , 1999, the Company may
redeem, on any one or more occasions, with the net cash proceeds of any public
offering of its common equity (within 60 days of the consummation of any such
public offering), up to $30.0 million in aggregate principal amount of the Notes
at a redemption price equal to % of the principal amount of such Notes plus
accrued and unpaid interest thereon, if any, to the redemption date; provided,
however, that at least $100.0 million in aggregate principal amount of Notes
(including Additional Notes, if any) must remain outstanding immediately
following any such redemption.

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<PAGE> 51

MANDATORY REDEMPTION

The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.

REPURCHASE AT THE OPTION OF HOLDERS

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to purchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Payment"). Within 10 Business Days following any Change of Control, the Company
will mail a notice to each Holder stating: (1) that the Change of Control Offer
is being made pursuant to the covenant entitled "Change of Control," the period
in which such offer will remain open and the expiration date of such offer; (2)
that all Notes tendered will be accepted for payment, the purchase price and the
purchase date (the "Change of Control Payment Date"); (3) that any Note not
tendered will continue to accrue interest; (4) that, unless the Company defaults
in the payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest after the
Change of Control Payment Date; (5) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the Paying Agent at the address specified in
the notice prior to the expiration of such offer; (6) that Holders will be
entitled to withdraw their election if the Paying Agent receives, not later than
the expiration of such offer, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of Notes
delivered for purchase, and a statement that such Holder is withdrawing his
election to have such Notes purchased; (7) that Holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof; and (8) the
circumstances and material facts regarding such Change of Control (including,
but not limited to, information with respect to pro forma and historical
financial information after giving effect to such Change of Control and
information regarding the Person or Persons acquiring control).

The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and other applicable securities laws and
regulations thereunder in connection with the purchase of the Notes in
connection with a Change of Control.

On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (2) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an officers' certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company. The Paying
Agent will promptly mail to each Holder of Notes so accepted the Change of
Control Payment for such Notes, and the Trustee will promptly authenticate and
mail to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered, if any; provided that each such new Note will
be in a principal amount of $1,000 or an integral multiple thereof. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.

The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of the Company to another person may be uncertain.

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<PAGE> 52

A Change of Control may also constitute a change of control or event of
default under other Indebtedness of the Company. Therefore, upon the occurrence
of a Change of Control, the Company may be required to repurchase the Notes and
repay such other outstanding Indebtedness. Should a Change of Control occur and
a substantial amount of the Notes be presented for purchase, there can be no
assurance that the Company or the acquiring party would have sufficient
financial resources to enable it to purchase such Notes. In the event the
Company is required to purchase outstanding Notes pursuant to a Change of
Control Offer, the Company expects that it would seek third party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing. See "Risk Factors -- Change of Control." The Change of Control
purchase feature of the Notes may not be amended or waived without the consent
of at least 66 2/3% in principal amount of the Notes then outstanding.

Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company purchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.

ASSET SALES

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, conduct an Asset Sale, unless (x) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
officers' certificate delivered to the Trustee) and (y) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided, however, that if the assets
which were the subject of the Asset Sale constitute Collateral, then (i) 100% of
the consideration received in connection with the Asset Sale must be in the form
of cash or Cash Equivalents and (ii) the Company must deliver to the Trustee the
opinion of a Qualified Appraiser that the consideration received in connection
with the Asset Sale is equal to or greater than the fair market value of the
assets which were the subject of the Asset Sale; provided, further, that except
for Asset Sales in which the assets that are the subject of the Asset Sale
constitute Collateral, the principal amount of the following shall be deemed to
be cash for purposes of this provision: (A) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto), of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes or any Subsidiary
Guarantee thereof) that are assumed or forgiven by the transferee of any such
assets and (B) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary into cash within 90 days of the closing of
such Asset Sale (to the extent of the cash received). Notwithstanding the
foregoing, the restriction in clause (y) above will not apply, as to Asset Sales
of assets not constituting Collateral, with respect to mortgages or other notes
receivable received by the Company or any such Restricted Subsidiary from such
transferee to the extent such mortgages or other notes receivable are Restricted
Investments permitted to be made by the Company or such Restricted Subsidiary
under the covenant entitled "Restricted Payments."

In connection with any Asset Sale of assets which constitute Collateral,
the Company may (a) invest all or a portion of the Net Proceeds of such Asset
Sale (such proceeds, "Collateral Proceeds") in Substitute Collateral or (b)
elect to redesignate, at the time of such Asset Sale, an existing hotel property
of the Company as Substitute Collateral and to treat the Collateral Proceeds as
Net Proceeds of an Asset Sale of an asset not constituting Collateral as set
forth in the next paragraph; provided, however, that, in either case,

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<PAGE> 53

(i) the Substitute Collateral is subject to a perfected Lien in favor of the
Trustee, which Lien has at least the same priority as the assets which were the
subject of the Asset Sale (and the Company delivers to the Trustee an opinion of
counsel reasonably satisfactory to the Trustee regarding the perfection and
priority of the Lien on the Substitute Collateral in favor of the Trustee, which
opinion of counsel may be based on a binder or policy of a real estate title
insurance company of national standing), (ii) the fair market value of the
Substitute Collateral (plus any portion of the Collateral Proceeds not invested
in the Substitute Collateral) is equal to or greater than the fair market value
of the assets which were the subject of the Asset Sale (and the Company delivers
to the Trustee an officers' certificate and an opinion of a Qualified Appraiser
stating that the fair market value of the Substitute Collateral (plus any
portion of the Collateral Proceeds not invested in the Substitute Collateral) is
equal to or greater than the fair market value of the assets which were the
subject of the Asset Sale), (iii) the combined Consolidated Cash Flow of the
hotel properties constituting Substitute Collateral for the most recently ended
four fiscal quarters for which internal financial statements are available
immediately preceding the date on which the Asset Sale occurs (the "Calculation
Period") is greater than the combined Consolidated Cash Flow of the hotel
properties constituting assets which were the subject of the Asset Sale for the
Calculation Period (and the Company delivers to the Trustee an officers'
certificate stating that the combined Consolidated Cash Flow of the hotel
properties constituting Substitute Collateral for the Calculation Period is
greater than the combined Consolidated Cash Flow of the assets which were the
subject of the Asset Sale for the Calculation Period) and (iv) the Substitute
Collateral is acquired or designated, as the case may be, and the opinion of
counsel, officers' certificate and appraisal referenced in clauses (i), (ii) and
(iii) above are delivered, substantially concurrently with the consummation of
the Asset Sale. Any Collateral Proceeds that are (A) not so invested so as to
constitute Substitute Collateral or (B) not treated as Net Proceeds of an Asset
Sale of an asset not constituting Collateral in accordance with the next
paragraph in connection with the Company's election to redesignate an existing
hotel property as Substitute Collateral, each as provided above, will be deemed
to constitute "Excess Collateral Proceeds." When the amount of Excess Collateral
Proceeds exceeds $1.0 million, the Company shall make an offer to all Holders of
Notes (a "Collateral Asset Sale Offer") to purchase the maximum amount of Notes
that is an integral multiple of $1,000, that may be purchased out of the Excess
Collateral Proceeds at the following offer price (the "Collateral Asset Sale
Offer Price") in cash: (i) if the purchase is required to be consummated between
the Issuance Date and the First Redemption Date, the greater of (a) 100% of the
principal amount thereof, plus accrued an unpaid interest thereon to the date of
purchase plus the Make-Whole Amount or (b) the principal amount thereof
multiplied by the Redemption Percentage on the First Redemption Date, plus
accrued and unpaid interest thereon to the date of purchase and (ii) if the
purchase is required to be consummated after the First Redemption Date, the
principal amount thereof multiplied by the Redemption Percentage corresponding
to the applicable redemption period in which the date of purchase is required to
occur, as set forth above in "-- Optional Redemption," plus accrued and unpaid
interest thereon to the date of purchase. The Collateral Asset Sale Offer shall
be commenced as soon as practicable following the date that the Excess
Collateral Proceeds exceeds $1.0 million, but in any event within 30 days
following such date. Pending final application of any Collateral Proceeds, the
Company shall deposit any such Collateral Proceeds with the Trustee for the
benefit of the Holders of the Notes and such Collateral Proceeds shall be
subject to a perfected Lien in favor of the Trustee, which Lien shall have at
least the same priority as the Lien on the assets which were the subject of the
Asset Sale. To the extent that the aggregate amount of Notes tendered pursuant
to a Collateral Asset Sale Offer is less than the Excess Collateral Proceeds,
any remaining Excess Collateral Proceeds shall be permitted to be used to
permanently reduce Indebtedness of the Company that ranks pari passu in right of
payment of the Notes or invested in a Hospitality-Related Business as provided
in the following paragraph (without regard to the time period set forth
therein); provided, however, that until so applied, the remaining Excess
Collateral Proceeds shall remain pledged as security for the Notes and any newly
acquired assets, when acquired, shall be subject to a perfected Lien in favor of
the Trustee, which Lien has at least the same priority as the assets which were
the subject of the Asset Sale. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Collateral Proceeds,
the Trustee shall select the Notes to be purchased in the manner described under
the caption "-- Selection and Notice" below. Upon completion of any Collateral
Asset Sale Offer, the amount of Excess Collateral Proceeds shall be reset at
zero. If any of the Collateral Proceeds are sold and the Collateral Proceeds are
applied in

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<PAGE> 54

accordance with this paragraph, the Trustee shall release the Lien in favor of
the Trustee in the assets so sold. See "--Collateral."

Within 365 days of any Asset Sale (other than an Asset Sale of assets which
constitute Collateral), the Company or such Restricted Subsidiary may (a) apply
the Net Proceeds from such Asset Sale to permanently reduce (x) Indebtedness of
the Company or a Restricted Subsidiary of the Company that is a Guarantor that
ranks by its terms pari passu in right of payment with the Notes or (y) pari
passu Indebtedness of a Restricted Subsidiary to the extent of the proceeds of
the Asset Sale by such Restricted Subsidiary or (b) invest the Net Proceeds from
such Asset Sale in property or assets used in a Hospitality-Related Business;
provided that the Company or such Restricted Subsidiary will have complied with
this clause (b) if, within 365 days of such Asset Sale, the Company or such
Restricted Subsidiary shall have commenced and not completed or abandoned an
Investment in compliance with this clause (b) and shall have segregated such Net
Proceeds from the general funds of the Company and its Subsidiaries for that
purpose and such Investment is substantially completed within 180 days after the
first anniversary of such Asset Sale. Any Net Proceeds from an Asset Sale (other
than an Asset Sale of assets which constitute Collateral) that are not applied
or invested as provided in the first sentence of this paragraph will be deemed
to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company shall make an offer to all Holders of Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Notes, that
is an integral multiple of $1,000, that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use such deficiency for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in the manner described under the
caption "-- Selection and Notice" below. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero. Pending the
final application of any Net Proceeds from an Asset Sale pursuant to this
paragraph, the Company or any Restricted Subsidiary may temporarily reduce
Indebtedness of the Company that ranks pari passu with the Notes or otherwise
invest such Net Proceeds in Cash Equivalents.

The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and other applicable securities laws and
regulations thereunder in connection with any offer to purchase and the purchase
of Notes as described above.

SELECTION AND NOTICE

If less than all of the Notes are to be purchased in a Collateral Asset
Sale Offer or an Asset Sale Offer or redeemed at any time, selection of Notes
for purchase or redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate, provided
that no Notes of $1,000 or less shall be redeemed in part.

Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the purchase or redemption date to each Holder of
Notes to be purchased or redeemed at its registered address. If any Note is to
be purchased or redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
purchased or redeemed.

A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date, interest ceases to accrue on Notes or portions
thereof called for purchase or redemption.

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<PAGE> 55

CERTAIN COVENANTS

RESTRICTED PAYMENTS

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any distribution on account of the Company's or any of
its Restricted Subsidiaries' Equity Interests (other than: (1) dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company; or (2) dividends or distributions by a Restricted Subsidiary of the
Company, provided that to the extent that a portion of such dividend or
distribution is paid to a holder of Equity Interests of a Restricted Subsidiary
other than the Company of a Restricted Subsidiary, such portion of such dividend
or distribution is not greater than such holder's pro rata aggregate common
equity interest in such Restricted Subsidiary); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or any
Restricted Subsidiary or other Affiliate of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary
of the Company); (iii) purchase, redeem or otherwise acquire or retire for value
any Indebtedness of the Company or any Restricted Subsidiary that is
subordinated in right of payment, by its terms, to the Notes or any Subsidiary
Guarantee thereof prior to the scheduled final maturity or sinking fund payment
dates for payment of principal and interest in accordance with the original
documentation for such subordinated Indebtedness; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of such Restricted Payment:

(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;

(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the covenant described
under the caption "--Incurrence of Indebtedness and Issuance of
Disqualified Stock"; and

(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv) and (v) the next succeeding paragraph), is less
than the sum of (v) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from January 1, 1996 to the end
of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (w) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale since the Issuance Date of
Equity Interests of the Company or of debt securities of the Company that
have been converted or exchanged into such Equity Interests (other than
Equity Interests (or convertible or exchangeable debt securities) sold to a
Restricted Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted or exchanged into Disqualified
Stock), plus (x) in case any Unrestricted Subsidiary has been redesignated
a Restricted Subsidiary and becomes a Guarantor pursuant to the terms of
the Indenture or has been merged, consolidated or amalgamated with or into,
or transfers or conveys assets to, or is liquidated, into the Company or a
Restricted Subsidiary that is a Guarantor, and provided that no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof, the lesser of (i) the book value (determined in
accordance with GAAP) at the date of such redesignation, combination or
transfer of the aggregate Investments made by the Company and its
Restricted Subsidiaries in such Unrestricted Subsidiary (or of the assets
transferred or conveyed, as applicable) and (ii) the fair market value of
such Investments in such Unrestricted Subsidiary at the time of such
redesignation, combination or transfer (or of the assets transferred or
conveyed, as applicable), in each case as determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive
and evidenced by a resolution of such Board and, in each case, after
deducting any Indebtedness associated with the Unrestricted Subsidiary so
designated or

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<PAGE> 56

combined or with the assets so transferred or conveyed, plus (y) 100% of
any dividends or interest actually received in cash by the Company or a
Restricted Subsidiary that is a Guarantor after the Issuance Date from (1)
a Restricted Subsidiary the Net Income of which has been excluded from the
computation of Consolidated Net Income, (2) an Unrestricted Subsidiary, (3)
a Person that is not a Subsidiary or (4) a Person that is accounted for on
the equity method plus (z) $25.0 million.

The foregoing provisions will not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, purchase, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any proceeds that is utilized for such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(w) of the preceding paragraph; (iii) the defeasance, redemption,
repayment or purchase of Indebtedness of the Company or any Restricted
Subsidiary that is subordinated in right of payment, by its terms, to the Notes
or any Subsidiary Guarantee thereof in a Permitted Refinancing; (iv) the
defeasance, redemption, repayment or purchase of Indebtedness of the Company or
any Restricted Subsidiary that is subordinated in right of payment, by its
terms, to the Notes or any Subsidiary Guarantee thereof with the proceeds of a
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests (other than Disqualified Stock) of the Company; provided that
the amount of any proceeds that is utilized for such defeasance, redemption,
repayment or purchase shall be excluded from clause (c)(w) of the preceding
paragraph; and (v) the purchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company pursuant to any management
equity subscription agreement or stock option agreement in effect as of the
Issuance Date; provided, however, that the aggregate price paid for all such
purchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 per year on a cumulative basis since the Issuance Date; provided that,
in the case of clauses (ii) through (v) above, no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof.

In determining whether any Restricted Payment is permitted by the foregoing
covenant, the Company may allocate or reallocate all or any portion of such
Restricted Payment among the clauses (i) through (v) of the preceding paragraph
or among such clauses and the first paragraph of this covenant including clauses
(a), (b) and (c), provided that at the time of such allocation or reallocation,
all such Restricted Payments, or allocated portions thereof, would be permitted
under the various provisions of the foregoing covenant.

The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors of the Company
set forth in an officers' certificate delivered to the Trustee) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an officers' certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed, which calculations may be
based upon the Company's latest available financial statements.

The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or Event
of Default. For purposes of making the determination as to whether such
designation would cause a Default or Event of Default, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (x) the net book value of such Investments at the time
of such designation, (y) the fair market value of such Investments at the time
of such designation and (z) the original fair market value of such Investments
at the time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

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<PAGE> 57

Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing conditions.

INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK

The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to (collectively, "incur" and correlatively, an "incurrence" of) any
Indebtedness (including Acquired Debt) and that the Company will not issue any,
and will not permit any of its Restricted Subsidiaries to issue any, shares of
Disqualified Stock; provided, however, that the Company or any of its Restricted
Subsidiaries may incur Indebtedness or issue shares of Disqualified Stock if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.0 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.

The foregoing provisions will not apply to:

(i) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Indebtedness; provided, however, that if any such Indebtedness
ceases to be Non-Recourse Indebtedness of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company;

(ii) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness pursuant to one or more Credit Facilities in an aggregate
principal amount not to exceed $50.0 million at any one time outstanding,
less the aggregate amount of all proceeds of all sales or other
dispositions of assets that have been applied to permanently reduce the
outstanding amount of such Indebtedness pursuant to the covenant described
under the caption "-- Repurchase at the Option of Holders --Asset Sales;"

(iii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;

(iv) Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding;

(v) the incurrence or the issuance by the Company of Refinancing
Indebtedness or Refinancing Disqualified Stock of the Company or any
Restricted Subsidiary or the incurrence or issuance by a Restricted
Subsidiary of Refinancing Indebtedness or Refinancing Disqualified Stock of
such Restricted Subsidiary, as the case may be; provided, however, that
such Refinancing Indebtedness or Refinancing Disqualified Stock, as the
case may be, is a Permitted Refinancing;

(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
(i) any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than a Wholly Owned
Restricted Subsidiary and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;

(vii) the incurrence by the Company or any of its Restricted
Subsidiaries, in the ordinary course of business and consistent with past
practice, of Indebtedness to secure performance bonds not to exceed $7.5
million at any one time outstanding; or

(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any
other clause of this paragraph) in an aggregate principal amount at any
time outstanding not to exceed $5.0 million; provided that the net proceeds
of such

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Indebtedness are used to finance the renovation or refurbishment of
properties owned by the Company or a Restricted Subsidiary which are
employed in a Hospitality-Related Business.

LIENS

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired
by the Company or any Restricted Subsidiary, or any income or profits therefrom
or assign or convey any right to receive income therefrom, except Permitted
Liens.

DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a)(i) pay dividends
or make any other consensual distributions to the Company or any of its
Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any
other interest or participation in, or measured by, its profits, or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries, (b) make
loans or advances or capital contributions to the Company or any of its
Restricted Subsidiaries or (c) sell, lease or transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (i) Existing
Indebtedness as in effect on the Issuance Date, (ii) the Indenture and the
Notes, (iii) applicable law, (iv) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries or of any Person that becomes a Restricted Subsidiary as in effect
at the time of such acquisition or such Person becoming a Restricted Subsidiary
(except to the extent such Indebtedness was incurred in connection with or, if
incurred within one year prior to such acquisition or such Person becoming a
Restricted Subsidiary, in contemplation of such acquisition or such Person
becoming a Restricted Subsidiary), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that
the Consolidated Cash Flow of such Person is not taken into account (to the
extent of such restriction) in determining whether such acquisition was
permitted by the terms of the Indenture, (v) any instrument governing
Indebtedness or Capital Stock of a Person who becomes a Guarantor as in effect
at the time of becoming a Guarantor (except to the extent such Indebtedness was
incurred in connection with or, if incurred within one year prior to the time of
becoming a Guarantor, in contemplation of such Subsidiary Guarantee), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person who became a Guarantor, (vi) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (vii) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (c) above on the property so acquired, (viii)
permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Refinancing Indebtedness are no more restrictive
than those contained in the agreements governing the Indebtedness being
refinanced, or (ix) customary restrictions in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements and
mortgages.

MERGER, CONSOLIDATION OR SALE OF ASSETS

The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment,

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transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company pursuant to a supplemental indenture under
the Notes and the Indenture; (iii) immediately after such transaction no Default
or Event of Default exists; and (iv) the Company or any Person formed by or
surviving any such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A) will
have Consolidated Net Worth (immediately after the transaction) equal to or
greater than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described under the caption "-- Incurrence of Indebtedness
and Issuance of Disqualified Stock."

Upon any such consolidation, merger, lease, conveyance or transfer in
accordance with the foregoing, the successor Person formed by such consolidation
or into which the Company is merged or to which such lease, conveyance or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor had been named as the Company therein and thereafter
(except in the case of a lease) the predecessor corporation will be relieved of
all further obligations and covenants under the Indenture and the Notes.

TRANSACTIONS WITH AFFILIATES

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into any contract, agreement, understanding, loan, advance
or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary on an arm's length basis with an unrelated
Person, (b) the Company delivers to the Trustee (i) with respect to any
Affiliate Transaction involving aggregate payments in excess of $5.0 million, an
officers' certificate certifying that such Affiliate Transaction complies with
clause (a) above and such Affiliate Transaction is approved by a majority of the
disinterested nonemployee members of the Board of Directors and (ii) with
respect to any Affiliate Transaction involving aggregate payments in excess of
$10.0 million (other than an Affiliate Transaction involving the acquisition or
disposition of a hotel by the Company or a Restricted Subsidiary of the
Company), an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view issued, at the option of the Company,
by an investment banking firm of national standing or a Qualified Appraiser and
(c) the Company delivers to the Trustee in the case of an Affiliate Transaction
involving the acquisition or disposition of a hotel by the Company or a
Restricted Subsidiary of the Company and (x) involving aggregate payments of
less than $25.0 million, an appraisal by a Qualified Appraiser to the effect
that the transaction is being undertaken at fair market vale or (y) involving
aggregate payments of $25.0 million or more, an opinion as to the fairness of
the transaction to the Company or such Restricted Subsidiary from a financial
point of view issued by an investment banking firm of national standing;
provided, however, that the following shall not be deemed Affiliate
Transactions: (A) any employment, deferred compensation, stock option,
noncompetition, consulting or similar agreement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(B) transactions between or among the Company and/or its Wholly Owned Restricted
Subsidiaries or any Guarantor, (C) the incurrence of fees in connection with the
provision of hotel management services, provided that such fees are paid in the
ordinary course of business and are consistent with past practice and (D)
Restricted Payments permitted by the provisions of the Indenture described above
under the covenant described under the caption "-- Restricted Payments."

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LINE OF BUSINESS

The Indenture will provide that for so long as any Notes are outstanding,
the Company will not, and will not permit any of its Subsidiaries to, engage in
any business or activity other than a Hospitality-Related Business.

PAYMENTS FOR CONSENT

The Indenture will provide that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or agreed to be paid to all Holders of the Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.

MAINTENANCE OF INSURANCE

The Indenture will provide that, until the Notes have been paid in full,
the Company shall, and shall cause its Subsidiaries to, maintain insurance with
responsible carriers against such risks and in such amounts as is customarily
carried by similar businesses with deductibles, retentions, self-insured amounts
and coinsurance customarily carried by similar businesses of similar size,
including, without limitation, property and casualty loss, and interruption of
business insurance, and shall provide satisfactory evidence of such insurance to
the Trustee prior to the anniversary or renewal date of each such policy, which
certificate shall expressly state such expiration date for each policy listed.
Notwithstanding the foregoing, customary insurance coverage for the purposes of
the Indenture shall include the following: (i) workers' compensation insurance
to the extent required to comply with all applicable state or United States laws
and regulations or the laws and regulations of any other applicable
jurisdiction, (ii) property insurance protecting property against loss or damage
by fire, lightening, windstorm, tornado, water, vandalism, riot, earthquake,
civil commotion, malicious mischief, hurricane and such other risks and hazards
as are from time to time covered by an "all risk" policy or property policy
covering "special" causes of loss, such property insurance providing coverage of
not less than 100% of actual replacement value (as determined at each policy
renewal based on the EW Dodge Building Index or some other recognized means) of
any improvements with a deductible no greater than $2.0 million (other than
earthquake insurance, for which the deductible may be up to 5% of the
replacement value, and which may be limited to an aggregate of $15.0 million per
occurrence in California and $50.0 million per occurrence in other states,
unless the Board of Directors of the Company determines in good faith that such
insurance, with such deductibles, is not available at commercially reasonable
rates and on commercially reasonable terms in which case the Company may procure
earthquake insurance with appropriate deductibles which can be obtained at
commercially reasonable rates and on commercially reasonable terms) and (iii)
business interruption insurance for a period of not less than one year, and in
an amount based upon 100% of estimated continuing expenses and lost cash flow
for the fiscal year with respect to which the insurance coverage is in effect
less non-continuing expenses. All insurance under this provision shall name the
Trustee as an additional insured or loss payee, as applicable, to the extent of
the interest of the Trustee in any assets covered by such insurance. All such
insurance shall be issued by carriers having an A.M. Best & Company, Inc. rating
of A or higher and a financial size category of not less than X, or if such
carrier is not rated by A.M. Best & Company, Inc., having the financial
stability and size deemed appropriate by the Company after consultation with a
reputable insurance broker.

MAINTENANCE OF COLLATERAL

The Indenture will provide that the Company will maintain the Collateral in
a manner consistent with its maintenance policies with respect to all of the
Owned Hotels (including its policies with respect to making capital expenditures
for the maintenance of such hotels).

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SUBSIDIARY GUARANTEES

As of the Issuance Date, no Subsidiary of the Company or business entity in
which the Company owns an interest will be required to act as a Guarantor in
respect of the Notes. However, the Indenture will provide that if (i) the
Company or any Restricted Subsidiary shall transfer or cause to be transferred,
in one or a series of related transactions, any assets (including cash or Cash
Equivalents), businesses, divisions, real property or equipment having a book
value or fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive and evidenced
by a resolution of such Board), in excess of $2.0 million to any Restricted
Subsidiary that is not a Guarantor or (ii) if the Company or any of its
Restricted Subsidiaries shall acquire or create after the Issuance Date another
Restricted Subsidiary having total assets with a fair market value in excess of
$2.0 million, the Company will cause such Restricted Subsidiary to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Restricted Subsidiary shall guarantee all of the obligations of the Company with
respect to the Notes on a senior basis together with an opinion of counsel
(which counsel may be an employee of the Company) to the effect that the
supplemental indenture has been duly executed and delivered by such Restricted
Subsidiary and is in compliance in all material respects with the terms of the
Indenture.

The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity, whether or not affiliated with such Guarantor
(other than the Company or another Guarantor), unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee under the Indenture, (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists and (iii) such Guarantor, or any Person formed by or surviving
any such consolidation or merger, (A) would have Consolidated Net Worth
(immediately after giving effect to such transaction), equal to or greater than
the Consolidated Net Worth of such Guarantor immediately preceding the
transaction and (B) would be permitted by virtue of the Company's Fixed Charge
Coverage Ratio to incur, immediately after giving effect to such transaction, at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio set forth in the covenant described above under the caption "-- Incurrence
of Indebtedness and Issuance of Disqualified Stock."

The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, which sale or other disposition is
otherwise in compliance with the terms of the Indenture, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Guarantor, then such Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Guarantor) or the corporation acquiring the property (in
the event of a sale or other disposition of all of the assets of such Guarantor)
will be automatically and unconditionally released and relieved of any
obligations under its Subsidiary Guarantee.

For purposes of the Subsidiary Guarantee, each Guarantor's liability will
be that amount from time to time equal to the aggregate liability of such
Guarantor thereunder, but shall be limited to the least of (i) the aggregate
amount of the obligations of the Company under the Notes and the Indenture or
(ii) the amount, if any, which would not have (A) rendered such Guarantor
"insolvent" (as such term is defined in the Federal Bankruptcy Code and in the
Debtor and Creditor Law of the State of New York) or (B) left it with
unreasonably small capital at the time its Subsidiary Guarantee was entered
into, after giving effect to the incurrence of existing Indebtedness immediately
prior to such time; provided that, it shall be a presumption in any lawsuit or
other proceeding in which a Guarantor is a party that the amount guaranteed
pursuant to the Subsidiary Guarantee is the amount set forth in clause (i) above
unless any creditor, or representative of creditors of such Guarantor, or debtor
in possession or trustee in bankruptcy of the Guarantor, otherwise proves in
such a lawsuit that the aggregate liability of the Guarantor is limited to the
amount set forth in clause (ii). The Indenture provides that, in making any
determination as to the solvency or sufficiency of capital of a Guarantor in
accordance with the previous sentence, the right of such Guarantor to
contribution from other Guarantors and any other rights such Guarantor may have,
contractual or otherwise, shall be taken into account.

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REPORTS

Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's certified
independent accountants. In addition, whether or not required by the rules and
regulations of the Commission, the Company will submit a copy of all such
information with the Commission for public availability (unless the Commission
will not accept such a submission) and file such information with the Trustee
and make such information available to investors and securities analysts who
request it in writing.

COLLATERAL

The Notes will be secured by (i) first mortgage Liens on the following 15
hotel properties owned by the Company: AmeriSuites, Atlanta Duluth, Georgia;
AmeriSuites, Brentwood, Tennessee; AmeriSuites, Cincinnati Blue Ash, Ohio;
AmeriSuites, Cincinnati Forest Park, Ohio; AmeriSuites, Columbus, Ohio; Ramada,
Danbury, Connecticut; AmeriSuites, Flagstaff, Arizona; Crowne Plaza, Las Vegas,
Nevada; AmeriSuites, Little Rock, Arkansas; Ramada, Meriden, Connecticut;
AmeriSuites, Nashville Opryland, Tennessee; AmeriSuites, Overland Park, Kansas;
AmeriSuites, Richmond, Virginia; St. Tropez Hotel, Las Vegas, Nevada; and
AmeriSuites, Tampa, Florida and any and all related real property thereto; (ii)
property consisting of furniture, furnishings, fixtures, and equipment and
machinery forming a part thereof or used in connection therewith; (iii)
trademarks, to the extent assignable (other than the Company's proprietary
tradenames including, without limitation, "AmeriSuites" and "Wellesley Inns");
(iv) assignments of rents, contracts and franchise rights, to the extent
assignable, all as provided in the Collateral Documents; (v) after-acquired
personal property and improvements relating to the Collateral; (vi) Substitute
Collateral, if any; and (vii) proceeds of the foregoing.

Under the terms of the Collateral Documents, except as provided below in
the case of Additional Notes, the Notes will not be secured, by real or personal
property acquired by the Company or its Subsidiaries after the Issuance Date,
other than by after-acquired personal property and improvements relating to, or
used in connection with, the Collateral or Substitute Collateral pursuant to the
covenant described under the caption "-- Repurchase at the Option of
Holders -- Asset Sales." Any Additional Notes issued under the Indenture will be
equally and ratably secured by the Collateral securing the Notes issued in the
Offering contemplated by this Prospectus and the Notes issued in the Offering
contemplated by this Prospectus will be equally and ratably secured by the first
mortgage liens on the Additional Properties. See "-- Principal, Maturity and
Interest."

So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Collateral
Documents, the Company and its Restricted Subsidiaries will be entitled to use
the Collateral in a manner consistent with normal business practices. Upon the
occurrence and during the continuance of an Event of Default, the Trustee may
sell the Collateral or any part thereof in accordance with the terms of the
Collateral Documents. All funds distributed under the Collateral Documents and
received by the Trustee for the benefit of the Holders of the Notes shall be
distributed by the Trustee in accordance with the provisions of the Indenture.

Under the terms of the Collateral Documents, the Trustee will determine the
circumstances and manner in which the Collateral shall be disposed of,
including, but not limited to, the determination of whether to release all or
any portion of the Collateral from the Liens created by the Collateral Documents
and whether to foreclose on the Collateral following an Event of Default.
Moreover, upon the full and final payment and performance of all obligations of
the Company under the Indenture and the Notes, the Collateral Documents shall
terminate and the Collateral shall be released. In addition, if any of the
Collateral is sold and the Collateral Proceeds are applied in accordance with
the terms of the covenant described under the caption "-- Repurchase at the
Option of Holders -- Asset Sales," the Trustee shall release the Liens in favor
of the

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Trustee in the assets sold; provided, that the Trustee, upon request, shall have
received from the Company an officers' certificate and an opinion of counsel
that such Collateral Proceeds have been or will be so applied.

The Collateral Documents and the Indenture will provide that the Collateral
Proceeds with respect to all Asset Sales of assets constituting Collateral shall
be promptly and without any commingling deposited with the Trustee subject to a
charge in favor of the Trustee for the benefit of the Holders of the Notes until
applied as permitted under the covenant described under the caption
"-- Repurchase at Option of Holders -- Asset Sales." Amounts so paid to the
Trustee shall be invested or released in accordance with the provisions of the
Indenture.

No appraisals of the Collateral have been prepared by or on behalf of the
Company in connection with the sale of the Notes. The value of the Collateral at
any time will depend on market and other economic conditions, including the
availability of suitable buyers for the Collateral. See "Risk
Factors -- Security for the Notes; Bankruptcy Considerations."

The release of any Collateral from the liens of the Collateral Documents
pursuant to the terms thereof will not be deemed to impair the security under
the Indenture in contravention of the provisions thereof and of the Collateral
Documents if and to the extent the Collateral is released pursuant to the terms
of the Indenture and the Collateral Documents. To the extent applicable, the
Company shall comply with Section 314(d) of the Trust Indenture Act relating to,
among other things, the delivery of a certificate or an opinion of an engineer,
appraiser or other expert as to the fair value of the Collateral being released
from the terms of the Collateral Documents.

EVENTS OF DEFAULT AND REMEDIES

The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in payment when due of the principal of or premium, if any,
on the Notes; (iii) failure by the Company to comply with the covenants
described under the captions "-- Repurchase at the Option of Holders -- Change
of Control," "-- Repurchase at the Option of Holders -- Asset Sales,"
"-- Certain Covenants -- Restricted Payments," "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock" or
"-- Certain Covenants -- Merger, Consolidation or Sale of Assets;" (iv) failure
by the Company or any Guarantor for 60 days in the performance of any other
covenant, warranty or agreement in the Indenture, the Collateral Documents or
the Notes after written notice shall have been given to the Company by the
Trustee or to the Company and the Trustee from Holders of at least 25% in
principal amount of the Notes then outstanding; (v) default under (a)
Non-Recourse Indebtedness of the Company or any of its Restricted Subsidiaries
with an aggregate principal amount in excess of 10% of the aggregate assets of
the Company and its Restricted Subsidiaries or (b) any other mortgage, indenture
or instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the Issuance Date and, in each case, the principal
amount of which, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default (as defined below) or
the maturity of which has been so accelerated, aggregates $10.0 million or more,
which default, in either case, (a) is caused by a failure to pay when due
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity or shall constitute a default in the
payment of such issue of Indebtedness at final maturity of such issue; (vi)
failure by the Company or any of its Restricted Subsidiaries to pay final
judgments rendered against them (other than judgment liens without recourse to
any assets or property of the Company or any of its Restricted Subsidiaries
other than assets or property securing Non-Recourse Indebtedness) aggregating in
excess of $10.0 million, which judgments are not paid, discharged or stayed for
a period of 90 days (other than any judgments as to which a reputable insurance
company has accepted full liability); (vii) breach by the Company of any
material representation or warranty set forth in any of the Collateral
Documents, or default by the Company in the performance of any covenant set
forth in the Collateral Documents, or repudiation by the Company of any of its
obligations under the Collateral

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Documents, or the unenforceability of the Collateral Documents against the
Company for any reason that would materially impair the benefits to the Trustee
or the Holders of the Notes; (viii) except as permitted by the Indenture, any
Subsidiary Guarantee with respect to the Notes shall be held in a judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guarantor (or its successors or assigns), or any
Person acting on behalf of such Guarantor (or its successors or assigns), shall
deny or disaffirm its obligations or shall fail to comply with any obligations
under its Subsidiary Guarantee; and (ix) certain events of bankruptcy or
insolvency with respect to the Company, any Guarantor or any of the Company's
Subsidiaries that would constitute a Significant Subsidiary or any group of the
Company's Subsidiaries that, taken together, would constitute a Significant
Subsidiary.

If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any of its Subsidiary
that would constitute a Significant Subsidiary or any group of its Subsidiaries
that, taken together, would constitute a Significant Subsidiary or any
Guarantor, all outstanding Notes will become due and payable without further
action or notice. Under certain circumstances, the Holders of a majority in
principal amount of the outstanding Notes may rescind any acceleration with
respect to the Notes and its consequences. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.

The Indenture will provide that no Holder of a Note may pursue a remedy
under the Indenture unless (i) the Holder of a Note gives to the Trustee written
notice of a continuing Event of Default or the Trustee receives such notice from
the Company; (ii) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue a remedy;
(iii) such Holder of a Note or Holders of Notes offer and, if requested, provide
to the Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense; (iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and (v) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request; provided, however, that such provision
does not affect the right of a Holder of a Note to sue for enforcement of any
overdue payment thereon.

In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
, 2001 by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to , 2001, then the
premium specified in the Indenture with respect to an optional redemption of the
Notes by the Company during the twelve-month period beginning on ,
2001 shall also become immediately due and payable to the extent permitted by
law upon the acceleration of the Notes.

The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, including with respect to any
Restricted Payments made during such year, the basis upon which the calculations
required by the covenant described under the caption "-- Certain
Covenants -- Restricted Payments" were computed (which calculations may be based
on the Company's latest available financial statements) and the Company is
required upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default. The Company
will also be required to deliver to the Trustee, forthwith upon any officer
becoming aware of a Default or an Event of Default, an

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officers' certificate specifying such Default or Event of Default and what
action the Company is taking or proposes to take with respect thereto.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

No director, officer, employee, incorporator or stockholder, past, present
or future of the Company or any successor Person, as such, shall have any
liability for any obligations of the Company under the Notes, any Subsidiary
Guarantee thereof or the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver and release
may not be effective to waive or release liabilities under the federal
securities laws and it is the view of the Commission that such a waiver or
release is against public policy.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due, (ii) the Company's and the Guarantors'
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's and the Guarantors' obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes. In addition,
the Collateral will be released upon Legal Defeasance or Covenant Defeasance.

In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
of such principal or installment of principal of, premium, if any, or interest
on the outstanding Notes; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel (which counsel may be
an employee of the Company or any Subsidiary of the Company) reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the Issuance Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel (which counsel may be an employee of the Company or any Subsidiary of
the Company) reasonably acceptable to the Trustee confirming that the Holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not occurred; (iv)
no Default or Event of Default shall have occurred and be continuing on the date
of such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit (or greater period of time in which any such deposit of trust
funds may remain subject to

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bankruptcy or insolvency laws insofar as those apply to the deposit by the
Company); (v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion, (A) the trust funds
will not be subject to any rights of holders of Indebtedness other than the
Notes and (B) assuming no intervening bankruptcy of the Company between the date
of deposit and the 91st day following the deposit and assuming no Holder of
Notes is an insider of the Company, after the 91st day following the deposit,
the trust funds will not be subject to the effects of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
under any applicable United States or state law; (vii) the Company shall have
delivered to the Trustee an officers' certificate stating that the deposit was
not made by the Company with the intent of preferring the Holders of Notes over
the other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel (which counsel may be an employee of the Company), each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.

TRANSFER AND EXCHANGE

A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar (who will initially be the Trustee) and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption. Also, the Company is not
required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed.

The registered Holder of a Note will be treated as the owner of it for all
purposes.

AMENDMENT, SUPPLEMENT AND WAIVER

Except as provided in the next three succeeding paragraphs of this
subsection, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes).

Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder of Notes): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes;
(iii) reduce the rate of or change the time for payment of interest on any Note;
(iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal amount
of the Notes and a waiver of the payment default that resulted from such
acceleration); (v) make any Note payable in money other than that stated in the
Notes; (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, or interest on the Notes; (vii) waive a
redemption payment with respect to any Note; or (vii) make any change in the
foregoing amendment and waiver provisions. In addition, without the consent of
at least 66 2/3% in principal amount of the Notes then outstanding, an amendment
or waiver may not make any change to the covenant described under the caption
"-- Repurchase at the Option of Holders -- Change of Control."

The Indenture will provide that, without the consent of each Holder of
Notes outstanding, the Company will not amend, modify or alter the Convertible
Note Indenture in any way that will (i) increase the rate of or change the time
for payment of interest on any Convertible Notes, (ii) increase the principal
of, advance the

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final maturity date of or shorten the Weighted Average Life to Maturity of any
Convertible Notes, (iii) alter the redemption provisions or the price or terms
at which the Company is required to offer to purchase such Convertible Notes or
(iv) amend the provisions of Article Twelve of the Indenture governing the
Convertible Notes (which relate to subordination).

Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of the Notes in the case of a
merger, consolidation or sale of assets, to make any change that would provide
any additional rights or benefits to the Holders of the Notes (including
providing for Subsidiary Guarantees pursuant to the covenant described under the
caption "-- Certain Covenants -- Additional Subsidiary Guarantees") or that does
not adversely affect the legal rights under the Indenture of any such Holder, or
to comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.

CONCERNING THE TRUSTEE

The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.

The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.

ADDITIONAL INFORMATION

Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Prime Hospitality Corp., 700 Route 46 East, P.O.
Box 2700, Fairfield, New Jersey 07007-2700. Attention: Corporate Secretary.

CERTAIN DEFINITIONS

Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.

"Acquired Debt" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and (ii) Indebtedness encumbering any asset acquired by such specified Person.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the

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ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.

"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any property or assets of the Company or any Restricted Subsidiary (including by
way of a Sale and Leaseback Transaction and including a disposition by the
Company or a Restricted Subsidiary of Equity Interests in an Unrestricted
Subsidiary), (ii) the issuance or sale of Equity Interests of any of its
Restricted Subsidiaries or (iii) any Event of Loss, other than, with respect to
clauses (i), (ii) and (iii) above, the following: (1) the sale or disposition of
personal property held for sale in the ordinary course of business, (2) the sale
or disposal of damaged, worn out or other obsolete property in the ordinary
course of business so long as such property is no longer necessary for the
proper conduct of the business of the Company or such Restricted Subsidiary, as
applicable, (3) the transfer of assets by the Company to a Restricted Subsidiary
of the Company or by a Restricted Subsidiary of the Company to the Company or to
another Restricted Subsidiary of the Company, (4) the exchange of assets (other
than assets which constitute Collateral) held by the Company or a Restricted
Subsidiary of the Company for one or more hotels and/or one or more
Hospitality-Related Business of any person or entity owning one or more hotels
and/or one or more Hospitality-Related Businesses; provided, that the Board of
Directors of the Company has determined that the terms of any exchange are fair
and reasonable and that the fair market value of the assets received by the
Company, as set forth in an opinion of a Qualified Appraiser, are equal to or
greater than the fair market value of the assets exchanged by the Company or a
Restricted Subsidiary of the Company, (5) any Restricted Payment, dividend or
purchase or retirement of Equity Interests permitted under the covenant
described under the caption "-- Certain Covenants -- Restricted Payments," (6)
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in compliance with the provisions of the Indenture
described above under the captions "-- Repurchase at the Option of
Holders -- Change of Control" and "-- Certain Covenants -- Merger, Consolidation
or Sale of Assets," (7) the conversion of or foreclosure on any mortgage or
note, provided that the Company or a Restricted Subsidiary receives the real
property underlying any such mortgage or note, (8) any transaction or series of
related transactions that would otherwise be an Asset Sale where the fair market
value of the assets, sold, leased, conveyed or otherwise disposed of was less
than $5.0 million or, in the case of Collateral, less than $1.5 million, or an
Event of Loss or related series of Events of Loss pursuant to which the
aggregate value of property or assets involved in such Event of Loss or Events
of Loss is less than $5.0 million or, in the case of Collateral, less than $1.5
million.

"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.

"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including, without
limitation, with respect to partnerships, partnership interests (whether general
or limited) and any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, such partnership.

"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (ii) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months from the date of
acquisition and overnight bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess of $500 million, (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (i) and (ii) entered into with any
financial institution meeting the qualifications specified in clause (ii) above,
(iv) commercial paper or commercial paper Master Notes having a rating of P-2 or
the equivalent thereof by Moody's Investors Service, Inc. or A-2 or the
equivalent thereof by Standard & Poor's Corporation and in each case maturing
within six months after the date of acquisition, (v) money market mutual funds
that provide daily purchase and redemption features, and (vi) corporate debt
with maturities of not greater than six months and with a rating of A or the
equivalent thereof by Standard & Poor's Corporation and a rating of A2 or the
equivalent thereof by Moody's Investors Service, Inc.

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"Change of Control" means the occurrence of any of the following: (i) the
sale, lease or transfer, in one or a series of related transactions, of all or
substantially all of the Company's assets to any person or group (as such term
is used in Section 13 (d)(3) of the Exchange Act) other than to a Wholly-Owned
Restricted Subsidiary that is a Guarantor, (ii) the adoption of a plan relating
to the liquidation or dissolution of the Company, (iii) the acquisition by any
person or group (as such term is used in Section 13 (d)(3) of the Exchange Act)
of a direct or indirect interest in more than 50% of the ownership of the
Company or the voting power of the voting stock of the Company by way of
purchase, merger or consolidation or otherwise (other than a creation of a
holding company that does not involve a change in the beneficial ownership of
the Company as a result of such transaction), (iv) the merger or consolidation
of the Company with or into another corporation or the merger of another
corporation into the Company with the effect that immediately after such
transaction the stockholders of the Company immediately prior to such
transaction hold less than 50% of the total voting power of all securities
generally entitled to vote in the election of directors, managers, or trustees
of the Person surviving such merger or consolidation or (v) the first day on
which a majority of the members of the Board of Directors of the Company are not
Continuing Directors.

"Collateral" means (i) first mortgage Liens on the following 15 hotel
properties owned by the Company: AmeriSuites, Atlanta Duluth, Georgia;
AmeriSuites, Brentwood, Tennessee; AmeriSuites, Cincinnati Blue Ash, Ohio;
AmeriSuites, Cincinnati Forest Park, Ohio; AmeriSuites, Columbus, Ohio; Ramada,
Danbury, Connecticut; AmeriSuites, Flagstaff, Arizona; Crowne Plaza, Las Vegas,
Nevada; AmeriSuites, Little Rock, Arkansas; Ramada, Meriden, Connecticut;
AmeriSuites, Nashville Opryland, Tennessee; AmeriSuites, Overland Park, Kansas;
AmeriSuites, Richmond, Virginia; St. Tropez Hotel, Las Vegas, Nevada; and
AmeriSuites, Tampa, Florida and any and all related real property thereto; (ii)
property consisting of furniture, furnishings, fixtures and equipment and
machinery forming a part thereof or used in connection therewith; (iii)
trademarks, to the extent assignable (other than the Company's proprietary
tradenames including, without limitation, "AmeriSuites" and "Wellesley Inns");
(iv) assignments of rents, contracts and franchise rights, to the extent
assignable, all as provided in the Collateral Documents; (v) after-acquired
personal property and improvements relating to the properties listed in clause
(i); (vi) Substitute Collateral, if any; and (vii) proceeds of the foregoing.

"Collateral Documents" means, collectively, the agreements, instruments,
financing statements and other documents that evidence, set forth or limit the
Lien in favor of the Trustee or a collateral agent, appointed by the Trustee, in
the Collateral.

"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus: (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale, to the extent such losses were deducted in computing Consolidated
Net Income, plus (b) provision for taxes based on income or profits of such
Person for such period, to the extent such provision for taxes was included in
computing Consolidated Net Income, plus (c) Consolidated Interest Expense of
such Person for such period to the extent such expense was deducted in computing
Consolidated Net Income, plus (d) Consolidated Depreciation and Amortization
Expense of such Person for such period, to the extent deducted in computing
Consolidated Net Income in each case, on a consolidated basis for such Person
and its Restricted Subsidiaries and determined in accordance with GAAP, less (e)
other income as reflected on such Person's consolidated financial statements, as
prepared in accordance with GAAP, to the extent such other income was included
in computing Consolidated Net Income. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, the depreciation and
amortization of and the interest expense of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders. Any calculation of the Consolidated Cash Flow of
an individual hotel property shall be calculated in a manner consistent with the
foregoing.

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"Consolidated Depreciation and Amortization Expense" means, with respect to
any Person for any period, the total amount of depreciation and amortization
expense (including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and the
total amount of non-cash charges (other than non-cash charges that represent an
accrual or reserve for cash charges in future periods or which involved a cash
expenditure in a prior period) of such Person and its Restricted Subsidiaries
for such period on a consolidated basis as determined in accordance with GAAP.

"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (a) interest expense, whether paid or
accrued, to the extent such expense was deducted in computing Consolidated Net
Income (including amortization of original issue discount, non-cash interest
payments, the interest component of Capital Lease Obligations, and net payments
(if any) pursuant to Hedging Obligations; but excluding amortization of deferred
financing fees), (b) commissions, discounts and other fees and charges paid or
accrued with respect to letters of credit and bankers' acceptance financing and
(c) interest for which such Person or its Restricted Subsidiaries is liable,
whether or not actually paid, pursuant to Indebtedness or under a Guarantee of
Indebtedness of any other Person; in each case, calculated for such Person and
its Restricted Subsidiaries for such period on a consolidated basis as
determined in accordance with GAAP.

"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, that the following shall be excluded: (i) the Net Income of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries, (ii) the Net Income of any Person
that is a Restricted Subsidiary and that is restricted from declaring or paying
dividends or other distributions, directly or indirectly, by operation of the
terms of its charter, any applicable agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation or otherwise shall be included
only to the extent of the amount of dividends or distributions paid to the
referent Person or a Wholly Owned Restricted Subsidiary, (iii) the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded and (vi) the cumulative effect
of change in accounting principles shall be excluded.

"Consolidated Net Worth" means, with respect to any Person, as of any date
of determination, the sum of (i) the consolidated equity of the common
stockholders of such Person and its consolidated Subsidiaries as of such date
plus (ii) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of Preferred Stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such Preferred Stock, less (x) all
write-ups (other than writeups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the Issuance Date in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (y) all Investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Subsidiaries (except, in each case, Permitted
Investments) and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.

"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issuance Date or (ii) was nominated for election or elected to
such Board of Directors with the affirmative vote of at least a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.

"Credit Facility" means one or more borrowing arrangements, to be entered
into, by and between the Company and a commercial bank or other institutional
lender, including any related notes, security documentation, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, in each case as amended, modified, supplemented, restructured,
renewed, restated, refunded, replaced or refinanced or extended from time to
time on one or more occasions.

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"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.

"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to
, 2007.

"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for Capital Stock).

"Event of Loss" means, with respect to any property or asset (tangible or
intangible, real or personal), any of the following: (A) any loss, destruction
or damage of such property or asset; (b) any institution of any proceedings for
the condemnation or seizure of such property or asset or for the exercise of any
right of eminent domain; or (C) any actual condemnation, seizure or taking by
the power of eminent domain or otherwise of such property or asset, or
confiscation of such property or asset or the requisition of the use of such
property or asset.

"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than under any Indebtedness permitted under
clause (ii) of the second paragraph of the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock") in existence on the Issuance Date.

"Existing Real Estate" means any real estate owned, leased or optioned by
the Company or any of its Subsidiaries on the Issuance Date, or any real estate
on which the Company or any of its Subsidiaries holds a mortgage on the Issuance
Date.

"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems Preferred Stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of Preferred Stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. For purposes of making the computation referred to above,
acquisitions, dispositions and discontinued operations (as determined in
accordance with GAAP) that have been made by the Company or any of its
Restricted Subsidiaries, including all mergers, consolidations and dispositions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be calculated on a pro forma basis
assuming that all such acquisitions, dispositions, discontinued operations,
mergers, consolidations (and the reduction of any associated fixed charge
obligations resulting therefrom) had occurred on the first day of the
fourquarter reference period.

"Fixed Charges" means, with respect to any Person for any period, the sum
of (a) Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, to the extent such
expense was deducted in computing Consolidated Net Income and (b) the product of
(i) all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Restricted Subsidiary) on any series of Preferred Stock of such
Person or its Restricted Subsidiaries (other than Preferred Stock owned by such
Person or its Restricted Subsidiaries), times (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other

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<PAGE> 72

entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date.

"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States of America is
pledged.

"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) or otherwise
incurring, assuming or becoming liable for the payment of any principal, premium
or interest, direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness.

"Guarantor" means such Persons that become a guarantor of the Notes
pursuant to the terms of the Indenture, and each of their respective successors.

"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.

"Hospitality-Related Business" means the hotel business and other
businesses necessary for, incident to, in support of, connected with or arising
out of the hotel business, including, without limitation, (i) developing,
managing, operating, improving or acquiring lodging facilities, restaurants and
other food-service facilities, sports or entertainment facilities, and
convention or meeting facilities, and marketing services related thereto, (ii)
acquiring, developing, operating, managing or improving the Existing Real
Estate, any real estate taken in foreclosure (or similar settlement) by the
Company or any of its Subsidiaries, or any real estate ancillary or connected to
any hotel owned, managed or operated by the Company or any of its Restricted
Subsidiaries, (iii) owning and managing mortgages in, or other Indebtedness
secured by Liens on hotels and real estate related or ancillary to hotels or
(iv) other related activities thereto.

"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, and also includes, to the extent not otherwise included,
the Guarantee of any Indebtedness of such Person or any other Person.

"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
the Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.

"Issuance Date" means the closing date for the sale and original issuance
of the Notes.

"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to

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<PAGE> 73

give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).

"Make-Whole Amount" with respect to a Note means an amount equal to the
excess, if any, of (A) the present value of the remaining interest, premium and
principal payments due on such Note as if such Note were redeemed on the First
Redemption Date, computed using a discount rate equal to the Treasury Rate plus
50 basis points, less (B) the outstanding principal amount of such Note.
"Treasury Rate" is defined as the yield to maturity at the time of computation
of the United States Treasury securities with a constant maturity (as compiled
by and published in the most recent Federal Reserve Statistical Release
H.15(519), which has become publicly available at least two business days prior
to the date fixed for prepayment or, if such Statistical Release is no longer
published, any publicly available source of similar market data) most nearly
equal to the then remaining Average Life of the Notes assuming redemption of the
Notes on the First Redemption Date, provided, however, that if the Average Life
of such Note is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Average Life of such Note is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Average Life" means, when applied to Notes subject to purchase pursuant to a
Collateral Asset Sale Offer at any date, the number of years (calculated to the
nearest one-twelfth) between the date of such purchase and the First Redemption
Date.

"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with any Asset Sale, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss).

"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions), and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets.

"Non-Recourse Indebtedness" means Indebtedness (a) as to which neither the
Company nor any of its Restricted Subsidiaries (i) provides credit support
(other than in the form of a Lien on an asset serving as security for
Non-Recourse Indebtedness) pursuant to any undertaking, agreement or instrument
that would constitute Indebtedness, (ii) is directly or indirectly liable (other
than in the form of a Lien on an asset serving as security for Non-Recourse
Indebtedness) or (iii) constitutes the lender and (b) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.

"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

"Permitted Investments" means (a) any Investments in the Company or any
Guarantor; (b) Investments in any Restricted Subsidiary that is not a Guarantor
not to exceed an aggregate of $2.0 million per Restricted Subsidiary; (c) any
Investments in Cash Equivalents; (d) Investments by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company or any Guarantor or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company or any Guarantor; (e) Investments, in an amount not to
exceed $20.0 million at any one time outstanding in joint ventures for the
development of (i) an

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<PAGE> 74

"all-suites" hotel in Kansas City, MO and (ii) a "full-service" hotel in Jersey
City, NJ; and (f) net cash advances to Restricted Subsidiaries in the ordinary
course of business and consistent with the Company's past cash management
practices in an amount not to exceed $10.0 million at any one time outstanding.

"Permitted Liens" means:

(i) Liens in favor of the Company or a Restricted Subsidiary;

(ii) Liens securing Indebtedness incurred pursuant to one or more
Credit Facilities or Liens, in addition to the Liens securing the Notes
issued in the Offering contemplated by this Prospectus, securing any
Additional Notes (and the Notes), issued by the Company in accordance with
the provisions described in the second paragraph under the caption
"-- Principal, Maturity and Interest," in an aggregate principal amount at
any one time outstanding (taking into account the principal amount of one
or more Credit Facilities and the Additional Notes, if any), not to exceed
$80.0 million;

(iii) Liens for taxes, assessments and governmental charges not yet
delinquent or that are being contested in good faith and that are
appropriately reserved for in accordance with GAAP;

(iv) Liens incurred in the ordinary course of business that are not
incurred in connection with the borrowing of money;

(v) Liens existing as of the Issuance Date;

(vi) Liens on property of a Person at the time such Person was merged
with the Company or a Restricted Subsidiary, Liens on acquired property
existing at the time of acquisition thereof, and Liens upon any property of
a Person existing at the time such Person becomes a Restricted Subsidiary;
provided in each case that such Liens were not created in contemplation of
such merger or acquisition, as the case may be, and such Liens only extend
to such merged or acquired property;

(vii) Liens (1) securing purchase money, construction, permanent
financing or lease obligations (a "Designated Financing") otherwise
permitted by the Indenture incurred or assumed in connection with the
acquisition, purchase, construction, development, refurbishment or lease of
real or personal property (the "Financed Assets") to be used in a
Hospitality-Related Business, which Designated Financing, in the aggregate,
does not exceed 75% of the fair market value of such Financed Assets as set
forth in an opinion of a Qualified Appraiser, (2) securing any refinancing
of any Designated Financing which has an aggregate principal amount which
is equal to or less than the aggregate outstanding amount of the Designated
Financing being refinanced, (3) securing any refinancing of any Designated
Financing which has an aggregate principal amount which is greater than the
aggregate outstanding amount of the Designated Financing being refinanced,
which refinancing, in the aggregate, does not exceed 75% of the fair market
value of the Financed Assets, at the time of such refinancing, as set forth
in an opinion of a Qualified Appraiser, (4) encumbering any real or
personal property acquired with the proceeds of a sale of such Financed
Assets or (5) encumbering after-acquired personal property and improvements
relating to such Financed Assets or relating to any real or personal
property acquired with the proceeds of a sale of such assets; provided,
however, that such Lien does not extend to any property or assets of the
Company or any Restricted Subsidiary other than the property or assets so
acquired, purchased, constructed, developed, financed, refurbished or
leased;

(viii) mechanics', workmen's, materialmen's, operator's or similar
Liens arising in the ordinary course of business for sums that are not yet
delinquent or are being contested in good faith and by appropriate action;

(ix) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action;

(x) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations, surety, stay, appeal,

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<PAGE> 75

indemnity, performance or other similar bonds, or other similar obligations
arising in the ordinary course of business;

(xi) survey exceptions, encumbrances, easements or reservations, or
restrictions as to the use of real properties, and minor defects in title
which, in the case of any of the foregoing, were not incurred or created to
secure the payment of borrowed money or the deferred purchase price of
property or services;

(xii) judgment and attachment Liens not giving rise to an Event of
Default or Liens created by or existing from any litigation or legal
proceedings that are currently being contested in good faith and that are
appropriately reserved for in accordance with GAAP;

(xiii) Liens in favor of collecting or payor banks having a right to
setoff, revocation, refund or chargeback with respect to money or
instruments of the Company or any Restricted Subsidiary on deposit with or
in possession of such bank;

(xiv) Liens now or hereafter securing any Hedging Obligations to the
extent such Hedging Obligations are permitted to be incurred under the
Indenture;

(xv) Liens securing Indebtedness incurred after the Issuance Date
permitted to be incurred under the Indenture, provided that the Holders of
Notes are secured on an equal and ratable basis with the Indebtedness
secured by such Liens (or on a senior basis with respect to any
subordinated Indebtedness secured by such Liens), until such time as such
Indebtedness is no longer secured by such Liens; and

(xvi) Liens securing Permitted Refinancing Indebtedness which
constitutes a refinancing of Existing Indebtedness, which is secured on the
date of the Indenture, permitted by the covenant described under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock."

"Permitted Refinancing" means Refinancing Indebtedness or Refinancing
Disqualified Stock, as the case may be, to the extent (a) the principal amount
of Refinancing Indebtedness or the liquidation preference amount of Refinancing
Disqualified Stock, as the case may be, does not exceed the principal amount of
Indebtedness or the liquidation preference amount of Disqualified Stock, as the
case may be, so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of premiums and reasonable expenses incurred in connection
therewith); (b) such Refinancing Indebtedness or Refinancing Disqualified Stock,
as the case may be, is scheduled to mature or is redeemable at the option of the
holder, as the case may be, no earlier than the Indebtedness or Disqualified
Stock, as the case may be, being refinanced; (c) in the case of Refinancing
Indebtedness, the Refinancing Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (d) in the case of Refinancing Disqualified Stock, the Disqualified
Stock has a Weighted Average Life to Mandatory Redemption equal to or greater
than the Weighted Average Life to Mandatory Redemption of the Disqualified Stock
being extended, refinanced, renewed, replaced, defeased or refunded; (e) if the
Indebtedness or the Disqualified Stock, as the case may be, being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, the Refinancing Indebtedness or Refinancing Disqualified
Stock, as the case may be, is subordinated in right of payment to the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness or the Disqualified Stock, as the case
may be, being extended, refinanced, renewed, replaced, defeased or refunded or
is payable solely in Equity Interests of the Person whose Indebtedness is being
purchased, redeemed or otherwise acquired or retired for value.

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.

"Preferred Stock" means any Equity Interest with preferential right in the
payment of dividends or liquidation or any Disqualified Stock.

"Qualified Collateral" means (i) any property subject to a Lien consistent
with the requirements of the Indenture which is a "full-service" or "all-suites"
property as determined in good faith by the Company and

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<PAGE> 76

consistent with industry standards; (ii) any and all related real property
thereto; (iii) property consisting of furniture, furnishings, fixtures and
equipment and machinery forming a part thereof or used in connection therewith;
(iv) trademarks, to the extent assignable (other than the Company's proprietary
tradenames including, without limitation, "Amerisuites" and "Wellesley Inns");
(v) assignment of rents, contracts and franchise rights, to the extent
assignable, all as provided in the Collateral Documents; and (vi) proceeds of
the foregoing.

"Refinancing Disqualified Stock" means Disqualified Stock issued in
exchange for, or the proceeds of which are used, to extend, refinance, renew,
replace, defease or refund Disqualified Stock permitted to be issued pursuant to
the Fixed Charge Coverage Ratio test set forth in the covenant described under
the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock."

"Refinancing Indebtedness" means Indebtedness issued in exchange for, or
the proceeds of which are used to extend, refinance, renew, replace, defease or
refund Indebtedness permitted to be incurred pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock" or Indebtedness referred to in clauses (iii), (iv) and (viii) of the
second paragraph of the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock."

"Restricted Investment" means an Investment other than a Permitted
Investment.

"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.

"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.

"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.

"Substitute Collateral" means any Qualified Collateral.

"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Indebtedness; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the board resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time

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<PAGE> 77

designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock," and (ii) no Default or Event of Default would be in existence following
such designation.

"Weighted Average Life to Mandatory Redemption" means, when applied to any
Disqualified Stock at any date, the number of years obtained by dividing (a) the
sum of the products obtained by multiplying (x) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (y)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
liquidation preference amount of such Disqualified Stock.

"Weighted Average Life to Maturity" means, when applied to any,
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.

"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

SENIOR SECURED NOTES

Pursuant to the PMI plan of reorganization, the Company issued two classes
of Secured Notes which are identified as "Senior Secured Notes" and "Junior
Secured Notes." The aggregate principal amount of Senior Secured Notes issued
under the plan was $91,300,000, comprised of $30,100,000 of 8.20% Fixed Rate
Senior Secured Notes and $61,200,000 of Adjustable Rate Senior Secured Notes.
The aggregate principal amount of Junior Secured Notes issued under the plan was
approximately $70,000,000. In April 1994, the Company retired its remaining
Senior Secured Notes with a final pre-payment of $26,408,000.

In 1994, the Company received consents from the required holders of its
Junior Secured Notes to remove certain debt covenants which placed limitations
on the Company's hotel development spending. In consideration of the amendment
consent, the Company agreed to increase the coupon interest rate from 9.2% to
10.0% and to shorten the maturity by one year, from July 31, 2000 to July 31,
1999. In addition, the designation of these notes was changed from Junior
Secured Notes to Senior Secured Notes, as the original Senior Secured Notes were
retired. The collateral for the Senior Secured Notes consists primarily of
mortgages and notes receivable and real property, net of related liabilities
(the "Secured Note Collateral"), with a book value of $70,123,000 as of
September 30, 1995.

Interest on the Senior Secured Notes is payable semi-annually. The Senior
Secured Notes require that 85% of the cash proceeds from the Secured Note
Collateral be applied first to interest, then to prepayment of principal.
Aggregate principal payments on the Senior Secured Notes are required in order
that one-third of the principal balance outstanding on December 31, 1996 is paid
by July 31, 1998 and all of the balance is paid by July 31, 1999. To the extent
the cash proceeds from the Secured Note Collateral are insufficient to pay
interest or required principal payments on the Senior Secured Notes, the Company
will be obligated to pay any deficiency out of its general corporate funds. The
Senior Secured Notes contain covenants which, among other things, require the
Company to maintain a net worth of at least $100,000,000, and preclude cash
distributions to stockholders, including dividends and redemptions, until the
Senior Secured Notes have been paid in full.

During 1995, the Company prepaid and retired approximately $15,200,000 of
its Senior Secured Notes, resulting in pre-tax extraordinary gains of $121,000.
At September 30, 1995, there was approximately $37,431,000 aggregate principal
amount of Senior Secured Notes outstanding.

In October 1995, the Company prepaid and retired an additional $7,056,000
of its Senior Secured Notes. A pre-tax extraordinary gain of $53,000 will be
recorded in the fourth quarter of 1995.

MORTGAGE AND OTHER INDEBTEDNESS

The Company has mortgage notes payable of approximately $162,073,000 that
are secured by mortgage notes receivable and hotel properties with a book value
of $232,237,000. Principal and interest on these mortgages and notes are
generally paid monthly. At September 30, 1995 these notes bear interest at rates
ranging from 6.83% to 10.50% per annum and mature from 1996 through 2007.

The Company has other notes payable of $2,427,000 which bear interest at
rates ranging from 8.00% to 8.20% per annum and mature from 1998 through 1999.

The Company also has loans secured by furniture and equipment of
approximately $7,705,000 which bear interest at rates ranging from 6.67% to
14.90% and mature from 1997 to 2001.

Included in the Company's debt at September 30, 1995, is debt of the
Company's subsidiaries of approximately $106,602,000 at rates ranging from 6.67%
to 14.90% and maturing from 1996 through 2007. Approximately $47,016,000 of this
debt is expected to be repaid with the proceeds of this Offering. After giving
pro forma effect to the debt to be repaid with the proceeds of the Offering, the
Notes will be effectively subordinated to approximately $59,586,000 of
Indebtedness of the Company's Subsidiaries and approximately $93,088,000 of
Indebtedness of the Company secured by assets which do not constitute security
for the Notes.

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<PAGE> 79

7% CONVERTIBLE SUBORDINATED NOTES DUE 2002

In April 1995, the Company issued $86,250,000 of 7% Convertible
Subordinated Notes due April 15, 2002. The Convertible Notes bear interest at 7%
per annum with interest payment dates on April 15 and October 15. The
Convertible Notes are convertible into common stock of the Company at any time
prior to maturity at a conversion price of $12.00 per share, subject to
adjustment in certain events. The Convertible Notes are redeemable, in whole or
in part, at the option of the Company on or after April 17, 1998 at redemption
prices (expressed as a percentage of the principal amount) declining annually
over a three-year period from 104.0% to 101.0%, together with accrued interest
to the redemption date. If a Risk Event (as defined in the indenture with
respect to the Convertible Notes) occurs, the holder of a Convertible Note will
have the right to require the Company to offer to repurchase all outstanding
Convertible Notes, in whole or in part, owned by such holder at 100% of their
principal amount plus accrued interest, if any, to the date of repurchase. The
Convertible Notes are subordinated to all existing and future senior
indebtedness of the Company, including the Notes in this Offering, and are
effectively subordinated to all indebtedness and other liabilities of the
Company's subsidiaries. The Convertible Notes are not guaranteed by any of the
Company's subsidiaries. The indenture governing the Convertible Notes does not
restrict the ability of the Company or its subsidiaries to incur additional
indebtedness, including senior indebtedness.

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<PAGE> 80

UNDERWRITING

Under the terms and subject to the conditions of the Underwriting Agreement
dated the date hereof, each Underwriter named below has agreed to purchase, and
the Company has agreed to sell to such Underwriter, the principal amount of
Notes set forth opposite the name of such Underwriter below:

<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT
--------------------------------------------------------------------- ----------------
<S> <C>
Smith Barney Inc. ................................................... $
BT Securities Corporation............................................
Montgomery Securities................................................
----------
Total...................................................... $120,000,000
==========
</TABLE>

The Underwriters are obligated to take and pay for all of the Notes offered
hereby if any such Notes are taken.

The Underwriters have advised the Company that they propose initially to
offer part of the Notes directly to the public at the public offering price set
forth on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of % of the public offering price of the
Notes. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of % of the public offering price of the Notes to certain other
dealers. After the public offering, the public offering price and such
concessions may be changed from time to time by the Underwriters. The
Underwriters have informed the Company that the Underwriters do not intend to
confirm sales to accounts over which they exercise discretionary authority.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

The Notes have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance. The Underwriters have informed the
Company that the Underwriters intend to make a market in the Notes, as permitted
by applicable laws and regulations; however, the Underwriters are not obligated
to do so and any such market activity may be terminated at any time without
notice to the Holders. No assurance can be given as to the liquidity of or the
trading market for the Notes. See "Risk Factors -- Absence of Public Market for
the Notes."

Smith Barney Inc. from time to time has provided financial advisory
services to the Company and expects to continue to do so from time to time in
the future. Smith Barney Inc. has received and expects to receive customary fees
for services provided to the Company.

LEGAL MATTERS

Certain legal matters with respect to the legality of the Notes offered
hereby will be passed upon for the Company by Willkie Farr & Gallagher, New
York, New York. Certain legal matters relating to the Offering will be passed
upon for the Underwriters by Latham & Watkins, Washington, D.C. Jack H. Nusbaum,
a Director of the Company who beneficially owns 10,000 shares of Common Stock
and an additional 10,000 shares of Common Stock underlying stock options, is a
partner in the law firm of Willkie Farr & Gallagher.

EXPERTS

The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP and J.H.
Cohn & Company, independent public accountants, and are included herein in
reliance upon the authority of said firms as experts in giving said reports.

78
<PAGE> 81

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). The reports and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material also can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 at prescribed rates. The Company's common stock, par value $.01 per share,
and 7% Convertible Subordinated Notes due 2002 are listed on the New York Stock
Exchange. Reports, proxy materials and other information concerning the Company
may also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Notes offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions of which are
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Notes, reference is made to the
Registration Statement, including the exhibits and schedules. The Registration
Statement, together with its exhibits and schedules thereto, may be inspected,
without charge, at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20459, and also at the regional offices of the Commission
listed above. Copies of such material may also be obtained from the Commission
upon the payment of prescribed fees.

Statements contained in the Prospectus as to any contracts, agreements or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is hereby made to the copy
of such contract, agreement or other document filed as an exhibit to the
Registration Statement for a full statement of the provisions thereof, and each
such statement in the Prospectus is qualified in all respects by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994, as amended by Form 10-K/A filed on April 19, 1995, the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30,
1995 and September 30, 1995, and the Company's Current Reports on Form 8-K dated
April 25, 1995 and August 29, 1995, each previously filed by the Company with
the Commission, are incorporated herein by reference.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the Offering shall be deemed incorporated herein by reference,
and such documents shall be deemed to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement as so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, on the request of any such person, a copy of any or all
of the above documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Requests should be
directed to Prime Hospitality Corp., 700 Route 46 East, Fairfield, New Jersey
07007-2700, Attention: Joseph Bernadino, Senior Vice President, Secretary and
General Counsel, (201) 882-1010.

79
<PAGE> 82

PRIME HOSPITALITY CORP.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated (Unaudited):
Balance Sheets at December 31, 1994 and September 30, 1995.......................... F-2
Statements of Income for the Nine Months Ended September 30, 1994 and September 30,
1995............................................................................. F-3
Statements of Cash Flows for the Nine Months Ended September 30, 1994 and September
30, 1995......................................................................... F-4
Notes to Interim Consolidated Financial Statements.................................... F-5
Report of Arthur Andersen LLP......................................................... F-8
Consolidated:
Balance Sheets at December 31, 1993 and 1994........................................ F-9
Statements of Income for the Five Months Ended December 31, 1992 and the Years Ended
December 31, 1993 and 1994....................................................... F-10
Statements of Stockholders' Equity for the Five Months Ended December 31, 1992 and
the Years Ended December 31, 1993 and 1994....................................... F-11
Statements of Cash Flows for the Five Months Ended December 31, 1992 and the Year
Ended December 31, 1993 and 1994.................................................... F-12
Notes to Consolidated Financial Statements............................................ F-13
Report of Arthur Andersen LLP......................................................... F-26
Report of J.H. Cohn & Company......................................................... F-27
Consolidated:
Balance Sheets at June 30, 1992 and July 31, 1992................................... F-29
Statements of Operations for the Year Ended June 30, 1992 and the One Month Ended
July 31, 1992.................................................................... F-31
Statements of Stockholders' Equity (Deficiency) for the Year Ended June 30, 1992 and
the One Month Ended July 31, 1992................................................ F-32
Statements of Cash Flows for the Year Ended June 30, 1992 and the One Month Ended
July 31, 1992.................................................................... F-33
Notes to Consolidated Financial Statements.......................................... F-35
</TABLE>

Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.

Separate financial statements of 50% or less owned entities accounted for
by the equity method have been omitted because such entities considered in the
aggregate as a single subsidiary would not constitute a significant subsidiary.

F-1
<PAGE> 83

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
DECEMBER 31, -------------
1994
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 12,524 $ 34,704
Marketable securities available for sale......................... 1,117 25,400
Restricted cash.................................................. 9,725 9,370
Accounts receivable, net of reserves............................. 7,819 12,583
Current portion of mortgages and notes receivable................ 1,925 14,380
Other current assets............................................. 7,196 5,791
-------- --------
Total current assets..................................... 40,306 102,228
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization.................................... 299,291 384,400
Mortgages and notes receivable, net of current portion............. 81,260 65,040
Other assets....................................................... 14,075 16,809
-------- --------
TOTAL ASSETS............................................. $434,932 $ 568,477
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITIES
Current liabilities:
Current portion of debt.......................................... $ 5,284 $ 6,784
Other current liabilities........................................ 23,904 26,218
-------- --------
Total current liabilities................................ 29,188 33,002
Long-term debt, net of current portion............................. 178,545 289,102
Other liabilities.................................................. 23,134 21,250
-------- --------
Total liabilities........................................ 230,867 343,354
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share; 20,000,000 shares
authorized; none issued....................................... -- --
Common stock, par value $.01 per share; 75,000,000 shares
authorized; 30,409,371 and 30,945,125 shares issued and
outstanding at December 31, 1994 and September 30, 1995,
respectively.................................................. 304 309
Capital in excess of par value................................... 171,774 179,571
Retained earnings................................................ 31,987 45,243
-------- --------
Total stockholders' equity............................... 204,065 225,123
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $434,932 $ 568,477
======== ========
</TABLE>

See Accompanying Notes to Interim Consolidated Financial Statements.

F-2
<PAGE> 84

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Revenues:
Lodging.............................................................. $ 64,832 $108,157
Food and beverage.................................................... 11,883 28,096
Management and other fees............................................ 7,505 6,080
Interest on mortgages and notes receivable........................... 12,134 9,268
Rental and other..................................................... 982 1,042
------- --------
Total revenues............................................... 97,336 152,643
------- --------
Costs and expenses:
Direct hotel operating expenses:
Lodging........................................................... 18,347 28,561
Food and beverage................................................. 9,488 21,165
Selling and general............................................... 19,431 36,585
Occupancy and other operating........................................ 7,638 8,216
General and administrative........................................... 11,269 11,410
Depreciation and amortization........................................ 6,287 11,907
------- --------
Total costs and expenses..................................... 72,460 117,844
------- --------
Operating income....................................................... 24,876 34,799
Investment income...................................................... 1,492 3,879
Interest expense....................................................... (10,397) (15,933)
Other income........................................................... 7,463 1,427
Other expense.......................................................... -- (2,200)
------- --------
Income before income taxes and extraordinary items..................... 23,434 21,972
Provision for income taxes............................................. 9,608 8,789
------- --------
Income before extraordinary items...................................... 13,826 13,183
Extraordinary items -- Gains on discharges of indebtedness
(net of income taxes)................................................ 172 73
------- --------
Net income............................................................. $ 13,998 $ 13,256
======= ========
Net income per common share:
Income before extraordinary items.................................... $ .43 $ .41
Extraordinary items.................................................. .01 --
------- --------
Net income............................................................. $ .44 $ .41
======= ========
</TABLE>

See Accompanying Notes to Interim Consolidated Financial Statements.

F-3
<PAGE> 85

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
CASH FLOWS
Cash flows from operating activities:
Net income.......................................................... $ 13,998 $ 13,256
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 6,287 11,907
Provision for hurricane damage................................... -- 2,200
Utilization of net operating loss carryforwards.................. 2,295 5,874
Gains on settlements of notes receivable......................... (6,005) (822)
Gains on discharges of indebtedness.............................. (291) (121)
Gains on disposals of assets..................................... (1,099) (1,103)
Compensation expense related to stock options.................... 43 12
Increase (decrease) from changes in other operating assets and
liabilities:
Accounts receivable............................................ 1,016 (4,764)
Other current assets........................................... 784 1,393
Other liabilities.............................................. 1,141 (1,806)
-------- ---------
Net cash provided by operating activities...................... 18,169 26,026
-------- ---------
Cash flows from investing activities:
Net proceeds from mortgages and notes receivable.................... 33,799 14,672
Disbursements for mortgages and notes receivable.................... (1,100) (12,704)
Proceeds from sales of property, equipment and leasehold
improvements..................................................... 1,053 1,784
Purchases of property, equipment and leasehold improvements......... (28,303) (88,013)
Decrease in restricted cash......................................... 3,378 355
Proceeds from sales of marketable securities........................ 1,082 2,165
Purchases of marketable securities.................................. (5,885) (24,145)
Other............................................................... (1,516) 1,086
-------- ---------
Net cash provided by (used in) investing activities............ 2,508 (104,800)
-------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt.................................. 3,725 120,159
Payments of debt.................................................... (42,479) (20,705)
Proceeds from the exercise of stock options and warrants............ 1,056 1,559
Other............................................................... 75 (59)
-------- ---------
Net cash provided by (used in) financing activities............ (37,623) 100,954
-------- ---------
Net increase (decrease) in cash and cash equivalents.................. (16,946) 22,180
Cash and cash equivalents at beginning of period...................... 41,569 12,524
-------- ---------
Cash and cash equivalents at end of period............................ $ 24,623 $ 34,704
======== =========
</TABLE>

See Accompanying Notes to Interim Consolidated Financial Statements.

F-4
<PAGE> 86

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and subsidiaries
(the "Company") contain all material adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of September 30, 1995 and the results of its operations for the nine months
ended September 30, 1994 and 1995 and cash flows for the nine months ended
September 30, 1994 and 1995. Certain reclassifications have been made to the
September 30, 1994 consolidated financial statements to conform them to the
September 30, 1995 presentation.

The financial statements for the nine months ended September 30, 1994 and
1995 were prepared on a consistent basis with the audited consolidated financial
statements for the year ended December 31, 1994.

The consolidated results of operations for the nine months ended September
30, 1995 are not necessarily indicative of the results to be expected for the
full year. These interim unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K/A for the fiscal year ended December
31, 1994.

NOTE 2 -- ACQUISITIONS

In March 1995, the Company acquired the option of ShoLodge, Inc.
("ShoLodge") to purchase a 50% interest in eleven of the Company's AmeriSuites
hotels and also acquired the ownership interest of the remaining AmeriSuites
hotel not already owned by the Company. In 1993, the Company and its
wholly-owned subsidiary, Suites of America, Inc. ("SOA") entered into agreements
with ShoLodge, a company controlled by a former director, designed to further
the growth of its AmeriSuites hotels from the six hotels owned by the Company at
that time. Pursuant to these agreements, (i) ShoLodge agreed to build and
finance six additional AmeriSuites hotels and received an option to purchase a
50% interest in SOA and (ii) the Company received an option pursuant to which it
could require ShoLodge to purchase a 50% interest in SOA. The exercise of the
option by ShoLodge was scheduled to occur in January 1995, when the Company and
ShoLodge began to negotiate the Company's buyout of ShoLodge's option. The
consideration payable by the Company was based upon the fair market value of the
properties. The consideration totaled $19,700,000 and was comprised of (i)
$16,100,000 in cash, of which $6,100,000 was paid on March 31, 1995 and
$10,000,000 was paid on May 5, 1995, plus (ii) $18,500,000 which will be paid in
notes maturing in 1997, less (iii) $14,900,000 of existing debt on five hotels,
which was retired at face value. The transaction resulted in a net increase of
approximately $3,600,000 of long-term debt. No gain or loss was recorded on the
forgiveness of debt. As a result of this transaction, the Company assumed
management of these hotels.

In August 1995, the Company entered into an agreement to purchase four
Bradbury Suites hotels for $18,700,000. The hotels, comprising 447 rooms, are
located in Augusta, Georgia; Columbia, South Carolina; Arlington Heights,
Illinois and Jacksonville, Florida. The Company is converting the hotels to its
proprietary AmeriSuites brand. In August 1995, the Company also purchased the
149 room all-suite St. Tropez Hotel and Shopping Center in Las Vegas for
$15,200,000.

NOTE 3 -- DEBT

In April 1995, the Company issued $86,250,000 of 7% Convertible
Subordinated Notes due 2002. The notes bear interest at 7%, are convertible into
common stock at a price of $12 per share at the option of the holder and mature
on April 15, 2002. The notes are redeemable, in whole or in part, at the option
of the Company after three years at premiums to principal which decline on each
anniversary date.

F-5
<PAGE> 87

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In February 1995, Prime obtained $39,000,000 of mortgage financing on
eleven of its hotels under two separate loan agreements. Both loans bear
interest at variable rates (approximately 10.5% at September 30, 1995) and have
five-year maturities.

During 1995, the Company prepaid and retired approximately $15,200,000 of
its senior secured notes, resulting in pre-tax extraordinary gains of $121,000.
In October 1995, the Company prepaid and retired an additional $7,056,000 of its
senior secured notes. A pre-tax extraordinary gain of $53,000 will be recorded
in the fourth quarter.

NOTE 4 -- INCOME TAXES

At September 30, 1995, the Company had available federal net operating loss
carryforwards of approximately $106,600,000 which will expire beginning in 2005
and continuing through 2007. Of this amount, $104,800,000 is subject to an
annual limitation of $8,735,000 under the Internal Revenue Code due to a change
in ownership of the Company. The Company also has potential state income tax
benefits relating to net operating loss carryforwards of approximately
$8,000,000 which will expire during various periods from 1995 to 2006. Certain
of these potential benefits are subject to annual limitations similar to federal
requirements due to factors such as the level of business conducted in each
state and the amount of income subject to tax within each state's carryforward
period. For the nine months ended September 30, 1995 the Company recognized
$5,874,000 of tax benefits as a contribution to stockholders' equity.

NOTE 5 -- CONTINGENCIES

The Company received a second favorable ruling in its litigation with
Financial Security Assurance, Inc. ("FSA") in which FSA sought approximately
$31,200,000 previously received by the Company in settlement of a note and
guaranty from Allen V. Rose and Arthur Cohen ("Rose and Cohen"). In an order
dated April 25, 1995, the U.S. District Court for the Southern District of
Florida (the "U.S. District Court") affirmed a lower court ruling approving the
Company's settlement with Rose and Cohen and finding that the Company alone was
entitled to the settlement proceeds. The Company had previously reached a
settlement in 1993 with Rose and Cohen which provided for Rose or his affiliate
to pay the Company $25,000,000 plus proceeds from the sale of approximately
1,100,000 shares of the Company's common stock held by Rose, bringing the total
settlement proceeds to approximately $31,200,000. FSA asserted that, under the
terms of an intercreditor agreement, it was entitled to receive the settlement
proceeds otherwise payable to the Company. The U.S. Bankruptcy Court for the
Southern District of Florida (the "Bankruptcy Court") ruled in favor of the
Company in April 1994 and the Company used $25,000,000 of the settlement
proceeds to retire certain senior secured notes. FSA appealed to the U.S.
District Court, which affirmed the Bankruptcy Court's ruling. On May 12, 1995,
the Company used the remaining proceeds plus accrued interest to prepay senior
secured notes. On May 23, 1995, FSA filed a notice of appeal with the U.S. Court
of Appeals for the 11th Circuit. The Company believes that FSA is unlikely to
prevail on its claim, and as a result, does not believe it will have a material
impact on the accompanying Consolidated Financial Statements.

NOTE 6 -- NET INCOME PER COMMON SHARE

Primary net income per common share was computed based on the weighted
average number of common shares and common share equivalents (dilutive stock
options and warrants) outstanding during each period. The weighted average
number of common shares used in computing primary net income per share was
31,969,000 for the nine months ended September 30, 1994 and 32,118,000 for the
nine months ended September 30, 1995.

Fully diluted net income per share, in addition to the adjustments for
primary net income per share, reflects the elimination of interest expense and
the issuance of additional common shares from the assumed conversion of the 7%
convertible subordinated notes from their issuance in the second quarter of
1995. The

F-6
<PAGE> 88

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

weighted average number of common shares used in computing fully diluted net
income per share was 36,666,000 for the nine months ended September 30, 1995.
Fully diluted net income per share has not been presented in the consolidated
financial statements because the dilutive effect is not material.

NOTE 7 -- OTHER INCOME

Other income consists of items which are not considered part of the
Company's recurring operations and is composed of the following (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1994 1995
------ ------
<S> <C> <C>
Gains on settlements of notes receivable............... $6,005 $ 822
Gain on sale of property............................... 1,099 605
Other.................................................. 359 --
------ ------
Total........................................ $7,463 $1,427
====== ======
</TABLE>

NOTE 8 -- OTHER EXPENSE

Other expense of $2,200,000 for the nine months ended September 30, 1995
consists of a reserve for insurance deductibles related to hurricane damage at
the Company's Marriott's Frenchman's Reef Resort hotel in St. Thomas, United
States Virgin Islands.

F-7
<PAGE> 89

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of Prime Hospitality Corp.:

We have audited the accompanying consolidated balance sheets of Prime
Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as
of December 31, 1994 and 1993 and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended and the five months
ended December 31, 1992. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prime Hospitality Corp. and
subsidiaries as of December 31, 1994 and 1993 and the results of their
operations and their cash flows for the years then ended and the five months
ended December 31, 1992 in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Roseland, New Jersey
February 2, 1995

F-8
<PAGE> 90

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 41,569 $ 12,524
Restricted cash...................................................... 10,993 9,725
Accounts receivable, net of reserves................................. 6,266 7,819
Current portion of mortgages and notes receivable.................... 2,275 1,925
Accrued interest receivable.......................................... 3,954 1,539
Other current assets................................................. 3,145 5,657
-------- --------
Total current assets......................................... 68,202 39,189
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization........................................ 172,786 299,291
Mortgages and notes receivable, net of current portion................. 163,033 81,260
Other assets........................................................... 6,664 15,192
-------- --------
TOTAL ASSETS................................................. $410,685 $434,932
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt.............................................. $ 19,282 $ 5,284
Other current liabilities............................................ 22,445 23,904
-------- --------
Total current liabilities.................................... 41,727 29,188
Long-term debt, net of current portion................................. 168,618 178,545
Other liabilities...................................................... 28,976 23,134
-------- --------
Total liabilities............................................ 239,321 230,867
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share; 20,000,000 shares
authorized;
none issued....................................................... -- --
Common stock, par value $.01 per share; 50,000,000 shares authorized
29,988,674 and 30,409,371 shares issued and outstanding in 1993
and 1994, respectively............................................ 300 304
Capital in excess of par value....................................... 157,507 171,774
Retained earnings.................................................... 13,557 31,987
-------- --------
Total stockholders' equity................................... 171,364 204,065
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $410,685 $434,932
======== ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-9
<PAGE> 91

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1994
------------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Room........................................... $ 24,639 $ 69,487 $ 88,753
Food and beverage.............................. 4,598 12,270 18,090
Management and other fees...................... 5,000 10,831 10,021
Interest on mortgages and notes receivable..... 6,335 14,765 15,867
Rental and other............................... 762 1,507 1,572
------- -------- --------
Total revenues......................... 41,334 108,860 134,303
======= ======== ========
Costs and expenses:
Direct hotel operating expenses:
Room........................................ 6,952 19,456 24,539
Food and beverage........................... 4,027 10,230 13,886
Selling and general......................... 7,811 20,429 26,733
Occupancy and other operating.................. 4,351 11,047 11,261
General and administrative..................... 5,929 15,685 15,089
Depreciation and amortization.................. 2,918 7,117 9,427
------- -------- --------
Total costs and expenses............... 31,988 83,964 100,935
======= ======== ========
Operating income................................. 9,346 24,896 33,368
Interest income on cash investments.............. 693 1,267 1,966
Interest expense................................. (7,718) (16,116) (13,993)
Other income..................................... -- 3,809 9,089
------- -------- --------
Income before income taxes and extraordinary
items.......................................... 2,321 13,856 30,430
Provision for income taxes....................... 928 5,681 12,172
------- -------- --------
Income before extraordinary items................ 1,393 8,175 18,258
Extraordinary items -- gains on discharges of
indebtedness (net of income taxes of $2,772 and
$120).......................................... -- 3,989 172
------- -------- --------
Net income....................................... $ 1,393 $ 12,164 $ 18,430
======= ======== ========
Net income per common share:
Income before extraordinary items.............. $ .05 $ .27 $ .57
Extraordinary items............................ -- .13 .01
------- -------- --------
Net income per common share...................... $ .05 $ .40 $ .58
======= ======== ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-10
<PAGE> 92

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN
------------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS TOTAL
---------- ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance August 1, 1992.......................... 29,912,794 $299 $ 135,301 $ -- $135,600
Net income...................................... -- -- -- 1,393 1,393
Utilization of net operating loss
carryforwards................................. -- -- 789 -- 789
----------- ---- -------- ------- --------
Balance December 31, 1992....................... 29,912,794 299 136,090 1,393 137,782
Net income...................................... -- -- -- 12,164 12,164
Utilization of net operating loss
carryforwards................................. -- -- 4,525 -- 4,525
Federal income tax refund....................... -- -- 16,462 -- 16,462
Compensation expense related to stock option
plan.......................................... -- -- 225 -- 225
Proceeds from exercise of stock options......... 30,000 -- 81 -- 81
Proceeds from exercise of stock warrants........ 45,880 1 124 -- 125
----------- ---- -------- ------- --------
Balance December 31, 1993....................... 29,988,674 300 157,507 13,557 171,364
Net income...................................... -- -- -- 18,430 18,430
Utilization of net operating loss
carryforwards................................. -- -- 5,861 -- 5,861
Amortization of pre-fresh start tax basis
differences................................... -- -- 6,954 -- 6,954
Federal income tax refund....................... -- -- 200 -- 200
Compensation expense related to stock option
plan.......................................... -- -- 60 -- 60
Proceeds from exercise of stock options......... 216,080 2 640 -- 642
Proceeds from exercise of stock warrants........ 204,617 2 552 -- 554
----------- ---- -------- ------- --------
Balance December 31, 1994....................... 30,409,371 $304 $ 171,774 $ 31,987 $204,065
=========== ==== ======== ======= ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-11
<PAGE> 93

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1994
----------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 1,393 $ 12,164 $ 18,430
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 2,918 7,117 9,427
Gain on settlement of note receivable....... -- -- (6,224)
Utilization of net operating loss
carryforwards............................. 789 4,525 5,861
Amortization of pre-fresh start tax basis
differences............................... -- -- 6,954
Deferred income taxes....................... -- 1,541 (205)
Gains on discharges of indebtedness......... -- (6,761) (292)
Gains on disposals of assets................ -- (1,769) (1,099)
Compensation expense related to stock
options................................... -- 225 60
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable......................... 320 269 (1,945)
Other current assets........................ (1,445) (1,791) 127
Other liabilities........................... (248) 4,208 (2,422)
-------- -------- --------
Net cash provided by operating activities... 3,727 19,728 28,672
-------- -------- --------
Cash flows from investing activities:
Proceeds from mortgages and other notes
receivable.................................. 46,165 10,861 36,198
Disbursements for mortgages and other notes
receivable.................................. -- (515) (1,100)
Proceeds from sales of property, equipment and
leasehold improvements...................... -- 3,715 1,480
Purchases of property, equipment and leasehold
improvements................................ (1,803) (14,346) (63,360)
Decrease in restricted cash.................... 9,939 1,903 1,268
Proceeds from retirement of debt securities.... -- -- 1,116
Purchase of debt and other securities.......... -- -- (5,885)
Other.......................................... (506) 663 (3,965)
-------- -------- --------
Net cash provided by (used in) investing
activities................................ 53,795 2,281 (34,248)
-------- -------- --------
Cash flows from financing activities:
Payments of debt............................... (56,592) (30,890) (43,771)
Proceeds from issuance of debt................. -- 2,771 19,026
Proceeds from the exercise of stock options and
warrants.................................... -- 206 1,196
Principal proceeds from federal income tax
refund...................................... -- 16,462 200
Reorganization items after emergence from
bankruptcy.................................. (3,807) (5,605) (120)
-------- -------- --------
Net cash used in financing activities....... (60,399) (17,056) (23,469)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (2,877) 4,953 (29,045)
Cash and cash equivalents at beginning of
period......................................... 39,493 36,616 41,569
-------- -------- --------
Cash and cash equivalents at end of period....... $ 36,616 $ 41,569 $ 12,524
-------- -------- --------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-12
<PAGE> 94

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993 AND 1994

NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS ACTIVITIES:

Prime Hospitality Corp. (the "Company") is a hotel owner/operator with
ownership or management of hotels in the United States and the U.S. Virgin
Islands. The Company's hotels primarily provide moderately priced, quality
accommodations in secondary markets, and operate under franchise agreements with
national hotel chains or under the Company's proprietary Wellesley Inns or
AmeriSuites brand names.

The Company emerged from the Chapter 11 reorganization proceeding of its
predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"),
which consummated its Plan of Reorganization ("the Plan") on July 31, 1992 (the
"Effective Date"). PMI and certain of its subsidiaries had filed for protection
under Chapter 11 of the United States Bankruptcy Code in September of 1990.
During the reorganization, PMI re-negotiated most of its leases, management
agreements and debt commitments, resulting in the elimination of a substantial
number of unprofitable contract relationships and excessive debt obligations.

BASIS OF PRESENTATION:

Pursuant to the American Institute of Certified Public Accountant's
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh start
reporting as of July 31, 1992. Under fresh start reporting, the reorganization
value of the entity was allocated to the reorganized Company's assets on the
basis of the purchase method of accounting. The reorganization value (the
approximate fair value) of the assets of the emerging entity was determined by
consideration of many factors and various valuation methods, including
discounted cash flows and price/earnings and other applicable ratios believed by
management to be representative of the Company's business and industry.
Liabilities were recorded at face values, which approximate the present values
of amounts to be paid determined at appropriate interest rates. Under fresh
start reporting, the consolidated balance sheet as of July 31, 1992 became the
opening consolidated balance sheet of the emerging Company.

In accordance with SOP 90-7, financial statements covering periods prior to
July 31, 1992 are not presented because such statements have been prepared on a
different basis of accounting and are thus not comparable.

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.

CASH EQUIVALENTS:

Cash equivalents are highly liquid unrestricted investments with a maturity
of three months or less when acquired.

RESTRICTED CASH:

Restricted cash consists primarily of highly liquid investments that serve
as collateral for debt obligations due within one year.

MORTGAGES AND NOTES RECEIVABLE:

Mortgages and notes receivable are reflected at their fair value as of July
31, 1992, adjusted for payments and other advances since that date. The amount
of interest income recognized on mortgages and notes receivable is generally
based on the stated interest rate and the carrying value of the notes. The
Company has

F-13
<PAGE> 95

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a number of subordinated or junior mortgages which remit payment based on hotel
cash flow. Because there is substantial doubt that the Company will recover any
value, these mortgages were assigned no value in the Company's consolidated
financial statements when the Company adopted fresh-start reporting on the
Effective Date. Interest on cash flow mortgages and delinquent loans is
generally recognized when cash is received.

In May 1993 and October 1994, the Financial Accounting Standards Board
issued SFAS 114, "Accounting by Creditors for Impairment of a Loan" and SFAS
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." As defined in SFAS 114 and SFAS 118, a loan is impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. SFAS 114 and SFAS 118 require that the measurement of impairment of a
loan be based on the present value of expected future cash flows (net of
estimated costs to sell) discounted at the loan's effective interest rate.
Impairment can also be measured based on a loan's observable market price or the
fair value of collateral, if the loan is collateral dependent. If the measure of
the impaired loan is less than the recorded investment in the loan, the Company
will be required to establish a valuation allowance, or adjust existing
valuation allowances, with a corresponding charge or credit to operations.

The Company is required to adopt these new accounting rules effective
January 1, 1995. Management expects the effect of adopting these new accounting
standards will be immaterial based on the current net carrying value of its
mortgage and notes receivable portfolio.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Property, equipment and leasehold improvements that the Company intends to
continue to operate are stated at their fair market value as of July 31, 1992
plus the cost of acquisitions subsequent to that date less accumulated
depreciation and amortization from August 1, 1992. Provision is made for
depreciation and amortization using the straight-line method over the estimated
useful lives of the assets. Properties identified for disposal are stated at
their estimated net realizable value.

INCOME TAXES:

The Company and its subsidiaries file a consolidated Federal income tax
return. For financial reporting purposes, the Company follows Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 109
("FAS 109"). In accordance with FAS 109, as well as SOP 90-7, income taxes have
been provided at statutory rates in effect during the period. Tax benefits
associated with net operating loss carryforwards and other temporary differences
that existed at the time fresh start reporting was adopted are reflected as a
contribution to stockholders' equity in the period in which they are realized.

NET INCOME PER COMMON SHARE:

Net income per common share is computed based on the weighted average
number of common shares and common share equivalents outstanding during each
period. The weighted average number of common shares used in computing primary
net income per share was 29,913,000 for the five months ended December 31, 1992
and 30,721,000 and 32,022,000 for the years ended December 31, 1993 and 1994,
respectively. Net income per common shares was restated for all periods to
reflect a 9.4% reduction in the number of shares distributed under PMI's Plan
(See Note 10). The dilutive effect of stock warrants and options during the five
months ended December 31, 1992 and the years ended December 31, 1993 and 1994
was not material (see Note 10).

F-14
<PAGE> 96

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECLASSIFICATIONS:

Certain reclassifications have been made to the December 31, 1992 and 1993
consolidated financial statements to conform them to the December 31, 1994
presentation.

NOTE 2 -- CASH AND CASH EQUIVALENTS

Cash and cash equivalents are comprised of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
Cash..................................................... $ 3,013 $ 5,953
Commercial paper and other cash equivalents.............. 38,556 6,571
------- -------
Totals......................................... $41,569 $12,524
======= =======
</TABLE>

NOTE 3 -- MORTGAGES AND NOTES RECEIVABLE

Mortgages and notes receivable are comprised of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Properties operated by the Company(a).................. $ 65,323 $ 60,609
Other(b)............................................... 24,985 22,576
Frenchman's Reef resort hotel(c)....................... 50,000 --
Rose and Cohen entities(d)............................. 25,000 --
-------- --------
Total........................................ $165,308 $ 83,185
Less current portion................................... (2,275) (1,925)
-------- --------
Long-term portion...................................... $163,033 $ 81,260
======== ========
</TABLE>

- ---------------
(a) The Company is the holder of mortgage notes receivable with a book value of
$46,497,000 secured primarily by 10 hotel properties operated by the Company
under management agreements and $14,112,000 in mortgages secured primarily
by 4 properties operated under lease agreements. These notes currently bear
interest at rates ranging from 8.5% to 13.5% and mature through 2017. The
mortgages were primarily derived from the sales of hotel properties. Many of
the managed properties were unable to pay in full the annual debt service
required under the terms of the original mortgages. The Company has
restructured approximately $33,000,000 of these loans to pay based upon
available cash and a participation in the future excess cash flow of such
hotel properties. The restructurings generally include a "senior portion"
featuring defined payment terms, and a "junior portion" payable annually
based on cash flow. The junior portion represents the difference between the
original mortgage and the new senior portion and provides the Company the
opportunity to recover that difference if the hotel's performance improves.
In addition to the junior portion of the restructured mortgages, the Company
holds junior or other cash flow mortgages and subordinated interests in
other hotel properties operated by the Company under management agreements.
Pursuant to these mortgage agreements, the Company is entitled to receive
the majority of excess cash flow generated by these hotel properties. In
total, the Company has junior mortgages relating to 22 hotel properties
which mature on various dates from 1999 through 2088. Due to the junior
positions of these mortgages, foreclosure rights are of limited value.
However, these mortgages enable the Company to participate in a substantial
portion of the future sales proceeds upon sales of the hotels after
satisfying all obligations senior to these junior mortgages.

F-15
<PAGE> 97

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Although these junior mortgages have an aggregate face value of
approximately $65,000,000, in accordance with the adoption of fresh start
reporting under SOP 90-7, no value was assigned to the junior portions of
the restructured notes or the junior mortgages and subordinated interests on
the other hotels as there was substantial doubt at the time of valuation
that the Company would recover any of their value. As a result, interest
income on these junior or cash flow mortgages is recognized when cash is
received. During 1993 and 1994, the Company recognized $976,000 and
$2,000,000, respectively, of interest income related to these mortgages. The
hotels underlying these mortgages are all managed by the Company. Future
recognition of interest income on these mortgages is dependent primarily
upon the net cash flow of the underlying hotels after debt service, which is
senior to the Company's junior positions.

(b) Other notes receivable currently bear interest at effective rates ranging
from 4% to 10.5%, mature through 2011 and are secured primarily by hotel
properties not currently managed by the Company.

(c) The mortgage notes secured by the Frenchman's Reef Resort Hotel
("Frenchman's Reef") consisted of first and second mortgages with face
values of $53,383,000 and $25,613,000, respectively, with final scheduled
principal payments of $51,976,000 and $25,613,000 due on July 31, 1995. In
connection with the adoption of fresh start reporting, the Company valued
the notes at $50,000,000.

During the five months ended December 31, 1992, and years ended December 31,
1993 and 1994 the Company recognized $1,770,000, $4,250,000 and $4,586,000
of interest income on these notes, respectively, based on the level of cash
flow generated from the hotel property available to service the notes.
Interest income of approximately $4,300,000, $10,300,000 and $9,800,000
would have been recorded for the five months ended December 31, 1992 and the
years ended December 31, 1993 and 1994 if the notes receivable had been
current in accordance with their original terms.

In December 1994, the Company obtained ownership of Frenchman's Reef in
satisfaction of the mortgage note receivable through a pre-negotiated plan
of reorganization. The Company had previously reached an agreement in 1993
to restructure its mortgage notes receivable secured by Frenchman's Reef
with the general partner of Frenchman's Reef Beach Associates ("FRBA"), the
owner of the hotel. In conjunction with the agreement, FRBA filed a
pre-negotiated chapter 11 petition in September 1993. During the
reorganization period, the Company continued to receive cash payments on its
mortgage notes receivable under a cash collateral order approved by the
Bankruptcy Court. Under the plan of reorganization, which was approved by
the Bankruptcy Court on November 29, 1994, the Company obtained ownership
and control of the hotel. The Company recorded the net assets of Frenchman's
Reef at their respective fair market values at the time of restructuring.
The fair market values were determined based on a recent appraisal of the
hotel and approximated the book value of the mortgage note receivable of
$50,000,000. Upon taking control of the property, the Company reallocated
its basis in the mortgage note receivable of $50,000,000 to the various
operating assets acquired (principally land, hotel building and furniture
and fixtures) and no gain or loss was recorded in the transaction.

(d) From 1988 through 1990, PMI loaned entities controlled by Allan Rose and
Arthur Cohen ("Rose and Cohen") an aggregate of $100,890,000 fully secured
by property and/or personal guarantees. Based on PMI's estimate of the value
of the collateral and the personal guarantees of Rose and Cohen and
discussions related to the possible early payment of the loan, PMI wrote
down the loan to $50,000,000 as of June 30, 1990 and discontinued the
accrual of interest. As a result of further evaluation of the collateral and
personal guarantees, the Company valued the note at $25,000,000 in
connection with the adoption of fresh start reporting pursuant to SOP 90-7
as of July 31, 1992, the Effective Date. During 1993, the Company reached a
settlement with Rose and Cohen of an adversary proceeding regarding the
promissory note and personal guarantee, commenced by a subsidiary of PMI
during 1991. The settlement provided for Rose or his affiliate to pay the
Company the sum of $25 million, plus proceeds from approximately 1.1 million
shares of the Company's common stock held by Rose.

Financial Security Assurance, Inc. ("FSA") asserted that it was entitled to
receive the settlement proceeds under the terms of a certain intercreditor
agreement. In April 1994, the Court approved the

F-16
<PAGE> 98

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

settlement and ruled that the Company had an exclusive right to the
settlement proceeds. Upon receipt of the order, the Company used the $25
million of settlement proceeds to retire certain senior secured notes (see
Note 6). On April 21, 1994, FSA filed its notice of appeal of the Court's
order. During 1994, Rose sold approximately 1.0 million shares of the
Company's common stock under the terms of the settlement for net proceeds of
approximately $6.2 million. Since the Rose and Cohen note had a book value
of $25 million at the time of the settlement, approximately $6.2 million was
recorded as other income in the Company's statement of operations.

All proceeds received pursuant to the settlement after April 21, 1994 have
been held in escrow until an order on the appeal is received. The Company
believes that FSA is unlikely to prevail on its claim, and as a result, does
not believe it will have a material impact on the accompanying consolidated
financial statements. Upon receipt of a favorable order from the Court,
substantially all of the net proceeds are required to be used to retire
additional debt (see Note 6).

NOTE 4 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- YEARS OF
1993 1994 USEFUL LIFE
-------- -------- -----------
<S> <C> <C> <C>
Land and land leased to others..................... $ 29,407 $ 49,438
Hotels............................................. 109,671 200,706 20 to 40
Furniture, fixtures and autos...................... 21,879 46,021 3 to 10
Leasehold improvements............................. 10,222 11,336 3 to 40
Construction in progress........................... 2,555 1,457
Properties held for sale........................... 8,355 8,898
-------- --------
Sub-total........................................ 182,089 317,856
Less accumulated depreciation and amortization... (9,303) (18,565)
-------- --------
Totals................................... $172,786 $299,291
======== ========
</TABLE>

At December 31, 1994, the Company was the lessor of land and certain
restaurant facilities in Company-owned hotels with an approximate aggregate book
value of $8,074,000 pursuant to noncancelable operating leases expiring on
various dates through 2013. Minimum future rentals under such leases are
$10,132,000, of which $3,961,000 is scheduled to be received in the aggregate
during the five-year period ending December 31, 1999.

Depreciation and amortization expense on property, equipment and leasehold
improvements was $2,784,000 for the five months ended December 31, 1992 and
$7,015,000 and $9,300,000 for the years ended December 31, 1993 and 1994,
respectively.

During the years ended December 31, 1993 and 1994, the Company capitalized
$0 and $836,000, respectively, of interest related to borrowings used to finance
hotel construction.

F-17
<PAGE> 99

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
Accounts payable......................................... $ 2,025 $ 4,436
Interest............................................... 4,454 3,115
Accrued payroll and related benefits................... 2,190 2,490
Accrued expenses....................................... 1,592 4,182
Insurance reserves..................................... 6,206 5,123
Other.................................................. 5,978 4,558
------- -------
Totals......................................... $22,445 $23,904
======= =======
</TABLE>

NOTE 6 -- DEBT

Debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Secured notes(a)....................................... $ 86,683 $ 52,580
Mortgages and other notes payable(b)................... 99,946 131,249
Borrowings under credit agreement...................... 1,271 --
-------- --------
Total debt............................................. 187,900 183,829
Less current maturities................................ (19,282) (5,284)
-------- --------
Debt, net of current portion................. $168,618 $178,545
======== ========
</TABLE>

- ---------------
(a) Pursuant to the Plan, the Company issued two classes of Secured Notes which
are identified as "Senior Secured Notes" and "Junior Secured Notes". The
aggregate principal amount of Senior Secured Notes issued under the Plan was
$91,300,000, comprised of $30,100,000 of 8.20% Fixed Rate Senior Secured
Notes and $61,200,000 of Adjustable Rate Senior Secured Notes. The aggregate
principal amount of Junior Secured Notes issued under the Plan was
approximately $70,000,000.

During 1994, the Company repurchased $6,527,000 of its Adjustable Rate
Senior Secured Notes, $217,000 of its 8.20% Senior Secured Notes and
$461,000 of its 9.20% Junior Secured Notes for an aggregate purchase price
of $7,018,000. The repurchases resulted in pretax extraordinary gains of
$187,000. In April 1994, the Company retired its Senior Secured Notes with a
pre-payment of $26,408,000.

In addition to the repurchases described above, during 1994 the Company
purchased through a third party agent approximately $5,200,000 of its Senior
Secured Notes and Junior Secured Notes for aggregate consideration of
approximately $4,800,000. These notes are currently held by the third party
agent and have not been retired due to certain restrictions under the note
agreements. The purchases were recorded as investments on the Company's
balance sheet and no gain will be recorded on these transactions until the
notes mature or are redeemed. In April 1994, approximately $1,100,000 of the
notes were retired from the proceeds of the Rose and Cohen settlement (See
Note 3) resulting in a pretax extraordinary gain of approximately $100,000.
In August 1994, approximately $37,000 was retired resulting in a pretax
extraordinary gain of $5,000. As of December 31, 1994, the Company had
unrecognized holding gains of approximately $295,000 related to these
securities.

F-18
<PAGE> 100

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In 1994, the Company received consents from the required holders of its
Junior Secured Notes to remove certain debt covenants which placed
limitations on the Company's hotel development spending. In consideration of
the amendment consent, the Company agreed to increase the coupon interest
rate from 9.2% to 10.0% and to shorten the maturity by one year, from July
31, 2000 to July 31, 1999. In addition, the designation of these notes was
changed from Junior Secured Notes to Senior Secured Notes, as the original
Senior Secured Notes were retired.

The collateral for the Secured Notes consists primarily of mortgages and
notes receivable and real property, net of related liabilities (the "Secured
Note Collateral"), with a book value of $92,215,000 as of December 31, 1994.

Interest on the Secured Notes is payable semi-annually. The Secured Notes
require that 85% of the cash proceeds from the Secured Note Collateral be
applied first to interest then to prepayment of principal. Aggregate
principal payments on the Secured Notes are required in order that one-third
of the principal balance outstanding on December 31, 1996 is paid by July
31, 1998 and all of the balance is paid by July 31, 1999. To the extent the
cash proceeds from the Secured Note Collateral are insufficient to pay
interest or required principal payments on the Secured Notes, the Company
will be obligated to pay any deficiency out of its general corporate funds.

The Secured Notes contain covenants which, among other things, require the
Company to maintain a net worth of at least $100,000,000, and preclude cash
distributions to stockholders, including dividends and redemptions, until
the Secured Notes have been paid in full.

(b) The Company has mortgage and other notes payable of approximately
$74,713,000 that are secured by mortgage notes receivable and hotel
properties with a book value of $110,476,000. Principal and interest on
these mortgages and notes are generally paid monthly. At December 31, 1994
these notes bear interest at rates ranging from 6.6% to 12.45% and mature
through 2008.

At December 31, 1994, the Company has outstanding loans in the amount of
$39,896,000 payable to ShoLodge, Inc. ("ShoLodge"). The foregoing loans are
secured by AmeriSuites hotel properties with an aggregate book value of
$63,824,000. The notes bear interest at 10.25% and mature in April 1997. The
Company expects to incur an additional $3,600,000 of debt in the first
quarter of 1995 in connection with its purchase of ShoLodge's option to
acquire a 50% interest in Suites of America, Inc., a wholly owned subsidiary
of the Company (see Note 9).

The Company has $11,614,000 of notes restructured under the Plan which bear
interest at rates ranging from 8.00% to 9.20% per annum payable
semi-annually. Prior to maturity, principal amounts outstanding will be paid
semi-annually based on a thirty-year amortization schedule. Each note
matures on July 31, 2002 and is secured by a lien on mortgage notes
receivable and hotel properties with a book value of $11,129,000 at December
31, 1994.

The Company has other notes of $3,156,000, which bear interest at rates
ranging from 8.0% to 8.2% and mature through 1999.

In February 1995, the Company obtained $39 million of mortgage financing
secured by hotels under two separate loan agreements. Both loans bear
interest at variable rates (approximately 10.50% at December 31, 1994) and
mature in 2000.

F-19
<PAGE> 101

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maturities of long-term debt for the next five years ending December 31 are
as follows (in thousands):

<TABLE>
<S> <C>
1995.............................................. $ 5,284
1996.............................................. 41,073
1997.............................................. 45,687
1998.............................................. 3,617
1999.............................................. 54,717
Thereafter........................................ 33,451
--------
Total................................... $183,829
========
</TABLE>

NOTE 7 -- LEASE COMMITMENTS AND CONTINGENCIES

Leases

The Company leases various hotels under lease agreements with initial terms
expiring at various dates from 1995 through 2022. The Company has options to
renew certain of the leases for periods ranging from 1 to 99 years. Rental
payments are based on minimum rentals plus a percentage of the hotel properties'
revenues in excess of stipulated amounts.

The following is a schedule, by year, of future minimum lease payments
required under the remaining operating leases that have terms in excess of one
year as of December 31, 1994 (in thousands):

<TABLE>
<S> <C>
1995............................................ $ 4,630
1996............................................ 4,597
1997............................................ 4,565
1998............................................ 4,533
1999............................................ 4,500
Thereafter...................................... 95,638
--------
Total................................. $118,463
========
</TABLE>

Rental expense for all operating leases, including those with terms of less
than one year, consist of the following for the five months ended December 31,
1992 and the years ended December 31, 1993 and 1994 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Rentals.................................. $1,844 $5,009 $4,654
Contingent rentals....................... 266 764 823
------ ------ ------
Rental expense................. $2,110 $5,773 $5,477
====== ====== ======
</TABLE>

Employee Benefits

The Company does not provide any material post employment benefits to its
current or former employees.

Contingent Claims

The Company is involved in various other proceedings incidental to the
normal course of its business. The Company believes that the resolution of these
contingencies will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.

F-20
<PAGE> 102

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Financial Instruments and Concentration of Credit Risk

The Company's accounts receivable and mortgages and other notes receivable
(see Note 3) are derived primarily from and are secured by hotel properties,
which constitutes a concentration of credit risk. These notes are subject to
many of the same risks as the Company's operating hotel assets. A significant
portion of the collateral is located in the Northeastern and Southeastern United
States.

In addition to the hotel property related receivables referred to above,
the Company's financial instruments include (i) assets; cash and cash
equivalents and restricted cash investments and (ii) liabilities; trade and
notes payable and long-term debt (see Note 6). As described in Note 1, in
connection with the adoption of fresh start accounting as of July 31, 1992, the
Company revalued its assets and liabilities at amounts approximating fair market
value. Since there have been no substantive adverse changes in market conditions
since the date of the revaluation and on the basis of market quotes and
experience on recent redemption offers for the Company's long-term debt, the
Company believes that the carrying amount of these financial instruments
approximated their fair market value as of December 31, 1993 and 1994.

As a result of the reorganization proceedings and the rejection of certain
leases, management contracts and other guarantees, the Company has no other
material off-balance-sheet liabilities or credit risk as of December 31, 1994.

NOTE 8 -- INCOME TAXES

The provision for income taxes (including amounts applicable to
extraordinary items) consisted of the following for the five months ended
December 31, 1992 and the years ended December 31, 1993 and 1994 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1992 1993 1994
---- ------ -------
<S> <C> <C> <C>
Current:
Federal................................................. $ -- $2,167 $ 970
State................................................... 139 220 28
---- ------ -------
139 2,387 998
Deferred:
Federal................................................. 789 5,049 9,780
State................................................... -- 1,017 1,514
---- ------ -------
789 6,066 11,294
---- ------ -------
Total........................................... $928 $8,453 $12,292
==== ====== =======
</TABLE>

Income taxes are provided at the applicable federal and state statutory
rates.

F-21
<PAGE> 103

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions for the five months ended December
31, 1992 and the years ended December 31, 1993 and 1994 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1992 1993 1994
---- ------ -------
<S> <C> <C> <C>
Utilization of net operating loss......................... $789 $4,525 $ 5,861
Amortization of pre-fresh start basis
differences -- properties and notes..................... -- 1,322 5,632
Depreciation.............................................. -- 144 200
Leasehold reserves........................................ -- -- 450
Property transactions..................................... -- -- 320
Other..................................................... -- 75 (1,169)
---- ------ -------
Total........................................... $789 $6,066 $11,294
==== ====== =======
</TABLE>

At December 31, 1994, the Company had available federal net operating loss
carryforwards of approximately $117,500,000 which will expire beginning in 2005
and continuing through 2007. Of this amount, $104,800,000 is subject to an
annual limitation of $8,735,000 under the Internal Revenue Code due to a change
in ownership of the Company upon consummation of the Plan. The Company also has
potential state income tax benefits relating to net operating loss carryforwards
of approximately $9,262,000 which will expire during various periods from 1995
to 2006. Certain of these potential benefits are subject to annual limitations
similar to federal requirements due to factors such as the level of business
conducted in each state and the amount of income subject to tax within each
state's carryforward period.

In accordance with FAS 109, the Company has not recognized the future tax
benefits associated with the net operating loss carryforwards or with other
temporary differences. Accordingly, the Company has provided a valuation
allowance of approximately $41,000,000 against the deferred tax asset as of
December 31, 1994. To the extent any available carryforwards or other tax
benefits are utilized, the amount of tax benefit realized will be treated as
contribution to stockholders' equity and will have no effect on the income tax
provision for financial reporting purposes. For the five months ended December
31, 1992 and the years ended December 31, 1993 and 1994 the Company recognized
$789,000, $4,525,000 and $5,861,000, respectively, of such tax benefits as a
contribution to stockholders' equity. Additionally, the Company recognized
$6,954,000 as a contribution to stockholders' equity for the year ended December
31, 1994, which represents the amortization of pre-fresh start tax basis
differences related to properties and notes receivable. As a result of
reflecting substantially all of the deferred tax provisions as a contribution to
stockholders' equity, the Company had no material deferred tax assets or
liabilities as of December 31, 1993 and 1994.

F-22
<PAGE> 104

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- RELATED PARTY TRANSACTIONS

The following summarizes significant financial information with respect to
transactions with present and former officers, directors, their relatives and
certain entities they control or in which they have a beneficial interest for
the five months ended December 31, 1992 and the years ended December 31, 1993
and 1994 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -------
<S> <C> <C> <C>
Management and other fee income(a).......................... $ 312 $ 810 $ 1,165
Interest income(a).......................................... 72 14 1,283
Management fee expense(b)................................... 162 222 679
Interest expense(b)......................................... 332 475 461
Reservation fee expense(b).................................. 101 468 317
</TABLE>

- ---------------
(a) The Company manages 15 hotels for partnerships in which related parties own
various interests. The income amounts shown above primarily include
transactions related to these hotel properties.

(b) In 1991, the Company entered into an agreement with ShoLodge, a company
controlled by a former director, whereby ShoLodge was appointed the
exclusive agent to develop and manage certain hotel properties. The Company
had loans payable to ShoLodge of $39,896,000 at December 31, 1994 related to
the development of hotels. The Company also uses the ShoLodge reservation
system for its Wellesley and AmeriSuites properties.

In 1993, the Company and its wholly-owned subsidiary, Suites of America,
Inc. ("SOA") entered into agreements with ShoLodge designed to further the
growth of its AmeriSuites hotels from the six hotels owned by the Company at
that time. Pursuant to these agreements, (i) ShoLodge agreed to build and
finance six additional AmeriSuites hotels and received an option to purchase
a 50% interest in SOA and (ii) the Company received an option pursuant to
which it could require ShoLodge to purchase a 50% interest in SOA. By
December 1994, ShoLodge completed the development of these six hotels, five
of which SOA acquired during 1993 and 1994, subject to mortgages held by
ShoLodge. The Company recorded the assets and liabilities (including the
mortgages payable to ShoLodge) of the five hotels and consolidated their
results of operations from the date of acquisition. Upon completion of the
six new hotels and the exercise of the option by either ShoLodge or the
Company, ShoLodge was to forgive its mortgage interests on the five hotels
owned by the Company and contribute its ownership interest on the remaining
hotel and thereby acquire a 50% interest in SOA.

The exercise of the option by ShoLodge was scheduled to occur in January
1995, when the Company and ShoLodge began to negotiate the Company's buyout
of ShoLodge's option. In February 1995, the Company entered into an
agreement to acquire ShoLodge's option to purchase the 50% interest in SOA
and also acquired the ownership interest of the remaining AmeriSuites hotel
not already owned by the Company. The consideration payable by the Company
was determined on an arm's-length basis and was based upon the fair market
value of the properties. The consideration totals $19,700,000 and is
comprised of (i) $16,100,000, which will be paid in three cash installments
during 1995, plus (ii) $18,500,000, which will be paid in notes maturing in
1997, less (iii) $14,900,000 of existing debt on five hotels, which will be
forgiven at face value. The transaction will result in a net increase of
approximately $3,600,000 of long-term debt, resulting in total debt of
$43,500,000 owed to ShoLodge. No gain or loss will be recorded on the
forgiveness of debt. As a result of this transaction, the Company assumed
management of these hotels.

F-23
<PAGE> 105

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS

Pursuant to the Plan, on July 31, 1992 the Company began distributing
shares of common stock to certain claimants and holders of PMI stock. The Plan
provided for issuance of up to 33,000,000 shares of common stock; however, the
number of shares ultimately distributed were 29,913,000. The consolidated
financial statements had previously given full effect to the issuance of the
maximum amount of 33,000,000 shares under the Plan. During 1994, when the
Company resolved the final share distribution, it restated net income for all
prior periods to reflect the 9.4% reduction in the number of shares. In addition
to the shares distributed under the Plan, warrants to purchase 2,106,000 shares
of the Company's common stock were issued to former shareholders of the
Company's predecessor, PMI, in partial settlement of their bankruptcy interests.
The warrants became exercisable on August 31, 1993 at an exercise price of $2.71
per share and expire five years after the date of grant. The exercise price was
determined from the average per share daily closing price of the Company's
common stock during the year following its reorganization on July 31, 1992. As
of December 31, 1994 warrants to purchase 250,497 shares have been exercised.

On July 31, 1992, the Company adopted various stock option and performance
incentive plans under which options to purchase up to 1,650,000 shares of common
stock may be granted to directors, officers or key employees under terms
determined by the Board of Directors. During 1992, options to purchase 350,000
shares were granted to officers and directors, 240,000 of which are exercisable
at December 31, 1994. In addition, options to purchase 330,000 shares were
granted to a former officer in 1992. Such options are currently exercisable and
expire on July 31, 1995. At December 31, 1994, 180,000 of these options were
exercised. The exercise prices of the above options are based on the average
market price one year from the date of grant which was determined to be $2.71
per share. Based on this exercise price, the amount of compensation expense
attributable to these options was $225,000 and $60,000 for the years ended
December 31, 1993 and 1994, respectively.

In June 1993, options to purchase 393,000 shares of common stock were
granted to employees under the Company's stock option plan. The options were
granted at $3.63, which approximates the fair market value at the date of grant.
Generally, options can be exercised during a participant's employment with the
Company in equal annual installments over a three-year period and expire six
years after the date of grant. During 1994, 41,080 shares were exercised.

In August 1993, options to purchase 315,000 shares of common stock were
granted to the members of the Company's Board of Directors. The options were
granted at $3.20, which approximates the fair market value at the date of grant.
One-third of these options became exercisable at the date of grant and the
remaining options can be exercised in equal annual installments over a two-year
period. The options expire six years after the date of grant. During 1994,
25,000 shares were exercised.

In January 1994, options to purchase 50,000 shares of common stock were
granted to a member of the Company's Board of Directors. The options were
granted at $7.375, which approximates the fair market value at the date of
grant. The options can be exercised in equal annual installments over a four
year period. The options expire six years after the date of grant.

In August 1994, options to purchase 317,100 shares of common stock were
granted to employees under the Company's performance incentive plan. The options
were granted at $7.625, which approximates the fair market value at the date of
grant. Generally, options can be exercised during a participant's employment
with the Company in equal annual installments over a three-year period and
expire six years after the date of grant.

In December 1994, options to purchase 30,000 shares of common stock were
granted to new members of the Company's Board of Directors. The options were
granted at $7.125, which approximates the fair market value at the date of
grant. One-third of these options became exercisable at the date of grant and
the remaining options can be exercised in equal annual installments over a two
year period. The options expire six years after the date of grant.

F-24
<PAGE> 106

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of the various stock option plans:

<TABLE>
<CAPTION>
OPTION
NUMBER PRICE
OF SHARES PER SHARE
--------- -----------
<S> <C> <C>
Outstanding -- December 31, 1992............................ 680,000 $2.71
Granted..................................................... 728,000 $2.71-$3.63
Exercised................................................... (30,000) $2.71
Cancelled................................................... (77,000) $2.71-$3.63
---------
Outstanding at December 31, 1993............................ 1,301,000
---------
Granted..................................................... 397,000 $7.38-$7.63
Exercised................................................... (216,000) $2.71-$3.63
Cancelled................................................... (40,000) $3.63-$7.63
---------
Outstanding at December 31, 1994............................ 1,442,000
---------
Exercisable at December 31, 1994............................ 700,000 $2.71-$7.63
---------
</TABLE>

NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION

The following summarizes non-cash investing and financing activities for
the five months ended December 31, 1992 and the years ended December 31, 1993
and 1994 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1992 1993 1994
------ ------ -------
<S> <C> <C> <C>
Hotels acquired in exchange for the assumption of
mortgage notes payable................................ $ -- $9,161 $18,718
Hotels received in settlement of mortgage notes
receivable............................................ 7,800 3,500 54,521
Sale of hotel in exchange for a mortgage note
receivable............................................ -- 6,500 1,497
</TABLE>

Cash paid for interest was $2,981,000 for the five months ended December
31, 1992 and $16,347,000 and $15,503,769 for the years ended December 31, 1993
and 1994, respectively.

Cash paid for income taxes was $0 for the five months ended December 31,
1992 and $2,697,000 and $1,900,000 for the years ended December 31, 1993 and
1994, respectively.

F-25
<PAGE> 107

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Prime Hospitality Corp.:

We have audited the accompanying consolidated balance sheet of Prime
Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as
of July 31, 1992 and the related consolidated statements of operations,
stockholders' equity and cash flows for the one month then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 Prime Hospitality Corp. and
subsidiaries as of July 31, 1992 and the results of their operations and their
cash flows for the one month then ended in conformity with generally accepted
accounting principles.

As discussed in Note 7, the Company held an investment in a mortgage note
receivable from certain entities with a face value of $100,890,000 that is
valued at $25,000,000 at July 31, 1992. The realization of this investment is
dependent primarily on the ability of the Company to recover such amount
pursuant to the personal guarantees provided by two individuals who control the
entities that are the obligors under the mortgage note and own the hotel
properties that serve as the underlying collateral for the note. The Company has
commenced a legal action to recover pursuant to such guarantees; however, the
financial statements do not include any adjustments that might result from the
outcome of this matter.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
March 10, 1993

F-26
<PAGE> 108

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
of Prime Motor Inns, Inc. (Debtors-in-Possession)

We have audited the consolidated balance sheet of Prime Motor Inns, Inc.
and Subsidiaries (Debtors-in-Possession) as of June 30, 1992, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Prime Motor
Inns, Inc. and Subsidiaries (Debtors-in-Possession) as of June 30, 1992, and
their results of operations and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

As discussed in Note 7, the Company held an investment in a mortgage note
receivable from certain entities with a face value of $100,890,000 that had been
written down to $30,000,000 at June 30, 1992. The realization of the carrying
value is dependent primarily on the ability of the Company to recover such
amount pursuant to the personal guarantees provided by the two individuals who
control the entities that are the obligors under the mortgage note and the
owners of the hotel properties that serve as the underlying collateral for the
loan. The Company has commenced a legal action to recover pursuant to such
guarantees; however, the outcome of this action is not presently determinable.

As discussed in Note 11, the Company has reflected pre-petition and certain
post-petition claims in the consolidated balance sheet as of June 30, 1992 as
liabilities subject to compromise based on its estimate of the aggregate amount
that will ultimately be allowable for settlement upon consummation of the plan
of reorganization; however, the aggregate amount claimed by creditors is
substantially in excess of the liability recorded by the Company. The actual
aggregate amount of allowable pre and post-petition claims cannot presently be
determined.

As discussed in Note 14, the Company and certain of its present and former
officers and directors are defendants in certain consolidated class action
complaints alleging federal securities law violations and other claims. The
ultimate outcome of such litigation cannot presently be determined.

The eventual outcome of the matters discussed in the three preceding
paragraphs is not presently determinable and the consolidated financial
statements as of June 30, 1992 and for the year then ended do not include any
adjustments relating to the resolution of those uncertainties.

F-27
<PAGE> 109

As discussed in Note 2, the Company's plan of reorganization became
effective on July 31, 1992, and it will implement the guidance as to the
accounting for entities emerging from Chapter 11 set forth in Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("Fresh Start Reporting") as of that date. The Company has not
presently determined the amounts that will be recorded under Fresh Start
Reporting. However, the implementation of Fresh Start Reporting as a result of
the Company's emergence from Chapter 11 will materially change the amounts
reported in consolidated financial statements as of and for periods ending
subsequent to July 31, 1992. As a result of the reorganization and the
implementation of Fresh Start Reporting, assets and liabilities will be recorded
at fair values and outstanding obligations relating to the claims of creditors
will be discharged primarily in exchange for cash, new indebtedness and equity.
The accompanying consolidated financial statements as of June 30, 1992 and for
the year then ended do not give effect to any adjustments that will be made as a
result of the Company's reorganization and emergence from Chapter 11.

J.H. Cohn & Company

Roseland, New Jersey
September 24, 1992

F-28
<PAGE> 110

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Fresh start reporting was implemented and the purchase method of accounting
was applied to record the fair value of assets and assumed liabilities of the
reorganized company at July 31, 1992. Accordingly, the accompanying balance
sheet as of July 31, 1992 is not comparable in all material respects to such
statement as of any date prior to July 31, 1992 since the balance sheet is that
of a new entity.

<TABLE>
<CAPTION>
JUNE 30, | JULY 31,
1992 | 1992
-------- | --------
<S> <C> | <C>
ASSETS |
Current assets: |
Cash and cash equivalents............................................ $ 60,142 | $ 39,493
Restricted cash...................................................... -- | 22,835
Accounts receivable, net of reserves................................. 7,962 | 9,115
Current portion of mortgages and other notes receivable.............. 63,506 | 48,006
Other current assets................................................. 1,895 | 4,254
-------- | --------
Total current assets......................................... 133,505 | 123,703
Restricted cash........................................................ 43,947 | 1,232
Property, equipment and leasehold improvements, net of accumulated |
depreciation and reserves............................................ 179,472 | 160,417
Mortgages and other notes receivable, net of current portion, |
writedowns and valuation reserves.................................... 194,443 | 178,543
Other assets........................................................... 2,751 | 4,755
-------- | --------
|
TOTAL ASSETS................................................. $554,118 | $468,650
======== | ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-29
<PAGE> 111

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)

<TABLE>
<CAPTION>
JUNE 30, | JULY 31,
1992 | 1992
--------- | --------
<S> <C> | <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) |
Current liabilities: |
Notes payable....................................................... $ 5,971 | $ 5,971
Current portion of long-term debt................................... 81 | 61,917
Other current liabilities........................................... 25,944 | 31,136
--------- | --------
Total current liabilities................................... 31,996 | 99,024
Long-term debt, net of current portion................................ 8,921 | 204,438
Deferred income....................................................... 36,243 | --
Other liabilities..................................................... -- | 29,588
--------- | --------
Total liabilities not subject to compromise................. 77,160 | 333,050
--------- | --------
Liabilities subject to compromise..................................... 706,250 | --
--------- | --------
Total liabilities........................................... 783,410 | 333,050
--------- | --------
Commitments and contingencies |
Stockholders' equity (deficiency): |
Preferred stock, par value $1.00 per share; 5,000,000 shares |
authorized; none issued; cancelled July 31, 1992................. -- | --
Preferred stock, par value $.10 per share; 20,000,000 shares |
authorized; none issued.......................................... -- | --
Common stock; par value $.05 per share; 100,000,000 shares |
authorized; 33,662,334 shares issued; cancelled July 31, 1992.... 1,683 | --
Common stock, par value $.01 per share; 50,000,000 shares |
authorized; 33,000,000 shares issued and outstanding............. -- | 330
Capital in excess of par value...................................... 311,355 | 135,270
Retained earnings (accumulated deficit)............................. (539,125) | --
Treasury stock, 634,535 shares at cost; cancelled July 31, 1992..... (3,205) | --
--------- | --------
Total stockholders' equity (deficiency)..................... (229,292) | 135,600
--------- | --------
TOTAL LIABILITIES AND STOCKHOLDERS' |
EQUITY (DEFICIENCY)....................................... $ 554,118 | $468,650
--------- | --------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-30
<PAGE> 112

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR | ONE MONTH
ENDED | ENDED
JUNE 30, | JULY 31,
1992 | 1992
-------- | ---------
<S> <C> | <C>
Revenues: |
Rooms............................................................... $ 75,082 | $ 5,133
Food and beverage................................................... 20,841 | 693
Management and other fees........................................... 11,031 | 785
Interest and dividend income........................................ 24,127 | 1,949
Other............................................................... 3,109 | 233
-------- | --------
Total revenues.............................................. 134,190 | 8,793
-------- | --------
Costs and expenses: |
Direct operating expenses: |
Rooms............................................................ 21,692 | 1,421
Food and beverage................................................ 17,082 | 681
Other operating and general expenses................................ 65,184 | 4,302
Depreciation and amortization....................................... 7,635 | 680
Interest (contractual interest of $36,252 for fiscal 1992 and |
$3,079 for July 1992)............................................ 8,245 | 779
Valuation writedowns and reserves................................... 62,123 | 13,000
-------- | --------
Total costs and expenses.................................... 181,961 | 20,863
-------- | --------
Loss before reorganization items, income taxes and extraordinary |
items............................................................... (47,771) | (12,070)
Reorganization items.................................................. (23,194) | 1,796
-------- | --------
Loss before income taxes and extraordinary items...................... (70,965) | (10,274)
Provision for income taxes............................................ 1,000 | --
-------- | --------
Loss before extraordinary items....................................... (71,965) | (10,274)
Extraordinary items: |
Gain on discharge of indebtedness................................... -- | 249,600
-------- | --------
NET INCOME (LOSS)..................................................... $(71,965) | $239,326
-------- | --------
Income (loss) per common share: |
Primary: |
Operations....................................................... $ (2.18) | $ (.31)
Extraordinary items.............................................. -- | 7.56
-------- | --------
NET INCOME (LOSS)..................................................... $ (2.18) | $ 7.25
-------- | --------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-31
<PAGE> 113

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CAPITAL
IN RETAINED TOTAL
COMMON STOCK EXCESS EARNINGS TREASURY STOCK STOCKHOLDERS'
--------------------- OF PAR (ACCUMULATED ------------------- EQUITY
SHARES AMOUNT VALUE DEFICIT) SHARES AMOUNT (DEFICIENCY)
----------- ------- --------- ------------ -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1991....... 33,662,334 $ 1,683 $ 311,355 $ (467,160) (634,535) $ (3,205) $(157,327)
Net loss.................... -- -- -- (71,965) -- -- (71,965)
---------- ------ --------- --------- -------- -------- ---------
Balance June 30, 1992....... 33,662,334 1,683 311,355 (539,125) (634,535) (3,205) (229,292)
Net income.................. -- -- -- 239,326 -- -- 239,326
Cancellation of former
equity interests in
connection with emergence
from bankruptcy........... (33,662,334) (1,683) (311,355) -- 634,535 3,205 (309,833)
Issuance of new equity
interests in connection
with emergence from
bankruptcy................ 33,000,000 330 135,270 -- -- -- 135,600
Elimination of accumulated
deficit in connection with
emergence from
bankruptcy................ -- -- -- 299,799 -- -- 299,799
---------- ------ --------- --------- -------- -------- ---------
Balance July 31, 1992....... 33,000,000 $ 330 $ 135,270 $ -- -- $ -- $ 135,600
========== ====== ========= ========= ======== ======== =========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-32
<PAGE> 114

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ONE MONTH
ENDED ENDED
JUNE 30, JULY 31,
1992 1992
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $(71,965) $239,326
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities before reorganization items:
Depreciation and amortization.............................................. 7,635 680
Valuation writedowns and reserves.......................................... 62,123 13,000
Provisions for lease rejection damages, guarantees of third party debt and
other bankruptcy related claims........................................... 6,017 --
Loss on disposal of assets................................................. 2,307 --
Reorganization items....................................................... 9,072 604
Gain on discharge of indebtedness.......................................... -- (249,600)
Increase (decrease) from changes in other operating assets and liabilities:
Accounts receivable...................................................... 2,200 (1,153)
Tax refund receivable.................................................... 30,874 --
Other operating assets................................................... 5,075 (2,359)
Other operating liabilities.............................................. (5,797) (4,857)
-------- --------
Net cash provided by (used in) operating activities before reorganization
items................................................................... 47,541 (4,359)
-------- --------
Reorganization items:
Interest earned on accumulated cash resulting from Chapter 11 proceedings..... 4,427 298
Decrease in liabilities subject to compromise................................. (17,183) (677)
Professional fees and other expenses for services rendered in connection with
Chapter 11 proceedings..................................................... (13,499) (902)
-------- --------
Net cash used in reorganization activities................................. (26,255) (1,281)
-------- --------
Net cash provided by (used in) operating activities........................ 21,286 (5,640)
-------- --------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-33
<PAGE> 115

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
JUNE 30, JULY 31,
1992 1992
---------- ---------------
<S> <C> <C>
Cash flows from investing activities:
Proceeds from mortgages and other notes receivable.............. $ 10,160 $ (70)
Disbursements for mortgages and other notes receivable.......... (42) --
Sale of property, net........................................... 4,168 --
Purchases of property, equipment and leasehold improvements..... (14,141) (692)
Additions to restricted cash.................................... (5,746) --
Decrease in restricted cash..................................... -- 19,880
Increase (decrease) in other assets............................. -- 196
-------- --------
Net cash provided by (used in) investing activities.......... (5,601) 19,314
-------- --------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt.................. 9,613 --
Payments of notes payable and long-term debt.................... (25,905) (34,323)
-------- --------
Net cash used in financing activities........................ (16,292) (34,323)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS......................... (607) (20,649)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. 60,749 60,142
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 60,142 $ 39,493
======== ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-34
<PAGE> 116

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30 AND JULY 31, 1992

NOTE 1 -- REORGANIZATION AND EMERGENCE FROM CHAPTER 11

Prime Hospitality Corp. became the successor corporation to Prime Motor
Inns, Inc. on July 31, 1992. As used herein, the "Company" refers to Prime
Hospitality Corp. and subsidiaries, "PMI" refers to Prime Motor Inns, Inc. and
subsidiaries and "Prime Motor Inns" refers to Prime Motor Inns, Inc., the parent
company only. The accompanying consolidated financial statements and notes
thereto reflect the activities of the Company as of and subsequent to July 31,
1992 and PMI prior to July 31, 1992.

On September 18, 1990, Prime Motor Inns (predecessor to and former parent
of the Company) and fifty of its subsidiaries (together with Prime Motor Inns,
the "Debtors") filed voluntary petitions under title 11 of the United States
Code ("Chapter 11") in the United States Bankruptcy Court, Southern District of
Florida, Miami Division (the "Bankruptcy Court") and began operating as
Debtors-In-Possession.

On September 23, 1991, the Debtors filed their Joint Plan of
Reorganization. The Debtors filed their Disclosure Statement for Debtors'
Amended Joint Plan of Reorganization and their Amended Joint Plan of
Reorganization on November 15, 1991. These plans and the disclosure statement
were further amended and restated by the Disclosure Statement and the Second
Amended Joint Plan of Reorganization of the Debtors dated January 16, 1992 (the
"Plan"). The Plan was confirmed by the Bankruptcy Court on April 6, 1992.

On July 31, 1992 (the "Effective Date"), the Debtors consummated the Plan
and emerged from bankruptcy. On the Effective Date, Prime Motor Inns merged with
and into the Company, which had been a wholly-owned subsidiary of Prime Motor
Inns. The Company was the surviving corporation in the merger. In addition,
certain of the Debtors and other subsidiaries of Prime Motor Inns that did not
file petitions under Chapter 11 merged, consolidated or contributed
substantially all of their assets to the Company or subsidiaries of the Company.

On the Effective Date, the Company assumed the obligations of each
combining Debtor under the Plan. The Company has distributed Secured Notes and
Restructured Notes and is in the process of distributing cash, Tax Notes, Common
Stock and Warrants in settlement of pre-petition claims and interests as such
claims and interests are processed and settled.

The American Institute of Certified Public Accountants has issued Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), which provides guidance for financial reporting
by Chapter 11 debtors during and following their Chapter 11 cases. The
accompanying historical consolidated financial statements of PMI for the period
from September 18, 1990 to the Effective Date have been prepared in accordance
with SOP 90-7 on the following basis:

-- Liabilities subject to compromise are segregated.

-- Transactions and events directly associated with the reorganization
proceedings are reported separately.

-- Interest expense is reported only to the extent it will be paid.

Also pursuant to SOP 90-7, the Company implemented Fresh Start Reporting
(hereinafter defined) upon the emergence of the Debtors from bankruptcy as of
the Effective Date (see Note 2).

NOTE 2 -- FRESH START REPORTING

SOP 90-7 provides for the implementation of Fresh Start Reporting upon the
emergence of debtors from bankruptcy if the reorganization value (the
approximate fair value) of the assets of the emerging entity immediately prior
to emergence is less than the total of all post-petition liabilities and allowed
pre-petition claims, and if the holders of existing voting shares immediately
before the emergence from bankruptcy receive less than 50% of the voting shares
of the emerging entity. A Fresh Start balance sheet reflects assets at their

F-35
<PAGE> 117

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimated fair value upon the emergence from bankruptcy and liabilities, other
than deferred taxes, at the present value of amounts to be paid determined at
appropriate current interest rates. The Company met the criteria for
implementation of, and implemented Fresh Start Reporting as of the Effective
Date.

Under Fresh Start Reporting, the consolidated balance sheet as of July 31,
1992 became the opening consolidated balance sheet of the Company. Since Fresh
Start Reporting has been reflected in the accompanying consolidated balance
sheet as of July 31, 1992, this consolidated balance sheet is not comparable in
all material respects to any such financial statements as of any prior date or
for any period prior to July 31, 1992, since the consolidated balance sheet as
of July 31, 1992 is that of a new entity.

The estimated reorganization value (the approximate fair value) of the
assets of the emerging entity was determined by consideration of many factors
and various valuation methods, including discounted cash flows and
price/earnings and other applicable ratios believed by management to be
representative of the Company's business and industry.

Reorganization liabilities, consisting of Tax Notes, Restructured and
Reinstated Notes, Senior Secured Notes and Junior Secured Notes distributed as
of the Effective Date, have been recorded based on face values, which
approximate the present values of amounts to be paid determined at appropriate
current interest rates. Common Stock has been valued at the excess of the fair
value of identifiable assets of the Company over the present value of
liabilities.

Other current liabilities, consisting of those arising from post-petition
operating and other expenses not paid as of the Effective Date and obligations
arising from certain loans to finance construction, will be paid in full under
their original terms and have been presented in the following balance sheet at
their historical carrying values.

The effects of consummating the Plan and implementing Fresh Start Reporting
are set forth on PMI's historical consolidated balance sheet as of July 31, 1992
as follows:

CONSOLIDATED FRESH START BALANCE SHEET
AS OF JULY 31, 1992
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD PLAN
-----------------------------------------------------------------------
HISTORICAL FRESH START
BALANCE SHEET EXCHANGE FRESH BALANCE SHEET
7/31/92 DISTRIBUTIONS OF STOCK START 7/31/92
------------- ------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 39,500 $ -- $ -- $ -- $ 39,500
Restricted cash.................. 27,800 (5,000)(a) -- -- 22,800
Accounts receivable, net......... 9,100 -- -- -- 9,100
Current portion of mortgages and
other notes receivable........ 64,000 (16,000)(b) -- -- 48,000
Other current assets............. 4,300 -- -- -- 4,300
-------- -------- ---- -------- --------
144,700 (21,000) -- -- 123,700
Restricted cash.................... 35,000 (33,800)(a) -- -- 1,200
Property, equipment and leasehold
improvements, net................ 179,400 (3,400)(b) -- (15,600)(f) 160,400
Mortgages and other notes
receivable, net.................. 180,600 (9,300)(b) -- 7,200(f) 178,500
Other assets....................... 2,500 -- -- 2,300(f) 4,800
-------- -------- ---- -------- --------
TOTAL ASSETS............. $ 542,200 $ (67,500) $ -- $ (6,100) $ 468,600
======== ======== ==== ======== ========
</TABLE>

F-36
<PAGE> 118

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONSOLIDATED FRESH START BALANCE SHEET

AS OF JULY 31, 1992
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD PLAN
--------------------------------------------------------------------------------
HISTORICAL FRESH START
BALANCE SHEET EXCHANGE FRESH BALANCE SHEET
7/31/92 DISTRIBUTIONS OF STOCK START 7/31/92
------------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
Current liabilities:
Notes payable and current portion
of long-term debt............. $ 6,100 $ 61,800(c) $ -- $ -- $ 67,900
Other current liabilities........ 24,600 (3,800)(a) -- 10,300(f) 31,100
--------- --------- --------- --------- --------
Total current liabilities..... 30,700 58,000 -- 10,300 99,000
Long-term debt, net of
current portion.................. 8,900 195,500(c) -- -- 204,400
Deferred income.................... 36,200 -- -- (36,200)(f) --
Other liabilities.................. -- 2,600(c) -- 27,000(f) 29,600
--------- --------- --------- --------- --------
Total liabilities not subject
to compromise............... 75,800 256,100 -- 1,100 333,000
Liabilities subject to
compromise....................... 706,000 (35,000)(a) -- -- --
(28,700)(b)
(266,400)(c)
(375,900)(d)
---------
Total liabilities............. 781,800 (449,900) -- 1,100 333,000
--------- --------- --------- --------- --------
Stockholders' equity (deficiency):
Common stock (33,000,000 shares
issued; $0.05 par
value)(old)................... 1,700 -- (1,700)(e) -- --
Capital in excess of par
value (old)................... 311,300 -- (311,300)(e) -- --
Common stock (33,000,000 shares
issued and outstanding; $0.01
par value)(new)............... -- 300(d) --(e) --(e) 300
Capital in excess of par value
(new)............................ -- 132,500(d) 309,800(e) (307,000)(e) 135,300
Retained earnings (accumulated
deficit)......................... (549,400) 6,500(c) -- 299,800(f) --
243,100(d)
Treasury stock..................... (3,200) -- 3,200(e) -- --
--------- --------- --------- --------- --------
Total stockholders' equity
(deficiency)................ (239,600) 382,400 -- (7,200) 135,600
--------- --------- --------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY).............. $ 542,200 $ (67,500) $ -- $ (6,100) $ 468,600
========= ========= ========= ========= ========
</TABLE>

F-37
<PAGE> 119

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTES TO CONSOLIDATED FRESH START BALANCE SHEET

(a) Reflects cash payments of $38,800,000 to creditors on or after the Effective
Date in accordance with the terms of the Plan.

(b) Represents mortgage notes, other notes receivable and property, which are
offset against creditor claims on the Effective Date in accordance with the
terms of the Plan.

(c) Represents long-term debt in the principal amount of $257,300,000
distributed to creditors on or after the Effective Date in accordance with
the terms of the Plan and the recognition of $6,500,000 of related gain on
discharge of indebtedness. As part of the Plan, the Company distributed
approximately $1,400,000 of Tax Notes, approximately $94,600,000 of
Restructured and Reinstated Notes, approximately $91,300,000 of Senior
Secured Notes and approximately $70,000,000 of Junior Secured Notes.
Additionally, approximately $15,000,000 of construction financing related
to hotel property development outstanding prior to consummation will be
paid based on original terms.

(d) Represents 32,300,000 shares of Common Stock with an estimated fair value of
$132,800,000, which will be distributed to creditors on or after the
Effective Date in accordance with the terms of the Plan and the recognition
of $249,600,000 of related gain on discharge of indebtedness.

(e) Represents 700,000 shares of Common Stock with an estimated fair value of
$2,800,000, which was exchanged for all of the shares of Prime's old common
stock outstanding on the Effective Date.

(f) Represents adjustments to: record at fair value operating property,
equipment and leasehold improvements, certain mortgages and other notes
receivable and certain other assets and related liabilities; eliminate
deferred income; and eliminate accumulated deficit in accordance with the
provisions of SOP 90-7 for Fresh Start Reporting.

The gain on discharge of indebtedness of $249,600,000 has been presented as
an "Extraordinary Item" in the accompanying consolidated statement of
operations for the one month ended July 31, 1992.

NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies used by the Company and
PMI in the preparation of the accompanying consolidated financial statements
follows:

BUSINESS ACTIVITIES:

The Company focuses on three types of business activities: operation of
owned and leased hotel properties; management services provided to hotel
properties owned by third parties; and management of its portfolio of mortgages,
notes and other financial assets. The Company retains all the revenues and pays
all the expenses with respect to the owned and leased hotel properties. The
Company derives management fees from the hotel properties it manages based on a
fixed percentage of gross revenues, fees for services rendered and
performance-related incentive payments. The Company's portfolio of mortgages,
notes and other assets primarily are associated with hotel properties currently
managed or formerly owned by the Company and PMI.

The majority of the Company's hotel properties are moderately priced hotels
comprised of 100 to 150 rooms primarily located in the Northeast and Florida,
which are designed to attract business and leisure travelers desiring quality
accommodations at affordable prices. The Company operates or manages many of the
restaurants and cocktail lounges at its full service hotels. Its limited service
hotels, such as Wellesley Inns and AmeriSuites hotels, generally do not have
restaurants or cocktail lounges.

Most of the hotel properties are operated or managed by the Company in
accordance with franchise agreements with national hotel chains, including
Howard Johnson, Ramada, Marriott, Holiday Inn, Sheraton,

F-38
<PAGE> 120

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Days Inn and Radisson. Additionally, the Company operates or manages the
Wellesley hotel properties under its trademark "Wellesley Inns." The Company
owns the trademark "AmeriSuites", and all of these hotel properties are managed
for the Company by a related party.

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of the Company
and PMI and all of their majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.

CASH EQUIVALENTS:

Cash equivalents are highly liquid unrestricted investments with a maturity
of three months or less when acquired.

RESTRICTED CASH:

Restricted cash consists primarily of highly liquid investments that serve
as collateral for debt obligations included in liabilities subject to compromise
and is classified as either short-term or long-term depending on the date the
obligation is due.

MORTGAGES AND OTHER NOTES RECEIVABLE:

Mortgages and other notes receivable are reflected at the lower of face or
market value at July 31, 1992. Generally, the carrying amount of the portfolio
of mortgages and other notes receivable is reduced through write-offs and by
maintaining an aggregate loan valuation reserve at a level that, in the opinion
of management, is adequate to absorb potential losses in the portfolio. To
determine the appropriate level for the loan valuation reserve, management
evaluates various factors including: general and regional economic conditions;
the credit worthiness of the borrower; the nature and level of any delinquencies
in the payment of principal or interest; and the adequacy of the collateral.
Interest on delinquent loans (including impaired loans that have required
writedowns or specific reserves) is only recognized when cash is received. The
amount of interest income recognized on mortgages and other notes receivable is
generally based on the loan's effective interest rate and adjusted carrying
value of the note.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Property, equipment and leasehold improvements that the Company intends to
continue to operate are stated at cost less accumulated depreciation and
amortization at June 30, 1992 and at fair market value as of July 31, 1992.
Provision is made for depreciation and amortization using the straight-line
method over the estimated useful lives of the assets.

The Company intends to sell or otherwise dispose of those remaining
operating and non-operating properties that have generated losses or
insufficient returns on investment. Properties identified for disposal are
stated at their estimated net realizable value through valuation reserves or
writedowns.

INCOME RECOGNITION ON PROPERTY SALES AND DEFERRED INCOME:

Income is generally recognized when properties used in the hotel business
are sold. However, income is deferred and recognized under installment or other
appropriate methods when collectibility of the sales price is not reasonably
assured or other criteria for immediate profit recognition under generally
accepted accounting principles are not satisfied. Gains from sales of properties
under sale and leaseback transactions that are generally deferred pursuant to
applicable accounting rules are amortized over the lives of the related leases.
Gains from sales of properties and certain other assets acquired through
business combinations accounted for

F-39
<PAGE> 121

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

as purchases are generally offset against the carrying value of the remaining
purchased assets if the sale takes place within the allocation period (generally
a period of one year or less) following the purchase.

CONSTRUCTION INCOME RECOGNITION AND DEFERRED INCOME:

Revenues under long-term construction contracts are generally recognized
under the percentage-of-completion method and include a portion of the earnings
expected to be realized on the contract in the ratio of costs incurred to
estimated total costs. Under certain circumstances, the recognition of income is
deferred until continuing involvement, in the form of operating guarantees made
to the owners of the hotel property subject to the contract, has expired.

INCOME TAXES:

The Company and its subsidiaries file a consolidated Federal income tax
return. PMI adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes," by
applying FAS 109 to its consolidated financial statements commencing July 1,
1991. Adoption of FAS 109 did not have a material effect on the consolidated
financial statements. Deferred taxes have not been provided as of June 30, 1992
and July 31, 1992 due to the availability of significant net operating loss
carryforwards and the uncertainty surrounding the ultimate realization of the
future benefits, if any, to be derived from the temporary differences between
the financial reporting basis and the tax basis of assets and liabilities.

INCOME (LOSS) PER COMMON SHARE:

Primary net income (loss) per common share is computed based on the
weighted-average number of common shares and common share equivalents (stock
options) outstanding during each year. The weighted-average number of common
shares and common share equivalents used in computing primary net income (loss)
per share was 33,028,000 for the year ended June 30, 1992 and the month ended
July 31, 1992. Fully diluted net income (loss) per common share includes, when
dilutive, the effects of the elimination of interest expense and the issuance of
additional common shares from the assumed conversion of the 6 5/8% convertible
subordinated debentures due 2011 and the 7% convertible subordinated debentures
due 2013 (collectively, the "Debentures"). The Debentures are included in the
consolidated balance sheet as of June 30, 1992 as liabilities subject to
compromise. The effects of assuming the conversion of the Debentures were not
dilutive for the year ended June 30, 1992 and the one month ended July 31, 1992.

RECLASSIFICATIONS:

Certain reclassifications have been made to the consolidated financial
statements to conform them to the July 31, 1992 classifications.

NOTE 4 -- ACQUISITIONS AND DISPOSITIONS

In December 1989, PMI consummated its agreement with New World Development
Co. Ltd. ("New World") to participate with and assist New World in its
acquisition of the hotel business of Ramada, Inc. ("Ramada"). Under the
agreement, PMI loaned approximately $58,000,000 to New World (see Note 7) and
acquired certain real estate, notes receivable, the Rodeway International
Franchise System ("Rodeway") and certain other assets, and assumed certain
liabilities, for aggregate cash consideration of approximately $54,000,000 plus
closing adjustments. Such assets were sold in fiscal 1991. PMI entered into a
license agreement to operate the domestic Ramada franchise system and agreed to
indemnify New World for certain potential tax liabilities associated with the
license. The potential tax liabilities to New World, and all other claims by New
World and PMI against each other, were settled on August 4, 1992 (see Note 7).

F-40
<PAGE> 122

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- CASH AND CASH EQUIVALENTS

Cash and cash equivalents are comprised of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30, 1992 | JULY 31, 1992
------------- | -------------
<S> <C> | <C>
Cash............................................... $ 1,744 | $10,479
Commercial paper and other cash equivalents........ 58,398 | 29,014
------- | -------
TOTALS........................................... $60,142 | $39,493
======= | =======
</TABLE>

NOTE 6 -- RESTRICTED CASH -- LONG TERM

Restricted cash consists primarily of commercial paper of $43,947,000 at
June 30, 1992. Restricted cash consists of cash in bank of $360,000 and
commercial paper of $872,000 at July 31, 1992.

NOTE 7 -- MORTGAGES AND OTHER NOTES RECEIVABLE

Mortgages and other notes receivable are comprised of the following and are
stated at face value, net of writedowns and valuation reserves as of June 30,
1992. As of July 31, 1992, these assets have been valued at their fair market
value (in thousands):

<TABLE>
<CAPTION>
JUNE 30, | JULY 31,
1992 | 1992
-------- | --------
<S> <C> | <C>
Frenchman's Reef resort hotel(a)............................... $ 78,996 | $ 50,000
Rose and Cohen entities(b)..................................... 100,890 | 25,000
FCD and Servico(c)............................................. 29,899 | 19,756
New World(d)................................................... 58,000 | 42,000
Properties managed by the Company(e)........................... 198,441 | 70,089
Other(f)....................................................... 52,308 | 19,704
-------- | --------
Totals............................................... 518,534 | 226,549
Less writedowns and valuation reserves......................... 260,585 | --
-------- | --------
Totals............................................... 257,949 | 226,549
Less current portion........................................... 63,506 | 48,006
-------- | --------
LONG-TERM PORTION.............................................. $194,443 | $178,543
======== | ========
</TABLE>

- ---------------
(a) The mortgage notes are secured by the Frenchman's Reef resort hotel, which
is managed by the Company, and consist of first and second mortgages with
face values of $53,383,000 and $25,613,000, respectively, with final
scheduled principal payments of $51,976,000 and $25,613,000 due on July 31,
1995. The notes bear interest at a stated rate of 13%. Interest and
principal payments on the first mortgage are payable in monthly
installments. Interest and scheduled principal payments on the second
mortgage note are payable only to the extent of available cash flow, as
defined, with any unpaid interest due at maturity. Based on a valuation of
the property, PMI wrote down the second mortgage to $11,400,000 as of June
30, 1990 and discontinued the accrual of interest. As a result of the
continuing decline in economic conditions and operating cash flows, the
balance of the second mortgage was written off in fiscal 1992. In connection
with the adoption of Fresh Start Reporting at July 31, 1992, the Company has
|0 valued these notes at $50,000,000.

During the one month ended July 31, 1992, the Company recognized $345,000 of
interest income on these notes (an effective rate of approximately 8.3%),
based on the current levels of cash flows generated from the property
available to service the notes. The Company is in the process of
renegotiating the terms of these notes based on the current level of cash
flow generated by the property.

F-41
<PAGE> 123

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) From 1988 through 1990, PMI loaned entities controlled by Allan Rose and
Arthur Cohen (the "Rose and Cohen entities"), who at such time were
significant Howard Johnson franchisees, an aggregate of $100,890,000 fully
secured initially by property and/or personal guarantees. PMI was committed
to make additional loans, also on a fully secured basis, to the Rose and
Cohen entities of up to an aggregate of $130,000,000 if values of, and/or
revenues generated by, certain hotel properties controlled by the Rose and
Cohen entities attained specified levels. PMI was to receive a minimum
annual return of 10% on all loans made to the Rose and Cohen entities and a
maximum return of 20%. All loans and unpaid interest are payable on December
31, 1997.

Due to the decline in value of the hotel properties pledged as collateral
for the loan and the continuing decline in the hotel real estate market, PMI
discontinued funding additional loans in fiscal 1990. Further, based on
PMI's estimate of the value of the collateral and the personal guarantees of
Rose and Cohen and discussions related to the possible early payment of the
loan, PMI wrote down the loan to $50,000,000 as of June 30, 1990 and
discontinued the accrual of interest.
In 1992, certain of the Rose and Cohen entities owning a portion of the
collateral that secures the loans filed for Chapter 11 protection in the
United States Bankruptcy Court, Southern District of New York. Also during
1992, the Company commenced an adversary proceeding against Rose and Cohen.
The complaint seeks to recover jointly and severally on the personal
guarantees of $50,000,000 given by Rose and Cohen as part of the loan
agreement. As a result of further evaluation of the collateral and the
personal guarantees, PMI wrote down the loan to $30,000,000 as of June 30,
1992 and $25,000,000 as of July 31, 1992.

(c) In April 1989, PMI loaned FCD Hospitality, Inc. ("FCD"), an unaffiliated
company, approximately $74,000,000 in cash for the purpose of financing
FCD's acquisition of the outstanding common stock of Servico, Inc.
("Servico"), an operator of hotels. The loan was secured by the common stock
of Servico, FCD and certain FCD affiliates, and was originally due prior to
June 30, 1990. Interest was due at the prime rate plus 1%. PMI also entered
into an agreement with FCD pursuant to which PMI would provide management
consulting services for approximately $63,000,000 through June 1990.
Additionally, in April 1989, PMI purchased approximately $80,000,000 of
Servico's outstanding 12 1/4% subordinated notes due April 15, 1997 for
approximately $64,000,000 (80% of par value).

Subsequent to April 1989, PMI entered into certain other transactions
including working capital loans and the sale of certain hotels to Servico.
Servico also pledged a substantial portion of its hotel properties and
mortgage notes receivable on hotel properties as collateral and/or in
satisfaction of its commitments on the loan to FCD and the consulting
agreement.
On September 18, 1990, Servico and certain of its subsidiaries filed for
Chapter 11 protection. After an extensive valuation and recovery analysis
performed by PMI and Servico, PMI agreed to settle all claims and disputes
with Servico and FCD in June 1991. Under the terms of the agreement, which
was approved by the Bankruptcy Court, the FCD loan, the subordinated notes,
loans related to sales of properties and working capital and all accrued
interest relating to these notes and loans with a face value of $166,210,000
were forgiven. As part of the settlement, PMI retained ownership of certain
mortgage notes receivable with a face value of approximately $30,000,000
that are secured by three hotel properties. The entity that owns one of the
properties filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code in December 1990. Subsequent to July 31, 1992, the Company
has restructured the note receivable to receive payments based on the
property's available cash flow.

Based on the valuation of the mortgage notes on the three properties, PMI
wrote down the FCD Loan and Servico notes to $16,757,000 as of June 30, 1990
and discontinued the accrual of interest. In connection with the adoption of
Fresh Start Reporting, the Company has valued the notes at $19,756,000 at
July 31, 1992.

(d) In connection with the Ramada acquisition in December 1989, PMI agreed to
loan New World $58,000,000 (see Note 4). Interest was payable quarterly at a
rate of 11%. Principal was to be paid in

F-42
<PAGE> 124

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

installments beginning in 1995 with a final scheduled payment of $55,499,000
due on March 31, 2005. On August 4, 1992, after extensive negotiation and
approval of a settlement by the Bankruptcy Court, the Company collected net
proceeds of $42,000,000 plus accrued interest in full satisfaction of the
$58,000,000 loan balance offset by liabilities subject to compromise related
to the Ramada acquisition with a net carrying value of $16,000,000. The net
proceeds were used to prepay a portion of the Senior Secured Notes issued on
the Effective Date.

(e) At July 31, 1992, the Company held mortgages and other notes receivable
secured by 33 hotel properties operated by the Company under management or
lease agreements. These notes currently bear interest at rates ranging from
8.5% to 14% and mature through 2014.

The mortgages were primarily derived from the sales of hotel properties.
Many of these properties had been unable to pay in full the annual debt
service required under the terms of the original mortgages. The Company has
restructured $33,530,000 of these mortgages to receive the majority of
available cash and to receive a participation in the future excess cash flow
of such hotel properties. The Company is also in process of restructuring
another $9,500,000 of these mortgages.

(f) Other notes receivable bear interest at effective rates ranging from 8% to
12%, mature through 2001 and are secured primarily by hotel properties.

NOTE 8 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements consist of the following and
are stated at cost (other than properties held for sale) at June 30, 1992 and at
fair market value as of July 31, 1992 (in thousands):

<TABLE>
<CAPTION>
JUNE 30, | JULY 31 YEARS OF
1992 | 1992 USEFUL LIFE
-------- | -------- -----------
<S> <C> | <C> <C>
Land and land leased to others............................. $ 25,963 | $ 24,855
Hotels..................................................... 116,192 | 95,942 20 to 45
Furniture, fixtures and autos.............................. 25,346 | 16,192 2 to 10
Leasehold improvements..................................... 13,425 | 15,428 3 to 45
Property and equipment under capital leases................ 93 | -- 2 to 33
-------- | --------
181,019 | 152,417
-------- | --------
Properties held for sale, at net realizable value: |
Development properties................................... 15,544 | 8,000
Non-core properties...................................... 7,019 | --
Properties acquired for resale........................... 248 | --
-------- | --------
22,811 | 8,000
-------- | --------
Less accumulated depreciation and amortization............. (24,358) | --
-------- | --------
TOTALS........................................... $179,472 | $160,417
-------- | --------
</TABLE>

At July 31, 1992, the Company was the lessor of land and certain restaurant
facilities in Company-owned hotels with an approximate aggregate book value of
$12,338,000 pursuant to noncancelable operating leases expiring on various dates
through 2013. Minimum future rentals under such leases are $8,095,000, of which
$3,449,000 is to be received during the five year period ending June 30, 1997.

Depreciation and amortization expense on property, equipment and leasehold
improvements was $6,867,000 and $569,000 for the year ended June 30, 1992 and
for the one month ended July 31, 1992, respectively.

F-43
<PAGE> 125

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Capitalized interest was $139,000 and $0 for the year ended June 30, 1992
and for the one month ended July 31, 1992, respectively.

NOTE 9 -- OTHER CURRENT LIABILITIES

Other current liabilities consist of obligations for the following (in
thousands):

<TABLE>
<CAPTION>
JUNE 30, JULY 31,
1992 1992
-------- --------
<S> <C> <C>
Accounts payable........................................................... $ 1,803 $ 1,801
Bankruptcy claims reserve.................................................. -- 6,591
Rent....................................................................... 1,355 945
Interest................................................................... 3,824 196
Accrued payroll and related benefits....................................... 3,484 3,385
Managed property reserve................................................... 2,042 3,333
Insurance reserve.......................................................... 1,732 756
Professional fees.......................................................... 4,798 6,522
Other...................................................................... 6,906 7,607
------- -------
TOTALS........................................................... $ 25,944 $ 31,136
======= =======
</TABLE>

NOTE 10 -- NOTES PAYABLE

Notes payable consist of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30, JULY 31,
1992 1992
-------- --------
<S> <C> <C>
Notes payable to related party(a).......................................... $ 5,706 $ 5,706
Other notes payable(b)..................................................... 265 265
------- -------
TOTALS........................................................... $ 5,971 $ 5,971
======= =======
</TABLE>

- ---------------
(a) Notes payable to related party are payable to ShoLodge, Inc. ("ShoLodge"), a
company controlled by a director. The notes are secured by three hotel
properties with a book value of $17,354,000 that were constructed in 1992
and 1991. Interest is payable monthly at variable rates ranging from the
prime interest rate (6% at July 31, 1992) plus 1% to the prime rate plus 2%.
One promissory note for $3,000,000 is due in May 1993 and the remainder is
due on demand (see Note 21).

(b) Other notes payable are secured by a hotel property. Interest is payable at
the prime rate plus 2%. The notes are due in May 1993.

NOTE 11 -- LIABILITIES SUBJECT TO COMPROMISE

As a result of the Chapter 11 filing (see Note 1), enforcement of certain
unsecured claims against the Debtors in existence prior to the petition date
were stayed while the Debtors continued business operations as
debtors-in-possession. These claims are reflected in the accompanying
consolidated balance sheet as of June 30, 1992, as liabilities subject to
compromise. Additional unsecured claims classified as liabilities subject to
compromise arose subsequent to the Petition Date resulting from rejection of
executory contracts, including lease, management and franchise agreements, and
from the determination by the Bankruptcy Court (or agreements by the parties in
interest) to allow claims for contingencies and other disputed amounts.
Enforcement of claims secured against the Debtors' assets ("secured claims")
were also stayed although the holders of such claims have the right to move the
Court for relief from the stay. Secured claims are secured

F-44
<PAGE> 126

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

primarily by liens on the Debtors' property, equipment and leasehold
improvements and certain mortgages and other notes receivable.

Creditors have asserted pre- and post-petition claims against the Debtors
alleging liabilities of approximately $9 billion plus unliquidated amounts. The
Company projects that the claims asserted against the Debtors will be resolved
and reduced to an amount that approximates PMI's estimate of $706,250,000
recognized as liabilities subject to compromise as of June 30, 1992. PMI has
filed motions objecting to those claims that are: (a) duplicative; (b)
superseded by amended claims; (c) erroneously asserted against multiple Debtors;
(d) not obligations of any of the Debtors; or (e) filed after the Bar Date (as
hereinafter defined). Additionally, PMI otherwise has disputed a substantial
number of the claims asserted against the Debtors and has filed objections to
such claims. The Bankruptcy Court established May 15, 1991 (the "Bar Date") as
the deadline for filing proofs of claim, except certain specified claims,
against the Debtors.

A significant number of the bankruptcy claims have been resolved. As of
March 1, 1993, unresolved bankruptcy claims of approximately $1 billion have
been asserted against PMI. Approximately $767 million of these unresolved claims
were filed by entities controlled by Allan Rose and Arthur Cohen (see Note 7).

The Company has disputed a substantial number of these unresolved
bankruptcy claims and has filed objections to such claims. In addition, a number
of these claims have been resolved with the claimant and are awaiting approval
by the Bankruptcy Court.

The Company believes that substantially all of these claims will be
dismissed, disallowed or deemed paid pursuant to the Plan and estimates that
unresolved bankruptcy claims will be allowed in the amount of approximately $27
million. These claims will be settled as follows: claims of $18 million will be
satisfied through the issuance of Secured Notes, Restructured Notes and Tax
Notes; claims of $8 million will be satisfied through the distribution of the
Company's Common Stock; and claims of $1 million will be satisfied through cash
payments.

In accordance with SOP 90-7, the July 31, 1992 consolidated financial
statements have given full effect to the issuance of these Secured Notes,
Restructured Notes and Tax Notes and the distribution of the Company's Common
Stock. Liabilities have been provided for the anticipated cash payments.

PMI's liabilities subject to compromise, stated at management's estimate of
the total amount of allowed claims and not at the amounts for which claims will
be settled, consist of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
1992
--------
<S> <C>
Estimated claims:
Trade accounts payable.................................................. $ 28,858
Lease rejection damages................................................. 97,856
Guarantees of third party debt.......................................... 30,529
Other liabilities....................................................... 79,943
--------
Total estimated claims.......................................... 237,186
Long-term debt (Note 12).................................................. 469,064
--------
TOTAL........................................................... $706,250
========
</TABLE>

The amounts listed above may be subject to future adjustments depending on
further developments with respect to disputes or unresolved claims. Information
as to the terms of the settlement of liabilities subject to compromise under the
Plan as of or subsequent to the Effective Date through the distribution of cash,
new indebtedness, new equity securities and/or offset against certain assets
reflected in the accompanying consolidated balance sheets is set forth in Note
2.

F-45
<PAGE> 127

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PMI discontinued accruing interest on certain debt obligations as of the
date such obligations were determined to be subject to compromise. Contractual
interest not accrued and not reflected as an expense in the consolidated
statements of operations, as a result of the Debtors' Chapter 11 filing,
amounted to approximately $28,000,000 for the year ended June 30, 1992 and
$2,300,000 for the one month ended July 31, 1992. Total contractual interest is
disclosed in the accompanying consolidated statements of operations.

NOTE 12 -- LONG-TERM DEBT

As a result of the Chapter 11 filing (see Notes 1 and 11), all long-term
obligations of the Debtors in existence prior to the Petition Date were stayed
and have been classified as liabilities subject to compromise at June 30, 1992.
Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30, | JULY 31,
1992 | 1992
-------- | --------
<S> <C> | <C>
Senior secured notes(a)........................................ $ -- | $ 91,300
Junior secured notes(a)........................................ -- | 69,999
Tax settlement notes(b)........................................ -- | 1,422
Mortgage notes and bonds payable(c)............................ -- | 94,639
Construction financing(d)...................................... 9,002 | 8,995
-------- | --------
Total debt........................................... 9,002 | 266,355
Pre-petition liabilities: |
7% convertible subordinated debentures due 2013(e)........... 115,000 | --
6 5/8% convertible subordinated debentures due 2011(e)....... 115,000 | --
Notes payable to banks under bank credit agreement(f): |
Tranche A and B........................................... 31,848 | --
Tranche C................................................. 60,000 | --
Mortgage notes and bonds due through 2008(g)................. 143,676 | --
Other(h)..................................................... 3,540 | --
-------- | --------
Total debt........................................... 478,066 | 266,355
Less: Liabilities subject to compromise........................ 469,064 | --
Current portion.......................................... 81 | 61,917
-------- | --------
Long-term debt....................................... $ 8,921 | $204,438
======== |
========
</TABLE>

- ---------------
(a) Pursuant to the Plan, the Company issued two classes of Secured Notes which
are identified as "Senior Secured Notes" and "Junior Secured Notes". Senior
Secured Notes were issued in two series of notes which are identified as the
"8.20% Fixed Rate Senior Secured Notes" and the "Adjustable Rate Senior
Secured Notes" (collectively, the "Senior Secured Notes"). Each series is
identical except that the interest rate on the Adjustable Rate Senior
Secured Notes will be periodically adjusted to one-half of one percent over
the daily "prime rate" reported by Chemical Bank, with a maximum interest
rate of 10.0% per annum. The aggregate principal amount of Senior Secured
Notes issued under the Plan was $91,300,000, comprised of $30,100,000 of
8.20% Fixed Rate Secured Notes and $61,200,000 of Adjustable Rate Senior
Notes. On August 11, 1992, the Company prepaid $17,900,000 of the 8.20%
Fixed Rate Senior Secured Notes and $36,400,000 of the Adjustable Rate
Senior Secured Notes from the proceeds of collections of portions of the
collateral for the Senior Secured Notes. The prepaid amounts of $54,300,000
have been classified as current at July 31, 1992.

F-46
<PAGE> 128

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The other class of Secured Notes issued to satisfy claims was comprised of
Junior Secured Notes that bear interest at a rate of 9.20% per annum and
will mature on July 31, 2000. The aggregate principal amount of Junior
Secured Notes issued under the Plan was $70,000,000.

The collateral for the Secured Notes consists primarily of mortgages and
other notes receivable and real property (the "Secured Note Collateral")
with a book value of $143,191,000 as of July 31, 1992.

Interest on the Secured Notes is payable semi-annually commencing January
31, 1993. The Secured Notes require that 85% of the cash proceeds from the
Secured Note Collateral be applied first to interest, second to prepayment
of the Senior Secured Notes and third to prepayment of the Junior Secured
Notes. Any remaining principal balance of the Senior Secured Notes is due
July 31, 1997. Aggregate principal payments on the Junior Secured Notes are
required in order that one-third of the principal balance outstanding on
December 31, 1996 is paid by July 31, 1998; two-thirds of that balance is
paid by July 31, 1999; and all of that balance is paid by July 31, 2000. To
the extent the cash proceeds from the Secured Note Collateral are
insufficient to pay interest or required principal payments on the Secured
Notes, the Company will be obligated to pay any deficiency out of its
general corporate funds.

The Secured Notes contain covenants which, among other things, require the
Company to maintain a net worth of at least $100,000,000, limit expenditures
related to the development of hotel properties through December 31, 1996 and
preclude cash distributions to stockholders, including dividends and
redemptions, until the Secured Notes have been paid in full.

During March 1993, the Company repurchased $9,500,000 of the Junior Secured
Notes for a purchase price of $7,400,000. The repurchase resulted in an
extraordinary gain of $2,100,000, which will be reflected in the Company's
first quarter 1993 consolidated financial statements. These notes have been
classified as long-term debt at July 31, 1992 in accordance with their
terms, as repurchase was not contemplated at the balance sheet date.

(b) Claims of taxing authorities were paid in Tax Notes or cash. Each Tax Note
is in a face amount equal to the allowed claim and provides for annual
payments of principal and interest until maturity on July 31, 1998. Such
payments will be made in equal principal installments, plus simple interest
from July 31, 1992 at the rate of 8.20% per annum, with payments to commence
on July 31, 1993 and with additional payments to be made on each July 31
thereafter.

(c) The Company has $20,734,000 of restructured notes issued to holders of
oversecured and undersecured bankruptcy claims. Each restructured note
matures on July 31, 2002 and is secured by a lien on the collateral which
secured the underlying claim prior to bankruptcy. The notes are secured by
mortgage notes receivable and hotel properties with a book value of
$16,981,000 at July 31, 1992.

The oversecured restructured notes bear interest at a rate of 9.20% per
annum payable semi-annually in cash. Prior to maturity, principal amounts
outstanding will be paid semi-annually based on a thirty-year amortization
schedule. The Company has approximately $7,173,000 of these notes
outstanding at July 31, 1992.

During January 1993, the Company repurchased $1,700,000 of the oversecured
restructured notes for a purchase price of $1,300,000. The repurchase
resulted in an extraordinary gain of $400,000, which will be reflected in
the Company's first quarter 1993 consolidated financial statements. These
notes have been classified as current at July 31, 1992.

The undersecured restructured notes bear interest at a rate of 8% per annum
with interest payable semi-annually in cash. Semi-annual principal payments
begin on July 31, 1996 based on a thirty-year amortization schedule. The
Company has approximately $13,561,000 of these notes outstanding at July 31,
1992.

The Company has other mortgage notes and bonds payable of approximately
$73,905,000 which are due through April 1, 2008 and bear interest at rates
ranging from 4.68% to 10.5% at July 31, 1992. The notes

F-47
<PAGE> 129

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are secured by mortgage notes receivable and hotel properties with a book
value of $83,577,000 at July 31, 1992.

(d) Construction financing obligations primarily consist of two loans payable to
banks with an aggregate balance of $5,193,000 and a loan payable to ShoLodge
of $3,570,000 at July 31, 1992. The loans payable to banks are secured by
mortgages on two hotel properties with a book value of $13,963,000 at July
31, 1992. Principal is payable in monthly installments with the balances due
by June 1994. Interest is payable monthly at the prime rate plus 2%. The
loan payable to ShoLodge is secured by a hotel with a book value of
$7,670,000 at July 31, 1992. Principal is payable in September 1993.
Interest is payable monthly at the prime rate plus 2% (see Note 21).

(e) At June 30, 1992, PMI's 6 5/8% convertible subordinated debentures due 2011
and 7% convertible subordinated debentures due 2013 were convertible at any
time prior to maturity into common stock at $40.568 per share and $43.95 per
share, respectively, and 5,451,342 shares of common stock were reserved for
issuance upon such conversion. Sinking fund payments of $5,750,000 annually
were required commencing April 1, 1997 for the 6 5/8% Debentures and June 1,
1999 for the 7% Debentures. All Debentures were subordinated to all existing
and future senior indebtedness of PMI.

(f) In April 1989, PMI borrowed approximately $140,000,000 from Morgan Bank
pursuant to a demand note (the "Morgan Loan") with interest at the prime
rate. The note was secured by the notes receivable from FCD and Servico and
certain other assets.

In September 1989, PMI entered into a $263,000,000 secured bank credit
agreement (the "Credit Agreement"), expiring March 1991, in which
borrowings (the "Bank Group Loan") were fully utilized by December 1989.
Borrowings bear interest at the prime rate plus 1/2%. The borrowings were
principally incurred to extinguish the Morgan Loan issued in connection
with the Servico transaction ("Tranche A") and to finance PMI's portion of
the Ramada acquisition ("Tranche B"). The Bank Group Loan was secured by
the notes receivable from FCD and Servico, the net assets and common stock
of subsidiaries acquired in the Ramada acquisition, the New World note,
certain other mortgage notes receivable and certain other assets.

In March 1990, PMI prepaid $1,000,000 of the Bank Group Loan with the
proceeds of previously pledged mortgage notes receivable.

In May 1990, PMI prepaid $40,000,000 of the Bank Group Loan from proceeds
from the collection of a receivable related to the sale of a hotel property
in fiscal 1989. In June 1990, PMI prepaid $1,000,000 of the Bank Group Loan
with the proceeds of certain previously pledged mortgage notes receivable.

In July 1990, PMI prepaid approximately $171,200,000 of the Bank Group Loan
from the proceeds of the sale of the Howard Johnson, Ramada and Rodeway
franchise businesses. In July 1990, the Credit Agreement was amended to
convert $60,000,000 of $65,000,000 of unsecured demand loans then
outstanding, which had been borrowed in fiscal 1990 to fund construction,
into secured term loans ("Tranche C"). In addition, certain unsecured
letter of credit reimbursement obligations were converted into Tranche C
secured obligations. PMI also pledged additional collateral and certain
then-existing defaults under the Bank Credit Agreement were waived.

In July 1990, PMI paid the remaining $5,000,000 of unsecured demand notes
then outstanding.

(g) Other mortgage notes and bonds payable consist of debt secured by properties
operated by PMI or notes receivable held by PMI. Principal is due in
installments through 2009. Interest rates are generally variable ranging
from 5% to 15% at June 30, 1992.

(h) Other debt as of June 30, 1992 consists of an unsecured note bearing
interest at the rate of 17%.

F-48
<PAGE> 130

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At July 31, 1992, maturities of long-term debt for the next five years
ending July 31 are as follows (in thousands):

<TABLE>
<S> <C>
1993...................................................... $ 61,917
1994...................................................... 13,849
1995...................................................... 3,429
1996...................................................... 8,010
1997...................................................... 72,285
Thereafter................................................ 106,865
--------
TOTAL........................................... $266,355
========
</TABLE>

NOTE 13 -- LEASE COMMITMENTS

The Company leases various hotels under lease agreements with initial terms
expiring at various dates from 1998 through 2019. The Company has options to
renew certain of the leases for periods ranging from 1 to 94 years. Rental
payments are based on minimum rentals plus a percentage of the hotel's revenues
in excess of stipulated amounts. As a result of the Chapter 11 filing, all lease
contracts were reviewed during 1991 and a determination was made as to whether
to accept or reject these contracts. The commitments shown below reflect those
lease contracts which the Company has assumed.

The following is a schedule by year of future minimum lease payments
required under the remaining operating leases for core properties that have
terms in excess of one year as of July 31, 1992 (in thousands):

<TABLE>
<S> <C>
1993....................................................... $ 4,079
1994....................................................... 4,047
1995....................................................... 4,003
1996....................................................... 3,970
1997....................................................... 3,938
Thereafter................................................. 48,125
-------
TOTAL............................................ $68,162
=======
</TABLE>

Rental expense for all operating leases, including those with terms of less
than one year, is comprised as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
JUNE 30, 1992 JULY 31, 1992
------------- ---------------
<S> <C> <C>
Rentals........................................ $ 6,866 $ 520
Contingent rentals............................. 814 53
------ ----
Gross rental expense........................... 7,680 573
Rental income from subleases................... (61) (6)
------ ----
NET RENTAL EXPENSE................... $ 7,619 $ 567
====== ====
</TABLE>

NOTE 14 -- CONTINGENCIES

PMI and certain of its present and former officers and directors were named
as defendants in purported class action lawsuits on behalf of purchasers of
PMI's common stock and debentures. The lawsuits allege that PMI made materially
false and misleading statements and omissions regarding its financial condition
in violation of Federal securities laws and other claims. A settlement was
consummated in February 1993 which was funded through insurance proceeds.

F-49
<PAGE> 131

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has responded to informal requests for information by the Staff
of the United States Securities and Exchange Commission's Division of
Enforcement relating to a number of significant transactions of PMI for the
years 1985 through 1991. However, no formal allegations have been made by the
Staff.

In addition to the foregoing legal proceedings, the Company is involved in
various other proceedings incidental to the normal course of its business.

The Company believes that the resolutions of these contingencies will not
have a material adverse effect on the Company's consolidated financial position
or results of operations.

NOTE 15 -- REORGANIZATION EXPENSES

The net expenses incurred as a result of the Debtors' Chapter 11 filing on
September 18, 1990 and subsequent reorganization efforts have been segregated
from normal operating expenses and presented as reorganization expenses in the
accompanying consolidated statements of income for the year ended June 30, 1992
and for the one month ended July 31, 1992.

Reorganization expenses are comprised of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ONE MONTH
ENDED ENDED
JUNE 30, JULY 31,
1992 1992
------ ---------
<S> <C> <C>
Professional fees and other expenses........................... $19,297 $ 902
Lease rejection damages........................................ 981 --
Guarantees of third party debt................................. 3,250 --
Other claims arising from bankruptcy........................... 1,786 --
Loss on disposal of assets..................................... 2,307 --
Interest earned on accumulated cash resulting from Chapter 11
proceedings.................................................. (4,427) (298)
Insurance recovery proceeds.................................... -- (2,400)
------- -------
TOTALS............................................... $23,194 $(1,796)
======= =======
</TABLE>

NOTE 16 -- VALUATION WRITEDOWNS AND RESERVES

Valuation writedowns and reserves have been recorded in order to adjust the
carrying value of assets and liabilities resulting from the restructuring of
PMI's business and general economic conditions and primarily consist of the
following (in thousands):

<TABLE>
<CAPTION>
YEAR ONE MONTH
ENDED ENDED
JUNE 30, JULY 31,
1992 1992
------ ---------
<S> <C> <C>
Accounts receivable............................................ $ 2,722 $ --
Mortgages and notes receivable................................. 49,479 13,000
Property, equipment and leasehold improvements................. 9,000 --
Other items.................................................... 922 --
------- -------
TOTALS............................................... $62,123 $13,000
======= =======
</TABLE>

The valuation writedowns and reserves for the year ended June 30, 1992
shown above were all recognized in the fourth quarter.

F-50
<PAGE> 132

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition to the above, valuation writedowns and reserves of $20,578,000
and $-0- were charged against deferred income for the year ended June 30, 1992
and for the one month ended July 31, 1992, respectively.

NOTE 17 -- INCOME TAXES

Income taxes have been provided as follows (in thousands):

YEAR ONE MONTH
ENDED ENDED
JUNE 30, JULY 31,
1992 1992
------ ---------
<S> <C> <C>
Current:
State......................................................... $1,000 $--
------ ---
Totals................................................ $1,000 $--
====== ===
</TABLE>

The difference between total income taxes and the amount computed by
applying the Federal statutory income tax rate of 34% to income (loss) from
operations before income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ONE MONTH
ENDED ENDED
JUNE 30, JULY 31,
1992 1992
-------- ---------
<S> <C> <C>
Federal income tax credit at statutory rates.................. $(24,128) $(3,493)
Increase in tax resulting from:
Accounting losses for which deferred Federal income tax
cannot be recognized..................................... 24,468 3,493
State income taxes.......................................... 660 --
-------- -------
TOTALS.............................................. $ 1,000 $ --
======== =======
</TABLE>

The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions (credits) (in thousands):

<TABLE>
<CAPTION>
YEAR ONE MONTH
ENDED ENDED
JUNE 30, JULY 31,
1992 1992
-------- ---------
<S> <C> <C>
Reserve for doubtful accounts................................... $ (736) $ --
Reserve for property valuations................................. (127) --
Net temporary differences without tax benefit................... 359 --
Lease rejection damages......................................... 423 --
Depreciation and amortization................................... 14 --
Gains on property sales......................................... (33) --
Other........................................................... 100 --
----- ----
TOTALS................................................ $ -- $ --
===== ====
</TABLE>

No Federal income tax was payable at July 31, 1992 due primarily to the
utilization of net operating loss carryforwards.

At July 31, 1992, the Company had net operating loss carryforwards of
approximately $347,000,000 for Federal income tax purposes. Such tax net
operating loss carryforwards, if not used as offsets to future taxable income,
will expire beginning in 2005 and continuing through 2007. The amount of net
operating loss carryforwards available for future utilization is limited to
$130,500,000 during the carryforward period as a result of the change in
ownership of the Company upon consummation of the Plan.

F-51
<PAGE> 133

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PMI's Federal income tax returns for the years 1987 through 1991 are
currently under examination by the Internal Revenue Service. The Company does
not believe there will be any material adverse effects on the consolidated
financial statements as a result of this examination.

NOTE 18 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS

Pursuant to the Plan, on July 31, 1992, the Company began distributing
33,000,000 shares of Common Stock to certain claimants and holders of PMI stock.
At March 2, 1993, 22,623,100 shares of Common Stock were distributed. The
remaining shares are to be distributed semi-annually to holders of previously
allowed claims and pending final resolution of disputed claims (see Note 11). In
addition, holders of PMI stock will receive Warrants to purchase Common Stock
exercisable into an aggregate of approximately 2,100,000 shares at an exercise
price equal to the average per share daily closing price during the year ending
July 31, 1993.

On July 31, 1992, the Company adopted a stock option plan under which
options to purchase up to 1,320,000 shares of Common Stock may be granted to
directors, officers or key employees under terms determined by the Board of
Directors. During 1992, options to purchase 350,000 shares were granted to
officers and directors none of which are exercisable at July 31, 1992. In
addition, options to purchase 330,000 shares were granted to a former officer.
Such options are currently exercisable and expire on July 31, 1995. The exercise
prices of the above options are dependent on the average market price one year
from the date of grant and are, therefore, currently undeterminable.

On July 31, 1992, the Company adopted a performance incentive plan under
which stock options covering an additional 330,000 shares of Common Stock were
reserved for grants to key employees at the discretion of management. No options
have been issued under this plan.

PMI had an employee incentive stock option plan which provided for grants
of stock options covering an aggregate of 3,520,000 shares of common stock to
officers and key employees. Under the terms of the plan, which expired on
November 23, 1991, options were granted at a price not less than 100% of fair
market value on the date of grant. Options generally were exercisable in
cumulative installments of 33 1/3% after the option has been outstanding 18, 32
and 46 months from the date of grant and expired five years after the date of
grant.

A summary of the transactions under this plan follows:

<TABLE>
<CAPTION>
NUMBER
OF OPTION PRICE
SHARES PER SHARE
-------- ---------------
<S> <C> <C>
Outstanding -- June 30, 1991.............................. 950,574 $8.25 - $40.45
Cancelled................................................. (950,574) $8.25 - $40.45
--------
Outstanding and exercisable -- June 30, 1992.............. --
Outstanding and exercisable -- July 31, 1992.............. --
========
</TABLE>

F-52
<PAGE> 134

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19 -- INTEREST AND DIVIDEND INCOME

Included in interest and dividend income are the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
JUNE 30, 1992 JULY 31, 1992
------------- ---------------
<S> <C> <C>
Interest on mortgages and other notes receivable....... $24,117 $ 1,949
Dividend income........................................ 10 --
------- ------
TOTALS....................................... $24,127 $ 1,949
======= ======
</TABLE>

NOTE 20 -- OTHER REVENUES

Included in other revenues are the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
JUNE 30, 1992 JULY 31, 1992
------------- ---------------
<S> <C> <C>
Rentals of properties.................................. $ 1,649 $ 144
Other.................................................. 1,460 89
------ ----
TOTALS....................................... $ 3,109 $ 233
====== ====
</TABLE>

NOTE 21 -- RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
JUNE 30, 1992 JULY 31, 1992
------------- ---------------
<S> <C> <C>
Management and other fee income(a)..................... $ 746 $56
Interest income(a)..................................... 1,231 74
Rental income(a)....................................... 657 --
Management fee expense(b).............................. 216 37
Interest expense(b).................................... 250 66
Reservation fee expense(b)............................. 10 20
</TABLE>

- ---------------
(a) During 1990, PMI sold eight hotel properties to partnerships controlled by
former officers and/or directors for aggregate consideration of $52,500,000
resulting in deferred gains of $4,000,000. The Company held mortgages and
other notes receivable with a face value of $44,992,000 at July 31, 1992,
which arose primarily from those hotel sales. The mortgages mature through
2005 and bear interest at rates ranging from 9.5% to 12.5%. At July 31,
1992, the carrying value of those mortgages was reduced to $6,081,000. The
income amounts shown above primarily include transactions related to these
properties.

(b) In 1991, PMI entered into an agreement with ShoLodge, whereby ShoLodge was
appointed the exclusive agent to develop and manage certain hotel
properties. Six hotels have been developed and opened to date. Development
fees earned by ShoLodge of $586,000 and $-0- have been capitalized into
property, equipment and leasehold improvements for the year ended June 1992
and the one month ended July 1992, respectively. The Company has demand
notes and loans payable to ShoLodge of $2,706,000 and $3,570,000,
respectively, at July 31, 1992 concerning the development of hotels.

Effective June 1992, the Company commenced using the ShoLodge reservation
system for its Wellesley and AmeriSuites hotels.

F-53
<PAGE> 135

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 22 -- SUPPLEMENTAL CASH FLOW INFORMATION

PMI generally received mortgages and other notes as a portion of the total
consideration paid by purchasers in connection with sales of hotel properties
and as consideration for certain construction and development activities. Such
noncash consideration is not reflected in the accompanying consolidated
statements of cash flows. Investing activities involving such noncash proceeds
are summarized below (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
JUNE 30, 1992 JULY 31, 1992
------------- ---------------
<S> <C> <C>
Net book value of assets sold.......................... $ 1,539 $--
Net realized gains on property transactions............ 15 --
Cash proceeds, net of selling costs.................... (249) --
------ ---
NONCASH PROCEEDS............................. $ 1,305 $--
====== ===
</TABLE>

Noncash proceeds consisted of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
JUNE 30, 1992 JULY 31, 1992
------------- ---------------
<S> <C> <C>
Mortgage and other notes receivable.................... $ 1,305 $--
</TABLE>

Cash paid for interest net of amounts capitalized was $6,432,000 for the
year ended June 30, 1992 and $4,407,000 for the one month ended July 31, 1992.

Cash paid for income taxes was $1,460,000 for the year ended June 30, 1992
and $2,000 for the one month ended July 31, 1992.

F-54
<PAGE> 136

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY PRIME HOSPITALITY CORP. OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THOSE TO WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PRIME
HOSPITALITY CORP. SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
The Company........................... 15
Use of Proceeds....................... 15
Capitalization........................ 15
Recent Consolidated Financial and
Other Data.......................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Selected Consolidated Financial Data
of the Company and its
Predecessor......................... 31
Business.............................. 32
Management............................ 45
Description of Notes.................. 47
Description of Certain Indebtedness... 76
Underwriting.......................... 78
Legal Matters......................... 78
Experts............................... 78
Available Information................. 79
Incorporation of Certain Documents by
Reference........................... 79
Index to Financial Statements......... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------

$120,000,000

LOGO

% FIRST MORTGAGE NOTES
DUE 2006
------------------------

PROSPECTUS

JANUARY , 1996
------------------------
SMITH BARNEY INC.

BT SECURITIES CORPORATION

MONTGOMERY SECURITIES
------------------------------------------------------
------------------------------------------------------
<PAGE> 137

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the Notes being registered which will be paid solely by
the Company. All the amounts shown are estimates, except the Securities and
Exchange Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee:

<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 41,380
NASD Fee.................................................................. 12,500
Trustee Fees and Expenses................................................. 12,000
Printing and Engraving Expenses........................................... 100,000
Legal Fees and Expenses................................................... 220,000
Accounting Fees and Expenses.............................................. 40,000
Blue Sky Fees and Expenses................................................ 20,000
Rating Agency Fees........................................................ 50,000
Miscellaneous Expenses.................................................... 4,120
--------
Total........................................................... $500,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final action of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.

A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses (including attorneys' fees) which he or she actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under any corporation's by-law, agreement, vote or otherwise.

In accordance with Section 145 of the DGCL, Article 8 of the Company's
Restated Certificate of Incorporation (the "Restated Certificate") and the
Company's By-Laws (the "By-Laws") provide that the Company shall indemnify to
the fullest extent permitted under and in accordance with the laws of the State
of Delaware any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the

II-1
<PAGE> 138

fact that he is or was a director, officer, employee or agent of the Company, or
is or was serving at the request of the Company as director, officer, trustee,
employee or agent of or in any other capacity with another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The indemnification provided by the Restated Certificate
and the By-Laws shall not be deemed exclusive of any other rights to which any
of those seeking indemnification or advancement of expenses may be entitled
under any other contract or agreement between the Company and any officer,
director, employee or agent of the Company. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall (in the case of any action,
suit or proceeding against a director of the Company) or may (in the case of any
action, suit or proceeding against an officer, trustee, employee or agent) be
paid by the Company in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors of the Company upon receipt
of an undertaking by or on behalf of the indemnified person to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the Company. Subparagraph (d) of Article 8 of the Restated Certificate
provides that neither the amendment or repeal of, nor the adoption of any
provision inconsistent with, the above-referenced provisions of the Restated
Certificate shall eliminate or reduce the effect of such provisions in respect
of any matter occurring before such amendment, repeal or adoption of an
inconsistent provision or in respect of any cause of action, suit or claim
relating to any such matter which would have given rise to a right of
indemnification or right to receive expenses pursuant to such provisions if any
such provision had not been so amended or repealed or if a provision
inconsistent therewith had not been so adopted. Subparagraph (e) of Article 8 of
the Restated Certificate provides that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or any amendment
thereto or successor provision thereto, or (iv) for any transaction from which
the director derived an improper personal benefit. If the DGCL is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the DGCL as so amended.

II-2
<PAGE> 139

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT REPORT OR REGISTRATION STATEMENT IN
NUMBER DESCRIPTION WHICH DOCUMENT IS CONTAINED
- ------ ------------------------------------- -------------------------------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement Filed herewith
2.1 -- Disclosure Statement for Debtors'
Second Amended Joint Plan of
Reorganization dated January 16,
1992, which includes the Debtors'
Second Amended Plan of Reorganization
as an exhibit thereto Filed as Exhibit 2(c) to the
Company's Form 8-A dated July 9, 1992
4.1 -- Specimen Note Contained within Exhibit 4.2
4.2 -- Form of Indenture, between the
Company and Norwest Bank Minnesota,
National Association, as the Trustee To be filed by amendment
4.3 -- Form of Deed of Trust, Security
Agreement, Assignment of Rents and
Leases and Fixture Filing Contained within Exhibit 4.2
5.1 -- Opinion of Willkie Farr & Gallagher To be filed by amendment
12.1 -- Statement re: Computation of Ratios Previously filed
23.1 -- Consent of Willkie Farr & Gallagher Contained within Exhibit 5.1
23.2 -- Consent of Arthur Andersen LLP Filed herewith
23.3 -- Consent of J.H. Cohn & Company Filed herewith
24.1 -- Power of Attorney Previously filed
25.1 -- Statement of Eligibility of Trustee Filed herewith
</TABLE>

ITEM 17. UNDERTAKINGS

(1) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Certificate, By-Laws, the Underwriting Agreement or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

(2) The Registrant hereby undertakes that

(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and this Offering of such securities at that time shall be
deemed to be the initial bona fide Offering thereof.

II-3
<PAGE> 140

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements of filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 21st day of
December, 1995.

PRIME HOSPITALITY CORP.

By: /s/ DAVID A. SIMON
------------------------------------
David A. Simon,
Chairman of the Board,
President and Chief Executive
Officer

II-4
<PAGE> 141

Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement has been signed below by the
following persons, in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
/s/ DAVID A. SIMON Chairman of the Board, December 21, 1995
- ------------------------------------------ President, Chief Executive
David A. Simon Officer and Director
(principal executive officer)
/s/ JOHN M. ELWOOD Chief Financial Officer, December 21, 1995
- ------------------------------------------ Executive Vice President and
John M. Elwood Director (principal financial
and accounting officer)
* Director December 21, 1995
- ------------------------------------------
Herbert Lust, II
* Director December 21, 1995
- ------------------------------------------
Jack H. Nusbaum
* Director December 21, 1995
- ------------------------------------------
Allen J. Ostroff
* Director December 21, 1995
- ------------------------------------------
A.F. Petrocelli
* Director December 21, 1995
- ------------------------------------------
Howard M. Lorber

*By: /s/ JOHN M. ELWOOD
- ------------------------------------------
John M. Elwood
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 142

APPENDIX I

This Registration Statement contains spaces for the following graphic and
image materials:

(1) The front cover will be folded. The inside front cover contains a map
of the United States showing the states where the Company's hotels are located
or under development. States with four or more hotels are in blue. States with
fewer than four hotels are in orange. States with AmeriSuites under development
are shaded.

(2) The fold-out portion of the front cover contains photographs of hotels
and a map. The left side contains an exterior photograph of an AmeriSuites
hotel, a map indicating the location of AmeriSuites hotels, an exterior
photograph of an AmeriSuites business center and an interior photograph of an
AmeriSuites room. The right side contains photographs of the Crowne Plaza, Las
Vegas, Nevada, the lobby of the Weehawken, New Jersey Ramada and the Crowne
Plaza, Portland, Oregon.

(3) The inside back cover contains an exterior photograph of the Wellesley
Inn, Orlando, Florida, a photograph of a typical Wellesley Inn room and a
photograph of a typical Wellesley Inn lobby.

<PAGE> 143

EXHIBIT INDEX

<TABLE>
<CAPTION>
REPORT OR REGISTRATION STATEMENT SEQUENTIALLY
EXHIBIT IN NUMBERED
NUMBER DESCRIPTION WHICH DOCUMENT IS CONTAINED PAGES
- ------ --------------------------------------- --------------------------------- ------------
<S> <C> <C> <C> <C>
1.1 -- Form of Underwriting Agreement Filed herewith
2.1 -- Disclosure Statement for Debtors'
Second Amended Joint Plan of
Reorganization dated January 16, 1992,
which includes the Debtors' Second
Amended Plan of Reorganization as an
exhibit thereto Filed as Exhibit 2(c) to the
Company's Form 8-A dated July 9,
1992
4.1 -- Specimen Note Contained within Exhibit 4.2
4.2 -- Form of Indenture, between the Company
and Norwest Bank Minnesota, National
Association, as the Trustee To be filed by amendment
4.3 -- Form of Deed of Trust, Security
Agreement, Assignment of Rents and
Leases and Fixture Filing Contained within Exhibit 4.2
5.1 -- Opinion of Willkie Farr & Gallagher To be filed by amendment
12.1 -- Statement re: Computation of Ratios Previously filed
23.1 -- Consent of Willkie Farr & Gallagher Contained within Exhibit 5.1
23.2 -- Consent of Arthur Andersen LLP Filed herewith
23.3 -- Consent of J.H. Cohn & Company Filed herewith
24.1 -- Power of Attorney Previously filed
25.1 -- Statement of Eligibility of Trustee Filed herewith
</TABLE>

<PAGE> 1
L&W DRAFT OF 12/18/95

$120,000,000

PRIME HOSPITALITY CORP.

___% First Mortgage Notes due 2006

UNDERWRITING AGREEMENT

January , 1996

SMITH BARNEY INC.
BT SECURITIES CORPORATION
MONTGOMERY SECURITIES

c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013

Ladies and Gentleman:

Prime Hospitality Corp., a Delaware corporation (the "Company"),
proposes, upon the terms and conditions set forth herein, to issue and sell
$120,000,000 aggregate principal amount of its ___% First Mortgage Notes due
2006 (the "Notes") to Smith Barney Inc., BT Securities Corporation and
Montgomery Securities (the "Underwriters"). The Notes will be issued pursuant
to the provisions of an Indenture to be dated as of January ___, 1996 (the
"Indenture") between the Company and Norwest Bank Minnesota, National
Association, as Trustee (the "Trustee"). The payment of principal and interest
on the Notes and the performance of the obligations of the Company under the
Indenture will be secured by first priority security interests in the
Collateral pursuant to the Collateral Documents listed on Schedule I hereto
(the "Collateral Documents"). Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Indenture.

The Company wishes to confirm as follows its agreement with the
Underwriters, in connection with the purchase of the Notes by the Underwriters.

1. Registration Statement and Prospectus. A registration
statement on Form S-3 (Registration No. 33-64685) with respect to the Notes,
including a preliminary form of prospectus, has been carefully prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and the rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission; one or more amendments to such registration
statement may have been so prepared and may have been, or may be, so filed,
including either (i) prior to effectiveness of such registration statement, a
further amendment to such registration statement (including the form of final
prospectus) or (ii) after effectiveness of such registration statement, a final
prospectus in accordance with Rules 430A and 424(b)(1) or (4) under the Act.
Copies of such registration statement and amendments, each related preliminary
prospectus (the "Preliminary Prospectus") (including four fully executed copies
of the registration statement and each amendment thereto) and the pre-effective
prospectus or final form of prospectus have been delivered to the Underwriters.
Such registration statement as amended at the time it becomes effective or, if
<PAGE> 2
a post-effective amendment is filed with respect thereto, as amended by such
post-effective amendment at the time of its effectiveness, including in each
case information incorporated by reference therein and financial statements and
exhibits, and the information (if any) contained in a prospectus subsequently
filed with the Commission pursuant to Rule 424(b) under the Act and deemed to
be a part of the registration at the time of its effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement;"
and such prospectus as then amended including such information incorporated by
reference therein, or first used to confirm sales, whether or not filed with
the Commission pursuant to Rule 424(b) under the Act, is herein after referred
to as the "Prospectus."

2. Agreements to Sell and Purchase. The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of % of the
principal amount thereof, the principal amount of Notes set forth opposite the
name of such Underwriter in Schedule I hereto.

3. Terms of Public Offering. The Company has been advised by the
Underwriters that the Underwriters propose to make a public offering of their
respective portions of the Notes as soon after the Registration Statement and
this Agreement have become effective as in the Underwriters' judgment is
advisable and initially to offer the Notes upon the terms set forth in the
Prospectus.

4. Delivery of the Notes and Payment Therefor. Delivery to the
Underwriters of and payment for the Notes shall be made at the office of Latham
& Watkins, 885 Third Avenue, New York, NY 10022, at 10:00 A.M., New York City
time, on January ___, 1996 (the "Closing Date"). The place of closing for the
Notes and the Closing Date may be varied by agreement between the Underwriters
and the Company.

The Notes will be delivered to the Underwriters against payment of the
purchase price therefor by certified or official bank check or checks payable
in New York Clearing House (next day) funds to the order of the Company and
registered in such names and in such denominations as the Underwriters shall
request prior to 9:30 A.M., New York City time, on the second business day
preceding the Closing Date. The Notes to be delivered to the Underwriters
shall be made available to the Underwriters in New York City for inspection and
packaging not later than 9:30 A.M., New York City time, on the business day
next preceding the Closing Date. Time shall be of the essence, and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.

5. Agreements of the Company. The Company covenants and agrees
with the several Underwriters as follows:

(a) The Company will cause the Prospectus to be filed with
the Commission as required by Section 1 hereof (but only if the
Underwriters have not reasonably objected thereto by notice to the
Company after having been furnished a copy a reasonable time prior to
filing) and will notify the Underwriters promptly of such filing; the
Company will notify the Underwriters promptly of the time when any
subsequent amendment to the Registration Statement has become effective
or any supplement to the Prospectus has been filed and of any request
by the Commission for any amendment or supplement to the Registration
Statement or Prospectus or for additional information; the Company will
prepare and file with the Commission, promptly upon the Underwriters'
request, any amendments or supplements to the Registration Statement or
Prospectus that, in the Underwriters' opinion, may be necessary or
advisable in connection with the distribution of the Notes by the
Underwriters; and the Company will file no amendment or supplement to
the Registration Statement or Prospectus to which the Underwriters
shall reasonably object by notice to the Company after

2
<PAGE> 3
having been furnished a copy a reasonable time prior to the filing. In
the event that the Company and the Underwriters agree that the
Prospectus should be amended or supplemented, the Company, if requested
by the Underwriters, will promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or
supplement.

(b) The Company will advise the Underwriters, promptly
after it shall have received notice or obtained knowledge thereof, of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, of the suspension of the
qualification of the Notes for offering or sale in any jurisdiction, or
of the initiation or threatening of any proceeding for any such
purpose; and the Company will promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if such a
stop order should be issued.

(c) Within the time during which a prospectus relating to
the Notes is required to be delivered under the Act, the Company will
comply as far as it is able with all requirements imposed upon it by
the Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Notes as
contemplated by the provisions hereof and the Prospectus. If during
such period any event occurs as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances then existing,
not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the
Act, the Company will promptly notify the Underwriters and will amend
the Registration Statement or supplement the Prospectus (at the expense
of the Company) so as to correct such statement or omission or effect
such compliance.

(d) The Company will make generally available to its
security holders as soon as practicable, but in any event not later
than 15 months after the end of the Company's current fiscal quarter,
an earnings statement (which need not be audited) covering a 12-month
period beginning after the effective date of the Registration Statement
that shall satisfy the provisions of Section 11(a) of the Act.

(e) The Company will furnish to the Underwriters copies of
the Registration Statement (four of which will be signed and will
include all exhibits), each Preliminary Prospectus, the Prospectus, and
all amendments and supplements to such documents, in each case as soon
as available and in such quantities as the Underwriters may from time
to time reasonably request. The Company consents to the use, in
accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Notes are offered by
the several Underwriters and by dealers of each Preliminary Prospectus
and each Prospectus furnished by the Company.

(f) The Company will use its best efforts to qualify the
Notes for sale under the securities laws of such jurisdictions as the
Underwriters reasonably designate and to continue such qualifications
in effect so long as required for the distribution of the Notes but in
no event for more than 180 days, except that the Company shall not be
required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any jurisdiction
or to subject itself to general taxation in respect of doing business
in any jurisdiction in which it is not otherwise so subject. The
Company will also arrange for the determination of the eligibility for
investment of the Notes under the laws of such jurisdictions as the
Underwriters reasonably request.

(g) During the period of five years hereafter, the Company
will furnish to the Underwriters: (i) as soon as practicable after the
end of each fiscal year, copies of the Annual Report

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<PAGE> 4
of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, stockholders' equity
and cash flows for the year then ended and the opinion thereon of the
Company's independent public accountants; (ii) as soon as practicable
after the filing thereof, copies of each proxy statement Annual Report
on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other
report filed by the Company with the Commission the National Association
of Securities Dealers, Inc. ("NASD") or any securities exchange; and
(iii) as soon as available, copies of any report or communication of the
Company mailed generally to holders of its Common Stock or other
securities.

(h) The Company will apply the net proceeds from the sale
of the Notes to be sold by it hereunder for the purposes set forth in
the Prospectus.

(i) The Company will use its best efforts to have the
Notes listed, subject to notice of issuance, on the New York Stock
Exchange on or before the Closing Date.

(j) Notwithstanding any other provisions hereof, if this
Agreement shall be terminated by the Underwriters pursuant to any
provisions hereof (otherwise than pursuant to the second paragraph of
Section 10 hereof or by notice given to you terminating this Agreement
pursuant to Section 10 or Section 11 hereof), or if the sale to the
Underwriters of the Notes is not consummated because of any refusal,
inability or failure on the part of the Company, at or prior to the
Closing Date, to perform any agreement herein or to comply with any
provision hereof (unless such failure to perform or comply be due to
any default or omission by any Underwriter), the Company agrees to
reimburse the Underwriters upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Underwriters in
connection with the Underwriters' investigation, preparing to market
and marketing the Notes or in contemplation of performing the
Underwriters' obligations hereunder, including but not limited to
reasonable fees and disbursements of counsel, printing expenses, travel
expenses, postage, telegraph charges and telephone charges relating
directly to the offering contemplated by the Prospectus. Any such
termination shall be without liability of any party to any other party
except as set forth in this Section 5(j). This Section 5(j), Section 7
and Section 9 shall at all times be effective and shall apply.

The Underwriters, may, in their sole discretion waive in writing the
performance by the Company of any one or more of the foregoing covenants or
extend the time for their performance.

6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:

(a) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, or to the
knowledge of the Company, has been threatened to be issued.

(b) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Act. Each
part of the Registration Statement, when such part became or becomes
effective, each Preliminary Prospectus, on the date of filing thereof
with the Commission, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission, or as first
used to confirm sales, and at the Closing Date, conformed or will
conform in all material respects with the requirements of the Act, the
Trust Indenture Act and the Rules and Regulations; each part of the
Registration Statement, when such part became or becomes effective, did
not or will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; each Preliminary
Prospectus, on the date of filing thereof with the Commission, and the

4
<PAGE> 5
Prospectus and any amendment or supplement thereto, on the date of
filing thereof with the Commission, or when first used to confirm sales,
and at the Closing Date, did not or will not include an untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were or will be made, not misleading; except that the foregoing
shall not apply to statements in or omissions from any such document in
reliance upon, and in conformity with, written information relating to
the Underwriters furnished to the Company by or on behalf of the
Underwriters, specifically for use in the preparation thereof. The
documents incorporated by reference in the Prospectus, when they were
filed with the Commission, conformed in all material respects to the
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.

(b) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 to the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1994. The Company and each
of the Company's subsidiaries has been duly incorporated and is an
existing corporation in good standing under the laws of its respective
jurisdiction of incorporation, has full power and authority (corporate
and other) to conduct its business as described in the Registration
Statement and Prospectus and is duly qualified to do business in each
jurisdiction in which it owns or leases real property or in which the
conduct of its business requires such qualification except where the
failure to be so qualified, considering all such cases in the
aggregate, would not have a material adverse effect on the condition
(financial or other), business, property or results of operations of
the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect").

(c) The Company has an authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued
and are fully paid and nonassessable and (except as otherwise stated in
the Registration Statement) are owned beneficially by the Company
subject to no security interest, other encumbrance or adverse claim.
Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto,
included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the
options or other rights granted and exercised thereunder, set forth in
the Registration Statement, accurately and fairly presents the
information required to be shown with respect to such plans,
arrangements, options and rights.

(d) Each of the Indenture and the Notes have been duly
authorized by the Company, the Indenture has been duly qualified under
the Trust Indenture Act and when duly executed and delivered will
constitute, and the Notes, when duly executed, authenticated, issued
and delivered as contemplated hereby and by the Indenture, will
constitute, valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.

(e) This Agreement has been duly authorized, executed and
delivered by the Company. The execution, delivery and performance of
this Agreement, the Indenture, the Collateral Documents,

5
<PAGE> 6
the pledge of the Collateral pursuant to the Collateral Documents, the
issuance, sale and delivery of the Notes and the consummation of the
transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any agreement or instrument to which the Company or
any of its subsidiaries is a party or by which it is bound or to which
any of the property of the Company or any of its subsidiaries is
subject, the charter or by-laws of the Company or any of its
subsidiaries, or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their respective properties; no consent,
approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the
issuance or sale of the Notes and the pledge of the Collateral under the
Collateral Documents by the Company, except such as may be required
under the Act, the Trust Indenture Act or state securities laws; and the
Company has full power and authority to authorize, issue and sell the
Notes and to pledge the Collateral under the Collateral Documents as
contemplated by this Agreement.

(f) Arthur Andersen LLP and J.H. Cohn & Company are
independent public accountants with respect to the Company as required
by the Act.

(g) The financial statements and schedules of the Company
and its predecessor and the related notes thereto, included in the
Registration Statement and the Prospectus present fairly the financial
position of the Company and its predecessor, as the case may be, as of
the respective dates of such financial statements and schedules, and
the results of operations and changes in financial position of the
Company and its predecessor, as the case may be, for the respective
periods covered thereby. Such statements, schedules and related notes
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis as certified by Arthur
Andersen LLP and J.H. Cohn & Company, as the case may be. No other
financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the
Prospectus under the captions "Capitalization," "Summary Recent
Consolidated Financial and Other Data," "Recent Consolidated Financial
and Other Data," and "Selected Consolidated Financial Data of the
Company and its Predecessor," fairly present the information set forth
therein on the basis stated in the Registration Statement.

(h) The Company is not in violation of its charter or
by-laws or in default in the performance of any obligation, agreement
or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any other agreement, indenture,
mortgage, deed of trust or other contract, lease or other instrument to
which the Company is a party or by which it or its property is bound,
or to which any of the property or assets of the Company is subject
except for any such violation or default that could not have a Material
Adverse Effect.

(i) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown. There are no contracts or documents
of the Company or any of its subsidiaries that are required to be filed
as exhibits to the Registration Statement by the Act, the Trust
Indenture Act or by the Rules and Regulations that have not been so
filed.

(j) The Notes, the Indenture, the Collateral Documents and
the Collateral conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus.

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<PAGE> 7
(k) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the
Registration Statement and the Prospectus, none of the Company or any
of its subsidiaries has incurred any liabilities or obligations, direct
or contingent, or entered into any transactions, not in the ordinary
course of business, that are material to the Company and its
subsidiaries, and there has not been any material adverse change, on a
consolidated basis, in the capital stock, short-term debt or long-term
debt of the Company and its subsidiaries, or any material adverse
change, or any development involving a prospective material adverse
change, in the condition (financial or other), business, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole.

(l) There is (i) no action, suit or proceeding before or by
any court, arbitrator or governmental agency, body or official, domestic
or foreign, now pending, or to the knowledge of the Company, threatened
or contemplated to which the Company or any of its subsidiaries is or
may be a party or to which the business or property of the Company or
any of its subsidiaries is or may be subject, (ii) to the knowledge of
the Company, no statute, rule, regulation or order that has been
enacted, adopted or issued by any governmental agency or that has been
proposed by any governmental body (other than Blue Sky laws, regulations
or orders), or (iii) no injunction, restraining order or order of any
nature by a federal or state court of competent jurisdiction to which
the Company or any of its subsidiaries is or may be subject is issued
and outstanding that, in the case of clauses (i), (ii) and (iii) above,
(1) is required to be disclosed in the Registration Statement or the
Prospectus and that is not so disclosed, (2) might suspend the
effectiveness of the Registration Statement, (3) might prevent or
suspend the use of any Preliminary Prospectus in any jurisdiction, (4)
except as disclosed in the Registration Statement or the Prospectus,
might have a Material Adverse Effect, (5) would interfere with or
adversely affect the transactions contemplated by this Agreement in any
material respect, or (6) might in any manner invalidate any provisions
of this Agreement, the Indenture or the Notes.

(m) Except as otherwise disclosed in the Prospectus, the
Company and each of its subsidiaries has good and marketable title,
free and clear of all liens, claims, encumbrances and restrictions, to
all property and assets described in the Prospectus as being owned by
it, except for (i) liens for taxes not yet due and payable and (ii)
such liens, claims, encumbrances and restrictions as are not material
to the condition (financial or other), business, net worth or results
of operations of the Company and its subsidiaries, taken as a whole.

(n) Each of the Collateral Documents has been duly
authorized by all necessary corporate action and, when duly executed
and delivered by the Company, will constitute legal, valid and binding
obligations of the Company, enforceable in accordance with their
respective terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.

(o) The pledge, assignment and encumbrance of the
Collateral by the Company pursuant to the terms of the Collateral
Documents on the Closing Date will create a valid and perfected
security interest in the Collateral securing payment of the Notes and
payment and performance of all of the Company's other obligations under
the Indenture and the Collateral Documents. On the Closing Date, (i)
except as permitted by the Indenture and the Collateral Documents, such
security interest will constitute a first, prior and exclusive lien
with respect to the Collateral and (ii) no filings, registrations,
recordings, deliveries or other actions will be required in order to
perfect the security interest in such Collateral created under the
Collateral Documents, other than (A) filings, recordings, deliveries or
other actions which, on or before the Closing Date, will have been made
by or on behalf

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<PAGE> 8
of the Company and (B) recordation of the Collateral Documents in the
jurisdictions in which the Collateral subject thereto is located.

(p) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
described in or specifically contemplated by the Prospectus: (i) the
Company and its subsidiaries have not incurred any material liabilities
or obligations, direct, indirect or contingent, or entered into any
material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company and its subsidiaries;
(ii) the Company and its subsidiaries have not sustained any material
loss or interference with their respective businesses or properties from
fire, flood, windstorm, accident or other calamity, whether or not
covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and
the Company and its subsidiaries are not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock or indebtedness (other than
the Notes) material to the Company and its subsidiaries (other than in
the ordinary course of business); and (v) there has not been any
material adverse change in the condition (financial or otherwise),
business, properties or results of operations of the Company and its
subsidiaries, taken as a whole.

(q) Except as disclosed in or specifically contemplated by
the Prospectus, the Company and its subsidiaries have sufficient
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals and governmental authorizations to conduct their
businesses as now conducted; and the Company has no knowledge of any
material infringement by it or its subsidiaries of trademark, trade
name, patent, mask works, copyrights, licenses, trade secret or other
similar rights of others, and there is no claim being made against the
Company or its subsidiaries regarding trademark, trade name, patent,
mask work, copyright, license, trade secret or other infringement which
could have a Material Adverse Effect.

(r) The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations
of the jurisdictions in which it is conducting business, the failure to
comply with which could have a Material Adverse Effect. None of the
Company or any of its subsidiaries is in violation of any safety or
similar law applicable to its business, nor any federal, state or
foreign law relating to discrimination in the hiring, promotion or pay
of employees, nor any applicable federal, state or foreign wages and
hours laws, nor any provisions of the Employee Retirement Income
Security Act, as amended, or the rules and regulations promulgated
thereunder ("ERISA"), which in each case could have a Material Adverse
Effect.

(s) Neither the Company nor any of its subsidiaries is
involved in any material labor dispute nor, to the best of the
knowledge of the Company and its subsidiaries, is any material labor
dispute threatened which, if such dispute were to occur, could have a
Material Adverse Effect.

(t) Except as disclosed in the Registration Statement, the
Company and its subsidiaries are in compliance with all applicable
existing federal, state, local and foreign laws and regulations
relating to the protection of human health or the environment or
imposing liability or requiring standards of conduct concerning any
Hazardous Materials ("Environmental Laws"), except for such instances
of noncompliance which, either singly or in the aggregate, would not
have a Material Adverse Effect. The term "Hazardous Material" means
(a) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, (b) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended,

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<PAGE> 9
(c) any petroleum or petroleum product, (d) any polychlorinated biphenyl
and (e) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulated under or within the
meaning of any other Environmental Law. There is no alleged liability,
or to the best knowledge and information of the Company potential
liability (including, without limitation, alleged or potential
liability for investigatory costs, cleanup costs, governmental response
costs, natural resources damages, property damages, personal injuries,
or penalties) of the Company or any of its subsidiaries arising out of,
based on or resulting from (i) the presence or release into the
environment of any Hazardous Material at any location at which the
Company or any of its subsidiaries has previously conducted or is
currently conducting any business (whether or not owned by the Company
or any of its subsidiaries) or has previously owned or currently owns
any property or (ii) any violation or alleged violation of any
Environmental Law, in either case (x) which alleged or potential
liability is required to be disclosed in the Registration Statement,
other than as disclosed therein, or (y) which alleged or potential
liability, singly or in the aggregate, would have a Material Adverse
Effect.

(u) All tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, except to
the extent such failure to file would not, individually or in the
aggregate, have a Material Adverse Effect, and all material taxes
(including, but not limited to, withholding taxes, penalties and
interest, assessments, fees and other charges due or claimed to be due
from any taxing authority) have been paid other than those (i) being
contested in good faith and for which adequate reserves have been
provided or (ii) currently payable without penalty or interest.

(v) The Company is not an "investment company" under the
Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.

(w) The Company has not distributed and will not
distribute any offering material in connection with the offering and
sale of the Notes other than the Prospectus, the Registration Statement
and the other materials permitted by the Act.

(x) The Company and each of its subsidiaries maintain
insurance insuring against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company and
each of its subsidiaries and their respective businesses, except where
the failure to maintain such insurance could not have a Material
Adverse Effect.

(y) Neither the Company nor any of its subsidiaries has at
any time (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.

(z) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of the
price of the Notes or to facilitate the sale or resale of the Notes.

(aa) Neither the issuance, sale and delivery of the Notes,
nor the application of the proceeds thereof by the Company and its
subsidiaries as set forth in the Prospectus, will violate Regulations
G, T, U or X promulgated by the Board of Governors of the Federal
Reserve System.

(bb) Any material real property leases to which the Company
or any of its subsidiaries is a party are valid and binding and no
default has occurred and is continuing thereunder which would result in
any Material Adverse Effect, and the Company and its subsidiaries enjoy
peaceful and

9
<PAGE> 10
undisturbed possession under all such material real property leases to
which any of them is party as lessee with such exceptions as do not
materially interfere with the use made of such property by the Company
or such subsidiary.

(cc) Other than as contemplated by this Agreement, there is
no broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.

(dd) No consent, approval, authorization or order of, or
filing or qualification with, any governmental agency or body or any
court is required to be obtained or made by the Company for the
consummation of the transactions contemplated by this Agreement or in
connection with the sale of the Notes by the Company pursuant to this
Agreement, except such as have been obtained and made under the Act and
such as may be required under state securities law.

(ee) The Company has complied with all provisions of Section
517.075 Florida Statutes, relating to doing business with the Government
of Cuba or with any person or any affiliate located in Cuba.

(ff) The Company maintains a system of internal accounting
controls sufficient to provide assurance that: (1) transactions are
executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (3) access to assets is permitted
only in accordance with management's general or specific authorization;
and (4) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.

(gg) There have been no material changes in the
improvements located at or on the properties to be encumbered by the
Collateral Documents since the date of the surveys of such properties
conducted by registered surveyors as of the dates specified on Schedule
II.

(hh) Prior to and immediately after the issuance of the
Notes, (1) the present fair salable value of the assets of the Company
exceeded and will exceed the amount that will be required to be paid
on, or in respect of, the Company's debts and other liabilities
(including contingent liabilities) as they become absolute and matured,
(2) the Company does not have and will not have unreasonably small
capital to carry out its business as conducted or as proposed to be
conducted and (3) the Company does not intend to, and does not believe
that it will, incur debts or other liabilities beyond its ability to
pay such debts and liabilities as they mature. The Company does not
intend to permit any of its subsidiaries to incur debts or other
liabilities beyond their respective ability to pay such debts and
liabilities as they mature.

(ii) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement, or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act.

(jj) The order confirming the Company's (or its
predecessor's) plan of reorganization (the "Plan") under Chapter 11 of
the Bankruptcy Code (the "Code") is a valid and binding order (i) as to
which a notice of appeal or petition for certiorari can no longer be
timely filed and as to which no

10
<PAGE> 11
timely-filed appeal or certiorari proceeding is pending and (ii) which
has not been overturned by a court of competent jurisdiction. There has
been "substantial consummation" (as defined in Section 1101(2) of the
Code) of the Plan.

(kk) The Notes have been approved for listing on the New
York Stock Exchange.

(ll) Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.

7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with the information
relating to such Underwriter furnished in writing to the Company by or on behalf
of any Underwriter expressly for use in connection therewith; provided, however,
that the indemnification contained in this paragraph (a) with respect to any
Preliminary shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) on account of any such loss, claim,
damage, liability or expense arising from the sale of the Notes by such
Underwriter to any person if a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the Act and the
regulations thereunder, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus, provided that the Company has
delivered the Prospectus to the several Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.

(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses, (ii)
the Company has failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
Company and such Underwriter or such controlling person shall have been advised
by its counsel that representation of such indemnified party and the Company by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in

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<PAGE> 12
addition to any local counsel) at any time for all such Underwriters and
controlling persons not having actual or potential differing interests among
themselves, which firm shall be designated in writing by Smith Barney Inc., and
that all such fees and expenses shall be reimbursed as they are incurred. The
Company shall not be liable for any settlement of any such action, suit or
proceeding effected without its written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the Company agrees to indemnify and hold harmless
any Underwriter, to the extent provided in the preceding paragraph, and any
such controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.

(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing by
or on behalf of such Underwriter expressly for use in the Registration
Statement, the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, or any such controlling
person, based on the Registration Statement, the Prospectus or any Preliminary
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph (c),
such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer, and any such controlling person, shall
have the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which the
Underwriters may otherwise have.

(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other hand from the
offering of the Notes, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

(e) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined
by a pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified

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<PAGE> 13
party as a result of the losses, claims, damages, liabilities and expenses
referred to in paragraph (d) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating any claim or defending
any such action, suit or proceeding. Notwithstanding the provisions of this
Section 7, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price of the Notes underwritten by it and
distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7 are several in proportion to the respective principal
amounts of Notes set forth opposite their names in Schedule I hereto (or such
principal amounts of Notes increased as set forth in Section 10 hereof) and not
joint.

(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.

(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Notes and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.

8. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Notes hereunder are subject to the following
conditions:

(a) The Registration Statement shall have become effective
not later than 5:00 p.m., Washington, D.C. time, on the date of this
Agreement or at such later time as shall have been consented to by the
Underwriters; if the filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b) of the Rules and
Regulations, the Prospectus shall have been filed in the manner and
within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or shall
be pending or, to the knowledge of the Company or the Underwriters,
shall be contemplated by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or otherwise, shall have been complied with to the
Underwriters' satisfaction.

(b) The Underwriters shall be reasonably satisfied that
since the respective dates as of which information is given in the
Registration Statement and Prospectus, (i) there shall not have been
any change in the capital stock of the Company or any of its
subsidiaries or any material change in the indebtedness (other than as
a result of the sale of the Notes or in the ordinary course of
business) of the Company or any of its subsidiaries, (ii) except as set
forth or contemplated by the Registration

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<PAGE> 14
Statement or the Prospectus, no material verbal or written agreement or
other transaction shall have been entered into by the Company or any of
its subsidiaries, which is not in the ordinary course of business or
which could result in a material reduction in the future earnings of the
Company and its subsidiaries, (iii) no loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries shall
have been sustained which could have a Material Adverse Effect, (iv) no
legal or governmental action, suit or proceeding affecting the Company
or any of its subsidiaries which is material to the Company and its
subsidiaries or which affects or may affect the transactions
contemplated by this Agreement shall have been instituted or threatened,
and (v) there shall not have been any material change in the condition
(financial or otherwise), business, management results of operations or
prospects of the Company and its subsidiaries which makes it impractical
or inadvisable in the judgment of the Underwriters to proceed with the
public offering or purchase of the Notes as contemplated hereby.

(c) There shall have been furnished to the Underwriters,
in form and substance satisfactory to the Underwriters, except as
otherwise expressly provided below:

(i) An opinion of Willkie Farr & Gallagher,
counsel for the Company, addressed to the Underwriters and
dated the Closing Date to the effect that:

(a) The Company and each of the Company's
Significant Subsidiaries (as defined under Rule 1-02 of
Regulation S-X under the Exchange Act) has been duly
incorporated and is an existing corporation in good standing
under the laws of its respective jurisdiction of incorporation,
has full power and authority (corporate; to own, lease and
operate hotels constituting collateral; and other) to conduct
its business as described in the Registration Statement and
Prospectus and is duly qualified to do business in each
jurisdiction in which it owns or leases real property or in
which the conduct of its business requires such qualification
except where the failure to be so qualified, considering all
such cases in the aggregate, would not have a Material Adverse
Effect.

(b) The Indenture and the Notes have been
duly authorized by the Company, the Indenture has been duly
qualified under the Trust Indenture Act and when duly executed
and delivered will constitute, and the Notes, when duly
executed, authenticated, issued and delivered as contemplated
hereby and by the Indenture, will constitute, valid and
legally binding obligations of the Company, enforceable in
accordance with their terms and, in the case of the Notes,
entitled to the benefits of the Indenture, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles.

(c) The Collateral Documents have been duly
authorized by the Company, and when duly executed and delivered
will constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms and, in the
case of the Notes, entitled to the benefits of the Indenture,
subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity
principles.

(d) The Company has authorized and
outstanding capital stock as set forth under "Capitalization"
in the Prospectus.

(e) The Registration Statement has become
effective under the Act; the Prospectus has been filed with
the Commission as required by Section 2(a) hereof and to the

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<PAGE> 15
best knowledge of such counsel no stop order suspending the
effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or, to the
knowledge of such counsel, threatened by the Commission.

(f) Each part of the Registration Statement,
when such part became effective, and the Prospectus, and any
amendment or supplement thereto, as of the respective date
thereof, complied as to form in all material respects with the
requirements of the Act, the Trust Indenture Act and the Rules
and Regulations (other than the financial statements and
related schedules and financial and statistical data therein,
as to which such counsel need express no opinion).

(g) The descriptions in the Registration
Statement and Prospectus of statutes, legal and governmental
proceedings, contracts and other documents are accurate in all
material respects and fairly present the information required
to be shown; and such counsel does not know of any statutes or
legal or governmental proceedings required to be described in
the Prospectus that are not described as required, or of any
contracts or documents of a character required to be described
in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described
and filed as required.

(h) The Company is not an "investment
company" under the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.

(i) To such counsel's knowledge, there is (i)
no action, suit or proceeding before or by any court,
arbitrator or governmental agency, body or official, domestic
or foreign, now pending or threatened, to which the Company or
any of its Significant Subsidiaries is or may be a party or to
which the business or property of the Company or any of its
Significant Subsidiaries is or may be subject, and (ii) no
injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction to which the
Company or any of its Significant Subsidiaries is or may be
subject issued that, in the case of clauses (i) and (ii) above,
(a) is required to be disclosed in the Registration Statement
or the Prospectus and that is not so disclosed, (b) might
suspend the effectiveness of the Registration Statement, (c) to
such counsel's knowledge, might prevent or suspend the use of
any preliminary prospectus in any jurisdiction, (d) except as
disclosed in the Registration Statement or the Prospectus,
would have a Material Adverse Effect or (e) would in any manner
invalidate any provisions of this Agreement, the Indenture or
the Notes.

(j) The statements contained in the
Prospectus under the caption "Description of Notes" insofar as
they purport to describe the terms of the Notes, constitute
accurate summaries thereof in all material respects.

(k) Neither the issuance, sale and delivery
of the Notes, nor the application of the proceeds thereof by
the Company and its subsidiaries as set forth in the
Prospectus, will violate Regulations G, T, U or X promulgated
by the Board of Governors of the Federal Reserve System.

(l) No consent, approval, authorization or
order of, or filing or qualification with, any governmental
agency or body or any court is required to be obtained or made
by the Company for the consummation of the transactions
contemplated by this Agreement or in connection with the sale
of the Notes by the Company pursuant to this Agreement, except

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<PAGE> 16
such as have been obtained and made under the Act, the Trust
Indenture Act and such as may be required under state
securities law or by the NASD.

(m) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid
and legally binding obligation of the Company, enforceable in
accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors'
rights and to general equity principles. The performance of
this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under,
any statute or any agreement or instrument filed as an exhibit
to the Registration Statement, the charter or by-laws of the
Company, or, to such counsel's knowledge, any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties; and
the Company has full power and authority to authorize, issue
and sell the Notes as contemplated by this Agreement.

In addition, such counsel shall state that they have
participated in conferences with officers and other
representatives of the Company, representatives of the
independent certified public accountants of the Company and the
Underwriters at which the contents of the Registration
Statement, the Prospectus and any amendment thereof or
supplement thereto and related matters were discussed and,
although such counsel has not undertaken to investigate or
verify independently, and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto on the basis of the
foregoing (relying as to materiality to a large extent upon the
opinions of officers and other representatives) no facts have
come to the attention of such counsel that would lead them to
believe that either the Registration Statement at the time it
became effective (or any amendment thereof made prior to the
Closing Date, as the case may be, as of the date of such
amendment) contained an untrue statement of a material fact or
omitted to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading or that the Prospectus as of the date thereof (of
any amendment thereof or supplement thereto made prior to the
Closing Date as of the date of such amendment or supplement)
contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it
being understood that in each such case such counsel expresses
no belief or opinion with respect to the financial statements
and schedules and other financial or statistical data included
therein).

(ii) An opinion of Joseph Bernadino, Esq., Senior
Vice President, Secretary and General Counsel of the Company,
addressed to the Underwriters and dated the Closing Date to
the effect that:

(a) To the best knowledge of such counsel,
none of the Company or any of its subsidiaries is in violation
of any safety or similar law applicable to its business, nor
any federal, state or foreign law relating to discrimination
in the hiring, promotion or pay of employees, nor any
applicable federal, state or foreign wages and hours laws, nor
any provisions of ERISA, which in each case would have a
Material Adverse Effect.

(b) To the best knowledge of such counsel,
except as set forth in the Registration Statement, the Company
and its subsidiaries are in compliance with all applicable

16
<PAGE> 17
existing federal, state, local and foreign laws and regulations
relating to Environmental Laws, except for such instances of
noncompliance which, either singly or in the aggregate, would
not have a Material Adverse Effect. There is no alleged
liability, or, to the best of such counsel's knowledge,
potential liability (including, without limitation, alleged or
potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) of the
Company or any of its subsidiaries arising out of, based on or
resulting from (i) the presence or release into the environment
of any Hazardous Material at any location at which the Company
or any of its subsidiaries has previously conducted or is
currently conducting any business (whether or not owned by the
Company or any of its subsidiaries) or has previously owned or
currently owns any property or (ii) any violation or alleged
violation of any Environmental Law, in either case (x) which
alleged or potential liability is required to be disclosed in
the Registration Statement, other than as disclosed therein, or
(y) which alleged or potential liability, singly or in the
aggregate, would have a Material Adverse Effect.

(c) Neither the Company nor any of its
subsidiaries is involved in any material labor dispute nor, to
the best of such counsel's knowledge, is any material labor
dispute threatened which, if such dispute were to occur, would
have a Material Adverse Effect.

(d) Except as would not have a Material
Adverse Effect, neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws and, to
the best of such counsel's knowledge, neither the Company nor
any of its subsidiaries is in default in the performance of
any obligation, agreement or condition contained in any of the
agreements filed as an exhibit to the Registration Statement.

(e) All of the outstanding shares of capital
stock of each of the Company's subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable
and, except as otherwise stated in the Registration Statement,
to the best of such counsel's knowledge, are owned beneficially
by the Company subject to no security interest, other
encumbrance or adverse claim.

In addition, such counsel shall state that they have
participated in conferences with officers and other
representatives of the Company, representatives of the
independent certified public accountants of the Company and
the Underwriters at which the contents of the Registration
Statement, the Prospectus and any amendment thereof or
supplement thereto and related matters were discussed and,
although such counsel has not undertaken to investigate or
verify independently, and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto on the basis of
the foregoing (relying as to materiality to a large extent
upon the opinions of officers and other representatives) no
facts have come to the attention of such counsel that would
lead them to believe that either the Registration Statement at
the time it became effective (or any amendment thereof made
prior to the Closing Date, as the case may be, as of the date
of such amendment) contained an untrue statement of a material
fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of the date thereof (of
any amendment thereof or supplement thereto made prior to the
Closing Date as of the date of such amendment or supplement)
contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the

17
<PAGE> 18
circumstances under which they were made, not misleading (it
being understood that in each such case such counsel expresses
no belief or opinion with respect to the financial statements
and schedules and other financial or statistical data included
therein).

(iii) The opinion of local counsel to the Company
in each of Arizona, Arkansas, Connecticut, Florida, Georgia,
Kansas, Nevada, Ohio, Tennessee and Virginia, which local
counsel shall in each case be reasonably satisfactory to the
Underwriters, dated the Closing Date, substantially in the
form of Exhibit A hereto.

(iv) Such opinion of Latham & Watkins, counsel for
the Underwriters, dated the Closing Date, with respect to the
validity of the Notes, the Registration Statement, the
Prospectus and other related matters as you reasonably may
request, and such counsel shall have received such papers and
information as they reasonably request to enable them to pass
upon such matters.

(v) A certificate of the Company executed by the
Chairman of the Board or President and the chief financial or
accounting officer of the Company, dated the Closing Date, to
the effect that:

(a) The representations and warranties of
the Company set forth in Section 1 and Section 6 of
this Agreement are true and correct as of the date of
this Agreement and as of the Closing Date and the
Company has complied with all the agreements and
satisfied all the conditions on its part to be
performed or satisfied under this Agreement on or
prior to the Closing Date;

(b) The Commission has not issued any
order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a
part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and to the
best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or
are pending or contemplated under the Act;

(c) Each of the respective signers of the
certificate has carefully examined the Registration
Statement and the Prospectus; in his opinion and to
the best of his knowledge, the Registration Statement
and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated
therein regarding the Company and its subsidiaries;
and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or
omits to state any material fact required to be stated
therein or necessary to make the statements therein
not misleading; and

(d) Since the respective dates as of
which information is given in the Registration
Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, (a) there has
not been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations or management of the Company and
its subsidiaries; (b) no legal or governmental action,
suit or proceeding is pending or, to the best of their
knowledge, threatened against the Company or any of
its subsidiaries which is material to the Company and
its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of
business,

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<PAGE> 19
or which may adversely affect the transactions
contemplated by this Agreement; (c) since such dates
and except as so disclosed, neither the Company nor any
of its subsidiaries has (i) entered into any verbal or
written agreement or other transaction which is not in
the ordinary course of business, which could result in
a material reduction in the future earnings of the
Company or which should have been set forth in an
amendment to the Registration Statement or in a
supplement to or amendment of any prospectus which has
not been disclosed in such supplement or prospectus,
(ii) incurred, other than in the ordinary course of
business, any material liability or obligation, direct,
indirect or contingent, (iii) made any change in its
capital stock, (iv) made any material change in its
short-term debt or funded debt or (v) repurchased or
otherwise acquired any of the Company's capital stock;
and (d) the Company has not declared or paid any
dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of
record on a date prior to the Closing Date.

(vi) On the date this Agreement is executed and
also on the Closing Date, a letter addressed to the
Underwriters, from Arthur Andersen LLP, independent
accountants, the first one to be dated the date of this
Agreement and the second one to be dated the Closing Date, in
form and substance satisfactory to the Underwriters.

(vii) The Underwriters shall have received payoff
and release letters and/or instruments, dated the Closing
Date, from any secured lenders with mortgage indebtedness on
such hotels constituting Collateral, outlining the steps to be
taken for the repayment of indebtedness as set forth therein,
and undertaking to take all steps necessary to release all
liens thereunder upon the payment in full of all amounts due
in respect of such indebtedness.

(viii) If unavailable as of the Closing Date, the
Underwriters shall have received reasonable assurance that the
Company will pursue, obtain and record UCC-3 Termination
Statements, mortgage releases and all other documents and
other releases, in proper form for filing, necessary to
release all liens under the loans referred to in paragraph
(vii) above.

(ix) The Company shall have caused a valid,
perfected security interest in all of the right, title and
interest of the Company in and to the Collateral pursuant to
the Collateral Documents to be granted to the Collateral Agent
for the equal and ratable benefit of the holders of the Notes,
and the Underwriters shall have received executed Financing
Statements and Fixture Financing Statements with respect to the
Collateral under the Collateral Documents such that upon the
filing of such Financing Statements and Fixture Financing
Statements in the offices identified therein, such security
interest will become perfected with the priority required by
the Collateral Documents.

(x) The Underwriters shall have received executed
counterparts, in recordable form, of each Collateral Document,
together with all fees required in connection with recordation
of each such Collateral Document. The Company shall have duly
executed and delivered to the Collateral Agent, for the equal
and ratable benefit of the holders of the Notes, each
Collateral Document for the purpose of securing the payment
and performance of the obligations under the Indenture, with
the priority and otherwise as and to the extent required by
each such Collateral Document. The Company shall have
received the commitment of a title insurance company
reasonably satisfactory to the Underwriters agreeing to issue
to the Trustee, for the benefit of the Holders, Lenders
Policies of title insurance (the

19
<PAGE> 20
"Title Commitment"). The costs of the Title Commitment and
the policy to be issued pursuant to the Title Commitment shall
have been paid in full by the Company.

(xi) The Underwriters shall have received evidence
reasonably satisfactory to the Underwriters of the taking of
all actions with respect to the Collateral Documents as may be
necessary or, in the opinion of the Underwriters, desirable to
permit the perfection of the liens created, or purported to be
created, by the Collateral Documents.

(xii) The Company shall have delivered to the
Collateral Agent evidence satisfactory to the Underwriters
that (i) all insurance policies of the Company covering the
Collateral provide that the insurance company issuing such
policies will give the Collateral Agent at least 15 days prior
written notice of the cancellation, non-renewal or other
material change in coverage thereunder and (ii) the Collateral
Agent, for the benefit of the holders of the Notes, has been
named loss payee and additional insured with respect to
insurance policies covering the Collateral to the extent
required by the Collateral Documents.

All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to the
Underwriters and to Latham & Watkins, counsel for the Underwriters. The
Company shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Underwriters or to
counsel for the Underwriters shall be deemed to be a representation and
warranty by the Company to the Underwriters as to the statements made therein.

If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the Closing Date is not so satisfied, this Agreement
at the Underwriters' election will terminate upon notification by the
Underwriters to the Company without liability on the part of any Underwriter or
the Company except for the expenses to be paid or reimbursed by the Company
pursuant to Sections 5 and 9 hereof and except to the extent provided in
Section 7 hereof.

9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing (or reproduction), and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, the Prospectus,
each amendment or supplement to any of them, this Agreement, the Indenture and
the Statement of Eligibility and Qualification of the Trustee; (ii) the printing
(or reproduction) and delivery (including postage, air freight charges and
charges for counting and packaging) of such copies of the registration
statement, each Preliminary Prospectus, the Prospectus, the Registration
Statement, and all amendments or supplements to any of them, as may be
reasonably requested for use in connection with the offering and sale of the
Notes; (iii) the preparation, printing (or reproduction), execution and delivery
of the Indenture and the preparation, printing, authentication, issuance and
delivery of the Notes, including any stamp taxes in connection with the original
issuance of the Notes; (iv) the printing (or reproduction) and delivery of this
Agreement, the preliminary and supplemental Blue Sky Memoranda and all other
agreements or documents printed (or reproduced) and delivered in connection with
the offering of the Notes; (v) the registration of the Notes under the Exchange
Act and the listing of the Notes on the New York Stock Exchange; (vi) the
registration or qualification of the Notes for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 5(f)
hereof (including the reasonable fees, expenses and disbursements of counsel for
the Underwriters relating to the preparation, printing (or reproduction), and
delivery of the preliminary and supplemental Blue Sky Memoranda and such
registration and qualification); (vii) the filing fees and the fees and expenses
of counsel for the Underwriters in connection with any filings required to be
made with the NASD; (viii) the fees and expenses of the Trustee, the Collateral
Agent and any paying agent (including related fees and expenses of their
respective counsel); (ix) the fees and expenses

20
<PAGE> 21
associated with obtaining ratings for the Notes from nationally recognized
statistical rating organizations; (x) the transportation and other expenses
incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Notes; and (xi) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company.

10. Effective Date of Agreement. This Agreement shall
become effective: (i) upon the execution and delivery hereof by the parties
hereto; or (ii) if, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Notes may commence, when
notification of the effectiveness of the Registration Statement or such
post-effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Company, by notifying the Underwriters, or by the Underwriters, by notifying
the Company.

If any one or more of the Underwriters shall fail or refuse to
purchase Notes which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate principal amount of Notes which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate principal amount of Notes which the
Underwriters are obligated to purchase on the Closing Date, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the principal
amount of Notes set forth opposite its name in Schedule I hereto bears to the
aggregate principal amount of Notes set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as the Underwriters may
specify in accordance with Section 20 of the Master Agreement Among Underwriters
of Smith Barney Inc., to purchase the Notes which such defaulting Underwriter or
Underwriters are obligated, but fail or refuse, to purchase. If any one or more
of the Underwriters shall fail or refuse to purchase Notes which it or they are
obligated to purchase on the Closing Date and the aggregate principal amount of
Notes with respect to which such default occurs is more than one-tenth of the
aggregate principal amount of Notes which the Underwriters are obligated to
purchase on the Closing Date and arrangements satisfactory to the Underwriters
and the Company for the purchase of such Notes by one or more non-defaulting
Underwriters or other party or parties approved by the Underwriters and the
Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not result in termination of this
Agreement, either the Underwriters or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I hereto who, with
your approval and the approval of the Company, purchases Notes which a
defaulting Underwriter is obligated, but fails or refuses, to purchase.

Any notice under this Section 10 may be made by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.

11. Termination of Agreement. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof:

(a) This Agreement may be terminated by the Company by
notice to the Underwriters or by the Underwriters by notice to the
Company at any time prior to the time this Agreement shall become
effective as to all its provisions, and any such termination shall be
without liability on the part of the Company to any Underwriter (except
for the expenses to be paid or reimbursed by the Company pursuant to
Sections 5 and 9 hereof and except to the extent provided in Section 7
hereof) or of any Underwriter to the Company (except to the extent
provided in Section 7 hereof).

21
<PAGE> 22
(b) This Agreement may also be terminated by the
Underwriters prior to the Closing Date by notice to the Company (i) if
additional material governmental restrictions, not in force and effect
on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock
Exchange or in the over the counter market by the NASD, or trading in
securities generally shall have been suspended on either such Exchange
or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal or New York
authorities, (ii) if an outbreak of major hostilities or other national
or international calamity or any substantial material adverse change in
political, financial or economic conditions shall have occurred or shall
have accelerated or escalated to such an extent, as, in the judgment of
the Underwriters, to affect adversely the marketability of the Notes,
(iii) if any adverse event shall have occurred or shall exist which
makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or Prospectus or
which is not reflected in the Registration Statement or Prospectus but
should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect, or
(iv) if there shall be any action suit or proceeding pending or
threatened, or there shall have been any development or prospective
development involving particularly the business or properties or
securities of the Company or any of its subsidiaries or the transactions
contemplated by this Agreement, which, in the reasonable judgment of the
Underwriters, may materially and adversely affect the Company's business
or earnings and makes it impracticable or inadvisable to offer or sell
the Notes. Any termination pursuant to this subsection (b) shall be
without liability on the part of any Underwriter to the Company or on
the part of the Company to any Underwriter (except for expenses to be
paid or reimbursed by the Company pursuant to Sections 5 and 9 hereof
and except to the extent provided in Section 7 hereof).

12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
as such information is referred to in Sections 6(b) and 7 hereof.

13. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the Underwriters set forth in
or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Notes sold hereunder and any termination of this Agreement.

14. Miscellaneous. Except as otherwise provided herein, notice
given pursuant to any provision of this Agreement shall be in writing and shall
be delivered (i) if to the Company, at the office of the Company at 700 Route 46
East, Fairfield, New Jersey 07004, Attention: Joseph Bernadino, Esq. with a copy
to William N. Dye, Esq., Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022; or (ii) if to the Underwriters, care of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention:
Manager, Investment Banking Division with a copy to John D. Watson, Jr., Esq.,
Latham & Watkins, 1001 Pennsylvania Avenue, Suite 1300, Washington, D.C. 20004.

15. Successors. This Agreement has been and is made solely for
the benefit of the several Underwriters, the Company, its directors and
officers, and the other controlling persons referred to in Section 7 hereof and
their respective successors and assigns, to the extent provided herein, and no
other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term

22
<PAGE> 23
"successors and assigns" as used in this Agreement shall include a purchaser
from any Underwriter of any of the Notes in his status as such purchaser.

16. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.

17. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made
such minor changes (and only such minor changes) as are necessary to make it
valid and enforceable.

18. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect
to the subject matter hereof. This Agreement may be signed in various
counterparts which together constitute one and the same instrument. If signed
in counterparts, this Agreement shall not become effective unless at least one
counterpart hereof shall have been executed and delivered on behalf of each
party hereto.

In this Agreement the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company and the Underwriters.

[signature page follows]

23
<PAGE> 24
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.

Very truly yours,

PRIME HOSPITALITY CORP.

By:
-------------------
Name:
Title:

The foregoing Underwriting Agreement is hereby confirmed and accepted by us in
New York, New York as of the date first above written.

SMITH BARNEY INC.
BT SECURITIES CORPORATION
MONTGOMERY SECURITIES

BY: SMITH BARNEY INC.

By:
---------------------
Name:
Title:
<PAGE> 25
SCHEDULE I
<TABLE>
<CAPTION>

UNDERWRITER PRINCIPAL AMOUNT OF NOTES
- ----------- -------------------------
<S> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . $

BT Securities Corporation . . . . . . . . . . . .

Montgomery Securities . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . $120,000,000
============
</TABLE>
<PAGE> 26
SCHEDULE II
<PAGE> 27
EXHIBIT A

[LETTERHEAD OF LAW FIRM]

_____________________, 1996

Smith Barney, Inc.
BT Securities Corporation
Montgomery Securities
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013

Norwest Bank Minnesota, National Association
____________________________________________
____________________________________________

Re: Loan (the "Loan") by Norwest Bank Minnesota,
National Association, as Trustee under the
Indenture, to Prime Hospitality Corp. in the
Aggregate Principal Amount of $120,000,000

Ladies and Gentlemen:

We have acted as counsel for Prime Hospitality Corp., a Delaware
corporation (the "Company"), in connection with the transactions contemplated
by the Indenture, dated as of the date hereof (the "Indenture"), between
Norwest Bank Minnesota, National Association (the "Trustee") and the Company.
Capitalized terms used herein without definition shall have the meanings
assigned to them in the Indenture and the Underwriting Agreement, dated as of
January ___, 1996, by and among the Company, Smith Barney Inc., BT Securities
Corporation and Montgomery Securities (the "Underwriting Agreement").

In such capacity, we have reviewed the following documents, dated
as indicated below, as executed in connection with the Loan (collectively
referred to herein as the "Collateral Documents"):

(a) The Underwriting Agreement;

(b) The Registration Statement and the Prospectus;

(d) The Notes;
<PAGE> 28
(e) UCC-1 Financing Statements, dated as of the date hereof
(the "Financing Statements"), between the Company, as
debtor, and the Trustee, as secured party;

(f) [Mortgage/Deed of Trust], Assignment of Leases and Rents
and Security Agreement, dated as of the date hereof (the
"[Mortgage/Deed of Trust]"), given by the Company to the
Trustee as security for the Notes and covering the [Name
of Premises] located at [Address of Premises] (the
"Premises");

(g) Environmental and Hazardous Substance Indemnification
Agreement, dated as of the date hereof (the
"Environmental Agreement"), made by the Company for the
benefit of the Trustee;

(h) Assignment of Franchise Agreement, dated as of the date
hereof (the "Franchise Assignment"), made by the Company
in favor of the Trustee;

(i) Assignment of Contracts and Documents, dated as of the
date hereof ("Assignment of Contracts"), made by the
Company in favor of Trustee; and

(j) [List any other relevant documents]

As to various questions of fact material to our opinion, we have
relied, without independent investigation, upon the representations made in the
Underwriting Agreement, the Indenture and the Collateral Documents and upon
certificates of officers of the Company. We have also examined such
certificates of public officials, corporate documents and records and other
certificates, and have made such investigations of law, as we have deemed
necessary in order to give the opinions hereinafter set forth. We have
assumed, without independent investigation, the authenticity of all documents
submitted to us as originals, the genuineness of all signatures, the legal
capacity of natural persons and the conformity to the originals of all
documents submitted to us as copies.

We understand that with respect to title matters, you will be
relying on the title insurance commitment issued to you by Chicago Title
Insurance Company bearing Title No. ____________________ dated as of
_______________ and re-dated as of today. We have not made any investigation
of, and do not express an opinion as to, any matters of title to any property,
whether real, personal or mixed.

We express no opinion with respect to the effect of any law other
than the law of the state of _____________ and the federal law of the United
States. Insofar as our opinion pertains to matters of Delaware law, we have
relied upon the opinion of Willkie, Farr & Gallagher, dated as of the date
hereof, a copy of which is attached hereto as Exhibit A.

Based upon the foregoing, and subject to the qualifications and
exceptions heretofore and hereinafter set forth, we are of the opinion that:

28
<PAGE> 29
____________, 1995
Page 29

1. The Company is duly qualified to do business and is in
good standing as a foreign corporation under the laws of the state of [state of
Premises] (the "State").

2. The Company holds all State permits and licenses
necessary or required for the Company to conduct its business as presently
conducted in the State. The Company has all requisite corporate power and
authority to own, lease and operate the premises as a hotel.

3. When duly executed and delivered on behalf of the
Company, each Collateral Document will constitute a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The aforesaid opinion as
to enforceability is also subject to the qualification that certain provisions
contained in the Collateral Documents may not be enforceable, but such
unenforceability will not render the Collateral Documents invalid as a whole or
substantially interfere with realization of the principal benefits and/or
security provided thereby.

4. The execution and delivery of the Collateral Documents
by the Company, the borrowing thereunder and the granting of liens in
connection therewith by the Company, and the payment of the indebtedness of the
Company evidenced by the Notes do not: (a) violate any statute, rule or
regulation of the State applicable to the Company or, to our knowledge, any
judgment, decree, order, regulation or rule of any court or governmental
authority of the State to which the Company, or any of its properties
(including, without limitation, the Premises) may be subject or (b) require any
consents, approvals, authorizations, registrations, declarations or filings by
the Company under any statute, rule or regulation of the State applicable to
the Company (other than consents which have been obtained prior to the
Closing), or (c) result in the creation of any Lien (other than pursuant to the
Collateral Documents) upon any property or assets of the Company (including,
without limitation, the Premises) located in the State.

5. The provisions of each Collateral Document are effective
to create a valid lien on the portion of the Collateral which is real property
and a valid security interest in favor of the Trustee, as secured party, in
that portion of the collateral (the "Article 9 Collateral") described in such
Collateral Document which is subject to Uniform Commercial Code as enacted in
the State (the "State UCC"), as security for the payment, to the extent set
forth therein, of all obligations of the Company to the Trustee, as secured
party, under the Collateral Documents.

6. Each Collateral Document is in appropriate form for
filing in the State.

7. The execution of each of the (A) [Mortgage/Deed of
Trust], (B) the recording of the [Mortgage/Deed of Trust] in the office of
________________________, (C) the recording and filing of the Financing
Statements in the office of ________________ and (D) the payment of fees due in
respect thereof, shall cause the Trustee, for the benefit of the holders of the
Notes, to have, as security for the

29
<PAGE> 30
____________, 1995
Page 30

payment of the obligations under the Indenture and the Notes, a valid
[Mortgage/Deed of Trust] lien of record on the portions of the Collateral
described in such [Mortgage/Deed of Trust] consisting of real property located
in _________________, and a valid, duly perfected security interest in the
portions of the Collateral described in such [Mortgage/Deed of Trust] consisting
of fixtures located in ______________, and the actions, recordings or filings
described in clauses (A), (B), (C) and (D) are the only actions, recordings or
filings necessary in any filing office in the State to publish notice of, and
perfect, as the case may be, the validity of such liens and security interests
in the Collateral consisting of real property and fixtures located in
________________________. From and after the date hereof (assuming the due
recording of the [Mortgage/Deed of Trust], and the filing of the Financing
Statements), the liens or security interests created consisting of real property
and fixtures located in ________________, by the filing of such [mortgage/deeds
of trust] and financing statements will be duly perfected.

8. Upon the proper recording or filing of the Collateral
Documents in the office of _______________, the security interest in favor of
the Trustee in the Article 9 Collateral will be perfected to the extent a
security interest in such collateral can be perfected by filing a financing
statement under the provisions of the State UCC.

9. The Franchise Assignment is in appropriate form for
recordation in the office of ________________, and upon the recording or filing
of the same in the office of _______________, will effect a valid assignment of
the Franchise Agreement described in such document by the Company.

10. Except as described in this opinion, no recording,
filing, privilege, or other tax must be paid in connection with the execution,
delivery, recordation or enforcement of the Collateral Documents.

11. The Trustee is not required, solely by reason of the
transactions contemplated by the Indenture and the Collateral Documents, to
qualify to do business in the State or to obtain any other authorization,
approval or action by, give any notice to or make any filing with, any
governmental, administrative or judicial authority or regulatory body of the
State in order to carry out the transactions contemplated by the Indenture and
the Collateral Documents, or avail itself of the remedies provided thereby; the
Trustee will not become subject to taxation in the State solely as a result of
the performance of the transactions contemplated by the Indenture and the
Collateral Documents.

12. The provisions of the Indenture and of the Collateral
Documents stating that they shall be governed by, and construed in accordance
with the laws of the State of New York will be enforced, recognized and in all
respects deemed controlling under the law of the State, except as to validity,
creation and perfection of the Liens, perfection of security interests, and
matters of procedure and remedies as to which the Collateral Documents will be
governed by and construed in accordance with the laws of the State.

30
<PAGE> 31
____________, 1995
Page 31

13. The foreclosure of any Collateral Document will not in
any manner restrict, affect or impair the Company's liability with respect to
the indebtedness secured thereby, or the Trustee's rights or remedies with
respect to the foreclosure or enforcement of any other security interests or
liens securing such indebtedness, to the extent any deficiency remains unpaid
after application of the proceeds of the foreclosure of such Collateral
Document.

14. The law (statutory or otherwise) of the State does not
require a lienholder to make an election of remedies where such lienholder
holds security interests and liens on both the real and the personal property
of a debtor or to take recourse first or solely against its collateral.

15. A mortgagor does not have a right of redemption under
the laws of the State or the terms of the Collateral Documents are effective to
waive such rights.

16. To the best of our knowledge, the Premises complies with
all applicable zoning, use, setback, building code, occupancy, subdivision,
land use and development laws, rules and regulations and there is no legal
action pending or threatened, or proposed change in zoning, which would affect
the use and occupancy of the Premises as a hotel.

17. The Loan, as made will not violate any applicable usury
laws of the State or other applicable laws regulating the interest rate, fees
and other charges that may be collected with respect to the Loan.

In addition, we have participated in conferences with officers and other
representatives of the Company, Willkie Farr & Gallagher, representatives of
the independent certified public accountants of the Company and the
Underwriters at which the contents of the Registration Statement, the
Prospectus and any amendment thereof or supplement thereto and related matters
were discussed and, although we have not undertaken to investigate or verify
independently, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto on
the basis of the foregoing (relying as to materiality to a large extent upon
the opinions of officers and other representatives) no facts have come to our
attention that would lead us to believe that either the Registration Statement
at the time it became effective (or any amendment thereof made prior to the
Closing Date, as the case may be, as of the date of such amendment) contained
an untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of the date thereof (of any amendment
thereof or supplement thereto made prior to the Closing Date as of the date of
such amendment or supplement) contained an untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that in each such
case we express no belief or opinion with respect to the financial statements
and schedules and other financial or statistical data included therein).

31
<PAGE> 32
____________, 1995
Page 32

The foregoing opinions shall not be relied upon by any party
other than the Underwriters, the Trustee, holders of the Notes, their
successors and/or assigns and their respective counsel.

Very truly yours,

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of Prime Hospitality Corp.

As independent public accountants, we hereby consent to the use of
our report dated February 2, 1995 covering the Company's consolidated financial
statements for the years ended December 31, 1994 and 1993 and the five months
ended December 31, 1992 and our report dated March 10, 1993 covering the
Company's consolidated financial statements for the one month ended July 31,
1992 and to all references to our firm included in or made a part of this
Registration Statement.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
December 20, 1995

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We consent to the inclusion in the Prospectus of Amendment No. 1 to
this Registration Statement on Form S-3 being filed by Prime Hospitality Corp.
(formerly Prime Motor Inns, Inc.) of our report dated September 24, 1992 on the
consolidated financial statements of Prime Motor Inns, Inc. and Subsidiaries
(Debtors-in- Possession) as of June 30, 1992 and for the year then ended. We
also consent to the reference to our firm under the caption "Experts" in the
Prospectus.

J. H. COHN & COMPANY

Roseland, New Jersey
December 20, 1995

<PAGE> 1
==============================================================================

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

------------

FORM T-1

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

------------

/ / CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b)(2)

NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)

A NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)

SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip Code)

------------

PRIME HOSPITALITY CORP.
(Exact name of obligor as specified in its charter)

DELAWARE 22-2640625
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

700 ROUTE 46 EAST
FAIRFIELD, NJ 07007-2700
(Address of principal executive offices) (Zip Code)

------------

$120,000,000
FIRST MORTGAGE NOTES
(Title of the indenture securities)

===============================================================================
<PAGE> 2
Item 1. General Information. Furnish the following information as to the
trustee:

(a) Name and address of each examining or supervising authority to
which it is subject.

Comptroller of the Currency
Treasury Department
Washington, D.C.

Federal Deposit Insurance Corporation
Washington, D.C.

The Board of Governors of the Federal Reserve System
Washington, D.C.

(b) Whether it is authorized to exercise corporate trust powers.

The trustee is authorized to exercise corporate trust powers.

Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.

None with respect to the trustee.

No responses are included for Items 3-15 of this Form T-1 because the obligor
is not in default as provided under Item 13.

Item 16. List of Exhibits. List below all exhibits filed as a part of this
Statement of Eligibility.
Norwest Bank incorporates by reference into this
Form T-1 the exhibits attached hereto.

Exhibit 1. a. A copy of Articles of Association of the trustee now
in effect. *

Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis. *

b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the
consolidation of the Northwestern National Bank of
Minneapolis and the Minnesota Loan and Trust Company
of Minneapolis. *

c. A copy of the certificate of the Acting Comptroller
of the Currency dated January 12, 1943, as to change
of corporate title of Northwestern National Bank and
Trust Company of Minneapolis to Northwestern National
Bank of Minneapolis. *

d. A copy of the certificate of the Comptroller of the
Currency dated May 1, 1983, authorizing Norwest Bank
Minneapolis, National Association, to act as
fiduciary. *

<PAGE> 3

Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the Federal
Reserve Board.*

Exhibit 4. Copy of By-laws of the trustee as now in effect.*

Exhibit 5. Not applicable

Exhibit 6. The consent of the trustee required by Section 321(b) of the
Act.

Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.

Exhibit 8. A copy of the certificate dated May 10, 1983 of name change
from Northwestern National Bank Minneapolis to Norwest Bank
Minneapolis, National Association.*

Exhibit 9. A copy of the certificate dated January 11, 1988, of name
change from Norwest Bank Minneapolis, National Association to
Norwest Bank, Minnesota, National Association.*

* Incorporated by reference to the exhibit of the same number filed with
the registration statement number 33-66086.

<PAGE> 4
SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, as amended,
the trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 30th day of November, 1995.

NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION

/s/ Raymond S. Haverstock
---------------------------------
Raymond S. Haverstock
Vice President

<PAGE> 5
[NORWEST BANKS LETTERHEAD]

EXHIBIT 6

November 30, 1995

Securities and Exchange Commission
Washington, D.C. 20549

Gentlemen:

In accordance with Section 321 (b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal or State authorities authorized to make such
examination may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.

Very truly yours,

NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION

/s/ Raymond S. Haverstock
Vice President
<PAGE> 6

EXHIBIT 7

Board of Governors of the Federal Reserve System
OMB Number: 7100-0036

Federal Deposit Insurance Corporation
OMB Number: 3064-0052

Office of the Comptroller of the Currency
Federal Financial OMB Number: 1557-0081
Institutions Examination
Council Expires March 31, 1996
- --------------------------------------------------------------------------------
/1/
Please refer to page i,
[LOGO APPEARS HERE] Table of Contents, for
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES -- FFIEC 031

REPORT AT THE CLOSE OF BUSINESS SEPTEMBER 30, 1995 (950930)
-----------
(RCRI 9989)

This report is required by law: 12 U.S.C. Section 324 (State member banks); 12
U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).

This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.

- --------------------------------------------------------------------------------

NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.

I, Mark P. Wagener, Director of Bank & Service Accounting
-----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report

of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are
true to the best of my knowledge and belief.

/s/ Mark P. Wagener
- --------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report

October 26, 1995
- --------------------------------------------------------------------------------
Date of Signature

The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.

We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it
has been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.

/s/ James P. Campbell
- --------------------------------------------------------------------------------
Director (Trustee)

/s/ Richard C. Westergaard
- --------------------------------------------------------------------------------
Director (Trustee)

/s/ Scott A. Kisting
- --------------------------------------------------------------------------------
Director (Trustee)

- --------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:

STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Reserve District Bank.

STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return
address envelope, return the original only to the FDIC, c/o Quality Data
Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.

NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

FDIC Certificate Number 0 5 2 0 8
---------------------
(RCRI 9050)

Banks should affix the address label in this space.

Norwest Bank Minnesota, National Association
- ------------------------------------------------
Legal Title of Bank (TEXT 9010)

Sixth Street and Marquette Avenue
- ------------------------------------------------
City (TEXT 9130)

Minneapolis, MN 55479-0016
- ------------------------------------------------
State Abbrev. (TEXT 3200) ZIP Code (TEXT 2210)

Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency.

<PAGE> 7

FFIEC 031
Page i
/2/

Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TABLE OF CONTENTS

SIGNATURE PAGE Cover

REPORT OF INCOME

Schedule RI -- Income Statement...................................... RI-1, 2, 3

Schedule RI-A -- Changes in Equity Capital........................... RI-4

Schedule RI-B -- Charge-offs and Recoveries and Changes in Allowance
for Loan and Lease Losses........................................... RI-4, 5

Schedule RI-C -- Applicable Income Taxes by Taxing Authority......... RI-5

Schedule RI-D -- Income from International Operations................ RI-6

Schedule RI-E -- Explanations........................................ RI-7, 8
</TABLE>

DISCLOSURE OF ESTIMATED BURDEN

THE ESTIMATED AVERAGE BURDEN ASSOCIATED WITH THIS INFORMATION COLLECTION IS 31.6
HOURS PER RESPONDENT AND IS ESTIMATED TO VARY FROM 15 TO 225 HOURS PER RESPONSE,
DEPENDING ON INDIVIDUAL CIRCUMSTANCES. BURDEN ESTIMATES INCLUDE THE TIME FOR
REVIEWING INSTRUCTIONS, GATHERING AND MAINTAINING DATA IN THE REQUIRED FORM, AND
COMPLETING THE INFORMATION COLLECTION, BUT EXCLUDE THE TIME FOR COMPILING AND
MAINTAINING BUSINESS RECORDS IN THE NORMAL COURSE OF A RESPONDENT'S ACTIVITIES.
COMMENTS CONCERNING THE ACCURACY OF THIS BURDEN ESTIMATE AND SUGGESTIONS FOR
REDUCING THIS BURDEN SHOULD BE DIRECTED TO THE OFFICE OF INFORMATION AND
REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET, WASHINGTON, D.C. 20503, AND
TO ONE OF THE FOLLOWING:

SECRETARY
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

LEGISLATIVE AND REGULATORY ANALYSIS DIVISION
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219

ASSISTANT EXECUTIVE SECRETARY
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429

REPORT OF CONDITION

<TABLE>
<S> <C>
Schedule RC -- Balance Sheet..................................... RC-1, 2

Schedule RC-A -- Cash and Balances Due From Depository
Institutions.................................................... RC-3

Schedule RC-B -- Securities...................................... RC-3, 4, 5

Schedule RC-C -- Loans and Lease Financing Receivables:
Part I. Loans and Leases....................................... RC-6, 7
Part II. Loans to Small Businesses and Small Farms
(included in the forms for June 30 only)...................... RC-7a, 7b

Schedule RC-D -- Trading Assets and Liabilities (to be
completed only by selected banks)............................... RC-8

Schedule RC-E -- Deposit Liabilities............................. RC-9, 10, 11

Schedule RC-F -- Other Assets.................................... RC-11

Schedule RC-G -- Other Liabilities............................... RC-11

Schedule RC-H -- Selected Balance Sheet Items for Domestic
Offices......................................................... RC-12

Schedule RC-I -- Selected Assets and Liabilities of IBFs......... RC-13

Schedule RC-K -- Quarterly Averages.............................. RC-13

Schedule RC-L -- Off-Balance Sheet Items......................... RC-14, 15, 16

Schedule RC-M -- Memoranda....................................... RC-17, 18

Schedule RC-N -- Past Due and Nonaccrual Loans, Leases, and
Other Assets.................................................... RC-19, 20

Schedule RC-O -- Other Data for Deposit Insurance
Assessments..................................................... RC-21, 22

Schedule RC-R -- Risk-Based Capital.............................. RC-23, 24

Optional Narrative Statement Concerning the Amounts Reported
in the Reports of Condition and Income.......................... RC-25
</TABLE>

Special Report (TO BE COMPLETED BY ALL BANKS)

Schedule RC-J -- Repricing Opportunities (sent only to and to be completed only
by savings banks)

For information or assistance, National and State nonmember banks should contact
the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C.
20429, toll free on (800) 688-FDIC(3342), Monday through Friday between 8:00
a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.

<PAGE> 8

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RI-1
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Consolidated Report of Income
for the period January 1, 1995-September 30, 1995

All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.

Schedule RI--Income Statement
<TABLE>
<CAPTION>
----------
I480 (-
---------------------
Dollar Amounts
in Thousands
- --------------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C>
RIAD
1. Interest income: //////////////////
a. Interest and fee income on loans: //////////////////
(1) In domestic offices: //////////////////
(a) Loans secured by real estate ................................................... 4011 248,356 1.a.(1)(a)
(b) Loans to depository institutions ............................................... 4019 60,736 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ............ 4024 727 1.a.(1)(c)
(d) Commercial and industrial loans ................................................ 4012 217,067 1.a.(1)(d)
(e) Acceptances of other banks ..................................................... 4026 422 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures: //////////////////
(1) Credit cards and related plans ............................................. 4054 16,361 1.a.(1)(f)(1)
(2) Other ...................................................................... 4055 42,792 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions ......................... 4056 0 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political //////////////////
subdivisions in the U.S.: //////////////////
(1) Taxable obligations ........................................................ 4503 50 1.a.(1)(h)(1)
(2) Tax-exempt obligations ..................................................... 4504 1,727 1.a.(1)(h)(2)
(i) All other loans in domestic offices ............................................ 4058 384 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... 4059 8,420 1.a.(2)
b. Income from lease financing receivables: //////////////////
(1) Taxable leases ..................................................................... 4505 28,841 1.b.(1)
(2) Tax-exempt leases .................................................................. 4307 298 1.b.(2)
c. Interest income on balances due from depository institutions:(1) //////////////////
(1) In domestic offices ................................................................ 4105 193 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... 4106 67 1.c.(2)
d. Interest and dividend income on securities: //////////////////
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations .... 4027 69,496 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: //////////////////
(a) Taxable securities ............................................................. 4506 31 1.d.(2)(a)
(b) Tax-exempt securities .......................................................... 4507 4,994 1.d.(2)(b)
(3) Other domestic debt securities ..................................................... 3657 1,563 1.d.(3)
(4) Foreign debt securities ............................................................ 3658 0 1.d.(4)
(5) Equity securities (including investments in mutual funds) .......................... 3659 11,461 1.d.(5)
e. Interest income from trading assets .................................................... 4069 912 1.e.
----------------------
</TABLE>
____________
(1) Includes interest income on time certificates of deposit not held for
trading.

<PAGE> 9

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RI-2
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RI--Continued

<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
- ---------------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Interest income (continued) RIAD Year-to-date
f. Interest income on federal funds sold and securities purchased //////////////////
under agreements to resell in domestic offices of the bank and of //////////////////
its Edge and Agreement subsidiaries, and in IBFs .................... 4020 132,632 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ 4107 847,530 1.g.
2. Interest expense: //////////////////
a. Interest on deposits: //////////////////
(1) Interest on deposits in domestic offices: //////////////////
(a) Transaction accounts (NOW accounts, ATS accounts, and //////////////////
telephone and preauthorized transfer accounts) .............. 4508 8,768 2.a.(1)(a)
(b) Nontransaction accounts: //////////////////
(1) Money market deposit accounts (MMDAs) ................... 4509 50,624 2.a.(1)(b)(1)
(2) Other savings deposits .................................. 4511 6,252 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ 4174 9,922 2.a.(1)(b)(3)
(4) All other time deposits ................................. 4512 78,295 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement //////////////////
subsidiaries, and IBFs .......................................... 4172 36,481 2.a.(2)
b. Expense of federal funds purchased and securities sold under //////////////////
agreements to repurchase in domestic offices of the bank and of //////////////////
its Edge and Agreement subsidiaries, and in IBFs .................... 4180 167,767 2.b.
c. Interest on demand notes issued to the U.S. Treasury trading //////////////////
liabilities and other borrowed money ................................ 4185 119,451 2.c.
d. Interest on mortgage indebtedness and obligations under //////////////////
capitalized leases .................................................. 4072 83 2.d.
e. Interest on subordinated notes and debentures ....................... 4200 7,313 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... 4073 484,956 2.f.
-----------------------
3. Net interest income (item 1.g minus 2.f) ............................... 4074 362,574 3.
-----------------------
4. Provisions: //////////////////
-----------------------
a. Provision for loan and lease losses ................................. 4230 17,618 4.a.
b. Provision for allocated transfer risk ............................... 4243 0 4.b.
-----------------------
5. Noninterest income: //////////////////
a. Income from fiduciary activities .................................... 4070 93,097 5.a.
b. Service charges on deposit accounts in domestic offices ............. 4080 50,727 5.b.
c. Trading gains (losses) and fees from foreign exchange transactions .. 4075 6,665 5.c.
d. Other foreign transaction gains (losses) ............................ 4076 2,017 5.d.
e. Other gains (losses) and fees from trading assets and liabilities ... 4077 12,728 5.e.
f. Other noninterest income: //////////////////
(1) Other fee income ................................................ 5407 95,823 5.f.(1)
(2) All other noninterest income* ................................... 5408 41,890 5.f.(2)
-----------------------
g. Total noninterest income (sum of items 5.a through 5.f) ............. 4079 302,947 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. 3521 1 6.a.
b. Realized gains (losses) on available-for-sale securities ............ 3196 4,641 6.b.
-----------------------
7. Noninterest expense: //////////////////
a. Salaries and employee benefits ...................................... 4135 203,376 7.a.
b. Expenses of premises and fixed assets (net of rental income) //////////////////
(excluding salaries and employee benefits and mortgage interest) .... 4217 57,308 7.b.
c. Other noninterest expense* .......................................... 4092 205,309 7.c.
-----------------------
d. Total noninterest expense (sum of items 7.a through 7.c) ............ 4093 465,993 7.d.
-----------------------
8. Income (loss) before income taxes and extraordinary items and other //////////////////
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g,
6.a, 6.b, and 7.d) ..................................................... //////////////////
-----------------------
4301 186,552 8.
9. Applicable income taxes (on item 8) .................................... 4302 61,384 9.
-----------------------
10. Income (loss) before extraordinary items and other adjustments //////////////////
(item 8 minus 9) ....................................................... //////////////////
4300 125,168 10.
-----------------------
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.

4
<PAGE> 10

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RI-3
City, State Zip: Minneapolis, MN 55479

Transit Number: 09100001
-----------
</TABLE>

Schedule RI--Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------- --------------------
<S> <C>
RIAD Year-to-date
11. Extraordinary items and other adjustments: //////////////////
a. Extraordinary items and other adjustments, gross of income taxes* . 4310 0 11.a.
b. Applicable income taxes (on item 11.a)* ........................... 4315 0 11.b.
c. Extraordinary items and other adjustments, net of income taxes //////////////////
(item 11.a minus 11.b) ............................................ //////////////////
------------------
4320 0 11.c.
12. Net income (loss) (sum of items 10 and 11.c) ......................... 4340 125,168 12.
-------------------

</TABLE>
<TABLE>
<CAPTION>
---------
1481
---------------------
Memoranda Dollar Amounts
in Thousands
--------------------
RIAD Year-to-date
- ------------------------------------------------------------------------------------------------------ --------------------
<S> <C> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after //////////////////
August 7, 1986, that is not deductible for federal income tax purposes .......................... 4513 27 M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices //////////////////
(included in Schedule RI, item 8) ............................................................... 8431 1,547 M.2.
3. Estimated foreign tax credit included in applicable income taxes, items 9 and 11.b above ........ 4309 390 M.3.
4. To be completed only by banks with $1 billion or more in total assets: //////////////////
Taxable equivalent adjustment to "Income (loss) before income taxes and extraordinary //////////////////
items and other adjustments" (item 8 above) ..................................................... 1244 4,747 M.4.
5. Number of full-time equivalent employees on payroll at end of current period (round to //// Number
nearest whole number) ........................................................................... 4150 5,194 M.5.
6. Not applicable //////////////////
7. If the reporting bank has restated its balance sheet as a result of applying push down //// MM DD YY
accounting this calendar year, report the date of the bank's acquisition......................... 9106 N/A M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) //////////////////
(included in Schedule RI, items 5.c and 5.e): //// Year-to-date
a. Interest rate exposures....................................................................... 8757 12,728 M.8.a.
b. Foreign exchange exposures.................................................................... 8758 5,561 M.8.b.
c. Equity security and index exposures........................................................... 8759 0 M.8.c.
d. Commodity and other exposures................................................................. 8760 0 M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: //////////////////
a. Net increase (decrease) to interest income.................................................... 8761 (3,673) M.9.a.
b. Net (increase) decrease to interest expense................................................... 8762 (10,948) M.9.b.
c. Other (noninterest) allocations............................................................... 8763 (9,287) M.9.c.
-------------------

</TABLE>
____________
*Describe on Schedule RI-E--Explanations.

<PAGE> 11

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RI-4
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RI-A--Changes in Equity Capital

Indicate decreases and losses in parentheses.

<TABLE>
<CAPTION>
----------
I483 (-
------------------------
Dollar Amounts
in Thousands
- ------------------------------------------------------------------------------------------------------ -----------------------
<S> <C> <C> <C>
RIAD
1. Total equity capital originally reported in the December 31, 1994, Reports of Condition //////////////////
and Income ...................................................................................... 3215 1,042,788 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. 3216 0 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ 3217 1,042,788 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. 4340 125,168 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. 4346 0 5.
6. Changes incident to business combinations, net .................................................. 4356 0 6.
7. LESS: Cash dividends declared on preferred stock ................................................ 4470 0 7.
8. LESS: Cash dividends declared on common stock ................................................... 4460 110,000 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions //////////////////
for this schedule) .............................................................................. 4411 0 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) 4412 0 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ 8433 46,206 11.
12. Foreign currency translation adjustments ........................................................ 4414 ( 181) 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ 4415 0 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, //////////////////
item 28) ........................................................................................ 3210 1,103,981 14.
----------------------
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.

Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses

Part I. Charge-offs and Recoveries on Loans and Leases

Part I excludes charge-offs and recoveries through
the allocated transfer risk reserve.

<TABLE>
<CAPTION>
----------
I486 (-
-----------------------------------------
Dollar Amounts in Thousands
-------------------------------- --------
Calendar year-to-date
-----------------------------------------
(Column A) (Column B)
Charge-offs Recoveries
- ------------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C> <C>
RIAD RIAD
1. Loans secured by real estate: ////////////////// //////////////////
a. To U.S. addressees (domicile) ......................................... 4651 1,700 4661 2,299 1.a.
b. To non-U.S. addressees (domicile) ..................................... 4652 0 4662 0 1.b.
2. Loans to depository institutions and acceptances of other banks: ////////////////// //////////////////
a. To U.S. banks and other U.S. depository institutions .................. 4653 0 4663 0 2.a.
b. To foreign banks ...................................................... 4654 0 4664 0 2.b.
3. Loans to finance agricultural production and other loans to farmers ...... 4655 0 4665 90 3.
4. Commercial and industrial loans: ////////////////// //////////////////
a. To U.S. addressees (domicile) ......................................... 4645 4,516 4617 3,892 4.a.
b. To non-U.S. addressees (domicile) ..................................... 4646 0 4618 393 4.b.
5. Loans to individuals for household, family, and other personal ////////////////// //////////////////
expenditures: ////////////////// //////////////////
a. Credit cards and related plans ........................................ 4656 1,253 4666 206 5.a.
b. Other (includes single payment, installment, and all student loans) ... 4657 4,510 4667 1,820 5.b.
6. Loans to foreign governments and official institutions ................... 4643 122 4627 123 6.
7. All other loans .......................................................... 4644 8 4628 0 7.
8. Lease financing receivables: ////////////////// //////////////////
a. Of U.S. addressees (domicile) ......................................... 4658 1,479 4668 1,088 8.a.
b. Of non-U.S. addressees (domicile) ..................................... 4659 0 4669 0 8.b.
9. Total (sum of items 1 through 8) ......................................... 4635 13,588 4605 9,911 9.
-------------------------------------------
</TABLE>

<PAGE> 12

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RI-5
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RI-B--Continued

Part I. Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
-------------------------------------------
Calendar year-to-date
-------------------------------------------
(Column A) (Column B)
Memoranda Charge-offs Recoveries
- ------------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C> <C> <C>
RIAD RIAD
1-3. Not applicable ////////////////// //////////////////
4. Loans to finance commercial real estate, construction, and land ////////////////// //////////////////
development activities (not secured by real estate) included in ////////////////// //////////////////
Schedule RI-8, part I, items 4 and 7, above............................... 5409 0 5410 0 M.4.
5. Loans secured by real estate in domestic offices (included in ////////////////// //////////////////
Schedule RI-8, part I, item 1, above): ////////////////// //////////////////
a. Construction and land development...................................... 3582 0 3583 0 M.5.a.
b. Secured by farmland.................................................... 3584 0 3585 0 M.5.b
c. Secured by 1-4 family residential properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured by 1-4 family residential ////////////////// //////////////////
properties and extended under lines of credit...................... 5411 0 5412 0 M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties....... 5413 1,359 5414 138 M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties.............. 3588 0 3589 5 M.5.d.
e. Secured by nonfarm nonresidential properties........................... 3590 341 3591 2,152 M.5.e
-------------------------------------------
</TABLE>

Part II. Changes in Allowance for Loan and Lease Losses

<TABLE>
<CAPTION>
Dollar Amounts
in Thosands
- --------------------------------------------------------------------------------------------------- ----------------------
<S> <C> <C> <C>
RIAD
1. Balance originally reported in the December 31, 1994, Reports of Condition and Income.......... 3124 169,737 1.
2. Recoveries (must equal part I, item 9, column 8 above)......................................... 4605 9,911 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above).................................. 4635 13,588 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... 4230 17,618 4.
5. Adjustments* (see instructions for this schedule).............................................. 4815 ( 6) 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, //////////////////
item 4.b)...................................................................................... 3123 183,672 6.
--------------------
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.

Schedule RI-C--Applicable Income Taxes by Taxing Authority

Schedule RI-C is to be reported with the December Report of Income.

<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
- --------------------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C>
RIAD
1. Federal........................................................................................ 4780 N/A 1.
2. State and local................................................................................ 4790 N/A 2.
3. Foreign........................................................................................ 4795 N/A 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b)............. 4770 N/A 4.
------------------------
5. Deferred portion of item 4 .................................................................... 4772 N/A 5.
------------------------

</TABLE>
7

<PAGE> 13

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RI-6
City, State Zip: Minneapolis, MN 66479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RI-D--Income from International Operations

For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.

Part I. Estimated Income from International Operations

<TABLE>
<CAPTION>
----------
I492 (-
------ --------
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RIAD Year-to-date
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, //////////////////
and IBFs: //////////////////
a. Interest income booked ................................................................... 4837 N/A 1.a.
b. Interest expense booked .................................................................. 4838 N/A 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs //////////////////
(item 1.a minus 1.b) ..................................................................... 4839 N/A 1.c.
2. Adjustments for booking location of international operations: //////////////////
a. Net interest income attributable to international operations booked at domestic offices .. 4840 N/A 2.a.
b. Net interest income attributable to domestic business booked at foreign offices .......... 4841 N/A 2.b.
c. Net booking location adjustment (item 2.a minus 2.b) ..................................... 4842 N/A 2.c.
3. Noninterest income and expense attributable to international operations: //////////////////
a. Noninterest income attributable to international operations .............................. 4097 N/A 3.a.
b. Provision for loan and lease losses attributable to international operations ............. 4235 N/A 3.b.
c. Other noninterest expense attributable to international operations ....................... 4239 N/A 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a //////////////////
minus 3.b and 3.c) ....................................................................... 4843 N/A 3.d.
4. Estimated pretax income attributable to international operations before capital allocation //////////////////
adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. 4844 N/A 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect //////////////////
the effects of equity capital on overall bank funding costs ................................. 4845 N/A 5.
6. Estimated pretax income attributable to international operations after capital allocation //////////////////
adjustment (sum of items 4 and 5) ........................................................... 4846 N/A 6.
7. Income taxes attributable to income from international operations as estimated in item 6 .... 4797 N/A 7.
8. Estimated net income attributable to international operations (item 6 minus 7) .............. 4341 N/A 8.
----------------------

</TABLE>
<TABLE>
<CAPTION>
Memoranda ---------------------
Dollar Amounts
in Thousands
- ------------------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C>
RIAD
1. Intracompany interest income included in item 1.a above ..................................... 4847 N/A M.1.
2. Intracompany interest expense included in item 1.b above .................................... 4848 N/A M.2.
--------------------------

</TABLE>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts

Dollar Amounts
in Thousands
- ------------------------------------------------------------------------------------------------ --------------------
<S> <C> <C> <C>
RIAD Year-to-date
1. Interest income booked at IBFs .............................................................. 4849 N/A 1.
2. Interest expense booked at IBFs ............................................................. 4850 N/A 2.
3. Noninterest income attributable to international operations booked at domestic offices //////////////////
(excluding IBFs): //////////////////
a. Gains (losses) and extraordinary items ................................................... 5491 N/A 3.a.
b. Fees and other noninterest income ........................................................ 5492 N/A 3.b.
4. Provision for loan and lease losses attributable to international operations booked at //////////////////
domestic offices (excluding IBFs) ........................................................... 4852 N/A 4.
5. Other noninterest expense attributable to international operations booked at domestic offices //////////////////
(excluding IBFs) ............................................................................ 4853 N/A 5.
--------------------
</TABLE>
8

<PAGE> 14

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RI-7
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RI-E--Explanations

Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.

Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other
noninterest income and other noninterest expense in Schedule RI. (See
instructions for details.)

<TABLE>
<CAPTION> ----------
I495 (-
------ --------
Dollar Amounts
in Thousands
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RIAD Year-to-date
1. All other noninterest income (from Schedule RI, item 5.f.(2)) //////////////////
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): //////////////////
a. Net gains on other real estate owned ..................................................... 5415 N/A 1.a.
b. Net gains on sales of loans .............................................................. 5416 N/A 1.b.
c. Net gains on sales of premises and fixed assets .......................................... 5417 N/A 1.c.
Itemize and describe the three largest other amounts that exceed 10% of //////////////////
Schedule RI, item 5.f.(2): //////////////////
TEXT
-------------
d. 4461 Processing Fees 4461 15,349 1.d.
----------- ------------------------------------------------------------------------------
e. 4462 Rental Income 4462 7,386 1.e.
----------- ------------------------------------------------------------------------------
f. 4463 Time Deposit Prepayment Penalties 4463 6,244 1.f.
-------------------------------------------------------------------------------------------
2. Other noninterest expense (from Schedule RI, item 7.c): //////////////////
a. Amortization expense of intangible assets ................................................ 4531 9,419 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: //////////////////
b. Net losses on other real estate owned .................................................... 5418 N/A 2.b.
c. Net losses on sales of loans ............................................................. 5419 N/A 2.c.
d. Net losses on sales of premises and fixed assets ......................................... 5420 N/A 2.d.
Itemize and describe the three largest other amounts that exceed 10% of //////////////////
Schedule RI, item 7.c: //////////////////
//////////////////
TEXT
------------- //////////////////
e. 4464 Processing Fees 4464 52,573 2.e.
----------- ------------------------------------------------------------------------------
f. 4467 FDIC Assessments 4467 23,786 2.f.
----------- ------------------------------------------------------------------------------
g. 4468 4468 N/A 2.g.
-------------------------------------------------------------------------------------------
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and //////////////////
applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe //////////////////
all extraordinary items and other adjustments): //////////////////
TEXT
-------------
a. (1) 4469 4469 0 3.a.(1)
---------------------------------------------------------------------------------------
(2) Applicable income tax effect 4486 0 3.a.(2)
-------------
b. (1) 4487 4487 0 3.b.(1)
---------------------------------------------------------------------------------------
(2) Applicable income tax effect 4488 0 3.b.(2)
-------------
c. (1) 4489 4489 0 3.c.(1)
---------------------------------------------------------------------------------------
(2) Applicable income tax effect 4491 0 3.c.(2)

4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, //////////////////
item 2) (itemize and describe all adjustments): //////////////////
TEXT
-------------
a. 4492 4492 N/A 4.a.
----------- ------------------------------------------------------------------------------
b. 4493 4493 N/A 4.b.
-------------------------------------------------------------------------------------------
5. Cumulative effect of changes in accounting principles from prior years (from //////////////////
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): //////////////////
TEXT
-------------
a. 4494 4494 N/A 5.a.
----------- ------------------------------------------------------------------------------
b. 4495 4495 N/A 5.b.
-------------------------------------------------------------------------------------------
6. Corrections of material accounting errors from prior years (from Schedule RI-A, //////////////////
item 10) (itemize and describe all corrections): //////////////////
TEXT
-------------
a. 4496 4496 N/A 6.a.
----------- ------------------------------------------------------------------------------
b. 4497 4497 N/A 6.b.
-------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 15

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RI-8
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RI-E--Continued
<TABLE>
<CAPTION> ----------------
Dollar Amounts in Thousands
----------------------
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RIAD Year-to-date
7. Other transactions with parent holding company (from Schedule RI-A, item 13)
(itemize and describe all such transactions): //////////////////
//////////////////
TEXT //////////////////
-----------
a. 4498 4498 N/A 7.a.
----------- ------------------------------------------------------------------------------
b. 4499 4499 N/A 7.b.
-------------------------------------------------------------------------------------------
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, //////////////////
item 5) (itemize and describe all adjustments): //////////////////
//////////////////
TEXT
------------- //////////////////
a. 4521 Sale of Loans 4521 (6) 8.a.
----------- ------------------------------------------------------------------------------
b. 4522 4522 N/A 8.b
------------------------------------------------------------------------------------------- ---------------------
9. Other explanations (the space below is provided for the bank to briefly describe, I498 I499 (-
----------------------
at its option, any other significant items affecting the Report of Income):
---
No comment X (RIAD 4769)
---
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>

<PAGE> 16

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-1
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for September 30, 1995

All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.

Schedule RC--Balance Sheet
__________
<TABLE>
<CAPTION>
----------
C400 (-
------------ --------
Dollar Amounts
in Thousands
- ------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RCFD
ASSETS //////////////////
1. Cash and balances due from depository institutions (from Schedule RC-A): //////////////////
a. Noninterest-bearing balances and currency and coin(1) ................................... 0081 1,029,333 1.a.
b. Interest-bearing balances(2) ............................................................ 0071 2,709 1.b.
2. Securities: //////////////////
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. 1754 103,912 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ 1773 2,012,310 2.b.
3. Federal funds sold and securities purchased under agreements to resell in domestic offices //////////////////
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: //////////////////
a. Federal funds sold ...................................................................... 0276 3,222,386 3.a.
b. Securities purchased under agreements to resell ......................................... 0277 191,537 3.b.
4. Loans and lease financing receivables: //////////////////
----------------------
a. Loans and leases, net of unearned income (from Schedule RC-C) ........................... 2122 11,957,182 4.a.
b. LESS: Allowance for loan and lease losses ............................................... 3123 183,672 4.b.
c. LESS: Allocated transfer risk reserve ................................................... 3128 0 4.c.
----------------------
d. Loans and leases, net of unearned income, //////////////////
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... 2125 11,773,510 4.d.
5. Trading assets (from Schedule RC-D) ........................................................ 3545 27,813 5.
6. Premises and fixed assets (including capitalized leases) ................................... 2145 109,826 6.
7. Other real estate owned (from Schedule RC-M) ............................................... 2150 5,862 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... 2130 2,684 8.
9. Customers' liability to this bank on acceptances outstanding ............................... 2155 35,581 9.
10. Intangible assets (from Schedule RC-M) ..................................................... 2143 9,279 10.
11. Other assets (from Schedule RC-F) .......................................................... 2160 469,025 11.
12. Total assets (sum of items 1 through 11) ................................................... 2170 18,995,767 12.
----------------------
</TABLE>
____________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.

<PAGE> 17

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-2
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
0 5 2 0 8
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
---------------------------
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES //////////////////
13. Deposits: //////////////////
RCON
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ..... 2200 7,419,457 13.a.
----------------------------
(1) Noninterest-bearing(1) ................................ 6631 2,368,388 13.a.(1)
(2) Interest-bearing ...................................... 6636 5,051,069 13.a.(2)
---------------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, //////////////////
RCFN
part II) .............................................................................. 2200 1,316,598 13.b.
---------------------------
(1) Noninterest-bearing ................................... 6631 20,089 13.b.(1)
(2) Interest-bearing ...................................... 6636 1,296,509 13.b.(2)
----------------------------
14. Federal funds purchased and securities sold under agreements to repurchase in domestic //////////////////
Offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: //////////////////
RCFD
a. Federal funds purchased ............................................................... 0278 4,287,943 14.a.
b. Securities sold under agreements to repurchase ........................................ 0279 880,298 14.b.
RCON
15. a. Demand notes issued to the U.S. Treasury .............................................. 2840 214,836 15.a.
RCFD
b. Trading liabilities (from Schedule RC-D) .............................................. 3548 27,786 15.b.
16. Other borrowed money: //////////////////
a. With original maturity of one year or less ............................................ 2332 802,879 16.a.
b. With original maturity of more than one year .......................................... 2333 2,247,254 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ........................... 2910 1,210 17.
18. Bank's liability on acceptances executed and outstanding ................................. 2920 35,581 18.
19. Subordinated notes and debentures ........................................................ 3200 161,703 19.
20. Other liabilities (from Schedule RC-G) ................................................... 2930 496,241 20.
21. Total liabilities (sum of items 13 through 20) ........................................... 2948 17,891,786 21.
//////////////////
22. Limited-life preferred stock and related surplus ......................................... 3282 0 22.
EQUITY CAPITAL //////////////////
23. Perpetual preferred stock and related surplus ............................................ 3838 0 23.
24. Common stock ............................................................................. 3230 100,000 24.
25. Surplus (exclude all surplus related to preferred stock).................................. 3839 583,860 25.
26. a. Undivided profits and capital reserves ................................................ 3632 408,375 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ 8434 12,061 26.b.
27. Cumulative foreign currency translation adjustments ...................................... 3284 (315) 27.
28. Total equity capital (sum of items 23 through 27) ........................................ 3210 1,103,981 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, //////////////////
and 28) .................................................................................. 3300 18,995,767 29.
---------------------------

</TABLE>

<TABLE>
<S> <C> <C>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that RCFD Number
best describes the most comprehensive level of auditing work performed -----------------
for the bank by independent external auditors as of any date during 1994 ........................... 6724 N/A M.1.
-----------------
</TABLE>

<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance 8 = No external audit work
with generally accepted auditing standards by a certified
public accounting firm (may be required by state
chartering authority)
- ------------
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
12
<PAGE> 18

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-3
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-A--Cash and Balances Due From Depository Institutions

Exclude assets held for trading.

<TABLE>
<CAPTION>
----------
Dollar Amounts in Thousands C405 (-
--------------------------------- --------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
- ----------------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C> <C>
RCFD RCON
1. Cash items in process of collection, unposted debits, and currency and ////////////////// //////////////////
coin .................................................................... 0022 674,740 ////////////////// 1.
a. Cash items in process of collection and unposted debits .............. ////////////////// 0020 595,323 1.a.
b. Currency and coin .................................................... ////////////////// 0080 79,229 1.b.
2. Balances due from depository institutions in the U.S. ................... ////////////////// 0082 82,605 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... 0083 0 ////////////////// 2.a.
b. Other commercial banks in the U.S. and other depository institutions ////////////////// //////////////////
in the U.S. (including their IBFs) ................................... 0085 89,268 ////////////////// 2.b.
3. Balances due from banks in foreign countries and foreign central banks .. ////////////////// 0070 5,698 3.
a. Foreign branches of other U.S. banks ................................. 0073 5,698 ////////////////// 3.a.
b. Other banks in foreign countries and foreign central banks ........... 0074 3,828 ////////////////// 3.b.
4. Balances due from Federal Reserve Banks ................................. 0090 258,508 0090 257,970 4.
5. Total (sum of items 1 through 4) (total of column A must equal ////////////////// //////////////////
Schedule RC, sum of items 1.a and 1.b) .................................. 0010 1,032,042 0010 1,020,825 5.
-------------------------------------------

</TABLE>
<TABLE>
<CAPTION>
---------------------
Memorandum Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
RCON
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, //////////////////
column B above) .............................................................................. 0050 82,008 M.1.
----------------------
</TABLE>

Schedule RC-B--Securities

Exclude assets held for trading.
<TABLE>
<CAPTION>
Dollar Amounts in Thousands C410 (-
--------------------------------------------------------------------------- --------
Held-to-maturity Available-for-sale
----------------------------------------- -----------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
- -------------------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RCFD RCFD RCFD RCFD
1. U.S. Treasury securities ......... 0211 0 0213 0 1286 131,119 1287 132,925 1.
2. U.S. Government agency ////////////////// ////////////////// ////////////////// //////////////////
and corporation obligations ////////////////// ////////////////// ////////////////// //////////////////
(exclude mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities): ////////////////// ////////////////// ////////////////// //////////////////
a. Issued by U.S. Govern- ////////////////// ////////////////// ////////////////// //////////////////
ment agencies(2) .............. 1289 0 1290 0 1291 0 1293 0 2.a.
b. Issued by U.S. ////////////////// ////////////////// ////////////////// //////////////////
Government-sponsored ////////////////// ////////////////// ////////////////// //////////////////
agencies(3) ................... 1294 0 1295 0 1297 47,188 1298 48,668 2.b.
-------------------------------------------------------------------------------------

</TABLE>
_____________
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates,"
U.S. Maritime Administration obligations, and Export-Import Bank
participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the
Farm Credit System, the Federal Home Loan Bank System, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Financing Corporation, Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.
13

<PAGE> 19

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank, Minneapolis, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-4
City, State Zip: Minneapolis, MN 53479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-B--Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
-------------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
----------------------------------------- -----------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RCFD RCFD RCFD RCFD
3. Securities issued by states ////////////////// ////////////////// ////////////////// //////////////////
and political subdivisions ////////////////// ////////////////// ////////////////// //////////////////
in the U.S.: ////////////////// ////////////////// ////////////////// //////////////////
a. General obligations ........... 1676 20,975 1677 21,320 1678 0 1679 0 3.a.
b. Revenue obligations ........... 1681 78,444 1686 82,163 1690 0 1691 0 3.b.
c. Industrial development ////////////////// ////////////////// ////////////////// //////////////////
and similar obligations ....... 1694 4,493 1695 5,174 1696 0 1697 0 3.c.
4. Mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities (MBS): ////////////////// ////////////////// ////////////////// //////////////////
a. Pass-through securities: ////////////////// ////////////////// ////////////////// //////////////////
(1) Guaranteed by ////////////////// ////////////////// ////////////////// //////////////////
GNMA ...................... 1698 0 1699 0 1701 112,539 1702 115,494 4.a.(1)
(2) Issued by FNMA ////////////////// ////////////////// ////////////////// //////////////////
and FHLMC ................. 1703 0 1705 0 1706 1,389,110 1707 1,403,278 4.a.(2)
(3) Other pass-through ////////////////// ////////////////// ////////////////// //////////////////
securities................. 1709 0 1710 0 1711 0 1713 17 4.a.(3)
b. Other mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities (include CMOs, ////////////////// ////////////////// ////////////////// //////////////////
REMICs, and stripped ////////////////// ////////////////// ////////////////// //////////////////
MBS): ////////////////// ////////////////// ////////////////// //////////////////
(1) Issued or guaranteed ////////////////// ////////////////// ////////////////// //////////////////
by FNMA, FHLMC, ////////////////// ////////////////// ////////////////// //////////////////
or GNMA ................... 1714 0 1715 0 1716 27,035 1717 26,517 4.b.(1)
(2) Collateralized ////////////////// ////////////////// ////////////////// //////////////////
by MBS issued or ////////////////// ////////////////// ////////////////// //////////////////
guaranteed by FNMA, ////////////////// ////////////////// ////////////////// //////////////////
FHLMC, or GNMA............. 1718 0 1719 0 1731 0 1732 0 4.b.(2)
(3) All other mortgage- ////////////////// ////////////////// ////////////////// //////////////////
backed securities.......... 1733 0 1734 0 1735 25,019 1736 24,796 4.b.(3)
5. Other debt securities: ////////////////// ////////////////// ////////////////// //////////////////
a. Other domestic debt ////////////////// ////////////////// ////////////////// //////////////////
securities .................... 1737 0 1738 0 1739 1,521 1741 1,574 5.a.
b. Foreign debt ////////////////// ////////////////// ////////////////// //////////////////
securities .................... 1742 0 1743 0 1744 0 1746 0 5.b.
6. Equity securities: ////////////////// ////////////////// ////////////////// //////////////////
a. Investments in mutual ////////////////// ////////////////// ////////////////// //////////////////
funds.......................... ////////////////// ////////////////// 1747 63 1748 63 6.a.
b. Other equity securities ////////////////// ////////////////// ////////////////// //////////////////
with readily determin- ////////////////// ////////////////// ////////////////// //////////////////
able fair values............... ////////////////// ////////////////// 1749 0 1751 0 6.b.
c. All other equity ////////////////// ////////////////// ////////////////// //////////////////
securities(1).................. ////////////////// ////////////////// 1752 258,978 1753 258,978 6.c.
7. Total (sum of items 1 ////////////////// ////////////////// ////////////////// //////////////////
through 6) (total of ////////////////// ////////////////// ////////////////// //////////////////
column A must equal ////////////////// ////////////////// ////////////////// //////////////////
Schedule RC, item 2.a) ////////////////// ////////////////// ////////////////// //////////////////
(total of column D must ////////////////// ////////////////// ////////////////// //////////////////
equal Schedule RC, ////////////////// ////////////////// ////////////////// //////////////////
item 2.b)......................... 1754 103,912 1771 108,657 1772 1,992,572 1773 2,012,310 7.
-------------------------------------------------------------------------------------
</TABLE>
_____________
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.

<PAGE> 20

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-5
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-B--Continued
<TABLE>
<CAPTION>
Memoranda -----------
C412 (-
----------- ---------------
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C>
RCFD
1. Pledged securities(2) ......................................................................... 0416 295,048 M.1.
2. Maturity and repricing data for debt securities(2)(3)(4) (excluding those in nonaccrual status): //////////////////
a. Fixed rate debt securities with a remaining maturity of: //////////////////
(1) Three months or less ................................................................... 0343 12,840 M.2.a.(1)
(2) Over three months through 12 months .................................................... 0344 14,756 M.2.a.(2)
(3) Over one year through five years ....................................................... 0345 171,912 M.2.a.(3)
(4) Over five years ........................................................................ 0346 1,371,892 M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... 0347 1,571,400 M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: //////////////////
(1) Quarterly or more frequently ........................................................... 4544 175,275 M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ 4545 110,489 M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. 4551 0 M.2.b.(3)
(4) Less frequently than every five years .................................................. 4552 0 M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. 4553 285,764 M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt //////////////////
securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual //////////////////
debt securities included in Schedule RC-N, item 9, column C) ............................... 0393 1,857,164 M.2.c.
3. Not applicable //////////////////
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included //////////////////
in Schedule RC-B, items 3 through 5, column A, above) ......................................... 5365 0 M.4.
5. Not applicable //////////////////
6. Floating rate debt securities with a remaining maturity of one year or less(2) (included in //////////////////
Memorandum item 2.b.(5) above) ................................................................ 5519 998 M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or //////////////////
trading securities during the calendar year-to-date (report the amortized cost at date of sale //////////////////
or transfer)................................................................................... 1778 0 M.7.
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale //////////////////
accounts in Schedule RC-B, item 4.b): //////////////////
a. Amortized cost.............................................................................. 8780 117 M.8.a.
b. Fair value.................................................................................. 8781 122 M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in //////////////////
Schedule RC-B, items 2, 3, and 5): //////////////////
a. Amortized cost.............................................................................. 8782 1,499 M.9.a.
b. Fair value.................................................................................. 8783 1,478 M.9.b.
----------------------
</TABLE>
_____________
(2) Includes held-to-maturity securities at amortized cost and
available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(4) Memorandum item 2 is not applicable to savings banks that must complete
supplemental Schedule RC-J.
(5) For commercial banks, the debt securities included in Memorandum item 6 will
also have been reported in Memorandum item 2.b above. For savings banks, the
debt securities included in Memorandum item 6 will also have been reported
in supplemental Schedule RC-J, part I, item 4. Savings banks should note
that available-for-sale debt securities are reported at fair value in
Memorandum item 6 and at amortized cost in Schedule RC-J.

<PAGE> 21

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-6
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>
Schedule RC-C--Loans and Lease Financing Receivables

Part I. Loans and Leases

<TABLE>
<CAPTION>
Do not deduct the allowance for loan and lease losses from amounts ----------
reported in this schedule. Report total loans and leases, net of unearned Dollar Amounts in Thousands C415 (-
income. Exclude assets held in trading accounts. --------------------------------- --------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
-------------------- --------------------
<S> <C> <C> <C> <C> <C>
RCFD RCON
1. Loans secured by real estate .......................................... 1410 5,527,382 ////////////////// 1.
a. Construction and land development .................................. ////////////////// 1415 26,371 1.a.
b. Secured by farmland (including farm residential and other ////////////////// //////////////////
improvements) ...................................................... ////////////////// 1420 2,574 1.b.
c. Secured by 1-4 family residential properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured by 1-4 family residential ////////////////// //////////////////
properties and extended under lines of credit .................. ////////////////// 1797 104,082 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: ////////////////// //////////////////
(a) Secured by first liens ..................................... ////////////////// 5367 4,636,945 1.c.(2)(a)
(b) Secured by junior liens .................................... ////////////////// 5368 295,113 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties .......... ////////////////// 1460 62,416 1.d.
e. Secured by nonfarm nonresidential properties ....................... ////////////////// 1480 400,879 1.e.
2. Loans to depository institutions: ////////////////// //////////////////
a. To commercial banks in the U.S. .................................... ////////////////// 1505 1,222,632 2.a.
(1) To U.S. branches and agencies of foreign banks ................. 1506 613 ////////////////// 2.a.(1)
(2) To other commercial banks in the U.S. .......................... 1507 1,238,533 ////////////////// 2.a.(2)
b. To other depository institutions in the U.S. ....................... 1517 0 1517 0 2.b.
c. To banks in foreign countries ...................................... ////////////////// 1510 423 2.c.
(1) To foreign branches of other U.S. banks ........................ 1513 0 ////////////////// 2.c.(1)
(2) To other banks in foreign countries ............................ 1516 77,637 ////////////////// 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers ... 1590 14,896 1590 14,896 3.
4. Commercial and industrial loans: ////////////////// //////////////////
a. To U.S. addressees (domicile) ...................................... 1763 2,854,898 1763 2,849,005 4.a.
b. To non-U.S. addressees (domicile) .................................. 1764 33,816 1764 787 4.b.
5. Acceptances of other banks: ////////////////// //////////////////
a. Of U.S. banks ...................................................... 1756 0 1756 0 5.a.
b. Of foreign banks ................................................... 1757 9,001 1757 4,416 5.b.
6. Loans to individuals for household, family, and other personal ////////////////// //////////////////
expenditures (i.e., consumer loans) (includes purchased paper) ........ ////////////////// 1975 985,984 6.
a. Credit cards and related plans (includes check credit and other ////////////////// //////////////////
revolving credit plans) ............................................ 2008 191,347 ////////////////// 6.a.
b. Other (includes single payment, installment, and all student loans). 2011 794,914 ////////////////// 6.b.
7. Loans to foreign governments and official institutions (including ////////////////// //////////////////
foreign central banks) ................................................ 2081 5,000 2081 5,000 7.
8. Obligations (other than securities and leases) of states and political ////////////////// //////////////////
subdivisions in the U.S. (includes nonrated industrial development ////////////////// //////////////////
obligations) .......................................................... 2107 53,429 2107 53,429 8.
9. Other loans ........................................................... 1563 534,821 ////////////////// 9.
a. Loans for purchasing or carrying securities (secured and unsecured). ////////////////// 1545 28,455 9.a.
b. All other loans (exclude consumer loans) ........................... ////////////////// 1564 505,329 9.b.
10. Lease financing receivables (net of unearned income) .................. ////////////////// 2165 624,211 10.
a. Of U.S. addressees (domicile) ...................................... 2182 624,211 ////////////////// 10.a.
b. Of non-U.S. addressees (domicile) .................................. 2183 0 ////////////////// 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above ....... 2123 3,316 2123 2,719 11.
12. Total loans and leases, net of unearned income (sum of items 1 through ////////////////// //////////////////
10 minus item 11) (total of column A must equal Schedule RC, item 4.a). 2122 11,957,182 2122 11,819,228 12.
-------------------------------------------
</TABLE>

<PAGE> 22

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-7
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-C--Continued

Part I. Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
-------------------------------------------
(Column A) (Column B)
Consolidated Domestic
Memoranda Bank Offices
- ----------------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C> <C>
RCFD RCON
1. Commercial paper included in Schedule RC-C, part I, above .............. 1496 0 1496 0 M.1.
2. Loans and leases restructured and in compliance with modified terms ////////////////// //////////////////
(included in Schedule RC-C, part I, above and not reported as past due ////////////////// //////////////////
or nonaccrual in Schedule RC-N, Memorandum item 1): ////////////////// //////////////////
a. Loans secured by real estate: ////////////////// //////////////////
---------------------
(1) To U.S. addressees (domicile) ................................... 1687 0 M.2.a.(1)
(2) To non-U.S. addressees (domicile) ............................... 1689 0 M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans to //////////////////
individuals for household, family, and other personal expenditures).. 8691 0 M.2.b.
c. Commercial and industrial loans to and lease financing receivables //////////////////
of non-U.S. addresses (domicile) included in Memorandum item 2.b //////////////////
above................................................................ 8692 0 M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those //////////////////
in nonaccrual status): //////////////////
a. Fixed rate loans and leases with a remaining maturity of: //////////////////
(1) Three months or less ............................................ 0348 4,386,405 M.3.a.(1)
(2) Over three months through 12 months ............................. 0349 630,536 M.3.a.(2)
(3) Over one year through five years ................................ 0356 2,130,058 M.3.a.(3)
(4) Over five years ................................................. 0357 756,559 M.3.a.(4)
(5) Total fixed rate loans and leases (sum of //////////////////
Memorandum items 3.a.(1) through 3.a.(4)) ....................... 0358 7,903,558 M.3.a.(5)
b. Floating rate loans with a repricing frequency of: //////////////////
(1) Quarterly or more frequently .................................... 4554 3,724,966 M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly . 4555 283,443 M.3.b.(2)
(3) Every five years or more frequently, but less frequently than //////////////////
annually ........................................................ 4561 15,817 M.3.b.(3)
(4) Less frequently than every five years ........................... 4564 0 M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) //////////////////
through 3.b.(4)) ................................................ 4567 4,024,226 M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) //////////////////
(must equal the sum of total loans and leases, net, from //////////////////
Schedule RC-C, part I, item 12, plus unearned income from //////////////////
Schedule RC-C, part I, item 11, minus total nonaccrual loans and //////////////////
leases from Schedule RC-N, sum of items 1 through 8, column C) ...... 1479 11,927,784 M.3.c.
4. Loans to finance commercial real estate, construction, and land //////////////////
development activities (not secured by real estate) included in //////////////////
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... 2746 0 M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, above) 5369 2,958,281 M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family ////////////////// ---------------------
residential properties (included in Schedule RC-C, part I, item //////////////////
1.c.(2)(a), column B, page RC-6) ....................................... ////////////////// 5370 1,296,177 M.6.
-------------------------------------------

</TABLE>
_____________
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplemental Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C,
part I, item 1, column A.

<PAGE> 23

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/95 ST-BK: 48-3926 FFIEC 031
Address: P.O. Box 2558 Page RC-7a
City, State Zip: Houston, TX 77252-2558
FDIC Certificate No.: 03263
-----------
</TABLE>

Schedule RC-C--Continued

Part II. Loans to Small Businesses and Small Farms

Schedule RC-C, Part II is to be reported only with the June Report of
Condition.

Report the number and amount currently outstanding as of June 30 of business
loans with "original amounts" of $1,000,000 or less and farm loans with
"original amounts" of $500,000 or less. The following guidelines should be used
to determine the "original amount" of a loan: (1) for loans drawn down under
lines of credit or loan commitments, the "original amount" of the loan is the
size of the line of credit or loan commitment when the line of credit or loan
commitment was most recently approved, extended, or renewed prior to the report
date. However, if the amount currently outstanding as of the report date
exceeds this size, the "original amount" is the amount currently outstanding on
the report date. (2) For loan participations and syndications, the "original
amount" of the loan participation or syndication is the entire amount of the
credit originated by the lead lender. (3) For all other loans, the "original
amount" is the total amount of the loan at origination or the amount currently
outstanding as of the report date, whichever is larger.

Loans to Small Businesses
<TABLE>
<S> <C>
1. Indicate in the appropriate box at the right whether all or substantially all of the dollar
volume of your bank's "Loans secured by nonfarm nonresidential properties" in domestic
offices reported in Schedule RC-C, part I, item 1.e, column B, and all or substantially ------------
all of the dollar volume by your bank's "Commercial and industrial loans to C418
U.S. addressees" in domestic offices reported in Schedule RC-C, part I, item 4.a, ------------ -----------
column B, have original amounts of $100,000 or less (If your bank has no loans RCON YES NO
outstanding in both of these two loan categories, place an "X" in the box ------------------------
marked "NO" and go to item 5; otherwise, see instructions for further information).......... 6999 //// X 1.
------------------------

If YES, complete items 2.a and 2.b below, skip items 3 and 4, and go to item 5.
If NO and your bank has loans outstanding in either loan category, skip items 2.a
and 2.b, complete items 3 and 4 below, and go to item 5.

2. Report the total number of loans currently outstanding for each of the
following Schedule RC-C, part I, loan categories: --------------------
a. "Loans secured by nonfarm nonresidential properties" in domestic RCON Number of Loans
offices reported in Schedule RC-C, part I, item 1.e, ----- ---------------
column B............................................................ 5562 N/A 2.a.
b. "Commercial and industrial loans to U.S. addressees" in domestic //////////////////
offices reported in Schedule RC-C, part I, item 4.a, column B....... 5563 N/A 2.b.
--------------------
</TABLE>

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
-------------------------------------------
(Column A) (Column B)
Amount
Currently
Number of Loans Outstanding
-------------------- --------------------

- ------------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C>
RCON RCON
3. Number and amount currently outstanding of "Loans secured by nonfarm ////////////////// //////////////////
nonresidential properties" in domestic offices reported in Schedule RC-C, ////////////////// //////////////////
part I, item 1.e, column B (sum of items 3.a through 3.c must be less ////////////////// //////////////////
than or equal to Schedule RC-C, part I, item 1.e, column B): ////////////////// //////////////////
a. With original amounts of $100,000 or less ............................. 5564 1,012 5565 35,740 3.a.
b. With original amounts of more than $100,000 through $250,000 .......... 5566 770 5567 80,401 3.b.
c. With original amounts of more than $250,000 through $1,000,000 ........ 5568 867 5569 263,113 3.c.
4. Number and amount currently outstanding of "Commercial and industrial ////////////////// //////////////////
loans to U.S. addressees" in domestic offices reported in Schedule RC-C, ////////////////// //////////////////
part I, item 4.a, column B (sum of items 4.a through 4.c must be less than ////////////////// //////////////////
or equal to Schedule RC-C, part I, item 4.a, column B): ////////////////// //////////////////
a. With original amounts of $100,000 or less ............................. 5570 13,107 5571 229,145 4.a.
b. With original amounts of more than $100,000 through $250,000 .......... 5572 1,649 5573 155,671 4.b.
c. With original amounts of more than $250,000 through $1,000,000 ........ 5574 1,575 5575 467,997 4.c.
-------------------------------------------

</TABLE>
17a

<PAGE> 24

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/95 ST-BK: 48-3926 FFIEC 031
Address: P.O. Box 2558 Page RC-7b
City, State Zip: Houston, TX 77252-2558
FDIC Certificate No.: 03263
-----------
</TABLE>

Schedule RC-C--Continued

Part II. Continued

<TABLE>
<S> <C>
Agricultural Loans to Small Farms
5. Indicate in the appropriate box at the right whether all or substantially all of the dollar
volume of your bank's "Loans secured by farmland (including farm residential and other
improvements)" in domestic offices reported in Schedule RC-C, part I, item 1.b, column B,
and all or substantially all of the bank's "Loans to finance agricultural production
and other loans to farmers" in domestic offices reported in Schedule RC-C, part I, item 3,
column B, have original amounts of $100,000 or less (If your bank has no loans outstanding YES NO
in both of these two loan catagories, place an "X" in the box marked "NO" and do not -----------------------
complete items 7 and 8; otherwise, see instructions for further information).............. 6860 //// X 5.
------- ---------------
If YES, complete items 6.a and 6.b below and do not complete items 7 and 8.
If NO and your bank has loans outstanding in either loan category, skip items
6.a and 6.b and complete items 7 and 8 below.
</TABLE>

<TABLE>
<S> <C> <C>
6. Report the total number of loans currently outstanding for each of the
following Schedule RC-C, part I, loan categories: ---------------------
a. "Loans secured by farmland (including farm residential and other RCON Number of Loans
improvements)" in domestic offices reported in Schedule RC-C, part ------ ---------------
I, item 1.b, column B .............................................. 5576 N/A 6.a.
b. "Loans to finance agricultural production and other loans to farmers" /////////////////
in domestic offices reported in Schedule RC-C, part I, item 3, /////////////////
column B ........................................................... 5577 N/A 6.b.
--------------------

</TABLE>
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
-------------------------------------------
(Column A) (Column B)
Amount
Currently
Number of Loans Outstanding
-------------------- --------------------

- ------------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C>
RCON RCON
7. Number and amount currently outstanding of "Loans secured by farmland ////////////////// //////////////////
(including farm residential and other improvements)" in domestic offices ////////////////// //////////////////
reported in Schedule RC-C, part I, item 1.b, column B (sum of items 7.a ////////////////// //////////////////
through 7.c must be less than or equal to Schedule RC-C, part I, item 1.b, ////////////////// //////////////////
column B): ////////////////// //////////////////
a. With original amounts of $100,000 or less ............................. 5578 20 5579 568 7.a.
b. With original amounts of more than $100,000 through $250,000 .......... 5580 10 5581 1,077 7.b.
c. With original amounts of more than $250,000 through $500,000 .......... 5582 7 5583 1,583 7.c.
8. Number and amount currently outstanding of "Loans to finance agricultural ////////////////// //////////////////
production and other loans to farmers" in domestic offices reported in ////////////////// //////////////////
Schedule RC-C, part I, item 3, column B (sum of items 8.a through 8.c ////////////////// //////////////////
must be less than or equal to Schedule RC-C, part I, item 3, column B): ////////////////// //////////////////
a. With original amounts of $100,000 or less ............................. 5584 223 5585 5,042 8.a.
b. With original amounts of more than $100,000 through $250,000 .......... 5586 39 5587 3,302 8.b.
c. With original amounts of more than $250,000 through $500,000 .......... 5588 31 5589 6,057 8.c.
-------------------------------------------

</TABLE>
17b

<PAGE> 25

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-8
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-D--Trading Assets and Liabilities

Schedule RC-D is to be completed only by banks with $1 billion or more in total
assets or with $2 billion or more in par/notional amount of off-balance sheet
derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e,
columns A through D).

<TABLE>
<CAPTION> ---------
C420 (-
----------------- --------
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
RCON
ASSETS ///////////////////////
1. U.S. Treasury securities in domestic offices ................................................ 3531 2 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- ///////////////////////
backed securities) .......................................................................... 3532 N/A 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... 3533 N/A 3.
4. Mortgage-backed securities in domestic offices: ///////////////////////
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... 3534 0 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA ///////////////////////
(include CMOs, REMICs, and stripped MBS).................................................. 3535 N/A 4.b.
c. All other mortgage-backed securities...................................................... 3536 N/A 4.c.
5. Other debt securities in domestic offices ................................................... 3537 N/A 5.
6. Certificates of deposit in domestic offices ................................................. 3538 N/A 6.
7. Commercial paper in domestic offices ........................................................ 3539 N/A 7.
8. Bankers acceptances in domestic offices ..................................................... 3540 N/A 8.
9. Other trading assets in domestic offices .................................................... 3541 N/A 9.
RCFN
10. Trading assets in foreign offices ........................................................... 3542 N/A 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity ///////////////////////
contracts: ///////////////////////
RCON
a. In domestic offices ...................................................................... 3543 27,811 11.a.
RCFT
b. In foreign offices ....................................................................... 3544 N/A 11.b.
RCFD
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... 3545 27,813 12.
---------------------------

</TABLE>
<TABLE>
<CAPTION>
---------------------------
Dollar Amounts in Thousands
<S> <C> <C> <C>
LIABILITIES ---------------------------
RCFD
13. Liability for short positions ............................................................... 3546 N/A 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity ///////////////////////
contracts ................................................................................... 3547 27,786 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... 3548 27,786 15.
---------------------------
</TABLE>

<PAGE> 26

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-9
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-E--Deposit Liabilities

Part I. Deposits in Domestic Offices
<TABLE>
<CAPTION>
----------
Dollar Amounts in Thousands C425 (-
------------------------------------------------------ --------
Nontransaction
Transaction Accounts Accounts
----------------------------------------- --------------------
(Column A) (Column B) (Column C)
Total transaction Memo: Total Total
accounts (including demand deposits nontransaction
total demand (included in accounts
deposits) column A) (including MMDAs)
-------------------- -------------------- --------------------

- ---------------------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
RCON RCON RCON
Deposits of: ////////////////// ////////////////// //////////////////
1. Individuals, partnerships, and corporations .......... 2201 2,906,142 2240 1,935,120 2346 4,059,938 1.
2. U.S. Government ...................................... 2202 26,786 2280 26,786 2520 0 2.
3. States and political subdivisions in the U.S. ........ 2203 38,529 2290 32,585 2530 13,104 3.
4. Commercial banks in the U.S. ......................... 2206 316,095 2310 316,095 ////////////////// 4.
a. U.S. branches and agencies of foreign banks ....... ////////////////// ////////////////// 2347 0 4.a.
b. Other commercial banks in the U.S. ................ ////////////////// ////////////////// 2348 1,061 4.b.
5. Other depository institutions in the U.S. ............ 2207 6,421 2312 6,421 2349 0 5.
6. Banks in foreign countries ........................... 2213 15,378 2320 15,378 ////////////////// 6.
a. Foreign branches of other U.S. banks .............. ////////////////// ////////////////// 2367 0 6.a.
b. Other banks in foreign countries .................. ////////////////// ////////////////// 2373 0 6.b.
7. Foreign governments and official institutions ////////////////// ////////////////// //////////////////
(including foreign central banks) .................... 2216 0 2300 0 2377 0 7.
8. Certified and official checks ........................ 2330 36,003 2330 36,003 ////////////////// 8.
9. Total (sum of items 1 through 8) (sum of ////////////////// ////////////////// //////////////////
columns A and C must equal Schedule RC, ////////////////// ////////////////// //////////////////
item 13.a) ........................................... 2215 3,345,354 2210 2,368,388 2385 4,074,103 9.
----------------------------------------------------------------

</TABLE>
<TABLE>
<CAPTION>
---------------------
Memoranda Dollar Amounts
in Thousands
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
RCON
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): //////////////////
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ........................ 6835 563,581 M.1.a.
b. Total brokered deposits .................................................................... 2365 0 M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): //////////////////
(1) Issued in denominations of less than $100,000 .......................................... 2343 0 M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than $100,000 //////////////////
and participated out by the broker in shares of $100,000 or less ....................... 2344 0 M.1.c.(2)
d. Total deposits denominated in foreign currencies ........................................... 3776 3,374 M.1.d.
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. //////////////////
reported in item 3 above which are secured or collateralized as required under state law) .. 5590 42,135 M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must //////////////////
equal item 9, column C above): //////////////////
a. Savings deposits: //////////////////
(1) Money market deposit accounts (MMDAs) .................................................. 6810 1,607,609 M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) ................................................ 0352 417,094 M.2.a.(2)
b. Total time deposits of less than $100,000 .................................................. 6648 1,780,293 M.2.b.
c. Time certificates of deposit of $100,000 or more ........................................... 6645 211,820 M.2.c.
d. Open-account time deposits of $100,000 or more ............................................. 6646 57,287 M.2.d.
3. All NOW accounts (included in column A above) ................................................. 2398 976,966 M.3.
----------------------
</TABLE>

<PAGE> 27

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-10
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-E--Continued

Part I. Continued
Memoranda (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Deposit Totals for FDIC Insurance Assessments
Dollar Amounts in Thousands
------------------------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C>
RCON
4. Total deposits in domestic offices (sum of item 9, column A and item 9, column C) //////////////////
(must equal Schedule RC, item 13.a) ......................................................... 2200 7,419,457 M.4.
//////////////////
a. Total demand deposits (must equal item 9, column B) ...................................... 2210 2,368,388 M.4.a.
b. Total time and savings deposits(1) (must equal item 9, column A plus item 9, column C //////////////////
minus item 9, column B) .................................................................. 2350 5,051,069 M.4.b.
----------------------
____________

(1) For FDIC insurance assessment purposes, "total time and savings deposits"
consists of nontransaction accounts and all transaction accounts other
than demand deposits.

- ---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>
---------------------------
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C>
RCON
5. Time deposits of less than $100,000 and open-account time deposits of $100,000 or more //////////////////
(included in Memorandum items 2.b and 2.d above) with a remaining maturity or repricing //////////////////
frequency of:(1) //////////////////
a. Three months or less ....................................................................... 0359 299,264 M.5.a.
b. Over three months through 12 months (but not over 12 months) ............................... 3644 750,516 M.5.b.
6. Maturity and repricing data for time certificates of deposit of $100,000 or more:(1) //////////////////
a. Fixed rate time certificates of deposit of $100,000 or more with a remaining maturity of: //////////////////
(1) Three months or less ................................................................... 2761 52,582 M.6.a.(1)
(2) Over three months through 12 months .................................................... 2762 89,068 M.6.a.(2)
(3) Over one year through five years ....................................................... 2763 66,899 M.6.a.(3)
(4) Over five years ........................................................................ 2765 3,271 M.6.a.(4)
(5) Total fixed rate time certificates of deposit of $100,000 or more (sum of //////////////////
Memorandum items 6.a.(1) through 6.a.(4)) .............................................. 2767 211,820 M.6.a.(5)
b. Floating rate time certificates of deposit of $100,000 or more with a repricing frequency of: //////////////////
(1) Quarterly or more frequently ........................................................... 4568 0 M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ 4569 0 M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. 4571 0 M.6.b.(3)
(4) Less frequently than every five years .................................................. 4572 0 M.6.b.(4)
(5) Total floating rate time certificates of deposit of $100,000 or more (sum of //////////////////
Memorandum items 6.b.(1) through 6.b.(4)) .............................................. 4573 0 M.6.b.(5)
c. Total time certificates of deposit of $100,000 or more (sum of Memorandum items 6.a.(5) //////////////////
and 6.b.(5)) (must equal Memorandum item 2.c. above) ....................................... 6645 211,820 M.6.c.
----------------------
</TABLE>
_____________
(1) Memorandum items 5 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.

<PAGE> 28

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-11
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-E--Continued

Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)
<TABLE>
<CAPTION>
----------------------------
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C>
RCFN
Deposits of: //////////////////
1. Individuals, partnerships, and corporations ................................................... 2621 480,100 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ 2623 776,743 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs) ... 2625 58,292 3.
4. Foreign governments and official institutions (including foreign central banks) ............... 2650 0 4.
5. Certified and official checks ................................................................. 2330 401 5.
6. All other deposits ............................................................................ 2668 1,062 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... 2200 1,316,598 7.
----------------------
</TABLE>

Schedule RC-F--Other Assets

<TABLE>
<CAPTION>
----------
C430 (-
-------------------- --------
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
RCFD
1. Income earned, not collected on loans ........................................................ 2164 63,802 1.
2. Net deferred tax assets(1) ................................................................... 2148 0 2.
3. Excess residential mortgage servicing fees receivable ........................................ 5371 0 3.
4. Other (itemize amounts that exceed 25% of this item) ......................................... 2168 405,223 4.

TEXT
a. 3549 Loan & Fee Payments Rec.-Affil RCFD 3549 236,522 4.a.
----------------------------------------------------------------
b. 3550 RCFD 3550 N/A 4.b.
----------------------------------------------------------------
c. 3551 RCFD 3551 N/A 4.c.
-----------------------------------------------------------------
---------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... RCFD 2160 469,025 5.
---------------------------

</TABLE>
<TABLE>
<CAPTION>
Memorandum -----------------------------
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C>
RCFD
1. Deferred tax assets disallowed for regulatory capital purposes ............................... 5610 0 M.1.
---------------------------

</TABLE>
Schedule RC-G--Other Liabilities
__________
<TABLE>
<CAPTION>
----------
C435 (-
-------------------- --------
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C>
RCON
1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ 3645 36,504 1.a.
RCFD
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. 3646 303,310 1.b.
2. Net deferred tax liabilities(1) .............................................................. 3049 129,765 2.
3. Minority interest in consolidated subsidiaries ............................................... 3000 1,117 3.
4. Other (itemize amounts that exceed 25% of this item) ......................................... 2938 25,545 4.

TEXT RCFD
a. 3552 Payable -- Trade Date Purchase 3552 10,504 4.a.
----------------------------------------------------------------
b. 3553 3553 N/A 4.b.
----------- ----------------------------------------------------
c. 3554 3554 N/A 4.c.
-----------------------------------------------------------------
---------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... 2930 496,241 5.
---------------------------
</TABLE>
____________
(1) See discussion of deferred income taxes in Glossary entry on "income
taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.

<PAGE> 29

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-12
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
<TABLE>
<CAPTION>
C440 (-
------------ --------
Dollar Amounts in Thousands
--------------------
Domestic Offices
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RCON
1. Customers' liability to this bank on acceptances outstanding .................................. 2155 22,282 1.
2. Bank's liability on acceptances executed and outstanding ...................................... 2920 22,282 2.
3. Federal funds sold and securities purchased under agreements to resell ........................ 1350 3,413,923 3.
4. Federal funds purchased and securities sold under agreements to repurchase .................... 2800 5,168,241 4.
5. Other borrowed money .......................................................................... 3190 3,050,133 5.
EITHER //////////////////
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ................... 2163 N/A 6.
OR //////////////////
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... 2941 1,169,582 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) 2192 18,823,241 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and //////////////////
IBFs) 3129 16,549,678 9.
----------------------

Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ----------------------
--------------------
10. U.S. Treasury securities ..................................................................... 1779 132,925 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed //////////////////
securities) .................................................................................. 1785 48,668 11.
12. Securities issued by states and political subdivisions in the U.S. ........................... 1786 103,912 12.
13. Mortgage-backed securities (MBS): //////////////////
a. Pass-through securities: //////////////////
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA .......................................... 1787 1,518,772 13.a.(1)
(2) Other pass-through securities ......................................................... 1869 17 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): //////////////////
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA .......................................... 1877 26,517 13.b.(1)
(2) All other mortgage-backed securities .................................................. 2253 24,796 13.b.(2)
14. Other domestic debt securities ............................................................... 3159 1,574 14.
15. Foreign debt securities ...................................................................... 3160 0 15.
16. Equity securities: //////////////////
a. Investments in mutual funds ............................................................... 3161 63 16.a.
b. Other equity securities with readily determinable fair values ............................. 3162 0 16.b.
c. All other equity securities ............................................................... 3169 258,978 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) ........ 3170 2,116,222 17.
----------------------

Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
----------------------
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------- --------------------
RCON
EITHER //////////////////
1. Net due from the IBF of the domestic offices of the reporting bank ............................ 3051 N/A M.1.
OR //////////////////
2. Net due to the IBF of the domestic offices of the reporting bank .............................. 3059 0 M.2.
----------------------
</TABLE>
22

<PAGE> 30

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-13
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-I--Selected Assets and Liabilities of IBFs

To be completed only by banks with IBFs and other "foreign" offices.
<TABLE>
<CAPTION>
----------
C445 (-
------------ --------
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
RCFN
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .................. 2133 N/A 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, //////////////////
column A) ...................................................................................... 2076 N/A 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) ..... 2077 N/A 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ...................................... 2898 N/A 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, //////////////////
part II, items 2 and 3) ........................................................................ 2379 N/A 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ...... 2381 N/A 6.

</TABLE>
Schedule RC-K--Quarterly Averages (1)
__________
<TABLE>
<CAPTION>
----------
C455 (-
----------------- --------
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
ASSETS ///////////////////////
RCFD
1. Interest-bearing balances due from depository institutions ............................... 3381 5,818 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ....... 3382 1,153,579 2.
3. Securities issued by states and political subdivisions in the U.S.(2) .................... 3383 103,813 3.
4. a. Other debt securities(2) .............................................................. 3647 28,564 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . 3648 254,731 4.b.
5. Federal funds sold and securities purchased under agreements to resell in domestic offices ///////////////////////
of the bank and of its Edge and Agreement subsidiaries, and in IBFs ...................... 3365 2,865,517 5.
6. Loans: ///////////////////////
a. Loans in domestic offices: ///////////////////////
RCON
(1) Total loans ....................................................................... 3360 11,260,432 6.a.(1)
(2) Loans secured by real estate ...................................................... 3385 5,234,470 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers ............... 3386 12.099 6.a.(3)
(4) Commercial and industrial loans ................................................... 3387 3,352,057 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures ....... 3388 975,261 6.a.(5)
RCFN
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. 3360 142,280 6.b.
RCFD
7. Trading assets ........................................................................... 3401 25,435 7.
8. Lease financing receivables (net of unearned income) ..................................... 3484 614,476 8.
9. Total assets(4) .......................................................................... 3368 17,080,281 9.
LIABILITIES ///////////////////////
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, ///////////////////////
RCON
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. 3485 952,369 10.
11. Nontransaction accounts in domestic offices: ///////////////////////
a. Money market deposit accounts (MMDAs) ................................................. 3486 1,623,802 11.a.
b. Other savings deposits ................................................................ 3487 422,124 11.b.
c. Time certificates of deposit of $100,000 or more ...................................... 3345 213,189 11.c.
d. All other time deposits ............................................................... 3469 1,923,311 11.d.
RCFN
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. 3404 782,968 12.
13. Federal funds purchased and securities sold under agreements to repurchase in domestic ///////////////////////
RCFD
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs .............. 3353 4,200,837 13.
14. Other borrowed money ..................................................................... 3355 2,630,470 14.
---------------------------
</TABLE>
_____________
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter, or (2) an average of weekly figures (i.e.,
the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized
cost.
(3) Quarterly averages for all equity securities should be based on historical
cost.
(4) The quarterly average for total assets should reflect all debt securities
(not held for trading) at amortized cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.

<PAGE> 31

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-14
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-L--Off-Balance Sheet Items

Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.

<TABLE>
<CAPTION>
----------
C460 (-
------------ --------
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RCFD
1. Unused commitments: //////////////////
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home //////////////////
equity lines ............................................................................... 3814 142,991 1.a.
b. Credit card lines .......................................................................... 3815 0 1.b.
c. Commercial real estate, construction, and land development: //////////////////
(1) Commitments to fund loans secured by real estate ....................................... 3816 33,965 1.c.(1)
(2) Commitments to fund loans not secured by real estate ................................... 6550 0 1.c.(2)
d. Securities underwriting .................................................................... 3817 0 1.d.
e. Other unused commitments ................................................................... 3818 3,356,402 1.e.
2. Financial standby letters of credit and foreign office guarantees ............................. 3819 743,532 2.
---------------------------
a. Amount of financial standby letters of credit conveyed to others 3820 252,054 2.a.
---------------------------
3. Performance standby letters of credit and foreign office guarantees ........................... 3821 70,187 3.
a. Amount of performance standby letters of credit conveyed to //////////////////
---------------------------
others .......................................................... 3822 32,942 3.a.
---------------------------
4. Commercial and similar letters of credit ...................................................... 3411 385,199 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by //////////////////
the reporting bank ............................................................................ 3428 0 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting //////////////////
(nonaccepting) bank ........................................................................... 3429 0 6.
7. Securities borrowed ........................................................................... 3432 1,514,713 7.
8. Securities lent (including customers' securities lent where the customer is indemnified //////////////////
against loss by the reporting bank) ........................................................... 3433 160,632 8.
9. Mortgages transferred (i.e., sold or swapped) with recourse that have been treated as sold //////////////////
for Call Report purposes: //////////////////
a. FNMA and FHLMC residential mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date ........... 3650 28,971 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... 3651 28,971 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date ........... 3652 0 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... 3653 0 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date ........... 3654 0 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... 3655 0 9.c.(2)
10. When-issued securities: //////////////////
a. Gross commitments to purchase .............................................................. 3434 0 10.a.
b. Gross commitments to sell .................................................................. 3435 0 10.b.
11. Spot foreign exchange contracts ............................................................... 8765 341,428 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and //////////////////
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") 3430 0 12.
TEXT
------------- ---------------------------
a. 3555 3555 N/A 12.a.
----------- ----------------------------------------------------
b. 3556 3556 N/A 12.b.
----------- ----------------------------------------------------
c. 3557 3557 N/A 12.c.
-----------------------------------------------------------------
d. 3558 3558 N/A 12.d.
----------- ----------------------------------------------------
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and //////////////////
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") 5591 0 13.
TEXT
------------- ---------------------------
a. 5592 5592 N/A 13.a.
----------- ----------------------------------------------------
b. 5593 5593 N/A 13.b.
----------- ----------------------------------------------------
c. 5594 5594 N/A 13.c.
-----------------------------------------------------------------
d. 5595 5595 N/A 13.d.
----------- ----------------------------------------------------

</TABLE>

<PAGE> 32

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-15
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-L--Continued
<TABLE>
<CAPTION>
-------------
Dollar Amounts in Thousands C461
----------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Interest Rate Foreign Exchange Equity Derivative Commodity And
- ---------------------------------- Contracts Contracts Contracts Other Contracts
Off-balance Sheet Derivatives
Position Indicators
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14. Gross amounts (e.g.,
notional amounts) (for each //////////////////// ////////////////// ////////////////// ///////////////////
column, sum of items 14.a //////////////////// ////////////////// ////////////////// ///////////////////
through 14.e must equal //////////////////// ////////////////// ////////////////// ///////////////////
sum of items 15, 16.a, //////////////////// ////////////////// ////////////////// ///////////////////
and 16.b): //////////////////// ////////////////// ////////////////// ///////////////////
a. Futures contracts.......... 149,500 0 0 0 14.a
RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696
b. Foward contracts........... 400,750 809,006 0 0 14.b
RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700
c. Exchange-traded option //////////////////// ////////////////// ////////////////// ///////////////////
contracts: //////////////////// ////////////////// ////////////////// ///////////////////
(1) Written options........ 0 0 0 0 14.c.(1)
RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704
(2) Purchased options...... 0 0 0 0 14.c.(2)
RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708
d. Over-the-counter option //////////////////// ////////////////// ////////////////// ///////////////////
contracts: //////////////////// ////////////////// ////////////////// ///////////////////
(1) Written options........ 2,604,876 6,800 0 0 14.d.(1)
RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712
(2) Purchased options...... 1,501,151 4,800 0 0 14.d.(2)
RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716
e. Swaps...................... 2,472,896 0 0 0 14.e.
RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720
15. Total gross notional amount //////////////////// ////////////////// ////////////////// ///////////////////
of derivatives contracts //////////////////// ////////////////// ////////////////// ///////////////////
held for trading.............. 5,518,706 815,714 0 0 15.
RCFD A126 RCFD A127 RCFD 8723 RCFD 8724
16. Total gross notional amount //////////////////// ////////////////// ////////////////// ///////////////////
of derivative contracts //////////////////// ////////////////// ////////////////// ///////////////////
held for purposes other //////////////////// ////////////////// ////////////////// ///////////////////
than trading: //////////////////// ////////////////// ////////////////// ///////////////////
a. Contracts marked //////////////////// ////////////////// ////////////////// ///////////////////
to market ................. 400,750 4,892 0 0 16.a.
RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728
b. Contracts not marked //////////////////// ////////////////// ////////////////// ///////////////////
to market ................. 1,209,717 0 0 0 16.b.
RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
----------------------------------------------------------------------------------------

</TABLE>

<PAGE> 33

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-16
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-L--Continued
<TABLE>
<CAPTION>
-------------
Dollar Amounts in Thousands C461
----------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Interest Rate Foreign Exchange Equity Derivative Commodity and
Contracts Contracts Contracts Other Contracts
Off-balance Sheet Derivatives
Position Indicators
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RCFD RCFD RCFD RCFD
17. Gross fair values of //////////////////// ////////////////// ////////////////// ///////////////////
derivative contracts: //////////////////// ////////////////// ////////////////// ///////////////////
a. Contracts held for //////////////////// ////////////////// ////////////////// ///////////////////
trading: //////////////////// ////////////////// ////////////////// ///////////////////
(1) Gross positive //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8733 17,327 8734 16,312 8735 0 8736 0 17.a.(1)
(2) Gross negative //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8737 10,157 8738 17,629 8739 0 8740 0 17.a.(2)
b. Contracts held for //////////////////// ////////////////// ////////////////// ///////////////////
purposes other than //////////////////// ////////////////// ////////////////// ///////////////////
trading that are marked //////////////////// ////////////////// ////////////////// ///////////////////
to market: //////////////////// ////////////////// ////////////////// ///////////////////
(1) Gross positive //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8741 4,563 8742 0 8743 0 8744 0 17.b.(1)
(2) Gross negative //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8745 0 8746 28 8747 0 8748 0 17.b.(2)
c. Contracts held for //////////////////// ////////////////// ////////////////// ///////////////////
purposes other than //////////////////// ////////////////// ////////////////// ///////////////////
trading that are not //////////////////// ////////////////// ////////////////// ///////////////////
marked to market: //////////////////// ////////////////// ////////////////// ///////////////////
(1) Gross positive //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8749 12,198 8750 0 8751 0 8752 0 17.c.(1)
(2) Gross negative //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8753 3,467 8754 0 8755 0 8756 0 17.c.(2)
------------------------------------------------------------------------------------------

</TABLE>
<TABLE>
<CAPTION>
----------------------------
Memoranda Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------- --------------------
<S> <C>
RCFD
1-2. Not applicable //////////////////
3. Unused commitments with an original maturity exceeding one year that are reported in //////////////////
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments //////////////////
that are fee paid or otherwise legally binding) ............................................... 3833 3,053,912 M.3.
a. Participations in commitments with an original maturity //////////////////
RCFD
exceeding one year conveyed to others ........................... 3834 91,293 M.3.a.
4. To be completed only by banks with $1 billion or more in total assets: //////////////////
Standby letters of credit and foreign office guarantees (both financial and performance) issued //////////////////
to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above ............. 3377 N/A M.4.
5. To be completed for the September report only: //////////////////
Installment loans to individuals for household, family, and other personal expenditures that //////////////////
have been securitized and sold without recourse (with servicing retained), amounts //////////////////
outstanding by type of loan: //////////////////
a. Loans to purchase private passenger automobiles ............................................ 2741 0 M.5.a.
b. Credit cards and related plans ............................................................. 2742 0 M.5.b.
c. All other consumer installment credit (including mobile home loans) ........................ 2743 0 M.5.c.
----------------------

</TABLE>
26

<PAGE> 34

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-17
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-M--Memoranda

<TABLE>
<CAPTION>
----------
C465 (-
----------------------------
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C>
RCFD
1. Extensions of credit by the reporting bank to its executive officers, directors, principal //////////////////
shareholders, and their related interests as of the report date: //////////////////
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal //////////////////
shareholders, and their related interests .................................................... 6164 33,888 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of all //////////////////
extensions of credit by the reporting bank (including extensions of credit to //////////////////
related interests) equals or exceeds the lesser of $500,000 or 5 percent RCFD Number
---------------------------
of total capital as defined for this purpose in agency regulations. 6165 5 1.b.
---------------------------
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches //////////////////
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) ................... 3405 621,000 2.
3. Not applicable. //////////////////
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others //////////////////
(include both retained servicing and purchased servicing): //////////////////
a. Mortgages serviced under a GNMA contract ..................................................... 5500 0 4.a.
b. Mortgages serviced under a FHLMC contract: //////////////////
(1) Serviced with recourse to servicer ....................................................... 5501 0 4.b.(1)
(2) Serviced without recourse to servicer .................................................... 5502 0 4.b.(2)
c. Mortgages serviced under a FNMA contract: //////////////////
(1) Serviced under a regular option contract ................................................. 5503 0 4.c.(1)
(2) Serviced under a special option contract ................................................. 5504 0 4.c.(2)
d. Mortgages serviced under other servicing contracts ........................................... 5505 0 4.d.
5. To be completed only by banks with $1 billion or more in total assets: //////////////////
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must //////////////////
equal Schedule RC, item 9): //////////////////
a. U.S. addressees (domicile) ................................................................... 2103 17,706 5.a.
b. Non-U.S. addressees (domicile) ............................................................... 2104 17,875 5.b.
6. Intangible assets: //////////////////
a. Mortgage servicing rights .................................................................... 3164 0 6.a.
b. Other identifiable intangible assets: //////////////////
(1) Purchased credit card relationships ...................................................... 5506 0 6.b.(1)
(2) All other identifiable intangible assets ................................................. 5507 534 6.b.(2)
c. Goodwill ..................................................................................... 3163 8,745 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ....................... 2143 9,279 6.d.
e. Intangible assets that have been grandfathered for regulatory capital purposes ............... 6442 0 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to redeem //////////////////
the debt ........................................................................................ 3295 0 7.
----------------------

</TABLE>
_____________
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.

<PAGE> 35

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-18
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-M--Continued

<TABLE>
<CAPTION>
----------------------------
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C>
8. a. Other real estate owned: ///////////////////////
RCFD
(1) Direct and indirect investments in real estate ventures ........................ 5372 0 8.a.(1)
///////////////////////
(2) All other real estate owned: RCON
(a) Construction and land development in domestic offices ...................... 5508 0 8.a.(2)(a)
(b) Farmland in domestic offices ............................................... 5509 0 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices ...................... 5510 4,424 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices ......... 5511 0 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices ...................... 5512 1,438 8.a.(2)(e)
RCFN
(f) In foreign offices ......................................................... 5513 0 8.a.(2)(f)
RCFD
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ...... 2150 5,862 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: ///////////////////////
RCFD
(1) Direct and indirect investments in real estate ventures ........................ 5374 0 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies .. 5375 2,684 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ...... 2130 2,684 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies ............... 5376 2,886 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, ///////////////////////
item 23, "Perpetual preferred stock and related surplus" .............................. 3778 0 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include ///////////////////////
proprietary, private label, and third party products): RCON
a. Money market funds ................................................................. 6441 3,335,828 10.a.
b. Equity securities funds ............................................................ 8427 0 10.b.
c. Debt securities funds .............................................................. 8428 0 10.c.
d. Other mutual funds ................................................................. 8429 20,501 10.d.
e. Annuities .......................................................................... 8430 10,415 10.e.
f. Sales of proprietary mutual funds and annuities (included in items 10.a through ///////////////////////

10.e above) ........................................................................ 8784 2,723,680 10.f.
---------------------------
</TABLE>
<TABLE>
<CAPTION>

- ---------------------------------------------------------------------------------------------------------------------------------

--------------------------
Memorandum Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C>
RCFD
1. Interbank holdings of capital instruments (to be completed for the December report only): //////////////////
a. Reciprocal holdings of banking organizations' capital instruments ........................ 3836 N/A M.1.a.
b. Nonreciprocal holdings of banking organizations' capital instruments ..................... 3837 N/A M.1.b.
-------------------

- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 36

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-19
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets

<TABLE>
<CAPTION>
The FFIEC regards the information reported in
all of Memorandum item 1, in items 1 through 10,
column A, and in Memorandum items 2 through 4, ----------
column A, as confidential. C470 (-
------------------------------------------------------------------
Dollar Amounts in Thousands
------------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
accruing accruing
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RCFD RCFD RCFD
1. Loans secured by real estate: //////////////////// ////////////////// //////////////////
a. To U.S. addressees (domicile) ................ 1245 15,620 1246 2,441 1247 10,193 1.a.
b. To non-U.S. addressees (domicile) ............ 1248 0 1249 0 1250 0 1.b.
2. Loans to depository institutions and //////////////////// ////////////////// //////////////////
acceptances of other banks: //////////////////// ////////////////// //////////////////
a. To U.S. banks and other U.S. depository //////////////////// ////////////////// //////////////////
institutions ................................. 5377 0 5378 0 5379 0 2.a.
b. To foreign banks ............................. 5380 0 5381 0 5382 0 2.b.
3. Loans to finance agricultural production and //////////////////// ////////////////// //////////////////
other loans to farmers .......................... 1596 0 1597 0 1583 0 3.
4. Commercial and industrial loans: //////////////////// ////////////////// //////////////////
a. To U.S. addressees (domicile) ................ 1251 7,778 1252 65 1253 12,152 4.a.
b. To non-U.S. addressees (domicile) ............ 1254 0 1255 0 1256 0 4.b.
5. Loans to individuals for household, family, and //////////////////// ////////////////// //////////////////
other personal expenditures: //////////////////// ////////////////// /////////////////
a. Credit cards and related plans ............... 5383 392 5384 723 5385 0 5.a.
b. Other (includes single payment, installment, //////////////////// ////////////////// //////////////////
and all student loans) ....................... 5386 7,544 5387 1,148 5388 1,095 5.b.
6. Loans to foreign governments and official //////////////////// ////////////////// //////////////////
institutions .................................... 5389 0 5390 0 5391 0 6.
7. All other loans ................................. 5459 0 5460 44 5461 0 7.
8. Lease financing receivables: //////////////////// ////////////////// //////////////////
a. Of U.S. addressees (domicile) ................ 1257 0 1258 0 1259 9,274 8.a.
b. Of non-U.S. addressees (domicile) ............ 1271 0 1272 0 1791 0 8.b.
9. Debt securities and other assets (exclude other //////////////////// ////////////////// //////////////////
real estate owned and other repossessed assets) . 3505 0 3506 0 3507 17 9.
------------------------------------------------------------------

</TABLE>
================================================================================
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed
portions of past due and nonaccrual loans and leases. Report in item 10 below
certain guaranteed loans and leases that have already been included in the
amounts reported in items 1 through 8.

<TABLE>
<CAPTION>
10. Loans and leases reported in items 1 ---------------------------------------------------------------
<S> <C> <C> <C> <C>
RCFD RCFD RCFD
through 8 above which are wholly or partially /////////////////// ////////////////// //////////////////
guaranteed by the U.S. Government ............... 5612 577 5613 186 5614 842 10.
a. Guaranteed portion of loans and leases /////////////////// ////////////////// //////////////////
included in item 10 above .................... 5615 423 5616 169 5617 481 10.a.
-----------------------------------------------------------------

</TABLE>
29

<PAGE> 37

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-20
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-N--Continued

<TABLE>
<CAPTION>
----------
C473 (-
--------------------------------------------------------------
Dollar Amounts in Thousands
--------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
Memoranda accruing accruing
- ------------------------------------------------------ -------------------- -------------------- ---------------------
<S> <C> <C> <C>
RCFD RCFD RCFD
1. Restructured loans and leases included in ////////////////// ////////////////// //////////////////
Schedule RC-N, items 1 through 8, above ////////////////// ////////////////// //////////////////
(and not reported in Schedule RC-C, part I, ////////////////// ////////////////// //////////////////
Memorandum item 2)............................... 1658 0 1659 0 1661 0 M.1.
2. Loans to finance commercial real estate, ////////////////// ////////////////// //////////////////
construction, and land development activities ////////////////// ////////////////// //////////////////
(not secured by real estate) included in ////////////////// ////////////////// //////////////////
Schedule RC-N, items 4 and 7, above ............. 6558 0 6559 0 6560 0 M.2.
-------------------- -------------------- --------------------
3. Loans secured by real estate in domestic offices
RCON RCON RCON
(included in Schedule RC-N, item 1, above): ////////////////// ////////////////// //////////////////
a. Construction and land development ............ 2759 0 2769 0 3492 288 M.3.a.
b. Secured by farmland .......................... 3493 0 3494 0 3495 0 M.3.b.
c. Secured by 1-4 family residential properties: ////////////////// ////////////////// //////////////////
(1) Revolving, open-end loans secured by ////////////////// ////////////////// //////////////////
1-4 family residential properties and ////////////////// ////////////////// //////////////////
extended under lines of credit ........... 5398 133 5399 98 5400 0 M.3.c.(1)
(2) All other loans secured by 1-4 family ////////////////// ////////////////// //////////////////
residential properties ................... 5401 12,297 5402 2,331 5403 6,345 M.3.c.(2)
d. Secured by multifamily (5 or more) ////////////////// ////////////////// //////////////////
residential properties ....................... 3499 163 3500 0 3501 342 M.3.d.
e. Secured by nonfarm nonresidential properties . 3502 3,027 3503 12 3504 3,218 M.3.e.
----------------------------------------------------------------

</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
(Column A) (Column B)
Past due 30 Past due 90
through 89 days days or more
-------------------- --------------------
<S> <C> <C>
RCFD RCFD
4. Interest rate, foreign exchange rate, and other ////////////////// //////////////////
commodity and equity contracts: ////////////////// //////////////////
a. Book value of amounts carried as assets ...... 3522 0 3528 0 M.4.a.
b. Replacement cost of contracts with a ////////////////// //////////////////
positive replacement cost .................... 3529 0 3530 0 M.4.b.
-------------------------------------------

</TABLE>
30

<PAGE> 38

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-21
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-O--Other Data for Deposit Insurance Assessments
__________
<TABLE>
<CAPTION>
----------
C475 (-
---------------------------
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
RCON
1. Unposted debits (see instructions): //////////////////
a. Actual amount of all unposted debits ...................................................... 0030 N/A 1.a.
OR //////////////////
b. Separate amount of unposted debits: //////////////////
(1) Actual amount of unposted debits to demand deposits ................................... 0031 0 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... 0032 0 1.b.(2)
2. Unposted credits (see instructions): //////////////////
a. Actual amount of all unposted credits ..................................................... 3510 N/A 2.a.
OR //////////////////
b. Separate amount of unposted credits: //////////////////
(1) Actual amount of unposted credits to demand deposits .................................. 3512 0 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... 3514 0 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total //////////////////
deposits in domestic offices) ................................................................ 3520 0 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in //////////////////
Puerto Rico and U.S. territories and possessions (not included in total deposits): //////////////////
a. Demand deposits of consolidated subsidiaries .............................................. 2211 9,431 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries ................................. 2351 0 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... 5514 0 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: //////////////////
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. 2229 0 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... 2383 0 5.b.
c. Interest accrued and unpaid on deposits in insured branches //////////////////
(included in Schedule RC-G, item 1.b) ..................................................... 5515 0 5.c.
Item 6 is not applicable to state nonmember banks that have not been authorized by the //////////////////
Federal Reserve to act as pass-through correspondents. //////////////////
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on //////////////////
behalf of its respondent depository institutions that are also reflected as deposit liabilities //////////////////
of the reporting bank: //////////////////
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, //////////////////
Memorandum item 4.a) ...................................................................... 2314 314 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, //////////////////
Memorandum item 4.b) ...................................................................... 2315 0 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) //////////////////
a. Unamortized premiums ...................................................................... 5516 72 7.a.
b. Unamortized discounts ..................................................................... 5517 34,578 7.b.
----------------------

- -------------------------------------------------------------------------------------------------------------------------------

8. To be completed by banks with "Oakar deposits."
----------------------
Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of //////////////////
the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... 5518 2,225,164 8.
----------------------

- -------------------------------------------------------------------------------------------------------------------------------
----------------------
9. Deposits in lifeline accounts ................................................................ 5596 ///////////// 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total //////////////////
deposits in domestic offices) ................................................................ 8432 0 10.
----------------------
</TABLE>
______________
(1) For FDIC insurance assessment purposes, "time and savings deposits"
consists of nontransaction accounts and all transaction accounts other than
demand deposits.

<PAGE> 39

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-22
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-O--Continued

<TABLE>
<CAPTION>
----------------------------
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C>
RCON
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for certain //////////////////
reciprocal demand balances: //////////////////
a. Amount by which demand deposits would be reduced if reciprocal demand balances //////////////////
between the reporting bank and savings associations were reported on a net basis //////////////////
rather than a gross basis in Schedule RC-E................................................. 8785 0 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances //////////////////
between the reporting bank and U.S. branches and agencies of foreign banks were //////////////////
reported on a gross basis rather than a net basis in Schedule RC-E ........................ A181 0 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of //////////////////
collection were included in the calculation of net reciprocal demand balances between //////////////////
the reporting bank and the domestic offices of U.S. banks and savings associations //////////////////
in Schedule RC-E .......................................................................... A182 0 11.c.
----------------------

</TABLE>

Memoranda (to be completed each quarter except as noted)

<TABLE>
<CAPTION>
---------------------------
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------- ---------------------
<S> <C>
RCON
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and 1.b.(1) //////////////////
must equal Schedule RC, item 13.a): //////////////////
a. Deposit accounts of $100,000 or less: //////////////////
(1) Amount of deposit accounts of $100,000 or less ........................................ 2702 4,891,534 M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number //////////////////
---------------------------
completed for the June report only) ........................ RCON 3779 N/A ////////////////// M.1.a.(2)
---------------------------
b. Deposit accounts of more than $100,000: //////////////////
(1) Amount of deposit accounts of more than $100,000 ........... Number 2710 2,527,923 M.1.b.(1)
---------------------------
(2) Number of deposit accounts of more than $100,000 ........... RCON 2722 5,773 ////////////////// M.1.b.(2)
-------------------------------------------------
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of
deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by
$100,000 and subtracting the result from the amount of deposit accounts of more than
$100,000 reported in Memorandum item 1.b.(1) above.

Indicate in the appropriate box at the right whether your bank has a method or procedure for RCON Yes No
----------------------
determining a better estimate of uninsured deposits than the estimate described above ..... 6861 /// X M.2.a.
--------------------
b. If the box marked YES has been checked, report the estimate of uninsured deposits
--------------------
determined by using your bank's method or procedure ....................................... 5597 N/A M.2.b.
----------------------
- ------------------------------------------------------------------------------------------------------------------------------
C477 (-
Person to whom questions about the Reports of Condition and Income should be directed: ----------
Chris Hupp, SUPERVISOR REG REPORTING (612) 667-9895
- ----------------------------------------------------------------------------- -------------------------------------------
Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)

</TABLE>

<PAGE> 40

<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-23
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-R--Risk-Based Capital

This schedule must be completed by all banks as follows: Banks that reported
total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1994,
must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets
of less than $1 billion must complete items 1 through 3 below or Schedule RC-R
in its entirety, depending on their response to item 1 below.

<TABLE>
<S> <C> <C>
------------
C480 (-
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed -----------------
only by banks with total assets of less than $1 billion. Indicate in the appropriate RCFD YES NO
box at the right whether the bank has total capital greater than or equal to eight percent -------------------------------
of adjusted total assets ............................................................... 6056 N/A 1.
---------------------------------
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete item 2 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.

</TABLE>
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
-------------------------------------------
(Column A) (Column B)
Subordinated Debt(1) Other
and Intermediate Limited-
Item 2 is to be completed by all banks. Term Preferred Life Capital
Stock Instruments
- ------------------------------------------------------------------------------ -------------------- ----------------------
<S> <C> <C> <C>
RCFD RCFD
2. Subordinated debt(1) and other limited-life capital instruments (original ////////////////// //////////////////
weighted average maturity of at least five years) with a remaining ////////////////// //////////////////
maturity of: ////////////////// //////////////////
a. One year or less ...................................................... 3780 8 3786 0 2.a.
b. Over one year through two years ....................................... 3781 8 3787 0 2.b.
c. Over two years through three years .................................... 3782 8 3788 0 2.c.
d. Over three years through four years ................................... 3783 1,508 3789 0 2.d.
e. Over four years through five years .................................... 3784 8 3790 0 2.e.
f. Over five years ....................................................... 3785 160,163 3791 0 2.f.
-------------------------------------------
3. Not applicable
-------------------------------------------
(Column A) (Column B)
Items 4-9 and Memoranda items 1 and 2 are to be completed Assets Credit Equiv-
by banks that answered NO to item 1 above and Recorded alent Amount
by banks with total assets of $1 billion or more. on the of Off-Balance
Balance Sheet Sheet Items(2)
-------------------- --------------------
4. Assets and credit equivalent amounts of off-balance sheet items assigned
-------------------- --------------------
RCFD RCFD
to the Zero percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet: ////////////////// //////////////////
(1) Securities issued by, other claims on, and claims unconditionally ////////////////// //////////////////
guaranteed by, the U.S. Government and its agencies and other ////////////////// //////////////////
OECD central governments .......................................... 3794 243 661 ////////////////// 4.a.(1)
(2) All other ......................................................... 3795 378,904 ////////////////// 4.a.(2)
b. Credit equivalent amount of off-balance sheet items ................... ////////////////// 3796 N/A 4.b.
-------------------------------------------
</TABLE>
______________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount of assets reported in
column A.

<PAGE> 41

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 09/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-24
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Schedule RC-R--Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
-----------------------------------------
(Column A) (Column B)
Assets Credit Equiv-
Recorded alent Amount
on the of Off-Balance
Balance Sheet Sheet Items(1)
-------------------- --------------------
<S> <C> <C>
RCFD RCFD
5. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 20 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet: ////////////////// //////////////////
(1) Claims conditionally guaranteed by the U.S. Government and its ////////////////// //////////////////
agencies and other OECD central governments ........................ 3798 1,265,478 ////////////////// 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Govern- ////////////////// //////////////////
ment and its agencies and other OECD central governments; by ////////////////// //////////////////
securities issued by U.S. Government-sponsored agencies; and ////////////////// //////////////////
by cash on deposit ................................................. 3799 0 ////////////////// 5.a.(2)
(3) All other .......................................................... 3800 7,130,728 ////////////////// 5.a.(3)
b. Credit equivalent amount of off-balance sheet items ................... ////////////////// 3801 529,404 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 50 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet .................................. 3802 3,555,949 ////////////////// 6.a.
b. Credit equivalent amount of off-balance sheet items ................... ////////////////// 3803 122,540 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 100 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet .................................. 3804 6,576,719 ////////////////// 7.a.
b. Credit equivalent amount of off-balance sheet items ................... ////////////////// 3805 1,979,090 7.b.
8. On-balance sheet asset values excluded from the calculation of the ////////////////// //////////////////
risk-based capital ratio(2) .............................................. 3806 28,000 ////////////////// 8.
9. Total assets recorded on the balance sheet (sum of ////////////////// //////////////////
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, ////////////////// //////////////////
item 12 plus items 4.b and 4.c) .......................................... 3807 19,179,439 ////////////////// 9.
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memorandum Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C>
RCFD
1. Current credit exposure across all off-balance sheet derivative contracts covered by the //////////////////
risk-basked capital standards ................................................................. 8764 43,328 M.1

</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
With a remaining maturity of
-----------------------------------------------------------------------------
(Column A) (Column B) (Column C)
One year or less Over one year Over five years
2. Notional principal amounts of through five years
off-balance sheet derivative ----------------------- ----------------------- ---------------------------
<S> <C> <C> <C>
RCFD RCFD RCFD
a. Interest rate contracts ........... 3809 2,136,893 8766 1,038,516 8767 529,388 M.2.a.
b. Foreign exchange contracts ........ 3812 728,968 8769 4,277 8770 N/A M.2.b.
c. Gold contracts .................... 8771 N/A 8772 N/A 8773 N/A M.2.c.
d. Other precious metals contracts ... 8774 N/A 8775 N/A 8776 N/A M.2.d.
e. Other commodity contracts ......... 8777 N/A 8778 N/A 8779 N/A M.2.e.
f. Equity derivative contracts ....... A000 N/A A001 N/A A002 N/A M.2.f.
-----------------------------------------------------------------------------
</TABLE>
- --------------------
(1) Do not report in column B the risk-weighted amount of assets reported in
column A.
(2) Include the difference between the fair value and the amortized cost of
available-for-sale securities in item 8 and report the amortized cost of
these securities in items 4 through 7 above. Item 8 also includes
on-balance sheet asset values (or portions thereof) of off-balance sheet
interest rate, foreign exchange rate, and commodity contracts and those
contracts (e.g., futures contracts) not subject to risk-based capital.
Exclude from item 8 margin accounts and accrued receivables as well as any
portion of the allowance for loan and lease losses in excess of the amount
that may be included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or
less and all futures contracts.

<PAGE> 42

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095 FFIEC 031
Address: Sixth Street and Marquette Avenue Page RC-25
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>

Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on September 30, 1995

<TABLE>
<CAPTION>
Norwest Bank Minnesota, N.A. Minneapolis MN
_______________________________________________________________ __________________________________, ___________________________
Legal Title of Bank City State
<S> <C> <C>
The management of the reporting bank may, if it wishes, sub- the truncated statement will appear as the bank's statement
mit a brief narrative statement on the amounts reported in both on agency computerized records and in computer-file
the Reports of Condition and Income. This optional statement releases to the public.
will be made available to the public, along with the publicly
available data in the Reports of Condition and Income, in re- All information furnished by the bank in the narrative state-
sponse to any request for individual bank report data. How- ment must be accurate and not misleading. Appropriate ef-
ever, the information reported in column A and in all of forts shall be taken by the submitting bank to ensure the
Memorandum item 1 of Schedule RC-N is regarded as confidential statement's accuracy. The statement must be signed, in the
and will not be released to the public. BANKS CHOOSING TO space provided below, by a senior officer of the bank who
SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE thereby attests to its accuracy.
STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER
IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES If, subsequent to the original submission, material changes
TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN are submitted for the data reported in the Reports of Condi-
SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE tion and Income, the existing narrative statement will be
NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD deleted from the files, and from disclosure; the bank, at its
COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing option, may replace it with a statement, under signature, ap-
not to make a statement may check the "No comment" box below propriate to the amended data.
and should make no entries of any kind in the space provided
for the narrative statement; i.e., DO NOT enter in this space The optional narrative statement will appear in agency
such phrases as "No statement," "Not applicable," "N/A," records and in release to the public exactly as submitted (or
"No comment," and "None." amended as described in the preceding paragraph) by the
management of the bank (except for the truncation of state-
ments exceeding the 750-character limit described above).
THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY
The optional statement must be entered on this sheet. The WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR
statement should not exceed 100 words. Further, regardless RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT
of the number of words, the statement must not exceed 750 SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS
characters, including punctuation, indentation, and standard VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION
spacing between words and sentences. If any submission CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL
should exceed 750 characters, as defined, it will be truncated APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT
at 750 characters with no notice to the submitting bank and SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK.
- ---------------------------------------------------------------------------------------------------------------------------------
No comment X (RCON 6979) C471 C472 (-
--- -------------------

BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)

Signature of James P. Campbell appears here October 29, 1995
--------------------------------------------- --------------------------------
Signature of Executive Officer of Bank Date of Signature
</TABLE>

<PAGE> 43

<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Norwest Bank Minnesota, N.A. Call Date: 9/30/95 ST-BK: 27-4095
Address: Sixth Street and Marquette Avenue
City, State Zip: Minneapolis, MN 55479
FDIC Certificate No.: 05208
-----------
</TABLE>
<TABLE>
<S> <C> <C> <<C>
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- ----------------------------------------------------------------------------------------------------------------------------------
09-30-95 OMB No. For OCC: 1557-0081
CERT: 05208 00373 STBK 27-4095 OMB No. For FDIC: 3064-0052
NORWEST BANK MINNESOTA, N.A. OMB No. For Federal Reserve: 7100-0036
SIXTH STREET AND MARQUETTE AVENUE Expiration Date: 3/31/96
MINNEAPOLIS, MN 55479
SPECIAL REPORT
(Dollar Amounts in Thousands)

------------------------------------------------------------------
CLOSE OF BUSINESS FDIC Certificate Number
DATE C-700 (-
9/30/95 05208
- ----------------------------------------------------------------------------------------------------------------------------------
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- ----------------------------------------------------------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of
Condition. With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of
credit to their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or
other extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert
"none" against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.)
See Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation O) for the
definitions of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to
directors and principal shareholders who are not executive officers.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>

RCFD
----------------------------
a. Number of loans made to executive officers since the previous Call Report date .............. 3561 1 a.
----------------------------
b. Total dollar amount of above loans (in thousands of dollars) ................................ 3562 96 b.
-----------------------------
c. Range of interest charged on above loans --------------------------------------------------
(example: 9 3/4% = 9.75) .............................................. 7701/7702 8.00% to 8.00% c.
--------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- ----------------------------------------------------------------------------------------------------------------------------------
SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT DATE (Month, Day, Year)

Signature of Mark P. Wagener appears here
Director Bank & Service Accounting October 26, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) AREA CODE/PHONE NUMBER/EXTENSION
(TEXT 8904)
Chris Hupp, SUPERVISOR REG REPORTING (612) 676-9895

- ----------------------------------------------------------------------------------------------------------------------------------
FDIC 8040/53 (6-95)
</TABLE>