PRIME HOSPITALITY CORP, S-3/A, 1995-03-28

PRIME HOSPITALITY CORP
S-3/A, 1995-03-28
HOTELS & MOTELS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1995

REGISTRATION NO. 33-58047

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

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 07004
(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 07004
(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: / /
------------------------

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.
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<PAGE> 2

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

SUBJECT TO COMPLETION, DATED MARCH 28, 1995

$75,000,000
[PRIME HOSPITALITY CORP. LOGO]

% CONVERTIBLE SUBORDINATED NOTES DUE 2002

The Notes offered hereby (the "Offering") are convertible into Common Stock
of Prime Hospitality Corp. ("Prime" or the "Company") at any time prior to
maturity, unless previously redeemed, at a conversion price of $ per share,
subject to adjustment in certain events. The Common Stock of the Company is
traded on the New York Stock Exchange under the symbol "PDQ." On March 24, 1995,
the last reported sale price of the Common Stock on the New York Stock Exchange
was $10 1/8 per share. See "Price Range of Common Stock and Dividend Policy."

Interest on the Notes is payable on April 15 and October 15 of each year,
commencing October 15, 1995. The Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after April 17, 1998, at the
redemption prices set forth herein, plus accrued interest, if any, to the
redemption date. If a Risk Event (as defined herein) occurs, each holder of
Notes will have the right, subject to certain conditions and restrictions, to
require the Company to offer to repurchase all outstanding 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 Notes are subordinated to all
existing and future Senior Indebtedness (as defined herein) of the Company and
will be effectively subordinated to all indebtedness and other liabilities of
the Company's subsidiaries. The Indenture governing the Notes does not restrict
the ability of the Company or its subsidiaries to incur additional indebtedness,
including Senior Indebtedness. See "Description of Notes."

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

SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY.
------------------------

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>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
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Per Note.............................. % % %
Total(4).............................. $ $ $
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</TABLE>

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

(2) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.

(3) Before deducting expenses payable by the Company, estimated at $575,000.

(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional $11,250,000 aggregate principal amount of Notes at the Price
to Public, less the Underwriting Discount, solely to cover overallotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."

The Notes are offered by the Underwriters when, as and if delivered to and
accepted by the Underwriters and subject to the right to reject any order in
whole or in part. It is expected that delivery of the certificates representing
the Notes will be made against payment therefor at the office of Montgomery
Securities on or about , 1995.

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

MONTGOMERY SECURITIES SMITH BARNEY INC.

April , 1995

<PAGE> 3

[MAP]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN MARKET PRICES OF THE NOTES OFFERED
HEREBY OR SHARES OF THE COMPANY'S COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, 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. Unless otherwise indicated, all information in this Prospectus
assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting."

THE COMPANY

Prime is a leading hotel owner/operator with a portfolio of 86 hotels
totalling 12,617 rooms. Located primarily in secondary markets in 19 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 49 hotels (the
"Owned Hotels") and manages 37 hotels for third parties (the "Managed Hotels").
Prime holds financial interests in the form of mortgages on or profit
participations in 17 of the Managed Hotels. In total, the Company has equity or
financial interests in 66 hotels containing approximately 10,000 rooms.

The Company operates in three major lodging industry segments:
full-service, all-suites and limited-service. Approximately 53% of Prime's hotel
rooms are in full-service hotels. The AmeriSuites hotels, which comprise
approximately 12% 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. Prime also competes in the limited-service segment, which
comprises approximately 35% of its hotel rooms, primarily through its
economically priced Wellesley Inns, which are located in Florida, the Middle
Atlantic and the Northeast.

Prime is fundamentally committed to hotel equity ownership. 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 1993, as reported by industry sources, by
approximately 25% for full-service hotels, 21% for all-suites hotels and 6% for
limited-service hotels.

The Company's growth strategy is to:

- generate improved results at existing hotels through increased operating
efficiencies;

- acquire full-service hotels with potential for operating and marketing
improvements; and

- expand the AmeriSuites hotel brand to meet growing all-suites segment
demand.

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, during 1994 room revenues increased 7.4% while net
operating income increased 17.0%, as compared to the prior year, for
Company-owned comparable hotels, which are hotels that have been open for all of
1993 and 1994. Lodging industry analysts expect further improvement for the
lodging sector, and the Company expects to continue to improve the performance
of its existing hotels.

The Company seeks to capitalize on its strength as a full-service hotel
owner/operator and the favorable outlook for the full-service segment by
continuing to pursue the acquisition of full-service hotels. In 1994 the Company
acquired four full-service hotels with approximately 1,000 rooms. With a
continued industry 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.

3
<PAGE> 6

Prime is also committed to developing its AmeriSuites all-suites hotel
brand. The Company believes that AmeriSuites provides an excellent guest
experience and offers desirable suite accommodations and other amenities at
mid-scale prices. The performance of AmeriSuites improved significantly in 1994
with revenue per available room ("REVPAR") and net operating income for
comparable hotels increasing by 13.1% and 19.3% over the prior year,
respectively. During the first quarter of 1995, the Company will acquire the
option of ShoLodge, Inc. to purchase a 50% interest in 11 of the Company's 12
AmeriSuites hotels and will also acquire the only AmeriSuites hotel not already
owned by Prime (collectively, the "ShoLodge Transaction"), thereby establishing
Prime's exclusive control over the AmeriSuites brand. In 1994 the Company opened
four new AmeriSuites. The Company currently plans to open or commence
construction of ten new AmeriSuites with approximately 1,250 rooms in 1995. The
Company already owns six development sites for new AmeriSuites hotels and has
begun construction at sites in Atlanta, Greensboro and Miami.

As a leading owner/operator of hotels, Prime believes that it is well
positioned to benefit from the continuing recovery occurring in the lodging
industry. The recovery has 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 by 3.0% in 1993 and by 3.3% in 1994, as reported by Smith
Travel Research. Since 1991, demand growth has outpaced new room supply growth,
resulting in an increase in industry-wide occupancy levels from 60.9% in 1991 to
65.2% in 1994. Higher occupancy levels have allowed the industry to increase
rates. In 1994 average daily rates ("ADR") increased by 3.8% over 1993 levels,
marking the first inflation-adjusted ADR growth since 1986. REVPAR, which
measures the combined impact of rate and occupancy, increased by 7.3% in 1994.
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.

The Company is the successor in interest to Prime Motor Inns, Inc. and
certain of its subsidiaries (collectively, "PMI"). PMI restructured its
operations and capital structure pursuant to a bankruptcy reorganization
completed on July 31, 1992 (the "Effective Date"). 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 shareholders' 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.

The Company is a Delaware corporation incorporated in 1985. The principal
office of the Company is 700 Route 46 East, Fairfield, New Jersey 07004 and its
telephone number is (201) 882-1010.

4
<PAGE> 7

THE OFFERING

<TABLE>
<S> <C>
Securities Offered............ $75 million aggregate principal amount of % Convertible
Subordinated Notes due 2002 (the "Notes").
Interest Payment Dates........ April 15 and October 15, commencing October 15, 1995.
Maturity...................... April 15, 2002
Conversion.................... The Notes are convertible into the Company's Common Stock at
any time prior to maturity, unless previously redeemed, at a
conversion price of $ per share, subject to adjustment in
certain events.
Redemption at Option of
Company..................... The Notes are redeemable, in whole or in part, at the option
of the Company at any time on or after April 17, 1998, at the
redemption prices set forth herein, plus accrued interest, if
any, to the redemption date.
Repurchase at Option of
Holders..................... If a Risk Event (as defined herein) occurs, each holder of
the Notes will have the right, subject to certain conditions
and restrictions, to require the Company to offer to
repurchase all outstanding 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.
Subordination................. The Notes are subordinated to all existing and future Senior
Indebtedness (as defined herein) of the Company, and will be
effectively subordinated to all indebtedness and other
liabilities of the Company's subsidiaries. The Indenture
governing the Notes does not restrict the ability of the
Company or its subsidiaries to incur additional indebtedness,
including Senior Indebtedness.
Use of Proceeds............... The proceeds of the Offering will be used to finance the
development or acquisition of hotels or hotel portfolios 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 notice of issuance. The Common
Stock is listed on the New York Stock Exchange under the
symbol "PDQ."
</TABLE>

5
<PAGE> 8

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. 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 31,
-------------------------
1993 1994
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA
AND MARGIN AND RATIO
DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues................................................. $108,860 $134,303
Costs and expenses:
Direct hotel operating expenses............................. 50,115 65,158
Occupancy and other operating............................... 11,047 11,261
General and administrative.................................. 15,685 15,089
Depreciation and amortization............................... 7,117 9,427
-------- --------
Total costs and expenses............................... 83,964 100,935
-------- --------
Operating income............................................... 24,896 33,368
-------- --------
Interest expense............................................... 16,116 13,993
-------- --------
Net income:
Income from recurring operations............................ 5,928 12,805
Other income -- non-recurring............................... 2,247 5,453
-------- --------
Income before extraordinary items........................... 8,175 18,258
Extraordinary items(1)...................................... 3,989 172
-------- --------
Net income..................................................... $ 12,164 $ 18,430
======== ========
Net income per common share(2):
Income from recurring operations............................ $ .20 $ .40
Other income -- non-recurring............................... .07 .17
-------- --------
Income before extraordinary items........................... .27 .57
Extraordinary items......................................... .13 .01
-------- --------
Net income per common share.................................... $ .40 $ .58
======== ========
Weighted average shares outstanding(2)......................... 30,721 32,022

OTHER DATA:
EBITDA before extraordinary items(3)........................... $ 32,013 $ 42,795
Net cash provided by operating activities...................... 19,728 28,672
Net cash provided by (used in) investing activities............ 2,281 (34,248)
Net cash used in financing activities.......................... (17,056) (23,469)

MARGIN AND RATIO DATA:
EBITDA margin(3)............................................... 29.4% 31.9%
Ratio of EBITDA to interest expense(3)......................... 1.99x 3.06x
Ratio of earnings to fixed charges(4).......................... 1.77x 2.78x
</TABLE>

6
<PAGE> 9

<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 12,524 $123,699
Property, equipment and leasehold improvements................. 299,291 302,891
Mortgages and notes receivable, net of current portion......... 81,260 81,260
Total assets................................................... 434,932 552,532
Current portion of debt........................................ 5,284 5,866
Long-term debt, net of current portion......................... 178,545 295,563
Total stockholders' equity..................................... 204,065 204,065
</TABLE>

- ---------------
(1) Extraordinary items consist of gains on discharges of indebtedness, net of
income taxes of $2.8 million in 1993 and $120,000 in 1994.

(2) Net income per common share has been restated for all periods to reflect a
9.4% retroactive reduction in the number of shares distributed under PMI's
plan of reorganization from 33.0 million to 29.9 million. This reduction was
effected in September 1994.

(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.

(4) 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).

(5) As adjusted to reflect the Offering and the incurrence of $42.6 million of
mortgage debt during the first quarter of 1995. See "Use of Proceeds" and
"Capitalization."

7
<PAGE> 10

The following table sets forth for the five years ended December 31, 1994,
annual operating data for the 49 Owned Hotels in the Company's portfolio as of
December 31, 1994. Operating data for the Owned Hotels built or acquired during
the five-year 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.

OWNED HOTEL OPERATING DATA:

<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C> <C>
Number of hotels................ 33 34 37 42 49
Number of rooms................. 5,013 5,143 5,476 6,116 7,052
Occupancy %..................... 64.0% 64.7% 66.4% 70.3% 68.4%
ADR(1).......................... $ 69.99 $ 64.45 $ 64.70 $ 66.66 $ 68.80
REVPAR(2)....................... $ 44.81 $ 41.70 $ 42.97 $ 46.88 $ 47.04
Room revenues................... $ 71,013 $ 76,635 $ 83,349 $ 97,196 $108,690
Total hotel revenues............ $112,407 $114,979 $120,938 $138,406 $151,089
Gross operating profit(3)....... $ 42,097 $ 36,967 $ 35,516 $ 43,473 $ 50,733
Gross operating profit %(3)..... 37.5% 32.2% 29.4% 31.4% 33.6%
</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.

8
<PAGE> 11

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 December 31, 1994, as adjusted for the issuance of the Notes and the
incurrence of $42.6 million of mortgage debt during the first quarter of 1995,
the Company's total long-term debt (including current installments) and
shareholders' equity would have been $301.4 million and $204.1 million,
respectively. The Company expects it will incur indebtedness in addition to the
Notes in connection with the implementation of its growth strategy. The
Indenture governing the Notes does not restrict the ability of the Company or
its subsidiaries to incur additional indebtedness, including Senior
Indebtedness. Additional indebtedness of the Company may rank senior or pari
passu with the Notes in certain circumstances, while additional indebtedness of
the Company's subsidiaries will rank effectively senior to the Notes. See
"Description of Notes." 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."

SUBORDINATION

The Notes will be unsecured subordinated obligations of the Company and
will be subordinated in right of payment to all present and future Senior
Indebtedness of the Company and will be effectively subordinated to all
indebtedness and other liabilities of the Company's subsidiaries. In the event
of bankruptcy, liquidation or reorganization of the Company, the assets of the
Company will be available to pay obligations on the Notes only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then outstanding. The
holders of any indebtedness of the Company's subsidiaries will be entitled to
payment of their indebtedness from the assets of the subsidiaries prior to the
holders of any general unsecured obligations of the Company, including the
Notes. As of December 31, 1994, the Company had approximately $131.2 million of
outstanding Senior Indebtedness, and the subsidiaries of the Company had
approximately $52.6 million of indebtedness. Of the $42.6 million of
indebtedness being incurred during the first quarter of 1995, $27.0 million is
Senior Indebtedness of the Company and $15.6 million is indebtedness of
subsidiaries. In the event of a payment default with respect to Senior
Indebtedness, no payments may be made on account of the Notes until such default
has been cured or waived. In addition, under certain circumstances, no payments
with respect to the Notes may be made for a period of up to 179 days if certain
non-payment defaults exist with respect to Senior Indebtedness of the Company.
See "Description of Notes." See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

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.

9
<PAGE> 12

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, geographic or
other changes in markets will not adversely affect the convenience or
desirability of the locales in which the Company's hotels are located.
Furthermore, there can be no assurance that, in the locales 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 achieve its growth strategy. 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.

AMERISUITES EXPANSION

As part of its growth strategy, the Company intends to expand its
AmeriSuites hotel brand to meet growing demand in the all-suites hotel segment.
On March 31, 1995, in connection with the pending ShoLodge Transaction, the
Company will take over the management of the AmeriSuites hotel brand. Prior to
completion of the ShoLodge Transaction, the Company will have operated only one
of the thirteen AmeriSuites hotels. In addition to the risks associated with
hotel development generally, the Company is subject to additional risks in the
all-suites hotel segment due to its limited operating history in this segment.
Also, the Company competes with other companies in the all-suites segment, some
of whom have greater brand recognition, financial resources and experience than
the Company. There is no assurance that the Company can 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 $5.7
million of the Company's operating income in 1994. The Frenchman's Reef's
operating results have been adversely affected in recent years by a hurricane,
disruption in airline service and the Persian Gulf War. As a resort hotel
primarily operated for leisure travellers, 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.

10
<PAGE> 13

RISKS ASSOCIATED WITH ROSE AND COHEN SETTLEMENT

In April 1994, the Company received a favorable ruling from the U.S.
Bankruptcy Court for the Southern District of Florida in litigation with
Financial Security Assurance, Inc. ("FSA") with respect to FSA's attempt to
recover a payment made to the Company pursuant to a settlement agreement with
Allan V. Rose ("Rose") and Arthur G. Cohen ("Cohen"). In 1993, the Company
reached a settlement with Rose and Cohen of an adversary proceeding regarding a
promissory note and personal guarantee. FSA asserted in the Bankruptcy Court
proceeding that it was entitled to receive the settlement proceeds otherwise
payable to the Company (approximately $31.2 million) under the terms of an
intercreditor agreement. The Bankruptcy Court ruled in favor of the Company in
April 1994 and, immediately thereafter, the Company used $25.0 million of the
settlement proceeds to retire its remaining Senior Secured Notes due July 31,
1997. On April 21, 1994, FSA filed a notice of appeal of the Bankruptcy Court's
order. The appeal has been argued before the United States District Court for
the Southern District of Florida and a decision of the District Court is
pending. The Company is retaining the remaining $6.2 million of settlement
proceeds as restricted cash pending disposition of the appeal. If the favorable
decision of the Bankruptcy Court were reversed by the District Court or on
further appeal by FSA, 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. 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.

11
<PAGE> 14

MANAGEMENT AGREEMENTS

The Company currently manages 37 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 maturing in December 1995. 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.

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 terminate
the agreement if 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."

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 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, the market price of the Company's Common Stock, 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."

12
<PAGE> 15

USE OF PROCEEDS

The net proceeds from the sale of the Notes offered hereby are estimated to
be approximately $72.2 million (approximately $83.1 million if the Underwriters'
over-allotment option is exercised in full) after deducting the underwriting
discount 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 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.
Until used, the net proceeds of this Offering will be invested in short-term
investment grade marketable securities or money market funds or used to repay
mortgage debt on existing hotels that the Company expects would be available, as
a result of such repayment, to support additional indebtedness.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "PDQ." The following table sets forth, for the periods indicated, the
high and low closing price of the Common Stock as reported on the New York Stock
Exchange.

<TABLE>
<CAPTION>
PRICE RANGE
--------------
HIGH LOW
----- ----
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1993

1st Quarter................................................... $ 3 5/8 $2 1/8
2nd Quarter................................................... 4 1/2 3 1/2
3rd Quarter................................................... 4 3/4 3 1/8
4th Quarter................................................... 6 4 3/8

YEAR ENDED DECEMBER 31, 1994

1st Quarter................................................... $ 8 1/8 $5 3/8
2nd Quarter................................................... 7 5/8 5 3/8
3rd Quarter................................................... 8 3/4 6 3/4
4th Quarter................................................... 9 6 7/8

YEAR ENDED DECEMBER 31, 1995

1st Quarter (through March 24, 1995).......................... $10 1/8 $7 1/4
</TABLE>

The closing price of the Common Stock as reported on the New York Stock
Exchange Composite Tape was $10 1/8 on March 24, 1995. As of March 24, 1995,
there were approximately 2,900 holders of record of the Common Stock.

The Company has not declared any cash dividends on its Common Stock since
the Effective Date and does not currently anticipate paying any dividends on the
Common Stock in the foreseeable future. The Company currently anticipates that
it will retain any future earnings for use in its business. Covenants contained
in certain of the Company's debt instruments prohibit the payment of cash
dividends.

13
<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1994, and as adjusted to give effect to the Offering and the
incurrence by the Company of $42.6 million of mortgage debt in the first quarter
of 1995. 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>
DECEMBER 31, 1994
---------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of debt............................................ $ 5,284 $ 5,866
-------- --------------
Long-term debt, excluding current portion:
10% Secured Notes due 1999....................................... 52,580 52,580
Notes and Mortgages payable, less current portion(2)............. 125,965 167,983
% Convertible Subordinated Notes due 2002...................... -- 75,000
-------- --------------
Total long-term debt..................................... 178,545 295,563
Stockholders' equity:
Preferred stock, par value $.10 per share;
20,000,000 shares authorized; none issued..................... -- --
Common stock, par value $.10 per share;
50,000,000 shares authorized; 30,409,371 shares
issued and outstanding(3)................................... 304 304
Capital in excess of par value................................... 171,774 171,774
Retained earnings................................................ 31,987 31,987
-------- --------------
Total stockholders' equity............................... 204,065 204,065
-------- --------------
Total capitalization..................................... $382,610 $499,628
======== ===========
</TABLE>

- ---------------
(1) Gives effect to the Offering and mortgage debt of $39.0 million incurred in
February 1995 and the anticipated incurrence of $3.6 million of mortgage
debt related to the ShoLodge Transaction, which is scheduled to close on
March 31, 1995.

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

(3) Does not include 1,855,886 shares of Common Stock reserved for issuance upon
the exercise of warrants distributed under PMI's plan of reorganization,
with an exercise price of $2.71 per share, and 1,442,156 shares of Common
Stock reserved for issuance upon the exercise of employee stock options.

14
<PAGE> 17

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. 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>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Room.......................................................... $ 69,487 $ 88,753
Food and beverage............................................. 12,270 18,090
Management and other 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
-------- --------
Costs and expenses:
Direct hotel operating expenses:
Room........................................................ 19,456 24,539
Food and beverage........................................... 10,230 13,886
Selling and general......................................... 20,429 26,733
Occupancy and other operating................................. 11,047 11,261
General and administrative.................................... 15,685 15,089
Depreciation and amortization................................. 7,117 9,427
-------- --------
Total costs and expenses................................. 83,964 100,935
-------- --------
Operating income................................................. 24,896 33,368
Interest income on cash investments.............................. 1,267 1,966
Interest expense................................................. (16,116) (13,993)
Other income..................................................... 3,809 9,089
-------- --------
Income before income taxes and extraordinary items............... 13,856 30,430
Provision for income taxes....................................... 5,681 12,172
-------- --------
Income before extraordinary items................................ 8,175 18,258
Extraordinary items(1)........................................... 3,989 172
-------- --------
Net income....................................................... $ 12,164 $ 18,430
======== ========

Net income per common share(2):
Income before extraordinary items........................ $ .27 $ .57
Extraordinary items...................................... .13 .01
-------- --------
Net income per common share...................................... $ .40 $ .58
======== ========
Weighted average shares outstanding(2)........................... 30,721 32,022
</TABLE>

15
<PAGE> 18

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994
-------- --------
(IN THOUSANDS, EXCEPT
MARGIN AND RATIO DATA)
<S> <C> <C>
OTHER DATA:
EBITDA before extraordinary items(3)............................. $ 32,013 $ 42,795
Net cash provided by operating activities........................ 19,728 28,672
Net cash provided by (used in) investing activities.............. 2,281 (34,248)
Net cash used in financing activities............................ (17,056) (23,469)
MARGIN AND RATIO DATA:
EBITDA margin(3)................................................. 29.4% 31.9%
Ratio of EBITDA to interest expense(3)........................... 1.99x 3.06x
Ratio of earnings to fixed charges(4)............................ 1.77x 2.78x
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 41,569 $ 12,524
Property, equipment and leasehold improvements................... 172,786 299,291
Mortgages and other notes receivable, net of current portion..... 163,033 81,260
Total assets..................................................... 410,685 434,932
Current portion of debt.......................................... 19,282 5,284
Long-term debt, net of current portion........................... 168,618 178,545
Total stockholders' equity....................................... 171,364 204,065
</TABLE>

- ---------------
(1) Extraordinary items consist of gains on discharges of indebtedness, net of
income taxes of $2.8 million in 1993 and $120,000 in 1994.

16
<PAGE> 19

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 49 Owned
Hotels and manages 37 Managed Hotels for third parties. The Company has a
financial interest in the form of mortgages or profit participations in 17 of
the Managed Hotels. The Company records the direct revenues, operating expenses
and depreciation of its Owned Hotels and 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 operating efficiencies, acquiring
full-service hotels and expanding its AmeriSuites hotel brand in the all-suites
segment. Operating results have continued to improve at comparable hotels due to
repositioning efforts, yield management programs and overall improvements in the
industry. The Company also added 11 Owned Hotels in 1994 through acquisition,
construction or settlements of notes receivable, thereby increasing its Owned
Hotel rooms by approximately 40%. The Company believes that it is well
positioned to benefit from current industry trends due to its hotel equity
ownership position.

The Company has restated net income per common share for all periods to
reflect a 9.4% reduction in the number of shares distributed under the plan of
reorganization (the "Plan") of the Company's predecessor, PMI. The financial
statements had previously given effect to the maximum amount of 33,000,000
shares of Common Stock issuable under the Plan, whereas the Company in total
distributed only 29,913,000 shares under the Plan.

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.

17
<PAGE> 20

<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
------------------- -------------------
1993 1994 1993 1994
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND
REVPAR)
<S> <C> <C> <C> <C>
Direct Hotel Operating Expenses:
Room.............................................. $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:
Room, as a percentage of room 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 room and
food and beverage revenue...................... 25.0% 25.0% 24.3% 24.1%
Occupancy and Other, as a percentage of room 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.

Room 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
room revenues of $17.6 million from hotels acquired or built in 1993 and 1994
and an increase in room revenues at comparable Owned Hotels. Room revenues for
comparable Owned Hotels increased by $4.5 million, or 7.2%, in 1994 compared to
1993 due to improvements in ADR which increased by $4.32, or 7.6%, reflecting
repositioning and refurbishment efforts at several full-service hotels and
improving industry fundamentals. Occupancy rates for comparable Owned Hotels
remained relatively constant in 1994 compared to the prior year.

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

18
<PAGE> 21

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.
These cash flow notes bear many of the characteristics and risks of operating
hotel equity investments and are assigned no value 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"). The impact of this restructuring on operating income is
expected to be minimal, as direct revenues, expenses and depreciation will
increase and interest income and management fees will decrease.

Direct room 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 room revenue, direct room 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
room expenses increased $411,000, or 2.4%, but decreased as a percentage of
comparable room revenue from 27.1% in 1993 to 25.9% in 1994.

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 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 new hotels. 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.

19
<PAGE> 22

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 $701,000, 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 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
$1.3 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 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
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.

For purposes of an analysis of the results of operations, comparisons of
the Company's results of operations for 1993 to 1992 are made only when, in
management's opinion, such comparisons are meaningful. Prior to the Effective
Date, the Company did not employ "fresh start" reporting thereby making
comparisons to certain financial statement data prior to such date less
meaningful. The financial information set forth below presents the revenues and
expenses which can be meaningfully compared. The table excludes the items which
were affected by the changes in accounting such as interest expense, occupancy
and other operating expense and depreciation expense for 1992 and 1993. The
financial information below should be read in conjunction with the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus or
incorporated by reference in this Prospectus. Since the Company changed its
fiscal year in 1992, management has compiled unaudited data for the calendar
year ended December 31, 1992.

20
<PAGE> 23

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
-------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
Revenues:
Room............................................ $ 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:
Room............................................ 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
General and Administrative........................ 17,162 15,685
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Room, as a percentage of room 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 room and
food and beverage revenue.................... 29.3% 25.0% 26.1% 24.8%
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.

Room 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
room 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 room revenues of $7.4 million resulting from
the divestiture of four hotels in 1992 and 1993. Room 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.

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

21
<PAGE> 24

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 room 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 room revenue, direct room
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
room expenses for comparable Owned Hotels increased by $845,000, or 6.0%, but
decreased as a percentage of room 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.

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.

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 has financed its operations and capital needs through a
combination of cash flow from operations, conversion of non-operating assets to
cash and proceeds from mortgage financings. 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 due through
1995. An important component of the Company's growth strategy is to increase its
equity ownership in hotels, particularly in the full-service and all-suites
segments of the market. 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.
Additionally, the Company plans to expand its AmeriSuites hotel brand by opening
or commencing construction on ten AmeriSuites hotels in 1995. The Company plans
to fund its development and acquisition program in 1995 with the proceeds of the
Offering, mortgage financings of $42.6 million being

22
<PAGE> 25

incurred in the first quarter of 1995 and additional mortgage financings on its
unencumbered properties, as well as, potentially, on any properties acquired.
The Company believes that these sources will be adequate to fund the
implementation of its growth strategy in 1995.

At December 31, 1994, the Company had cash and cash equivalents of $12.5
million and restricted cash of $9.7 million, which was primarily collateral for
various debt obligations. Cash and cash equivalents decreased by $29.0 million
during 1994 primarily due to capital expenditures related to the Company's
development plan.

Cash flow from operations was approximately $28.7 million in 1994 as
compared to $19.7 million in 1993. Cash flow from operations was positively
impacted by the utilization of net operating loss carryforwards ("NOLs") of $5.9
million and $4.5 million for 1994 and 1993, respectively. At December 31, 1994,
the Company had federal NOLs relating to its predecessor, PMI, of approximately
$117.5 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 in 1994 were a settlement of the
Rose and Cohen note receivable for $31.2 million, mortgage financing and other
borrowings of $19.0 million and other collections of mortgages and notes
receivable of $5.0 million. The Company's major uses of cash in 1994 were
payments of debt of $43.8 million, capital expenditures of $63.4 million and
purchases of debt and other securities of $5.9 million.

Debt. During the first quarter of 1994, the Company purchased at a
discount $7.2 million of its Senior Secured Notes and Junior Secured Notes for
an aggregate purchase price of $7.0 million and retired the debt for a gain of
approximately $200,000. In addition, during the first quarter of 1994, the
Company purchased through a third party agent approximately $5.2 million of its
Senior Secured Notes and Junior Secured Notes for aggregate consideration of
$4.8 million. These notes were held by the third party agent and were not
retired due to certain restrictions under the note agreements. The purchases
were recorded as investments on the Company's balance sheet and gains will not
be recorded on these transactions until the notes mature or are redeemed. In
April 1994, approximately $1.1 million of these notes were retired with a
portion of the proceeds from settlement of the Rose and Cohen note receivable,
resulting in a pretax gain of approximately $100,000.

In April 1994, the Company retired its Senior Secured Notes, due July 31,
1997, with a prepayment of $26.4 million from proceeds of the settlement of the
Rose and Cohen note receivable and other collections from the collateral for the
Senior Secured Notes. The Company issued the Senior Secured Notes on July 31,
1992.

In July 1994, the Company received the required consents from 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
consent to the amendment, the Company agreed to increase the interest rate of
the Junior Secured Notes from 9.2% to 10.0% per annum and to shorten the
maturity from July 31, 2000 to July 31, 1999. In addition, the designation of
the Junior Secured Notes changed to Senior Secured Notes as the original Senior
Secured Notes were retired.

In November 1994, the Company obtained mortgage financing of $10.8 million
on two of its unencumbered properties, the proceeds of which were used for the
Company's acquisition and development program in 1994. These notes bear interest
at 11.2% and mature in 2004.

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

The Company has $34.9 million of debt obligations related to the
Frenchman's Reef due in December 1996. The Company intends to seek an extension
of the maturity of such debt or refinance it. The debt is secured by the
property which has a book value of $50.0 million.

23
<PAGE> 26

At December 31, 1994, as adjusted to give effect to the Offering and the
incurrence by the Company of $42.6 million of mortgage debt in the first quarter
of 1995, the Company would have had $301.4 million in debt outstanding. Of this
debt approximately $83.7 million will bear interest at floating rates. The
Company has not entered into interest rate protection agreements with respect to
its floating rate debt, and, accordingly, the interest the Company pays on such
debt will increase or decrease depending on the movement of interest rates
generally.

Capital Investments. The Company has implemented a hotel development and
acquisition program which focuses on the acquisition of strategically positioned
full-service hotels or hotel portfolios and the development of AmeriSuites
hotels. The Company spent approximately $51.0 million and assumed $18.7 million
of debt in connection with its development and acquisition program in 1994. The
cash portion was funded by a combination of existing cash balances, cash flow
from operations and mortgage financing.

As part of the Company's full-service acquisition program in 1994, the
Company acquired four full-service hotels: the 183-room Ramada Inn in Clifton,
New Jersey, the 280-room Ramada Inn in Trevose, Pennsylvania (which the Company
has since converted to a Radisson hotel), the 340-room Sheraton hotel in
Hasbrouck Heights, New Jersey, and the 225-room Sheraton hotel in Mahwah, New
Jersey. The Company is continuing to pursue opportunities to acquire
full-service hotels or hotel portfolios to the extent that attractive
acquisition opportunities are available.

During 1994, the Company opened four newly constructed AmeriSuites hotels
in Overland Park, Kansas, Columbus, Ohio, Tampa, Florida, and Louisville,
Kentucky, and two newly constructed Wellesley Inns in Lakeland and Fort
Lauderdale, Florida. The Company has begun developing or has plans to develop
AmeriSuites on sites it currently owns in the Atlanta, Greensboro, Miami,
Baltimore, Detroit and Cleveland areas and has entered into a contract to
purchase an additional AmeriSuites site in the Dallas area. The Company
currently plans to spend approximately $70.0 million to open or commence
construction on 10 new AmeriSuites hotels in 1995 and has already begun
construction at the Atlanta, Greensboro and Miami sites.

In February 1995, the Company agreed to purchase 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 acquisition is scheduled to close on
March 31, 1995. The total consideration payable by the Company in the ShoLodge
Transaction is $34.6 million, of which $16.1 million will be paid in three cash
installments during 1995, and the remaining $18.5 million will be paid in notes
maturing in 1997. The transaction will result in a net increase of $3.6 million
of long-term debt as ShoLodge will forgive certain other existing debt on five
of the 11 AmeriSuites. As a result of the transaction, the Company will manage
these 12 AmeriSuites bringing to 13 the number of AmeriSuites hotels to be owned
and operated by the Company.

The Company continues to pursue its program of refurbishing certain of its
Owned Hotels and repositioning them in order to meet the local market's demand
characteristics. In some instances, this may involve a change in franchise
affiliation. The refurbishment and repositioning program primarily involves
hotels which the Company has recently acquired through mortgage foreclosures or
settlements, lease evictions/terminations or acquisitions. During 1993 and 1994,
the Company spent approximately $5.0 million and $11.9 million on capital
improvements at its Owned Hotels, of which approximately $2.8 million and $8.9
million related to refurbishments and repositionings on 12 Owned Hotels. In
1995, the Company intends to spend approximately $18.0 million on capital
improvements, of which $10.8 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 $98.5 million in
cash and added seven operating hotel assets through note settlements and lease
terminations. During 1994, the Company reduced its long-term mortgage and notes
receivable portfolio by $81.8 million to $81.3 million at December 31, 1994.
This reduction is primarily attributable to the settlement of the note
receivable from Rose and Cohen described below, which carried a book value of
$25.0 million, for $31.2 million in cash, and the conversion of the Company's
mortgage note receivable secured by the Frenchman's Reef with a book value of
$50.0 million into an operating hotel asset. The Company will

24
<PAGE> 27

continue to pursue settlement with mortgage and note obligors and will utilize
the cash for debt repayments or general corporate purposes.

In April 1994, the Company received a favorable ruling from the U.S.
Bankruptcy Court for the Southern District of Florida in litigation with
Financial Security Assurance, Inc. ("FSA"), with respect to FSA's attempt to
recover a payment made to the Company under the Rose and Cohen note receivable.
In 1993, the Company reached a settlement with Rose and Cohen of an adversary
proceeding regarding a promissory note and personal guarantee. The settlement
provided for Rose or his affiliate to pay the Company the sum of $25.0 million,
all of which was paid into escrow in February 1994, plus proceeds from the sale
of approximately 1.1 million shares of the Company's Common Stock held by Rose.
FSA asserted that it was entitled to receive the settlement proceeds under the
terms of an intercreditor agreement. Upon receipt of the Bankruptcy Court order
in April 1994, the Company used the $25.0 million of settlement proceeds to
retire its Senior Secured Notes. On April 21, 1994, FSA filed its notice of
appeal of the Bankruptcy Court's order. The appeal was argued before the United
States District Court in November 1994 and the decision of the District Court is
pending. 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. Subject to further court order, the Company is
required to use the stock proceeds principally to retire Senior Secured Notes.
As the Rose and Cohen note had a book value of $25.0 million on the Company's
balance sheet, approximately $6.2 million was recorded as income in the
Company's statement of operations.

In December 1994, the Company obtained ownership of the Frenchman's Reef
through a pre-negotiated plan of reorganization. The Company had previously
reached an agreement in 1993 to restructure its mortgage notes receivable
secured by the 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.

In addition, during 1994, the Company received $2.2 million in settlement
of other mortgage notes receivable realizing a gain of $125,000. The Company
also sold its fee interests in two hotels in 1994 for a combination of cash and
notes of $2.5 million and realized gains of $1.0 million.

25
<PAGE> 28

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 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,
(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-REORGANIZATION
--------------------------------------------------- ---------------------------------------------
AS OF AND AS OF AND
FOR THE FOR THE FOR THE YEAR ENDED
AS OF AND FOR THE YEAR ENDED JUNE 30, ONE MONTH FIVE MONTHS
ENDED AS OF ENDED DECEMBER 31,
-------------------------------------- JULY 31, JULY 31, DEC. 31, -------------------
1990(1)(2) 1991(1) 1992(1) 1992(1) 1992(1) 1992 1993 1994
---------- -------- -------------- ---------- -------- ------------ -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <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
Valuation writedowns and
reserves............... (240,855) (59,149) (62,123) (13,000) -- -- -- --
Reorganization items..... -- (181,655) (23,194) 1,796 -- -- -- --
Income (loss) from
continuing operations
before extraordinary
items(3)............... (280,387) (246,110) (71,965) (10,274) -- 1,393 8,175 18,258
Extraordinary items-gains
on discharge of
indebtedness (net of
income taxes).......... -- -- -- 249,600 -- -- 3,989 172
Net income (loss)........ (267,075) (227,188) (71,965) 239,326 -- 1,393 12,164 18,430
BALANCE SHEET DATA:
Total assets............. $934,116 $679,916 $554,118 -- $468,650 $403,314 $410,685 $434,932
Long-term debt, net of
current portion........ 368,925 2,851 8,921 -- 204,438 192,913 168,618 178,545
Stockholders' equity
(deficiency)........... 66,681 (157,327) (229,292) -- 135,600 137,782 171,364 204,065
</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.

26
<PAGE> 29

BUSINESS

THE COMPANY

Prime is a leading hotel owner/operator with a portfolio of 86 hotels
totalling 12,617 rooms. Located primarily in secondary markets in 19 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 49 hotels and manages
37 hotels for third parties. Prime holds financial interests in the form of
mortgages on or profit participations in 17 of the Managed Hotels. In total, the
Company has equity or financial interests in 66 hotels containing approximately
10,000 rooms.

The Company's growth strategy is to:

- generate improved results at existing hotels through increased operating
efficiencies;

- acquire full-service hotels with potential for operating and marketing
improvements; and

- expand the AmeriSuites hotel brand to meet growing all-suites segment
demand.

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, during 1994 room revenues increased 7.4% while net
operating income increased 17.0%, as compared to the prior year, for Company-
owned comparable hotels, which are hotels that have been open for all of 1993
and 1994. Lodging industry analysts expect further improvement for the lodging
sector, and the Company expects to continue to improve the performance of its
existing hotels.

Prime is also committed to developing its AmeriSuites all-suites hotel
brand. The Company believes that AmeriSuites provides an excellent guest
experience, and offers desirable suite accommodations and other amenities at
mid-scale prices. The performance of AmeriSuites improved significantly in 1994
with REVPAR and net operating income for comparable hotels increasing by 13.1%
and 19.3% over 1993, respectively. During the first quarter of 1995, the Company
will acquire the option of ShoLodge, Inc. to purchase a 50% interest in 11 of
the Company's 12 AmeriSuites hotels and will also acquire the only AmeriSuites
hotel not already owned by Prime (collectively, the "ShoLodge Transaction"),
thereby establishing Prime's exclusive control over the AmeriSuites brand. In
1994 the Company opened four new AmeriSuites. The Company

27
<PAGE> 30

currently plans to open or commence construction of ten new AmeriSuites with
approximately 1,250 rooms in 1995. The Company already owns six development
sites for new AmeriSuites hotels and has begun construction at sites in Atlanta,
Greensboro and Miami.

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
shareholders' 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

Overview

As a leading owner/operator of hotels, Prime believes that it is well
positioned to benefit from the continuing recovery occurring in the lodging
industry. The recovery has 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 by 3.0% in 1993 and by 3.3% in 1994, as reported by Smith
Travel Research. Since 1991, demand growth has outpaced new room supply growth,
resulting in an increase in industry-wide occupancy levels from 60.9% in 1991 to
65.2% in 1994. Higher occupancy levels have allowed the industry to increase
rates. In 1994, ADR increased by 3.8% over 1993 levels, marking the first
inflation-adjusted ADR growth since 1986. REVPAR increased by 7.3% in 1994.
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.

U.S. Lodging Industry Profile

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, Maryland and Delaware. The table also
includes operating data concerning the three price levels in which the Company
competes: upscale, mid-price and economy.

<TABLE>
<CAPTION>
OPERATING PERFORMANCE FOR THE TWELVE MONTHS % CHANGE IN:
ENDED DECEMBER 31 ---------------------------------------------------------
---------------------------------------------------
ROOM SUPPLY ROOM DEMAND REVPAR
OCCUPANCY PERCENTAGE ADR ----------------- ----------------- -----------------
---------------------- ------------------------ 1993 1994 1993 1994 1993 1994
1992 1993 1994 1992 1993 1994 V. 1992 V. 1993 V. 1992 V. 1993 V. 1992 V. 1993
---- ---- ---- ------ ------ ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States.... 61.9% 63.1% 65.2% $59.62 $61.30 $63.63 1.0% 1.4% 4.0% 4.7% 4.8% 7.3%

BY REGION:
Middle
Atlantic....... 61.8% 64.2% 66.5% $77.03 $78.79 $84.03 0.6% 0.4% 4.8% 4.0% 6.3% 10.5%
South Atlantic... 62.7% 64.0% 65.4% $59.29 $60.47 $62.09 0.7% 1.1% 4.1% 3.2% 4.1% 4.9%

BY SERVICE
(PRICE LEVEL):
Upscale.......... 64.7% 66.8% 68.0% $73.11 $72.05 $74.32 0.9% 2.0% 2.9% 3.8% 1.7% 5.0%
Mid-Price........ 62.9% 63.9% 65.3% $53.98 $54.99 $56.78 1.4% 2.0% 2.9% 4.2% 3.5% 5.5%
Economy.......... 61.4% 61.3% 62.1% $43.76 $42.66 $44.21 0.8% 1.1% 1.6% 2.6% (2.7)% 5.0%
</TABLE>

28
<PAGE> 31

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 1995 and 1996 as
replacement costs continue to exceed acquisition prices and the
availability of construction financing remains limited. However, these
disincentives are not equally prevalent in all segments of the industry
as evidenced by the new supply growth in the budget and economy price
levels.

- 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 3.8% increase in ADR in 1994, which outpaced the growth
in the consumer price index.

PRIME'S LODGING OPERATIONS

The following table sets forth information with respect to the Owned and
Managed Hotels as of December 31, 1994:

<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.............................. 0 0 1 204 1 192 2 396
Sheraton.............................. 4 927 0 0 0 0 4 927
Holiday Inn........................... 2 362 4 868 0 0 6 1,230
Ramada................................ 9 1,494 4 912 2 277 15 2,683
Howard Johnson........................ 0 0 2 326 1 115 3 441
-- ----- -- ----- -- ----- -- ------
Total Full-Service.......... 16 3,300 11 2,310 5 1,109 32 6,719
ALL-SUITES:
AmeriSuites(3)........................ 12 1,497 0 0 0 0 12 1,497
LIMITED-SERVICE:
Wellesley Inn......................... 14 1,505 5 478 11 1,030 30 3,013
Howard Johnson........................ 6 610 1 149 2 284 9 1,043
Other................................. 1 140 0 0 2 205 3 345
-- ----- -- ----- -- ----- -- ------
Total Limited-Service....... 21 2,255 6 627 15 1,519 42 4,401

Total....................... 49 7,052 17 2,937 20 2,628 86 12,617
===== ===== ===== ===== ===== ===== ===== ======
</TABLE>

- ---------------
(1) Of the 49 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 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.

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

(3) Eleven of the AmeriSuites presently owned by the Company are managed by
ShoLodge but will be managed by the Company effective March 31, 1995.

29
<PAGE> 32

The following table sets forth the location of the Company's hotels as of
December 31, 1994:

<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>
Arizona............... 1 118 -- -- -- -- 1 118
Arkansas.............. 1 130 -- -- -- -- 1 130
California............ -- -- -- -- 1 95 1 95
Connecticut........... 4 589 -- -- -- -- 4 589
Delaware.............. 1 142 -- -- -- -- 1 142
Florida............... 13 1,417 3 395 5 527 21 2,339
Georgia............... 1 114 -- -- 1 189 2 303
Indiana............... 1 126 -- -- -- -- 1 126
Kansas................ 1 126 -- -- -- -- 1 126
Kentucky.............. 1 126 -- -- -- -- 1 126
Maryland.............. -- -- -- -- 2 609 2 609
Nevada................ 1 201 -- -- -- -- 1 201
New Jersey............ 11 1,691 10 2,021 4 559 25 4,271
New York.............. 4 577 1 99 4 361 9 1,037
Ohio.................. 3 380 -- -- -- -- 3 380
Oregon................ 1 161 -- -- -- -- 1 161
Pennsylvania.......... 1 280 3 422 1 90 5 792
Tennessee............. 2 251 -- -- -- -- 2 251
Virginia.............. 1 106 -- -- 2 198 3 304
Virgin Islands........ 1 517 -- -- -- -- 1 517
-- ----- -- ----- -- ----- -- ------
Total....... 49 7,052 17 2,937 20 2,628 86 12,617
===== ===== ===== ===== ===== ===== ===== ======
</TABLE>

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

30
<PAGE> 33

The following table sets forth for the five years ended December 31, 1994,
annual operating data for the 86 hotels in the Company's portfolio as of
December 31, 1994. Operating data for the Owned Hotels built or acquired during
the five-year 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 FINANCIAL
OWNED INTEREST OTHER MANAGED TOTAL
--------------------------- --------------------------- --------------------------- -------------------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990...... 33 5,013 16 2,710 17 2,235 66 9,958
1991...... 34 5,143 17 2,957 17 2,234 68 10,334
1992...... 37 5,476 17 2,951 17 2,236 71 10,663
1993...... 42 6,116 17 2,946 18 2,347 77 11,409
1994...... 49 7,052 17 2,937 20 2,628 86 12,617
</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...... 64.0% $69.99 $44.81 72.6% $58.39 $42.38 68.2% $59.77 $40.78 67.5% $63.88 $43.14
1991...... 64.7 64.45 41.70 64.2 57.95 37.19 65.7 59.79 39.31 64.8 61.61 39.91
1992...... 66.4 64.70 42.97 69.5 60.04 41.75 69.3 59.52 41.24 67.9 62.23 42.26
1993...... 70.3 66.66 46.88 70.8 61.68 43.68 72.5 60.19 43.61 70.9 63.95 45.34
1994...... 68.4 68.80 47.04 70.4 65.96 46.44 72.1 61.88 44.60 69.7 66.51 46.35
</TABLE>

Full-Service Hotels

The Company currently operates 32 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 travelling 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. 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.

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.

31
<PAGE> 34

The following table sets forth for the five years ended December 31, 1994,
annual operating data for the 32 full-service hotels in the Company's portfolio
as of December 31, 1994. Operating data for the hotels built or acquired during
the five-year 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 FINANCIAL
OWNED INTEREST OTHER MANAGED TOTAL
--------------------------- --------------------------- --------------------------- -------------------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990...... 15 3,032 10 2,079 4 992 29 6,103
1991...... 15 3,032 11 2,327 4 992 30 6,351
1992...... 15 3,017 11 2,322 4 995 30 6,334
1993...... 15 3,015 11 2,317 5 1,110 31 6,442
1994...... 16 3,300 11 2,310 5 1,109 32 6,719
</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...... 61.8% $84.41 $52.16 71.6% $61.72 $44.17 60.5% $84.77 $51.27 65.1% $75.55 $49.16
1991...... 63.0 77.76 48.96 62.4 60.81 37.95 61.6 82.44 58.74 62.5 72.55 45.37
1992...... 64.2 79.27 50.89 68.8 62.99 43.30 66.1 82.83 54.81 66.2 73.63 48.72
1993...... 69.8 83.02 57.94 69.7 64.86 45.22 67.2 84.09 56.47 69.4 76.51 53.06
1994...... 67.7 88.33 59.77 70.0 69.79 48.85 69.3 86.69 60.08 68.8 81.26 55.90
</TABLE>

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 280-room Ramada Inn in Trevose, Pennsylvania, which the
Company has since converted to a Radisson, the 340-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 currently plans to
pursue the acquisition of additional full-service hotels in 1995. 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. During 1993 and 1994, the Company successfully
completed the repositioning of nine of its full-service hotels which included
changing the franchise affiliations of four such hotels. The Company is in the
process of repositioning two additional full-service hotels, including an $8.5
million project to reposition the recently acquired Hasbrouck Heights Sheraton.

All-Suites Hotels

The Company currently owns 12 AmeriSuites hotels, which 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

32
<PAGE> 35

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.

In February 1995, the Company entered into the agreements pertaining to the
ShoLodge Transaction, pursuant to which the Company will acquire the option of
ShoLodge to purchase a 50% interest in 11 of the Company's 12 AmeriSuites
hotels. As part of this transaction, the Company will also acquire the only
remaining AmeriSuites not already owned by Prime and will assume management of
all 12 of these AmeriSuites hotels, thereby establishing Prime's exclusive
control over the AmeriSuites brand.

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 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 60.0 54.99 32.97
1993................................. 8 993 64.1 56.21 36.01
1994................................. 12 1,497 65.9 59.90 39.50
</TABLE>

The Company believes that the all-suites segment will continue to be a high
growth segment of the industry. For 1994, REVPAR for the all-suites segment grew
by 7.8%, according to Smith Travel Research. The REVPAR growth at the Company's
AmeriSuite hotels exceeded this favorable industry trend. For the six owned
AmeriSuites hotels which were opened for all of 1993 and 1994, REVPAR increased
by 13.1% in 1994 resulting in a 19.3% increase in operating income.

The Company plans to develop the AmeriSuites brand through new
construction. All of the AmeriSuites were constructed within the past five
years. The Company has historically built AmeriSuites at a cost of approximately
$50,000 per room. AmeriSuites have a low cost structure and have generally had
stabilization periods of 24 to 36 months after opening. During 1994, the Company
opened four newly constructed AmeriSuites hotels in Overland Park, Kansas,
Columbus, Ohio, Tampa, Florida, and Louisville, Kentucky. The Company has begun
developing or has plans to develop AmeriSuites on sites it currently owns in
Atlanta, Greensboro, Miami, Baltimore, Detroit and Cleveland areas and has
entered into a contract to purchase an additional AmeriSuites site in the Dallas
area. The Company currently plans to open or commence construction on 10 new
AmeriSuites hotels in 1995 and has already begun construction at the Atlanta,
Greensboro and Miami sites.

Limited-Service Hotels

The Company's limited service hotels consist of 30 Wellesley Inns and 12
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, it has built a geographically
concentrated group of Wellesley Inns thereby developing brand name recognition
in Florida. In 1994, the Florida Wellesley Inns average occupancy was
approximately 84.7% and

33
<PAGE> 36

gross operating profits averaged over 51% 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 Wellesley Inns
outside of Florida had an average occupancy of 71.1% and average gross operating
profits of 46.6%.

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,
annual operating data for the 42 limited-service hotels in the Company's
portfolio as of December 31, 1994. Operating data for the Owned Hotels built or
acquired during the five-year period are presented from the dates such hotels
commenced operations or became Owned Hotels.

<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>
1990...... 15 1,614 13 1,243 6 631 34 3,488
1991...... 15 1,614 13 1,242 6 630 34 3,486
1992...... 16 1,710 13 1,241 6 629 35 3,580
1993...... 19 2,108 13 1,237 6 629 38 3,974
1994...... 21 2,255 15 1,519 6 627 42 4,401
</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 74.3% $43.97 $32.65 76.0% $48.03 $36.49 73.5% $45.55 $33.49
1991...... 71.9 44.03 31.66 69.1 43.68 30.18 70.2 49.17 34.54 70.6 44.83 31.65
1992...... 73.2 44.12 32.31 71.8 42.29 30.35 72.4 49.71 36.01 72.6 44.48 32.28
1993...... 74.3 45.15 33.55 76.8 43.20 33.16 74.8 50.80 38.02 75.2 45.45 34.19
1994...... 70.7 47.08 33.28 74.1 44.94 33.30 72.0 52.26 37.61 72.1 47.06 33.92
</TABLE>

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. 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.

34
<PAGE> 37

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 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 refurbishing spending will
focus on newly acquired hotels. During 1995, the Company currently plans to
spend approximately $10.8 million to reposition or refurbish recently acquired
hotels.

MORTGAGES AND NOTES RECEIVABLE

As of December 31, 1994, mortgages and notes receivable totalled $83.2
million (including current portion) and consisted of an aggregate principal
amount of $60.6 million of mortgages and notes secured by Managed and Owned
Hotels and $22.6 million of other mortgages and notes secured primarily by other
hotels. The Company has pursued a strategy of converting its mortgage and notes
receivable into cash or operating hotel assets. Since July 31, 1992, the Company
has received $98.5 million in cash and added seven operating hotel assets
through note settlements and lease terminations. During 1994, the Company
reduced its long-term mortgage and notes receivable portfolio by $81.8 million
to $81.3 million at December 31, 1994. This reduction is primarily attributable
to the settlement of the Rose and Cohen note receivable, which carried a book
value of $25.0 million, for $31.2 million in cash, and the conversion of the
Company's mortgage note receivable secured by the Frenchman's Reef with a book
value of $50.0 million into an operating hotel asset. 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.

The Company's mortgage notes secured by hotel properties consist primarily
of notes with a book value of $46.5 million secured by mortgages on ten 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 $33.0 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 and are not reflected on the Company's balance sheet. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Liquidity and Capital Resources."

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. Because there is
substantial doubt that the Company will recover any of the value on its junior
notes, none of these subordinated financial interests are valued on the
Company's balance sheet.

In 1994, the Company recognized $15.9 million of interest on mortgages and
notes receivable. Approximately $4.6 million, or 28.9%, of the 1994 interest was
derived from the Company's note receivable secured by the Frenchman's Reef which
was converted into an equity ownership position in December 1994. Approximately
$2.0 million or 12.6% of 1994 interest was derived from the junior notes which
are not valued on the Company's balance sheet. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

35
<PAGE> 38

In addition to mortgages and notes receivable, as of December 31, 1994, the
Company had other assets that totalled $16.9 million, which consisted of real
property not related to Owned Hotels (approximately $8.0 million of which
consisted of an office building).

MANAGEMENT AGREEMENTS

The Company provides hotel management services to third party hotel owners
of 37 Managed Hotels including 16 Wellesley Inns for which the Company provides
the brand name. The number of Managed Hotels declined during 1994 due to the
sale of ten hotels by independent owners, four of which were acquired by the
Company. 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
59%, or $5.9 million, of the total management and other fees in 1994. 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 maturing in December 1995. 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.
The Company holds financial interests in the form of mortgages or profit
participations in 17 of the 37 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 86 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 1993, as
reported by industry sources, by approximately 25% for full-service hotels,
approximately 21% for all-suites hotels and approximately 6% 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.

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<PAGE> 39

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 directors who are
responsible for each hotel's sales and marketing strategies, and the Company's
12-member 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.

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<PAGE> 40

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), and the Trevose, Pennsylvania Radisson (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.

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<PAGE> 41

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............................. 42 President, Chief Executive Officer and
Chairman of the Board of Directors
John M. Elwood............................. 40 Executive Vice President, Chief Financial
Officer and Director
Howard M. Lorber(1)........................ 46 Director
Herbert Lust, II(1)........................ 66 Director
Jack H. Nusbaum............................ 54 Director
Allen J. Ostroff(1)........................ 58 Director
A.F. Petrocelli(1)......................... 50 Director
Paul H. Hower.............................. 60 Executive Vice President
Timothy E. Aho............................. 51 Senior Vice President/Development
Denis W. Driscoll.......................... 50 Senior Vice President/Human Resources
John H. Leavitt............................ 41 Senior Vice President/Sales and Marketing
Joseph Bernadino........................... 48 Senior Vice President, Secretary and General
Counsel
Richard T. Szymanski....................... 37 Vice President and Corporate Controller
Douglas W. Vicari.......................... 35 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 and was an executive officer in September 1990
when PMI filed for protection under chapter 11 of the United States Bankruptcy
Code.

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, when PMI filed for
protection under chapter 11 of the United States Bankruptcy Code, through the
Effective Date, and during 1990 was the Director of Reorganization of Allegheny
International, Inc. prior to its emergence from chapter 11 bankruptcy protection
that year.

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., Hallman & Lorber, Inc. and Skybox International, 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,
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.

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<PAGE> 42

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., GEV Corporation, Signet Star Holdings,
Inc., Republic New York Securities Corporation, and a director and a member of
the Executive Committee of the New York City Economic Development Corporation.

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 Senior Vice
President of the Prudential Realty Group, a subsidiary of the Prudential
Insurance Company of America, for more than the last five years.

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.

Paul H. Hower has been an Executive Vice President of the Company since
1993. Mr. Hower was President of Integrity Hospitality Services from 1992 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 and held such position when
PMI filed for chapter 11 bankrupcty protection.

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 and held such position when PMI filed for chapter 11 bankrupcty
protection.

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 and
held such position when PMI filed for chapter 11 bankrupcty protection.

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<PAGE> 43

DESCRIPTION OF NOTES

The Notes are to be issued under an Indenture, to be dated as of April ,
1995 (the "Indenture"), between the Company and Bank One, Columbus, N.A., as
Trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement of which this prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions therein of certain terms.
References in italics are to the Indenture. Wherever particular Sections,
Articles or defined terms of the Indenture are referred to, such Sections,
Articles or defined terms are incorporated herein by reference. As used in this
"Description of Notes," the "Company" refers to Prime Hospitality Corp. and does
not include its subsidiaries.

GENERAL

The Notes will be unsecured subordinated obligations of the Company, will
be limited to an aggregate principal amount of $75,000,000 (subject to increase
in the event of the exercise of the Underwriters' over-allotment option) and
will mature on April 15, 2002. The Notes will bear interest at the rate per
annum shown on the front cover of this Prospectus from the date of initial
issuance, or from the most recent Interest Payment Date to which interest has
been paid or provided for, payable semi-annually on April 15 and October 15 of
each year, commencing October 15, 1995, to the Person in whose name the Note (or
any predecessor Note) is registered at the close of business on the Regular
Record Date for such interest, which shall be April 1 or October 1 (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date. Interest on the Notes will be paid on the basis of a 360-day year of
twelve 30-day months. (Sections 3.1, 3.7 and 3.10)

Principal of and premium, if any, and interest on the Notes will be
payable, and the transfer of Notes will be registrable, at the office or agency
of the Company maintained for such purposes in the Borough of Manhattan, The
City of New York, and the Corporate Trust Office of the Trustee located in
Columbus, Ohio. In addition, payment of interest may, at the option of the
Company, be made by check mailed to the address of the Person entitled thereto
as it appears in the Notes Register. (Sections 3.1, 3.5 and 10.2)

The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiples thereof. (Section 3.2) No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith. The Company is not
required (i) to issue, register the transfer of or exchange any Note during a
period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption and ending at the close of business on the
date of such mailing, or (ii) to register the transfer of or exchange any Note
selected for redemption in whole or in part, except the unredeemed portion of
Notes being redeemed in part. (Section 3.5)

All monies paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and premium, if any, and interest on any Note which
remain unclaimed for two years after such principal, premium or interest becomes
due and payable may be repaid to the Company. Thereafter, the Holder of such
Note may, as an unsecured general creditor, look only to the Company for payment
thereof. (Section 10.3)

The Indenture does not contain any provisions that would provide protection
to Holders of the Notes against a sudden and dramatic decline in credit quality
of the Company resulting from any takeover, recapitalization or similar
restructuring, except as described below under "Repurchase at Option of Holders
Upon a Risk Event."

CONVERSION RIGHTS

The Notes will be convertible into Common Stock of the Company at any time
up to and including the maturity date (subject to prior redemption by the
Company on not less than 15 nor more than 60 days' notice) at the principal
amount thereof, initially at the conversion price stated on the cover page of
this Prospectus (subject to adjustment as described below). The right to convert
Notes called for redemption or delivered for

41
<PAGE> 44

repurchase will terminate at the close of business on the last Trading Day prior
to the Redemption Date or the Repurchase Date, unless the Company defaults in
making the payment due upon redemption or repurchase. (Section 13.1) For
information as to notices of redemption, see "-- Optional Redemption."

The conversion price will be subject to adjustment in certain events,
including: (i) dividends (and other distributions) payable in Common Stock on
any class of capital stock of the Company, (ii) the issuance to all holders of
Common Stock of rights, warrants or options entitling them to subscribe for or
purchase Common Stock at less than the Current Market Price, (iii) subdivisions,
combinations and reclassifications of Common Stock, (iv) distributions to all
holders of Common Stock of evidences of indebtedness of the Company, cash or
other assets (including securities, but excluding those dividends, rights,
warrants, options and distributions referred to above and excluding dividends
and distributions paid exclusively in cash), (v) distributions consisting
exclusively of cash (excluding any cash portion of distributions referred to in
(iv) above or cash distributed upon a merger or consolidation to which the
second succeeding paragraph applies) to all holders of Common Stock in an
aggregate amount that, combined together with (a) all other such all-cash
distributions made within the preceding 12 months in respect to which no
adjustment has been made and (b) any cash and the fair market value of other
consideration paid or payable in respect of any tender offers by the Company or
any of its subsidiaries for Common Stock concluded within the preceding 12
months in respect of which no adjustment has been made, exceeds 12.5% of the
Company's market capitalization (defined as being the product of the Current
Market Price of the Common Stock times the number of shares of Common Stock then
outstanding) on the record date for such distribution, and (vi) the purchase of
Common Stock pursuant to a tender offer made by the Company or any of its
subsidiaries which involves an aggregate consideration that, together with (a)
any cash and the fair market value of any other consideration paid or payable in
any other tender offer by the Company or any of its subsidiaries for Common
Stock expiring within the 12 months preceding the expiration of such tender
offer in respect of which no adjustment has been made and (b) the aggregate
amount of any such all-cash distributions referred to in (v) above to all
holders of Common Stock within the 12 months preceding the expiration of such
tender offer in respect of which no adjustments have been made, exceeds 12.5% of
the Company's market capitalization on the expiration of such tender offer.
There will be no upward adjustment in the conversion price except in the event
of a reverse stock split. No adjustment in the conversion price shall be
required unless such adjustment (plus any adjustments not previously made) would
require an increase or decrease of at least 1% in such price; provided, however,
that any adjustments which by reason of this sentence are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. (Section 13.4)

In addition to the foregoing adjustments, the Company will be permitted to
make such reduction in the conversion price as it considers to be advisable in
order that any event treated for federal income tax purposes as a dividend or
distribution of stock or stock rights will not be taxable to the holders of the
Common Stock. (Section 13.4)

Subject to the rights of Holders of Notes described below under "Repurchase
at Option of Holders Upon a Risk Event," in case of certain consolidations or
mergers to which the Company is a party or the transfer of substantially all of
the assets of the Company, each Note then outstanding would, without the consent
of any Holders of Notes, become convertible only into the kind and amount of
securities, cash and other property receivable upon the consolidation, merger or
transfer by a holder of the number of shares of Common Stock into which such
Note might have been converted immediately prior to such consolidation, merger
or transfer (assuming such holder of Common Stock failed to exercise any rights
of election and received per share the kind and amount received per share by a
plurality of non-electing shares). (Section 13.11)

Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon market price.
(Section 13.1) Notes surrendered for conversion during the period from the close
of business on any Regular Record Date next preceding any Interest Payment Date
to the opening of business on such Interest Payment Date (except Notes called
for redemption on a Redemption Date within such period) must be accompanied by
payment of an amount equal to the interest thereon which the registered Holder
is to receive. In the case of any Note that has been converted after any Regular
Record Date but on or before the next Interest Payment Date, interest whose
Stated Maturity is on such Interest Payment Date will be payable on such
Interest Payment Date notwithstanding such conversion,

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<PAGE> 45

and such interest will be paid to the Holder of such Note on such Regular Record
Date. Except as described above, no interest on converted Notes will be payable
by the Company on any Interest Payment Date subsequent to the date of
conversion. No other payment or adjustment for interest or dividends will be
made upon conversion. (Sections 3.7 and 13.2)

If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
Federal income tax purposes (e.g., distributions of evidences of indebtedness or
assets of the Company, but generally not stock dividends or rights to subscribe
for Common Stock) and, pursuant to the antidilution provisions of the Indenture,
the conversion price of the Notes is reduced, such reduction may be deemed to be
the payment of a taxable dividend to Holders of Notes. If the Company
voluntarily reduces the conversion price for a period of time, Holders of the
Notes may, in certain circumstances, have taxable income equal to the value of
the reduction in the conversion price. Holders of Notes could, therefore, have
taxable income as a result of an event pursuant to which they received no cash
or property that could be used to pay the related income tax.

SUBORDINATION

The payment of the principal of and premium, if any, and interest on, the
Notes will, to the extent set forth in the Indenture, be subordinated in right
of payment to the prior payment in full of all Senior Indebtedness. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will be first
entitled to receive payment in full of all amounts due or to become due thereon
before the Holders of the Notes will be entitled to receive any payment in
respect of the principal of or premium, if any, or interest on, the Notes. In
the event of the acceleration of the maturity of any Notes, the holders of all
Senior Indebtedness will first be entitled to receive payment in full of all
amounts due or to become due thereon before the Holders of the Notes will be
entitled to receive any payment upon the principal of or premium, if any, or
interest on, the Notes. In the event and during the continuation of (i) any
default in the payment of principal of or premium, if any, or interest on any
Senior Indebtedness beyond any applicable grace period with respect thereto or
(ii) any other event of default with respect to any Senior Indebtedness
permitting the holders of such Senior Indebtedness (or a trustee or other
representative on behalf of the holders thereof) to declare such Senior
Indebtedness due and payable prior to the date on which it would otherwise have
become due and payable, upon written notice thereof to the Company and the
Trustee by any holders of Senior Indebtedness (or a trustee or other
representative on behalf of the holders thereof) (the "Default Notice"), unless
and until such event of default shall have been cured or waived and such
acceleration shall have been rescinded or annulled, or (iii) any judicial
proceeding shall be pending with respect to any such default in payment or event
of default, then no payment may be made in respect of principal or premium, if
any, or interest on the Notes or to acquire or repurchase the Notes for cash or
property or on account of the repurchase provisions of the Indenture provided
such payments may not be prevented under clause (ii) above for more than 179
days after an applicable Default Notice has been received by the Trustee unless
the Senior Indebtedness in respect of which such event of default exists has
been declared due and payable in its entirety, in which case no such payment may
be made until such acceleration has been rescinded or annulled or such Senior
Indebtedness has been paid in full. No event of default which existed or was
continuing on the date of any Default Notice may be made the basis for the
giving of a second Default Notice and only one such Default Notice may be given
in any 365 day period. (Article Twelve)

By reason of such subordination, in the event of insolvency, creditors of
the Company who are not holders of Senior Indebtedness or of the Notes may
recover less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the Holders of the Notes.

"Senior Indebtedness" is defined in the Indenture as (i) all indebtedness
of the Company for money borrowed, other than the Notes, whether outstanding on
the date of execution of the Indenture or thereafter created, incurred or
assumed, except any such other indebtedness that by the terms of the instrument
or instruments by which such indebtedness was created or incurred expressly
provides that it (a) is junior in right of payment to the Notes or (b) ranks
pari passu in right of payment with the Notes, and (ii) any

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<PAGE> 46

amendments, renewals, extensions, deferrals, modifications, refinancings and
refundings of any of the foregoing. The term "indebtedness for money borrowed"
when used with respect to the Company is defined to mean (a) any obligation of
the Company for the repayment of borrowed money (including, without limitation,
fees, penalties, expenses, collection expenses, interest yield amounts and other
obligations in respect thereof, and, to the extent permitted by applicable law,
interest accruing after the filing of a petition initiating any proceeding under
the Bankruptcy Code whether or not allowed as a claim in such proceeding),
whether or not evidenced by bonds, debentures, notes or other written
instruments, and any other obligation evidenced by notes, bonds, debentures or
similar instruments, (b) any deferred payment obligation of the Company for the
payment of the purchase price of property or assets evidenced by a note or
similar instrument (excluding any obligations for trade payables or constituting
the deferred purchase price of assets incurred in the ordinary course of
business), (c) any obligation of the Company for the payment of rent or other
amounts under a lease of property or assets which obligation is required to be
classified and accounted for as a capitalized lease on the balance sheet of the
Company under generally accepted accounting principles, (d) all obligations of
the Company due and payable under interest rate and currency swaps, floors, caps
or similar arrangements intended to fix interest rate obligations or currency
fluctuation risks, (e) all obligations of the Company evidenced by a letter of
credit or any reimbursement obligation of the Company in respect of a letter of
credit and (f) all obligations of others of the kinds described in the preceding
clauses (a), (b), (c), (d) or (e) assumed by or guaranteed by the Company and
the obligations of the Company under guarantees of any such obligations.
(Section 1.1)

The Notes will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's subsidiaries. Any right of the Company to receive assets of any
such subsidiary upon the liquidation or reorganization of any such subsidiary
(and the consequent right of the Holders of the Notes to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company.

The Indenture does not prohibit or limit the incurrence of additional
Senior Indebtedness. At December 31, 1994, the Company's Senior Indebtedness
aggregated approximately $131.2 million, excluding accrued interest, and the
Company's subsidiaries had approximately $52.6 million of indebtedness. The
Company and its subsidiaries are expected to incur an additional $42.6 million
in indebtedness during the first quarter of 1995, and the Company and its
subsidiaries expect from time to time to incur additional indebtedness,
including Senior Indebtedness.

OPTIONAL REDEMPTION

The Notes will be redeemable at the Company's option, in whole or from time
to time in part, upon not less than 15 nor more than 60 days' notice mailed to
each Holder of Notes to be redeemed at such Holder's address appearing in the
Security Register, on any date on or after April 17, 1998 and prior to maturity.

The Redemption Prices (expressed as percentage of principal amount) are as
follows for the 12-month period beginning April 15 (or April 17, in the case of
1998) of the years indicated:

and at maturity at 100% of principal, together in the case of any such
redemption with accrued interest to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due on
an Interest Payment Date that is on or prior to the Redemption Date) (Sections
2.3, 11.1, 11.5, and 11.7).

No sinking fund is provided for the Notes.

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<PAGE> 47

EVENTS OF DEFAULT

The following will be Events of Default under the Indenture: (i) failure to
pay principal of or premium, if any, on any Note when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (ii)
failure to pay any interest on any Note when due, continued for 30 days, whether
or not such payment is prohibited by the subordination provisions of the
Indenture; (iii) default in the payment of the Repurchase Price in respect of
any Note on the Repurchase Date therefor, whether or not such payment is
prohibited by the subordination provisions of the Indenture; (iv) failure to
perform any other covenant of the Company in the Indenture, continued for 60
days after written notice as provided in the Indenture; (v) a default under any
indebtedness for money borrowed by the Company or any Significant Subsidiary in
an amount, together with all other such indebtedness, exceeding $5,000,000,
which default (a) shall constitute a failure to pay any principal or interest
with respect to any such indebtedness when due and payable after the expiration
of any applicable grace period with respect thereto or (b) shall have resulted
in such indebtedness in an amount exceeding $5,000,000 becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, if such indebtedness is not discharged, or such
acceleration is not annulled, within 10 days after written notice as provided in
the Indenture; (vi) a final judgment or final judgments for payment of money
against the Company or any Significant Subsidiary which remains undischarged for
a period of 60 days, provided that the aggregate of all such outstanding
judgments exceeds $5,000,000 (excluding any amounts covered by insurance as to
which the insurer has not denied liability); and (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary. (Section 5.1) Subject to the provisions of the Indenture relating to
the duties of the Trustee, in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (Section 6.3) Subject to such provisions for the indemnification of
the Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (Section 5.12)

If any Event of Default shall occur and be continuing, either the Trustee
or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes may accelerate the maturity of all Notes; provided, however,
that after such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount of the
Outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture. (Sections 5.2
and 5.13) For information as to waiver of defaults, see "Modification and
Waiver" below.

No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously (i) given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request to the Trustee
to institute proceedings, (ii) such Holder has offered to the Trustee reasonable
indemnity, (iii) the Trustee for 60 days after receipt of such notice has failed
to institute any such proceeding and (iv) no direction inconsistent with such
request shall have been given to the Trustee during such 60-day period by the
Holders of a majority in principal amount of the Outstanding Notes. (Section
5.7) However, such limitations do not apply to a suit instituted by a Holder of
a Note for enforcement of (a) payment of the principal of and premium, if any,
or interest on such Note on or after the respective due dates expressed in such
Note, (b) the right to require repurchase of such Note or (c) the right to
convert such Note in accordance with the Indenture. (Section 5.8)

The Indenture provides that the Company will deliver to the Trustee, within
60 days after the end of each fiscal year, an officers' certificate, stating as
to each signer thereof that he or she is familiar with the affairs of the
Company and whether or not to his or her knowledge the Company is in default in
the performance and observance of any of the Company's obligations under the
Indenture and if the Company shall be in default, specifying all such defaults
of which he has knowledge and the nature and status thereof. (Section 10.4)

45
<PAGE> 48

CONSOLIDATION, MERGER AND SALE OF ASSETS

The Company, without the consent of the Holders of any of the Notes under
the Indenture, may consolidate with or merge into any other Person or convey,
transfer or lease its assets substantially as an entirety to any Person,
provided that (i) the successor is a Person, organized under the laws of any
domestic jurisdiction; (ii) the successor Person, if other than the Company,
assumes the Company's obligations on the Notes and under the Indenture; (iii)
after giving effect to the transaction no Event of Default, and no event which,
after notice or lapse of time, would become an Event of Default, shall have
occurred and be continuing; and (iv) certain other conditions are met. (Section
8.1 and 8.2)

MODIFICATION AND WAIVER

Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of interest on, any Note; (ii) reduce the
principal amount of, or the premium or interest on, any Note; (iii) change the
place of payment where, or currency in which, any Note or any premium or
interest thereof is payable; (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to any Note; (v) adversely affect
the right to convert the Notes; (vi) adversely affect the right to cause the
Company to repurchase the Notes; (vii) modify the subordination provisions in a
manner adverse to the Holders of the Notes; (viii) reduce the above-stated
percentage of Outstanding Notes necessary to modify or amend the Indenture; or
(ix) reduce the percentage of aggregate principal amount of Outstanding Notes
necessary for waiver of compliance with certain provisions of the Indenture or
for waiver of certain defaults. (Section 9.2)

The Holders of a majority in aggregate principal amount of Outstanding
Notes may waive compliance by the Company of certain restrictive provisions of
the Indenture. (Section 10.08) The Holders of a majority in aggregate principal
amount of the Outstanding Notes may waive any past default or right under the
Indenture, except (i) a default in payment of principal, premium or interest,
(ii) the right of a Holder to redeem or convert the Note or (iii) with respect
to any covenant or provision of the Indenture that requires the consent of the
Holder of each Outstanding Note affected. (Section 5.13)

REPURCHASE AT OPTION OF HOLDERS UPON A RISK EVENT

The Indenture provides that if a Risk Event (as defined below) occurs, each
Holder of Notes shall have the right, at the Holder's option, to require the
Company to repurchase all of such Holder's Notes, or any portion thereof that is
an integral multiple of $1,000, on the date (the "Repurchase Date") that is 45
calendar days after the date of the Company Notice (as defined below), for cash
at a price equal to 100% of the principal amount of such Notes to be repurchased
(the "Repurchase Price"), together with accrued interest to the Repurchase Date.
(Section 14.1)

Within 15 calendar days after the occurrence of a Risk Event, the Company
is obligated to mail to all Holders of record of the Notes a notice (the
"Company Notice") of the occurrence of such Risk Event and of the repurchase
right arising as a result thereof. The Company must deliver a copy of the
Company Notice to the Trustee and cause a copy or a summary of such notice to be
published in a newspaper of general circulation in The City of New York. To
exercise the repurchase right, a Holder of such Notes must deliver on or before
the fifth day preceding the Repurchase Date irrevocable written notice to the
Trustee of the Holder's exercise of such right (except that the right of the
Holders to convert such Notes shall continue until the close of business on the
last Trading Day preceding the Repurchase Date), together with the Notes with
respect to which the right is being exercised, duly endorsed for transfer to the
Company. (Section 14.2)

A Risk Event will be deemed to have occurred at such time as:

(i) any Person (including any syndicate or group deemed to be a
"Person" under Section 13(d)(3) of the Exchange Act, other than the
Company, any subsidiary of the Company or any current or future employee or
director benefit plan of the Company or any subsidiary of the Company or
any entity holding

46
<PAGE> 49

capital stock of the Company for or pursuant to the terms of such plan, or
an underwriter engaged in a firm commitment underwriting in connection with
a public offering of capital stock of the Company) is or becomes the
beneficial owner, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in the election of directors;

(ii) the Company adopts a plan relating to the liquidation or
dissolution of the Company;

(iii) there occurs any consolidation of the Company with, or merger of
the Company into, any other Person, any merger of another Person into the
Company, or any sales or transfers of all or substantially all of the
assets of the Company to another Person (other than a merger (a) which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock or (b) which is effected solely to
change the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of Common Stock); or

(iv) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the twelve-month period immediately preceding such change
(together with any other director whose election by the Board of Directors
of the Company or whose nomination for election by the shareholders of the
Company was approved by a vote of at least a majority of the directors then
in office either who were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors then in office;

provided, however, that a Risk Event shall not be deemed to have occurred if the
closing price per share of the Common Stock for any five Trading Days within the
period of ten consecutive Trading Days ending immediately before the Risk Event
shall equal or exceed 105% of the conversion price of such Notes in effect on
each such Trading Day. A "beneficial owner" shall be determined in accordance
with Rule 13d-3 promulgated by the Commission under the Exchange Act, as in
effect on the date of execution of the Indenture. (Section 14.3)

The right to require the Company to repurchase Notes as a result of the
occurrence of a Risk Event could create an event of default under Senior
Indebtedness as a result of which any repurchase could, absent a waiver, be
blocked by the subordination provisions of the Notes. See "Subordination" above.
Failure of the Company to repurchase the Notes when required would result in an
Event of Default with respect to the Notes whether or not such repurchase is
permitted by the subordination provisions. The Company's ability to pay cash to
the Holders of Notes upon a repurchase may be limited by certain financial
covenants contained in the Company's credit agreements.

Rule 13e-4 under the Exchange Act requires among other things the
dissemination of certain information to security holders in the event of any
issuer tender offer and may apply in the event that the repurchase option
becomes available to Holders of the Notes. The Company will comply with this
rule to the extent applicable at that time.

The repurchase feature of the Notes may in certain circumstances make more
difficult or discourage a takeover of the Company and the removal of incumbent
management. The foregoing provisions would not necessarily afford Holders of the
Notes protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders.

Subject to the limitation on mergers and consolidations described above,
the Company could, in the future, enter into certain transactions, including
certain recapitalizations, the sale of all or substantially all of its assets,
or the liquidation of the Company, that would not constitute a Risk Event under
the Indenture, but that would increase the amount of Senior Indebtedness (or any
other indebtedness) outstanding at such time or substantially reduce or
eliminate the Company's assets. There are no restrictions in the Indenture on
the creation of Senior Indebtedness (or any other indebtedness) and, under
certain circumstances, the incurrence

47
<PAGE> 50

of significant amounts of additional indebtedness could have an adverse effect
on the Company's ability to service its indebtedness, including the Notes.

If a Risk Event were to occur, no assurance can be given that the Company
would have sufficient funds to repurchase all Notes tendered by the Holders
thereof or to make any principal, premium, if any, or interest payment otherwise
required by the Notes.

As noted above, one of the events that constitutes a Risk Event under the
Indenture is a sale or other transfer of all or substantially all of the assets
of the Company. The Indenture will be governed by New York law, and the
definition under New York law of "substantially all" of the assets of a
corporation varies according to the facts and circumstances of the transaction.
Accordingly, if the Company were to engage in a transaction in which it disposed
of less than all of its assets, a question of interpretation could arise as to
whether such disposition was of "substantially all" of its assets and whether
the transaction was a Risk Event.

SATISFACTION AND DISCHARGE

The Company may discharge its obligations under the Indenture while Notes
remain Outstanding if (i) all Outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all Outstanding Notes are
scheduled for redemption within one year, and, in either case, the Company has
deposited with the Trustee an amount sufficient to pay and discharge all
Outstanding Notes on the date of their scheduled maturity or the scheduled date
of redemption. (Section 4.1)

GOVERNING LAW

The Indenture and Notes will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to such State's
conflicts of laws principles.

INFORMATION CONCERNING THE TRUSTEE

Bank One, Columbus, N.A. is the Trustee under the Indenture. A successor
Trustee may be appointed in accordance with the terms of the Indenture.

The Trustee's duties are set forth in the Trust Indenture Act, as amended
(the "Trust Indenture Act"), and in the Indenture. The Trust Indenture Act
imposes certain limitations on the right of the Trustee, in the event it becomes
a creditor of the Company, to obtain payment of claims in certain cases, or to
realize on certain property received in respect to any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
provided, however, if it acquires any conflicting interest within the meaning of
Section 310 of the Trust Indenture Act, it must generally either eliminate such
conflict or resign.

Prior to an Event of Default, the Trustee is responsible to perform only
such duties as are specifically set out in the Indenture. In case an Event of
Default shall occur (and shall not be cured), the Trust Indenture Act requires
that the Trustee use the degree of care of a prudent person in the conduct of
its own affairs in the exercise of its powers. 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 of the Holders of Notes, unless they
shall have offered to the Trustees reasonable security or indemnity. (Section
6.3)

48
<PAGE> 51

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock and 20,000,000 shares of Preferred Stock.

COMMON STOCK

At March 24, 1995, 30,578,065 shares of Common Stock were issued and
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the Company's stockholders, including the
election of directors. The Common Stock does not have cumulative voting rights.
Subject to the preferential rights of any outstanding series of Preferred Stock,
the holders of Common Stock will be entitled to such dividends as may be
declared from time to time by the Board of Directors from funds legally
available therefor, and will be entitled to receive pro rata all assets of the
Company available for distribution to such holders upon liquidation. No shares
of Common Stock have any preemptive or conversion rights, or the benefit of any
sinking fund. All shares of Common Stock are fully paid and non-assessable. The
Board of Directors has approved an increase in the number of authorized shares
of Common Stock to 75,000,000 and a resolution authorizing such increase will be
acted on at the 1995 annual meeting of stockholders.

PREFERRED STOCK

The Board of Directors has authority to establish the designations,
liquidation preferences, dividend rights, terms of redemption, conversion
rights, sinking fund terms and all other preferences and rights (including
voting rights) of any series of Preferred Stock. The ability of the Board of
Directors to issue Preferred Stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could, among other
things, adversely affect the voting powers of holders of Common Stock and, under
certain circumstances, may discourage an attempt by others to gain control of
the Company.

WARRANTS

Warrants to purchase 2,106,383 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. The exercise price was
determined from the average per share daily closing price of the Company's
Common Stock during the year following the Effective Date. As of December 31,
1994, warrants to purchase 250,497 shares of Common Stock had been exercised.

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Certificate of Incorporation and Bylaws of the
Company summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including an attempt that might result in a
premium over the market price for the shares held by stockholders.

Staggered Board of Directors. The Certificate of Incorporation and the
Bylaws provide that the Board of Directors will be divided into three classes of
Directors, each class constituting approximately one-third of the total number
of Directors and with the classes serving staggered three-year terms. The
classification of Directors will have the effect of making it more difficult for
shareholders to change the composition of the Board of Directors. The Company
believes, however, that the longer time required to elect a majority of a
classified Board of Directors will help to ensure continuity and stability of
the Company's management and policies.

The classification provisions could also have the effect of discouraging a
third party from accumulating large blocks of the Company's stock or attempting
to obtain control of the Company, even though such an attempt might be
beneficial to the Company and its stockholders. Accordingly, stockholders could
be deprived

49
<PAGE> 52

of certain opportunities to sell their shares of Common Stock at a higher market
price than might otherwise be the case.

Fair Price Provisions. Provisions of the Certificate of Incorporation (the
"Fair Price Provisions") limit the ability of an Interested Stockholder (defined
as the beneficial owner of 20% of outstanding voting shares) to effect certain
transactions involving the Company. Unless the Fair Price Provisions are
satisfied, an Interested Stockholder may not engage in a business combination
involving the Company unless approved by 75% of the Company's outstanding voting
shares or a majority of the Disinterested Directors (as defined therein). A
business combination includes a merger, consolidation, sale of assets valued at
over $25.0 million or issuance or transfer of securities valued at over $25.0
million, or a similar transaction. In general, the Fair Price Provisions require
that an Interested Shareholder pay shareholders at least the same amount of cash
or the same amount and type of consideration paid by the Interested Shareholder
when it initially acquired the Company's shares.

The Fair Price Provisions are designed to discourage attempts to take over
the Company in non-negotiated transactions utilizing two-tier pricing tactics,
which typically involve the accumulation of a substantial block of the target
corporation's stock followed by a merger or other reorganization of the acquired
company on terms determined by the purchaser. Due to the difficulties of
complying with the requirements of the Fair Price Provisions, the Fair Price
Provisions generally discourage attempts to obtain control of the Company.

LIMITATIONS ON DIRECTORS' LIABILITY

The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or redemptions or repurchases pursuant to
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit. The effect of
these provisions is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from grossly negligent behavior), except in the
situations described above. These provisions will not limit the liability of
directors under Federal securities laws.

CERTAIN PROVISIONS OF DELAWARE LAW REGARDING AN INTERESTED STOCKHOLDER

Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates of
such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation) between an interested stockholder and a
corporation for a period of three years after the date the interested
stockholder becomes an interested stockholder, unless (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder becomes an interested stockholder; (ii) the
interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it becomes an
interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.

50
<PAGE> 53

UNDERWRITING

The Underwriters named below have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company, the
respective principal amounts of Notes set forth opposite their names below. The
Underwriting Agreement provides that the obligations of the Underwriters to pay
for and accept delivery of the Notes are subject to certain conditions
precedent, and that the Underwriters are committed to purchase all of the Notes
if they purchase any of the Notes.

<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
--------------------------------------------------------------- -----------
<S> <C>
Montgomery Securities.......................................... $
Smith Barney Inc. .............................................
-----------
Total........................................... $75,000,000
==========
</TABLE>

The Underwriters have advised the Company that they propose initially to
offer the Notes to the public on the terms set forth on the cover page of this
Prospectus. The Underwriters may allow to selected dealers a commission of not
more than % of the principal amount of Notes, and the Underwriters may
allow, and such dealers may reallow a discount of not more than % of the
principal amount of the Notes to other dealers. The public offering price and
the concession and discount to dealers may be changed by the Underwriters after
the initial public offering of the Notes. The Notes are offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.

The Company has granted the Underwriters an option for 30 days to purchase
up to an additional $11,250,000 principal amount of Notes solely to cover
over-allotments, if any, at the same price per Note as the initial $75,000,000
principal amount of Notes to be purchased by the Underwriters. To the extent the
Underwriters exercise this option, each of the Underwriters will be committed to
purchase such additional Notes in approximately the same proportion as set forth
in the above table.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act or will contribute to payments the Underwriters may be required
to make in respect thereof.

The Notes are a new issue of securities for which there is currently no
public market. The Notes have been approved for listing on the New York Stock
Exchange, subject to notice of issuance. However, no assurance can be given as
to the liquidity of or trading market for the Notes.

Directors and executive officers of the Company, who in the aggregate own
approximately 715,000 shares (including options to purchase shares) of Common
Stock, have agreed not to offer for sale, sell, distribute or otherwise dispose
of any shares of Common Stock, or any securities convertible into or warrants to
purchase shares of Common Stock, now owned or hereafter acquired for a period of
approximately 90 days after the date of this Prospectus without prior written
consent of the Underwriters.

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 owns 10,000 shares of Common Stock and options to
acquire an additional 5,000 shares, is a partner in the law firm of Willkie Farr
& Gallagher.

EXPERTS

The consolidated financial statements incorporated by reference 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.

51
<PAGE> 54

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 will file 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 Northwestern Atrium 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 is 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 following documents heretofore filed by the Company with the Commission
are incorporated herein by reference:

1. Annual Report on Form 10-K for the fiscal year ended December 31,
1994; and

2. All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the fiscal year ended December
31, 1994.

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
07004, Attention: Joseph Bernadino, Senior Vice President, Secretary and General
Counsel, (201) 882-1010.

52
<PAGE> 55

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Arthur Andersen LLP....................................................... F-2
Consolidated:
Balance Sheets at December 31, 1993 and 1994..................................... F-3
Statements of Income for the Five Months Ended December 31, 1992 and the Years
Ended December 31, 1993 and 1994................................................ F-4
Statements of Stockholders' Equity for the Five Months Ended December 31, 1992
and the Years Ended December 31, 1993 and 1994.................................. F-5
Statements of Cash Flows for the Five Months Ended December 31, 1992 and the
Years Ended December 31, 1993 and 1994.......................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>

F-1
<PAGE> 56

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-2
<PAGE> 57

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-3
<PAGE> 58

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED YEAR 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-4
<PAGE> 59

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL 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-5
<PAGE> 60

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
DECEMBER YEAR ENDED YEAR ENDED
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-6
<PAGE> 61

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.

F-7
<PAGE> 62

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 their face value, these mortgages have not
been valued in the Company's consolidated financial statements. Interest on
cash flow mortgages and delinquent loans is generally recognized when cash
is received.

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).

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.

F-8
<PAGE> 63

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

The Company's consolidated balance sheets do not reflect any value related
to the junior portions of the restructured notes or the junior mortgages and
subordinated interests on the other hotels as there is substantial doubt
that the Company will recover any of their face value. During 1993 and 1994,
the Company recognized $976,000 and $2,000,000, respectively, of interest
income related to these mortgages.

(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.

F-9
<PAGE> 64

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 December 16, 1994, the Company obtained ownership
and control of the hotel. As a result of obtaining this control, the Company
reallocated its basis in the mortgage note receivable to the various
operating assets acquired (principally land, hotel building and furniture
and fixtures) based upon their respective fair market value.

(d) The note receivable from Rose and Cohen represented the estimated fair
market value as of July 31, 1992 of certain amounts loaned by PMI to
entities controlled by Allan Rose and Arthur Cohen ("Rose and Cohen").
During 1993, the Company reached a settlement with Rose and Cohen of an
adversary proceeding regarding a 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 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 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).

F-10
<PAGE> 65

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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>

F-11
<PAGE> 66

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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

F-12
<PAGE> 67

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 4.68% 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.

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.

F-13
<PAGE> 68

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 or results of operations.

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.

F-14
<PAGE> 69

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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

F-15
<PAGE> 70

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 years ended December 31, 1994,
which represents the amortization of pre-fresh start tax basis differences
related to properties and notes receivable.

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 February 1995, the Company entered into an agreement to acquire
ShoLodge's option to purchase a 50% interest in 11 of the Company's
AmeriSuites hotels and will also acquire the only remaining AmeriSuites
hotel not already owned by the Company. The total consideration payable by
the Company in this transaction is $34,600,000 of which $16,100,000 will be
paid in three cash installments during 1995 and the remaining $18,500,000
will be paid in notes maturing in 1997. As a result of this transaction,
which is scheduled to close on March 31, 1995, the Company will take over
the management of these hotels.

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.

F-16
<PAGE> 71

PRIME HOSPITALITY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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-17
<PAGE> 72

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-18
<PAGE> 73

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

No dealer, salesman or other person is authorized to give any information or to
make any representation in connection with this offering not contained in this
Prospectus, and any information or representation not contained herein must not
be relied upon as having been authorized by the Company or the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy of any securities other than the Notes or an offer to any person in
any jurisdiction where such an offer would be unlawful. 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 the
Company since the date hereof.

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

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 13
Price Range of Common Stock and
Dividend Policy..................... 13
Capitalization........................ 14
Recent Consolidated Financial and
Other Data.......................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Selected Consolidated Financial Data
of the Company and its
Predecessor......................... 26
Business.............................. 27
Management............................ 39
Description of Notes.................. 41
Description of Capital Stock.......... 49
Underwriting.......................... 51
Legal Matters......................... 51
Experts............................... 51
Available Information................. 52
Incorporation of Certain Documents by
Reference........................... 52
Index to Financial Statements......... F-1
</TABLE>

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

- ------------------------------------------------------
- ------------------------------------------------------
$75,000,000

% CONVERTIBLE SUBORDINATED NOTES DUE 2002

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

PROSPECTUS
------------------------

MONTGOMERY SECURITIES

SMITH BARNEY INC.

April , 1995

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 74

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:

<TABLE>
<S> <C>
SEC Registration Fee..................................................... $ 29,742
NASD Fee................................................................. 9,125
Trustee Fees and Expenses................................................ 15,000
Printing and Engraving Expenses.......................................... 130,000
Legal Fees and Expenses.................................................. 250,000
Accounting Fees and Expenses............................................. 50,000
Blue Sky Fees and Expenses............................................... 20,000
Rating Agency Fees....................................................... 50,000
Miscellaneous Expenses................................................... 21,133
--------
Total.......................................................... $575,000
========
</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 disposition 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 undertake 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 fact that he
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request

II-1
<PAGE> 75

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> 76

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT REPORT OR REGISTRATION STATEMENT IN
NUMBER DESCRIPTION WHICH DOCUMENT IS CONTAINED
-------------------------------------- ------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement Previously filed
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 8A dated July 9, 1992
4.1 -- Specimen Note Contained in Exhibit 4.2
4.2 -- Form of Indenture, between the
Company and Bank One, Columbus,
N.A., as the Trustee Previously filed
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(a) -- Consent of Arthur Andersen LLP Filed herewith
23.2(b) -- 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 Previously filed
</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 had 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.

(3) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.

II-3
<PAGE> 77

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 No. 1 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
27th day of March, 1995.

PRIME HOSPITALITY CORP.

By: /s/ DAVID A. SIMON

---------------------------------
David A. Simon,
Chairman of the Board,
President and Chief
Executive Officer

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 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
- ------------------------------------------ --------------------------------------------------

<S> <C> <C>
Chairman of the Board, President, March 27, 1995
/s/ DAVID A. SIMON Chief Executive Officer
- ------------------------------------------ and Director
David A. Simon (principal executive officer)

/s/ JOHN M. ELWOOD Chief Financial Officer, March 27, 1995
- ------------------------------------------ Executive Vice President
John M. Elwood and Director

Director March 27, 1995
*
- ------------------------------------------
Herbert Lust, II

Director March 27, 1995
*
- ------------------------------------------
Jack H. Nusbaum

Director March 27, 1995
*
- ------------------------------------------
Allen J. Ostroff

Director March 27, 1995
*
- ------------------------------------------
A.F. Petrocelli

Director March , 1995
- ------------------------------------------
Howard M. Lorber

*By:/s/ JOHN M. ELWOOD
--------------------------------------
John M. Elwood
Attorney-in-fact
</TABLE>

II-4
<PAGE> 78

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 locations of the Company's hotels. The
concentrations of hotels within the Mid-Atlantic Region and Florida are shown by
dark shading in these areas. The locations of the remaining hotels are shown
individually by dots.

(2) The fold-out portion of the front cover contains photographs of hotels.
The left side contains photographs of three full-service hotels: two exterior
photographs of the Crowne Plaza, Lake Oswego (Portland), Oregon and the Sheraton
Crossroads Hotel, Mahwah, New Jersey and a photograph of the lobby of the
Sheraton Hotel Conference Center, Saratoga Springs, New York. The right side
contains photographs of AmeriSuites Hotels: an exterior photograph of the
AmeriSuites, Forest Park (Cincinnati), Ohio, a photograph of the lobby of the
AmeriSuites in Indianapolis, Indiana and a photograph of a typical AmeriSuites
suite.

(3) The inside back cover contains three photographs of Wellesley Inns: two
exterior photographs of a Wellesley Inn in Sunrise, Florida and a Wellesley Inn
in Naples, Florida and a photograph of a lobby of a Wellesley Inn & Suites in
Lakeland, Florida.

A-1
<PAGE> 79

EXHIBIT INDEX

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ----------- ----------------------------------------------------------------- --------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement******
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**
4.1 -- Specimen Note***
4.2 -- Form of Indenture, between the Company and Bank One, Columbus,
N.A., as the Trustee******
5.1 -- Opinion of Willkie Farr & Gallagher****
12.1 -- Statement re: Computation of Ratios******
23.1 -- Consent of Willkie Farr & Gallagher*****
23.2(a) -- Consent of Arthur Andersen LLP*
23.2(b) -- Consent of Arthur Andersen LLP*
23.3 -- Consent of J.H. Cohn & Company*
24.1 -- Power of Attorney******
25.1 -- Statement of Eligibility of Trustee******
</TABLE>

- ------------------
* Filed herewith.
** Filed as Exhibit 2(c) to the Company's Form 8A, dated July 9, 1992.
*** Contained in Exhibit 4.2.
**** To be filed by amendment.
***** Contained in Exhibit 5.1.

****** Previously filed.

<PAGE> 1

EXHIBIT 23.2(A)

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
reports 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
to all references to our firm included in or made a part of this Registration
Statement.

ARTHUR ANDERSEN LLP
Roseland, New Jersey

March 24, 1995

<PAGE> 1

EXHIBIT 23.2(B)

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 incorporation
by reference of our reports included in the Company's Form 10-K for the year
ended December 31, 1994, into this Registration Statement.

ARTHUR ANDERSEN LLP
Roseland, New Jersey

March 24, 1995

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We consent to the incorporation by reference in 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 (appearing in the Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 of Prime Hospitality
Corp.) on the consolidated financial statements of Prime Motor Inns, Inc. and
Subsidiaries (Debtors-in-Possession).

J. H. COHN & COMPANY

Roseland, New Jersey

March 24, 1995