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PROSPECTUS
PRIME HOSPITALITY CORP.
COMMON STOCK
Up to 3,637,832 presently outstanding shares (the "Shares") of Common
Stock, par value $.01 per share (the "Common Stock") of Prime Hospitality Corp.,
a Delaware corporation ("Prime" or the "Company"), may be offered for sale from
time to time by certain stockholders (the "Selling Stockholders"). See "Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
the Shares by the Selling Stockholders.
The Shares covered by this Prospectus may be sold by the Selling
Stockholders or by pledgees, donees, transferees or other successors in
interest. Sales of Shares by the Selling Stockholders may be effected from time
to time in one or more transactions, including block trades, in negotiated
transactions or in a combination of any such methods of sale. The selling price
of the Shares may be at the market price prevailing at the time of sale, at a
price related to such prevailing market price or at a negotiated price. Each
Selling Stockholder may be deemed to be an "underwriter" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"). See "Plan of
Distribution."
The Company's Common Stock is traded on The New York Stock Exchange (the
"NYSE") under the symbol "PDQ." On January 27, 1998, the closing sales price of
the Common Stock as reported on the NYSE was $18 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED
HEREBY.
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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 DATE OF THIS PROSPECTUS IS FEBRUARY 10, 1998.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF
THE SECURITIES OFFERED BY THIS PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE ISSUANCE OR SALE
OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE
HEREOF OR INCORPORATED BY REFERENCE HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Prime is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and may be available at the following Regional
Offices of the Commission: Midwest Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov. Prime's Common Stock is listed on the NYSE. Material
filed by Prime can be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 and exhibits relating thereto, including any
amendments (the "Registration Statement"), of which this Prospectus is a part,
and which Prime has filed with the Commission under the Securities Act.
Reference is made to such Registration Statement for further information with
respect to Prime and the securities of Prime offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission or
attached as an annex hereto.
FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Summary," "Risk
Factors," and elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of Prime, or industry results, to differ materially from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions;
industry trends; expansion and construction costs; integration risks;
competition; changes in business strategy or development plans; availability,
terms and deployment of capital; availability of qualified personnel; changes
in, or the failure or inability to comply with, government regulation,
including, without limitation, environmental regulations; and other factors
referenced in this Prospectus. See "Risk Factors." These forward-looking
statements speak only as of the date of this Prospectus. Prime expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any change in
Prime's expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
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INCORPORATION OF DOCUMENTS BY REFERENCE
Prime (Commission File No. 1-6869) hereby incorporates by reference into
this Prospectus the following documents previously filed with the Commission
pursuant to the Exchange Act:
1. Prime's Annual Report on Form 10-K for the year ended December 31,
1996;
2. Prime's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997;
3. The description of Prime's Common Stock contained in Prime's
Registration Statement on Form 8-A, dated June 5, 1992, as amended on July
9, 1992 and December 21, 1992; and
4. Prime's Current Reports on Form 8-K dated March 3, 1997, July 25,
1997, December 1, 1997, December 11, 1997 and January 7, 1998.
In addition, all reports and other documents filed by Prime pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date hereof shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such reports
and documents. Any statement contained 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 that also is incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE FILED BY PRIME WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
FROM ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS
DELIVERED, FROM PRIME HOSPITALITY CORP., 700 ROUTE 46 EAST, FAIRFIELD, NEW
JERSEY 07007, ATTENTION: SECRETARY (TEL. (973) 882-1010).
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SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Prospectus or incorporated by reference herein. This
summary is not intended to be complete and is qualified in its entirety by the
more detailed information contained elsewhere or incorporated by reference in
this Prospectus. Prospective purchasers of the Shares offered hereby should read
carefully this Prospectus in its entirety. EBITDA represents earnings before
extraordinary items, interest expense, provision for income taxes and
depreciation and amortization and excludes interest income on cash investments
and other income. EBITDA is used by Prime for the purpose of analyzing its
operating performance, leverage and liquidity. Hotel EBITDA represents EBITDA
generated from the operations of owned hotels. Hotel EBITDA excludes management
fee income, interest income from mortgages and notes receivable, general and
administrative expenses and other revenues and expenses which do not directly
relate to operations of owned hotels. EBITDA and Hotel EBITDA are not measures
of financial performance under generally accepted accounting principles and
should not be considered as alternatives to net income as an indicator of
Prime's operating performance or as alternatives to cash flows as a measure of
liquidity.
THE COMPANY
Prime is a national hotel company, with a portfolio of 140 hotels
containing 19,513 rooms located in 28 states and the U.S. Virgin Islands (the
"Portfolio") as of December 31, 1997. Prime controls three high-quality hotel
brands -- AmeriSuites(R), Homegate Studios & Suites(R) and Wellesley
Inns(R) -- as well as a portfolio of upscale full-service hotels. One of the
country's largest hotel owner/operators, Prime has positioned itself to benefit
significantly from favorable lodging industry fundamentals that have prevailed
in recent years. From 1994 to 1996, Prime's EBITDA has grown at a compound
annual rate of 44.0%, from $42.8 million in 1994 to $88.8 million in 1996, while
recurring net income has grown at a compound annual rate of 48.7%, from $12.8
million to $28.3 million over the same period. The positive trends continued in
1997. For the nine months ended September 30, 1997, EBITDA increased by 41.4% to
$92.8 million and recurring net income increased by 55.8% to $31.9 million over
the same period in 1996.
Prime's strategy is to capitalize on two lodging industry trends perceived
by management: (i) favorable industry fundamentals in the segments in which
Prime operates (e.g. all suite, mid-price extended stay), which are producing
strong earnings growth and (ii) growing consumer preferences for newer all-suite
accommodations with strong brand identities. Reflecting this strategy, more than
85% of Prime's capital spending in 1995 and 1996 was dedicated to the growth of
Prime's proprietary AmeriSuites and Wellesley Inns brands. Through its
development of proprietary brands, Prime is evolving from an owner/operator into
a brand oriented company and is positioning itself to generate additional
revenue not dependent on investment in real estate.
Prime owns and operates 128 of the 140 hotels in the Portfolio (the "Owned
Hotels") and holds financial or equity interests in 7 of the remaining 12 hotels
managed by Prime for third parties (the "Managed Hotels"). Prime's Portfolio is
modern and well-maintained, with an average hotel age of approximately nine
years. Over the past three years, Prime has achieved rapid growth in the
Portfolio, from 5,092 owned rooms at January 1, 1994 to 16,975 owned rooms at
December 31, 1997. At the same time, Prime has focused on brand development,
with the number of Owned Hotels operated under Prime's proprietary AmeriSuites,
Homegate, and Wellesley Inns brands increasing from 19 of the 41 Owned Hotels at
January 1, 1994 to 106 of the 128 Owned Hotels at December 31, 1997.
Prime's hotels serve four major lodging industry segments: the all-suites
segment, under Prime's proprietary AmeriSuites brand; the extended-stay segment,
under Prime's proprietary Homegate brand; the upscale full-service segment,
under major national franchises; and the limited-service segment, primarily
under Prime's proprietary Wellesley Inns brand.
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RECENT DEVELOPMENTS
Homegate. On December 1, 1997, Prime completed its merger (the "Merger")
with Homegate Hospitality, Inc. ("Homegate"), a provider of high quality,
mid-price extended stay hotels. Prime exchanged approximately 6.5 million shares
of Common Stock for the approximately 10.7 million outstanding shares of
Homegate, which now operates as a wholly-owned subsidiary of Prime. The
transaction was valued at approximately $125 million. As of December 31, 1997,
there were 15 Homegate hotels in operation and another 42 Homegate hotels under
development. Prime intends to aggressively develop the Homegate chain through
strategic alliances with Trammell Crow Residential Company and Greystar Capital
Partners, L.P., founders of Homegate.
Strategic Alliances. Prime has entered into two strategic alliances with
real estate investment trusts for purposes of financing its brand development
through the sale/leaseback of certain of its hotels.
Under a September 1997 agreement, Equity Inns, Inc. ("Equity Inns") has
certain rights to acquire AmeriSuites hotels developed by Prime over the next
three years. As part of this alliance, on December 11, 1997, Prime completed the
sale to Equity Inns of 10 AmeriSuites hotels for an aggregate consideration of
$87.0 million, consisting of $78.3 million in cash and $8.7 million in Equity
Inns limited partnership operating units. Prime has also agreed to lease the
hotels from Equity Inns for a term of 10 years, with certain renewal options.
Under a November 1997 agreement, American General Hospitality Corporation
("AGH") has agreed to acquire substantially all of Prime's full-service hotels
through March 1999. In the initial phase of this alliance, on January 7, 1998,
Prime completed the sale to AGH of eight full-service hotels for an aggregate
consideration of $138.4 million, consisting of $114.4 million in cash, $10.2
million in assumed debt and $13.8 million in AGH limited partnership operating
units. Prime has also agreed to lease the hotels from AGH for a term of 10
years.
Revolving Credit Facility. On December 17, 1997, Prime amended its secured
revolving credit facility (the "Revolving Credit Facility") to increase
availability from $100 million to $200 million, subject to a borrowing base
determined under the agreement.
Share Repurchase Program. On December 22, 1997, Prime announced a program
to repurchase up to one million shares of Common Stock over the next year.
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Prime is a Delaware corporation incorporated in 1985. The principal office
of Prime is located at 700 Route 46 East, Fairfield, New Jersey 07007-2700 and
its telephone number is (973) 882-1010.
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RISK FACTORS
In addition to the other information included in and incorporated by
reference in this Prospectus, prospective investors should carefully consider
and evaluate the following risk factors relating to the Company and the offering
of the Shares. This Prospectus contains forward-looking statements which involve
risks and uncertainties relating to future events. Prospective investors are
cautioned that the Company's actual events or results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause actual results to differ materially from those indicated by such
forward-looking statements include the matters set forth below.
RISK RELATING TO INTEGRATION OF HOMEGATE AND PRIME
The realization of certain benefits anticipated as a result of the Merger
with Homegate will depend in part on the integration of Homegate's extended-stay
hotel business with Prime and the successful inclusion of Homegate's hotels in
Prime's Portfolio. The dedication of management resources to such integration
may detract attention from the day-to-day business of Prime. Extended-stay
lodging is a market in which Prime does not currently operate. There can be no
assurance that there will not be substantial costs associated with the
transition process or that there will not be other material adverse effects as a
result of these integration efforts. There can be no assurance that Homegate's
business can be operated profitably or integrated successfully into Prime's
operations. Such effects could have a material adverse effect on the financial
results of Prime.
AMERISUITES AND HOMEGATE EXPANSION RISKS
Prime is committed to expanding its AmeriSuites hotel brand and its
Homegate hotel brand, to meet growing demand in the all-suite and extended stay
hotel segments. Prime will be required to expend significant management and
financial resources to expand its hotel brands and develop brand name
identification. Prime competes with other companies in the all-suites segment
and in the extended stay segment, some of which companies have greater brand
recognition and financial resources than Prime. As a result, there is no
assurance that Prime can successfully expand its hotel brands or compete
effectively with these other franchises. Prime will be expanding into hotel
markets where it does not currently operate. There can be no assurance that
Prime will anticipate all of the changing demands that expanding operations will
impose on its management and management information system or its reservation
service. The failure to adapt its systems and procedures could have a material
adverse effect on Prime's business.
The expansion of its brands will require significant capital. Prime
believes that the availability under the Revolving Credit Facility, cash flow
from operations and proceeds from sale/leaseback transactions will be sufficient
to fund the near term growth of its brands. However, there can be no assurance
that Prime will be able to obtain financing to fund the growth of its brands
beyond the near term. If Prime is unable to obtain additional financing, the
growth prospects for its brands and the financial results of Prime would be
adversely affected.
Prime's growth strategy of developing new AmeriSuites and Homegate hotels
will subject Prime to pre-opening and pre-stabilization costs. As Prime opens
additional hotels, such costs may adversely affect Prime's results of
operations. Newly opened hotels historically begin with lower occupancy and room
rates that improve over time. While Prime has in the past successfully opened
new hotels, there can be no assurance that Prime will be able to continue to do
so successfully. Construction 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 development and possible unavailability of financing on
favorable terms. Although Prime seeks to manage its construction activities so
as to minimize such risks, there can be no assurance that its brand expansion
will perform in accordance with Prime's expectations.
The opening of the new AmeriSuites and Homegate hotels will be contingent
upon, among other things, receipt of all required licenses, permits and
authorizations. The scope of the approvals required for a new hotel is
extensive, including, without limitation, state and local land-use permits,
building and zoning permits and
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health and safety permits. In addition, unexpected changes or concessions
required by local, regulatory and state authorities could involve significant
additional costs and could delay or prevent the completion of construction or
the opening of a new hotel. There can be no assurance that the necessary
permits, licenses and approvals for the construction and operation of the new
hotels will be obtained, or that such permits, licenses and approvals will be
obtained within the anticipated time frame.
Of Prime's 63 AmeriSuites, 30, or 48%, have been open less than one year
and 44, or 70%, have been open less than two years. Of the 15 Homegate hotels,
all have been acquired or constructed by Homegate within the past two years.
Consequently, the results achieved by these hotels to date may not be indicative
of future results for these hotels or for other new hotels. Although the revenue
and profitability of the AmeriSuites and Homegate have improved as the hotels
have matured, there can be no assurance that future hotels will experience
similar results.
RISKS OF THE LODGING INDUSTRY; COMPETITION
Prime'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. Prime's
ownership of real property, including hotels, is substantial. Real estate values
are sensitive to changes in local market and economic conditions and to
fluctuations in the economy as a whole. Due in part to the strong correlation
between the lodging industry's performance and economic conditions, the lodging
industry is subject to cyclical changes in revenues and profits.
The lodging industry is highly competitive. During the 1980s, construction
of lodging facilities in the United States resulted in an excess supply of
available rooms. This oversupply had an adverse effect on occupancy levels and
room rates in the industry, although the oversupply has since largely been
absorbed. Competitive factors in the industry include reasonableness of room
rates, quality of accommodations, brand recognition, service levels and
convenience of locations. Prime's hotels generally operate in areas that contain
numerous other competitors. There can be no assurance that demographic, economic
or other changes in markets will not adversely affect the convenience or
desirability of the sites in which Prime's hotels are located. Furthermore,
there can be no assurance that, in the markets in which Prime's hotels operate,
competing hotels will not pose greater competition for guests than presently
exists, or that new hotels will not enter such locales.
HOTEL ACQUISITION RISKS
Prime from time to time makes selective acquisitions of hotels with
repositioning potential, notably in the full-service segment and in locations
where Prime presently operates. There can be no assurance that hotel
acquisitions can be consummated successfully or that acquired hotels can be
operated profitably or integrated successfully into Prime's operations. Hotel
acquisition entails certain risks that the acquired hotels could be subject to
unanticipated business uncertainties or legal liabilities.
GEOGRAPHIC CONCENTRATION OF HOTELS
Many of Prime's hotels open or under development are located in Florida,
New Jersey, New York, Georgia, Texas and Tennessee, and such geographic
concentration exposes Prime'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 Prime. While
Prime's AmeriSuites and Homegate expansion is expected to reduce these risks,
Prime will remain subject to certain risks associated with geographic
concentration.
In addition, Prime owns the Marriott's Frenchman's Reef Beach Resort (the
"Frenchman's Reef ") in St. Thomas, U.S. Virgin Islands. Prime obtained
ownership and control of this hotel in December 1994 pursuant to the
restructuring of a note receivable. The Frenchman's Reef accounted for
approximately 12.9% of Prime's
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EBITDA for the year ended December 31, 1996 and 8.2% during the nine months
ended September 30, 1997. The Frenchman's Reef's operating results have been
adversely affected in recent years by hurricanes and a disruption in airline
service. As a resort hotel primarily operated for leisure travelers, operating
results at the Frenchman's Reef also are subject to adverse developments in
general economic conditions and changes in travel patterns. Adverse developments
with respect to the Frenchman's Reef may have a material adverse effect on the
results of operations of Prime.
In September 1995, the Frenchman's Reef suffered hurricane damage when
Hurricane Marilyn struck the U.S. Virgin Islands. Prime and its insurance
carrier settled Prime's property and business interruption insurance claim for
$25.0 million. Due to this insurance coverage, Prime's liquidity was affected
only to the extent of its insurance deductibles, for which Prime provided a
reserve of $2.2 million in 1995. In July 1996, Hurricane Bertha struck the
island and caused further damage to the hotel. Prime is currently reviewing its
claims for property damage and business interruption insurance with its
insurance carrier with respect to the damage caused by Hurricane Bertha. The
impact of the hurricanes has caused operating profits to decline. Prime closed
the hotel in April 1997 and, following a $45.0 million refurbishment and
upgrading, reopened the hotel in December 1997. Prime does not believe the
closing of the Frenchman's Reef had a material impact on its cash flow due to
the seasonality of the hotel's operations and its business interruption
insurance coverage.
LEVERAGE
As of September 30, 1997, after giving effect to the Merger, Prime's total
long-term debt (including current portion) would have been $528.1 million. Prime
expects it may incur additional indebtedness in connection with the
implementation of its growth strategy. The degree to which Prime is leveraged,
as well as its rent expense, could have important consequences to holders of
Prime's Common Stock, including: (i) Prime's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or general corporate purposes may be impaired; (ii) a substantial portion of
Prime's cash flow from operations may be dedicated to the payment of principal
and interest on its indebtedness and rent expense, thereby reducing the funds
available to Prime for its operation; and (iii) certain of Prime's indebtedness,
including the Revolving Credit Facility, contains financial and other
restrictive covenants, including those restricting the incurrence of additional
indebtedness, the creation of liens, the payment of dividends and sales of
assets, as well as those imposing minimum net worth requirements.
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, Prime 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 Prime. 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 Prime believes its hotels are substantially in
compliance with these requirements, a determination that Prime 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
Prime 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
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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, Prime may
be potentially liable for any such costs. Although Prime 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 Prime or against Prime 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 Prime.
IMPORTANCE OF FRANCHISOR RELATIONSHIPS
Prime currently enjoys good relationships with its major franchisors,
Marriott, Radisson, Sheraton, Crowne Plaza, Holiday Inn, Ramada and Howard
Johnson, and Prime has no reason to believe that such relationships will not
continue. However, under the applicable franchise agreements, the franchisor can
terminate the agreement if, among other things, its quality standards are not
maintained or if payments due are not made in a timely fashion. If any of the
franchise agreements were terminated by the franchisor, Prime 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
Prime 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 Prime's business
and future operations.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders.
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SELLING STOCKHOLDERS
The Shares offered by this Prospectus were initially issued to the Selling
Stockholders on December 1, 1997 in connection with the Merger with Homegate
pursuant to an Agreement and Plan of Merger, dated as of July 25, 1997 (the
"Merger Agreement"). Pursuant to the terms of a related Registration Rights
Agreement, dated as of July 25, 1997 (the "Registration Rights Agreement"), the
Company agreed to use commercially reasonable efforts to cause certain shares of
Common Stock of the Company issued to the Selling Stockholders in connection
with the Merger to be registered under the Securities Act and to keep such
Registration Statement effective until the Company determines in good faith that
such Shares are no longer subject to restrictions on transfer under Rule 144 or
Rule 145 of the Securities Act, up to the first anniversary of the Merger. The
Company and the Selling Stockholders each agreed to bear one-half of the
registration fee applicable to the Registration Statement and the Company agreed
to bear additional costs and expenses of preparing and maintaining such
registration.
Immediately following the consummation of the Merger, the Selling
Stockholders beneficially owned 3,637,832 shares of Common Stock, or
approximately 7.7% of the Company's outstanding Common Stock. Because the
Selling Stockholders may offer pursuant to this Prospectus all or some part of
the Shares to which this Prospectus relates, and because the offering may or may
not be an underwritten offering on a firm commitment basis, no estimate can be
given as of the date hereof as to the number of Shares to be offered for sale by
each Selling Stockholder or as to the number of shares of Common Stock that will
be held by the Selling Stockholders upon termination of such offering. See "Plan
of Distribution."
The following table sets forth certain information, as of the date of this
Prospectus, with respect to the Selling Stockholders:
<TABLE>
<CAPTION>
NO. OF SHARES
OWNED PRIOR TO
SELLING STOCKHOLDER THE OFFERING
--------------------------------------------------------------- --------------
<S> <C>
JMI/Greystar Extended Stay Partners, L.P. ..................... 1,381,602
Developer Extended Stay Partners, L.P.(1)...................... 566,360
CRI/ESH Partners, L.P.(2)...................................... 1,234,898
Robert A. Faith(3)............................................. 2,266,809
Harlan R. Crow(4).............................................. 1,873,177
Crow Hotel Realty Investors, L.P............................... 59,935
Crow Family, Inc.(5)........................................... 1,870,141
JMI/Greystar Realty Partners, L.P.............................. 236,951
Greystar Realty Services, L.P.(6).............................. 32,058
Clifford A. Breining(7)........................................ 428
CFP Residential, L.P.(7)....................................... 7,652
Patrick W. Dukes(7)............................................ 1,603
E. Garth Erdossy(7)............................................ 4,165
Robert M. Hutt(7).............................................. 1,923
Randy J. Pace(7)............................................... 962
Ronald J. Terwilliger(7)....................................... 7,662
Bruce C. Ward(7)............................................... 7,663
</TABLE>
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(1) Shares owned by Developer Extended Stay Partners, L.P. will be voted by its
general partner, DESP General Partner, L.L.C., until such time as such
shares are distributed by such partnership to its partners, TCR Extended
Stay I Limited Partnership and Greystar Realty Services, L.P.
(2) Crow Realty Investors d/b/a Crow Investment Trust, of which Crow Family,
Inc. is the sole general partner, indirectly owns an approximate 74% limited
partner interest in such partnership.
(3) Includes 1,381,602 shares owned by JMI/Greystar Extended Stay Partners, L.P.
which may be deemed to be beneficially owned by Mr. Faith, who is the sole
stockholder of Greystar Holdings, Inc., the sole
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general partner of such partnership. Mr. Faith disclaims beneficial ownership of
all such shares held by such partnership beyond his percentage ownership
therein. Includes 566,360 shares owned by Developer Extended Stay Partners, L.P.
as to which Mr. Faith has shared voting power as a result of his indirect
ownership of a percentage interest in DESP General Partner, L.L.C., the
sole general partner of such partnership. Mr. Faith disclaims beneficial
ownership of all such shares beyond his percentage ownership therein.
Includes 236,951 shares owned by JMI/Greystar Realty Partners, L.P. as to
which Mr. Faith has shared voting power as a result of his being the sole
stockholder of Greystar Holdings, Inc., one of the two general partners of
such partnership. Mr. Faith disclaims beneficial ownership of all such
shares held by such partnership beyond his percentage ownership therein.
Also includes 81,986 shares of Prime Common Stock issuable pursuant to
fully vested options granted under the Homegate Hospitality, Inc. 1996
Long-Term Incentive Plan (the "1996 Plan").
(4) Includes 8,420 shares owned by Crow Family, Inc., of which Mr. Crow is the
sole director. Includes 1,234,898 shares owned by CRI/ESH Partners, L.P.,
59,935 shares owned by Crow Hotel Realty Investors, L.P., and 528 shares
owned by Crow Realty Investors d/b/a Crow Investment Trust as Crow Family,
Inc. is the sole general partner of each such partnership. Also includes
566,360 shares owned by Developer Extended Stay Partners, L.P., as to which
Mr. Crow has shared voting power as a result of Crow Family, Inc.'s
ownership of a percentage interest in DESP General Partner, L.L.C., the sole
general partner of such partnership and fully vested options granted under
the 1996 Plan to non-employee directors. Mr. Crow disclaims beneficial
ownership of all shares other than the shares subject to an option to
acquire 3,036 shares of Prime's Common Stock granted under the 1996 Plan.
(5) Includes 8,420 shares owned by Crow Family, Inc. as the general partner of
ESH Partners, L.P. Includes 1,234,898 shares owned by CRI/ESH Partners,
L.P., 59,935 shares owned by Crow Hotel Realty Investors, L.P., and 528
shares owned by Crow Realty Investors d/b/a Crow Investment Trust of which
Crow Family, Inc. is the sole general partner. Also includes 566,360 shares
owned by Developer Extended Stay Partners, L.P. as a result of Crow Family,
Inc.'s ownership of a percentage interest in DESP General Partner, L.L.C.,
the sole general partner of such partnership.
(6) Consists of shares distributed by Developer Extended Stay Partners, L.P. to
Greystar Realty Services, L.P., as a limited partner.
(7) Consists of shares distributed by TCR Extended Stay I Limited Partnership to
the holder, as a limited partner.
Mr. Faith was Chairman of the Board, Chief Executive Officer and President
of Homegate, and Mr. Crow was a director of Homegate, from February 1997 until
December 1, 1997, the effective date of the Merger.
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DESCRIPTION OF PRIME CAPITAL STOCK
The authorized capital stock of Prime consists of 75,000,000 shares of
Common Stock and 20,000,000 shares of Preferred Stock.
COMMON STOCK
At December 31, 1997, 47,251,259 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 Prime'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 Prime available
for distribution to such holders upon liquidation. All shares of Common Stock
are fully paid and non-assessable.
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
Prime.
WARRANTS
Warrants to purchase 2,106,383 shares of Common Stock were issued to former
shareholders of Prime's predecessor, Prime Motor Inns, Inc. ("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 Common Stock
during the year following the effective date of the PMI reorganization. As of
December 31, 1997, warrants to purchase 1,418,378 shares of Common Stock had
been exercised.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Certificate of Incorporation and Bylaws of Prime
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. Prime
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
Prime's management and policies.
The classification provisions could also have the effect of discouraging a
third party from accumulating large blocks of Prime's stock or attempting to
obtain control of Prime, even though such an attempt might be beneficial to
Prime and its stockholders. Accordingly, stockholders could be deprived 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 Prime. Unless the Fair Price Provisions are satisfied, an
Interested Stockholder may not engage in a business combination involving Prime
unless approved by 75% of Prime's outstanding voting shares or a majority of the
Disinterested Directors (as defined therein). A business
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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 Stockholder pay shareholders at least the same amount of cash
or the same amount and type of consideration paid by the Interested Stockholder
when it initially acquired Prime's shares.
The Fair Price Provisions are designed to discourage attempts to take over
Prime 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
Prime 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 Prime.
LIMITATIONS ON DIRECTORS' LIABILITY
Prime's Certificate of Incorporation provides that no director of Prime
shall be liable to Prime 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 Prime 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 Prime and its stockholders (through stockholders'
derivative suits on behalf of Prime) 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Prime Common Stock is Continental
Stock Transfer & Trust Company in New York, New York.
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PLAN OF DISTRIBUTION
Any or all of the Shares may be sold from time to time to purchasers
directly by the Selling Stockholders. The Shares may also be offered in one or
more underwritten offerings, on a firm commitment or best efforts basis. The
Company will receive no proceeds from the sale of the Shares by the Selling
Stockholders. The distribution of Shares may be effected from time to time in
one or more underwritten transactions at a fixed price or prices, which may be
changed, or in other transactions at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Any such underwritten offering may be on either a "best efforts" or a
"firm commitment" basis. In connection with any such underwritten offering,
underwriters or agents may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or from purchasers
of the Shares for whom they may act as agents. Underwriters may sell Shares to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents.
The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any profit on the sale of Shares
by them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act.
Those who act as underwriter, broker, dealer or agent in connection with
the sale of Shares will be selected by the Selling Stockholders and may have
other business relationships with the Company and its subsidiaries or affiliates
in the ordinary course of business. The Selling Stockholders may indemnify any
broker-dealer that participates in transactions involving the sale of Shares
against certain liabilities, including liabilities under the Securities Act.
At any time a particular offer of Shares is made by the Selling
Stockholders, a supplement to this Prospectus will be distributed, if required,
which will set forth the aggregate amount of Shares being offered and the terms
of the offering, including the name or names of any underwriters, dealers or
agents, any discounts, commissions or concessions allowed or reallowed or paid
to dealers. Such Prospectus supplement and, if necessary, a post-effective
amendment to the Registration Statement of which this Prospectus is a part, will
be filed with the Commission to reflect the disclosure of additional information
with respect to the distribution of the Shares.
Pursuant to the provisions of the Registration Rights Agreement, the
Company and the Selling Stockholders each agreed to bear one half of the
registration fee applicable to the Registration Statement and the Company agreed
to bear additional costs and expenses of preparing and maintaining such
registration. In addition, the Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities arising under
the Securities Act.
The sale of Shares by the Selling Stockholders may also be effected from
time to time by selling Shares directly to purchasers or to or through
broker-dealers. In connection with any such sale, any such broker-dealer may act
as agent for the Selling Stockholders or may purchase from the Selling
Stockholders all or a portion of the Shares as principal, and sales may be made
pursuant to any of the methods described below. Such sales may be made on the
NYSE or other exchanges on which the Shares are then traded, in the over-
the-counter market, in negotiated transactions or otherwise, in each case at
prices and at terms then prevailing or at prices related to the then-current
market prices or at prices otherwise negotiated.
The Shares may also be sold in one or more of the following transactions:
(i) block transactions (which may involve crosses) in which a broker-dealer may
sell all or a portion of such shares as agent but may position and resell all or
a portion of the block as principal to facilitate the transaction; (ii)
purchases by any such broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to a prospectus supplement; (iii) a
special offering, an exchange distribution or a secondary distribution in
accordance with the applicable NYSE or other stock exchange rules; (iv) ordinary
brokerage transactions and transactions in which any such broker-dealer solicits
purchasers; (v) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (vi)
sales in other ways not
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involving market makers or established trading markets, including direct sales
to purchasers. In effecting sales, broker-dealers engaged by the Selling
Stockholders may arrange for other broker-dealers to participate. Broker-dealers
will receive commissions or other compensation from the Selling Stockholders in
amounts to be negotiated immediately prior to the sale that will not exceed
those customary in the types of transactions involved. Broker-dealers may also
receive compensation from purchasers of the Shares which is not expected to
exceed that customary in the types of transactions involved.
The Selling Stockholders may also enter into hedging transactions with
broker-dealers or others, and such broker-dealers may engage in short sales of
Shares or other transactions in the course of hedging the positions assumed by
such persons in connection with such hedging transactions or otherwise. The
Selling Stockholders may also sell Shares short and redeliver Shares to close
out such short positions, enter into option or other transactions with
broker-dealers or others which may involve the delivery to such persons of the
Shares offered hereby, which Shares such persons may resell pursuant to this
Prospectus; and or pledge the Shares to a broker or dealer or others and, upon a
default, such persons may effect sales of the pledged Shares pursuant to this
Prospectus.
In addition, any securities covered by this Prospectus that qualify for
sale pursuant to Rule 144 or Rule 145 of the Securities Act may be sold under
Rule 144 or Rule 145 rather than pursuant to this Prospectus. There can be no
assurance that any Selling Stockholders will sell any or all of the Shares
described herein, and any Selling Stockholders may transfer, devise or gift such
securities by other means not described herein.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby will be passed upon for Prime by Willkie Farr & Gallagher, New
York, New York. Jack H. Nusbaum, a director of Prime who beneficially owns
10,000 shares of Prime Common Stock and an additional 55,000 shares of Prime
Common Stock underlying stock options, is a partner in the law firm of Willkie
Farr & Gallagher.
EXPERTS
The Consolidated Financial Statements of Prime Hospitality Corp.
incorporated by reference in this Prospectus, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, and are included and incorporated by reference
herein in reliance upon the authority of said firm as experts in giving said
report.
The Consolidated Financial Statements of Homegate Hospitality, Inc.
appearing in Prime Hospitality Corp.'s Current Report on Form 8-K dated December
1, 1997 for the period from inception (February 9, 1996) through December 31,
1996, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated by reference in this
Prospectus. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
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