<PAGE> 1
FORM 10-Q
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
Commission File No. 1-6869
PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-2640625
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
700 Route 46 East, Fairfield, New Jersey 07004
(Address of principal executive offices)
(973) 882-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /x/ No / /
The registrant had 54,083,851 shares of common stock, $.01 par value
outstanding, as of May 8, 1998.
<PAGE> 2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1997 and March 31, 1998............................... 1
Consolidated Statements of Income
Three Months Ended March 31, 1997
and March 31, 1998................................................. 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997
and March 31, 1998................................................. 3
Notes to Interim Consolidated Financial Statements................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................16
Signatures....................................................................17
<PAGE> 3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31
1997 1998
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 5,013 $ 35,098
Marketable securities available for sale ................................ 8,697 23,664
Accounts receivable, net of reserves .................................... 16,318 20,752
Current portion of mortgages and
notes receivable .................................................... 2,271 2,209
Other current assets .................................................... 28,780 28,899
----------- -----------
Total current assets .............................................. 61,079 110,622
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization ........................ 1,079,591 1,100,880
Mortgages and notes receivable, net of
current portion ......................................................... 19,698 19,095
Other assets ................................................................. 36,298 40,559
----------- -----------
TOTAL ASSETS ...................................................... $ 1,196,666 $ 1,271,156
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt ................................................. $ 3,871 $ 3,029
Other current liabilities ............................................... 76,921 78,859
----------- -----------
Total current liabilities ......................................... 80,792 81,888
Long-term debt, net of current portion ....................................... 554,500 569,266
Deferred income .............................................................. 18,708 74,651
Other liabilities ............................................................ 18,253 17,281
----------- -----------
Total liabilities ................................................. 672,253 743,086
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share;
20,000,000 shares authorized; none issued ........................... -- --
Common stock, par value $.01 per share;
75,000,000 shares authorized; 47,182,972 and 46,838,482 shares issued
and outstanding at December 31, 1997 and March 31, 1998,
respectively ........................................................ 472 473
Capital in excess of par value .......................................... 419,242 421,751
Retained earnings ....................................................... 105,737 116,029
Treasury stock (50,039 shares at December 31, 1997
and 561,839 shares at March 31, 1998) ............................... (1,038) (10,183)
----------- -----------
Total stockholders' equity ........................................ 524,413 528,070
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $ 1,196,666 $ 1,271,156
=========== ===========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 4
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
--------- ---------
<S> <C> <C>
Revenues:
Lodging ............................... $ 60,037 $ 86,601
Food and beverage ..................... 9,449 11,643
Management and other fees ............. 1,162 1,384
Interest on mortgages and
notes receivable .................. 1,729 1,575
Rental and other ...................... 5,676 2,085
--------- ---------
Total revenues ................. 78,053 103,288
--------- ---------
Costs and expenses:
Direct hotel operating expenses:
Lodging ........................... 15,123 20,501
Food and beverage ................. 7,965 9,440
Selling and general ............... 17,635 22,151
Occupancy and other operating ......... 5,792 12,588
General and administrative ............ 5,763 6,583
Depreciation and amortization ......... 7,690 10,900
--------- ---------
Total costs and expenses ....... 59,968 82,163
--------- ---------
Operating income ........................... 18,085 21,125
Investment income .......................... 615 1,261
Interest expense ........................... (4,715) (5,787)
--------- ---------
Income before income taxes
and extraordinary items ............... 13,985 16,599
Provision for income taxes ................. 5,783 6,308
--------- ---------
Income before extraordinary items .......... 8,202 10,291
Extraordinary items - Gains on discharges of
indebtedness (net of income taxes) .... 22 --
--------- ---------
Net income ................................. $ 8,224 $ 10,291
========= =========
Earnings per common share:
Basic:
Income before extraordinary items ..... $ 0.18 $ 0.22
Extraordinary items ................... -- --
--------- ---------
Net earnings ............................... $ 0.18 $ 0.22
========= =========
Diluted:
Income before extraordinary items ..... $ 0.17 $ 0.20
Extraordinary items ................... -- --
--------- ---------
Net earnings ............................... $ 0.17 $ 0.20
========= =========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 5
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................... $ 8,224 $ 10,291
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............. 7,690 10,900
Amortization of deferred financing costs .. 606 826
Business interruption insurance revenue ... (4,990) (1,575)
Utilization of net operating loss
carryforwards .......................... 911 1,614
Gains on discharges of indebtedness ....... (37) --
Amortization of deferred gain ............. -- (2,156)
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable .................... (797) (4,434)
Other current assets ................... (1,274) 1,425
Other liabilities ...................... (1,636) (7,109)
--------- ---------
Net cash provided by operating
activities .......................... 8,697 9,782
--------- ---------
Cash flows from investing activities:
Net proceeds from mortgages and notes
receivable ................................ 377 621
Proceeds from sales of property, equipment
and leasehold improvements ................ 14,910 115,280
Construction of new hotels .................... (69,466) (88,281)
Purchases of property, equipment and
leasehold improvements .................... (19,673) (14,203)
Net proceeds from insurance settlement ........ 571 --
Increase in restricted cash ................... (7,769) (6,234)
Purchase of marketable securities ............. -- (350)
Proceeds from retirement of debt securities ... 177 --
Other ......................................... (1,261) (1,423)
--------- ---------
Net cash (used in) provided by investing
activities .......................... (82,134) 5,410
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt ............ 262,331 39,150
Payments of debt .............................. (107,033) (15,956)
Proceeds from the exercise of stock options
and warrants .............................. 441 896
Purchase of treasury stock .................... -- (9,145)
Other ......................................... -- (52)
--------- ---------
Net cash provided by financing
activities .......................... 155,739 14,893
--------- ---------
Net increase in cash and cash equivalents ..... 82,302 30,085
Cash and cash equivalents at beginning
of period ................................. 47,473 5,013
--------- ---------
Cash and cash equivalents at end of period .... $ 129,775 $ 35,098
========= =========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 6
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and subsidiaries
(the "Company") contain all material adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of March 31, 1998 and the results of its operations for the three months
ended March 31, 1997 and 1998 and cash flows for the three months ended March
31, 1997 and 1998.
The consolidated financial statements for the three months ended March
31, 1997 and 1998 were prepared on a consistent basis with the audited
consolidated financial statements for the year ended December 31,1997. Certain
reclassifications have been made to the March 31,1997 consolidated financial
statements to conform them to the March 31, 1998 presentation.
The consolidated results of operations for the three months ended March
31, 1998 are not necessarily indicative of the results to be expected for the
full year. These interim unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
NOTE 2 - ACCOUNTING POLICIES
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5) which is required to be adopted in 1999. At that time, the Company
will be required to record a cumulative effect of a change in accounting
principle to write off any unamortized pre-opening costs that remain on the
balance sheet at the date of adoption. Additionally, on a prospective basis
subsequent to the adoption of this new standard, all future pre-opening costs
will be expensed as incurred. The Company believes that the adoption of SOP
98-5 will not have a material effect on its financial condition or results of
its operations.
NOTE 3 - MERGER
On December 1, 1997, the Company merged with HomeGate Hospitality, Inc.
("HomeGate"), a provider of mid-price extended-stay hotels. The transaction was
accounted for as a pooling of interests, which required that the historical
consolidated statements of operations of the companies be restated on a combined
basis without giving effect to operating synergies.
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<PAGE> 7
NOTE 4 - SALE/LEASEBACK TRANSACTION
In January 1998, the Company completed the sale/leaseback of eight
full-service hotels to American General Hospitality, Inc. ("American General")
for $138.4 million consisting of $114.4 million in cash, $10.2 million in
assumed debt and $13.8 million in American General limited partnership operating
units. The Company is operating the hotels under a lease agreement with American
General which has a term of 10 years. The transaction generated a net gain of
approximately $65.0 million which will be recognized as a reduction of rent
expense over the life of the lease. The Company has also entered into an
agreement to sell and lease back eleven additional full-service hotels to
American General not later than March 31, 1999.
NOTE 5 - EARNINGS PER COMMON SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share," (SFAS
128). Under SFAS 128, primary earnings per share has been replaced by basic
earnings per share which excludes any dilutive effects of options, warrants and
convertible securities. Fully diluted earnings per share is now called diluted
earnings per share and includes a change in applying the treasury stock method.
Earnings per share amounts for all prior periods have been restated to conform
to the SFAS 128 requirements.
Basic earnings per common share was computed based on the weighted
average number of common shares outstanding during each period. The weighted
average number of common shares used in computing basic earnings per share was
46.4 million and 46.9 million for the three months ended March 31, 1997 and
1998, respectively.
Diluted earnings per share reflects adjustments to basic earnings per
share for the dilutive effect of stock options and warrants and the elimination
of interest expense and the issuance of additional common shares from the
assumed conversion of the 7% convertible subordinated notes. The weighted
average number of common shares used in computing diluted earnings per share
was 55.4 million for both the three months ended March 31, 1997 and 1998,
respectively.
NOTE 6 - RENTAL AND OTHER REVENUE
Rental and other revenue is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1998
------ ------
<S> <C> <C>
Business interruption insurance $4,990 $1,575
Rental income 580 258
Franchise revenue -- 252
</TABLE>
- 5 -
<PAGE> 8
<TABLE>
<S> <C> <C>
Other 106 --
------ ------
Total $5,676 $2,085
====== ======
</TABLE>
Business interruption insurance revenue relates to damages caused by
Hurricane Bertha at the Company-owned Marriott's Frenchman's Reef Hotel (the
"Frenchman's Reef") in St. Thomas, U.S. Virgin Islands in July 1996 and is based
on the settlement of the Company's insurance claim. In March 1998, the Company
settled its property and business interruption insurance claim for $16.4
million. The Company had previously received $2.5 million in 1997 and received
the remaining amount, net of deductibles, in April 1998.
NOTE 7 - INTEREST EXPENSE
The Company capitalized $3.8 million and $7.2 million for the three
months ended March 31, 1997 and 1998, respectively, of interest related to
borrowings used to finance hotel construction. Also included in interest expense
is the amortization of deferred financing fees of $606,000 and $826,000 for the
three months ended March 31, 1997 and 1998, respectively.
NOTE 8 - TREASURY STOCK
In December 1997, the Company's Board of Directors approved a program
to purchase from time to time up to one million shares of its common stock at
various prices . Under this program, the Company purchased approximately
512,000 shares during the three months ended March 31,1998 at an average price
of $17.76.
NOTE 9 - SUBSEQUENT EVENTS
On April 17, 1998, the Company's $86.3 million 7% Convertible Notes due
2002 were converted into 7.2 million shares of common stock of the Company at a
conversion price of $12 per share. The notes were included as long-term debt as
of March 31, 1998 and were subsequently transferred to stockholders' equity in
April 1998.
In May 1998, the Company agreed to sell and leaseback ten AmeriSuites
to Equity Inns, Inc. ("Equity Inns") for $101.3 million in cash. The sale is
part of an ongoing strategic relationship between the Company and Equity Inns,
which contemplates the sale of approximately 20 AmeriSuites per year. The
Company will continue to operate the hotels under a ten-year lease agreement and
will also generate franchise income streams under a ten-year franchise
agreement. The transaction is expected to generate a net gain of approximately
$16.0 million which will be recognized as a reduction of rent expense over the
life of the lease. The agreement is subject to the completion of due diligence
and is expected to close by the end of the second quarter.
- 6 -
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company is a leading hotel owner/operator which, as of April
30,1998, owned 124 hotels (the "Owned Hotels"), operated 18 hotels under
sale/leaseback agreements (the "Sale/Leaseback Hotels") and managed 12 hotels
for third parties (the "Managed Hotels"). The Company has significant equity
interests in the Owned Hotels and has economic interests limited to a
percentage of revenue (generally between 2.5% to 5.0%) on the Sale/Leaseback
Hotels and the Managed Hotels. The Company consolidates the results of
operations of its Owned Hotels and Sale/Leaseback Hotels and records management
fees (including incentive management fees) and interest income, where
applicable, on the Managed Hotels.
The Company's strategy is to capitalize on two lodging industry trends
perceived by management: (i) favorable industry fundamentals, in the segments
in which Prime operates (i.e. upscale all-suites and mid-price extended-stay),
which are producing strong earnings growth and (ii) growing consumer
preferences for newer accommodations with strong brand identities. Through its
development of proprietary brands, the Company is positioning itself to
generate additional revenue not dependent on investment in real estate. The
Company's external growth focuses on the accelerated expansion of its
proprietary AmeriSuites and HomeGate brands through new construction. Although
future results of operations may be adversely affected in the short term by the
costs associated with the construction and acquisition of new hotels, it is
expected that this impact will be offset, after an initial period, by revenues
generated by such new hotels.
On December 1, 1997, the Company completed its merger with HomeGate
Hospitality, Inc. ("HomeGate"), a provider of mid-price extended-stay hotels.
The transaction was accounted for as a pooling of interests which required that
the historical consolidated statements of operations of the companies be
restated on a combined basis without giving effect to operating synergies.
For the three months ended March 31, 1998, the Company's EBITDA
increased by $6.2 million, or 24.2%, from $25.8 million in 1997 to $32.0 million
in 1998, and Hotel EBITDA increased by $7.5 million, or 26.7%, from $28.0
million in 1997 to $35.4 million in 1998. EBITDA represents earnings before
interest, taxes, depreciation and amortization. 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 the operations of Owned Hotels. The Company's hotels operate in four
segments of the industry: the upscale all-suites segment, under the Company's
proprietary AmeriSuites brand; the mid-price extended-stay segment under the
Company's proprietary HomeGate Studios & Suites brand; the upscale full-service
segment, under major national franchises; and the midprice limited-service
segment, primarily under the Company's
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<PAGE> 10
proprietary Wellesley Inns brand. The following table illustrates the Hotel
EBITDA contribution from each segment (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1998
Amount % of Total Amount % of Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
All-suites ........... $ 8,678 31.0% $16,725 47.2%
Full-service ......... 12,052 43.1 10,466 29.5
Limited-service ...... 6,407 22.9 6,787 19.2
Extended-Stay ........ 836 3.0 1,461 4.1
------- ------- ------- -------
Total ...... $27,973 100.0% $35,439 100.0%
======= ======= ======= =======
</TABLE>
Hotel EBITDA for the three months ended, March 31, 1998 reflects the
shifting mix in the Company's hotel portfolio toward its proprietary brand
AmeriSuites. Based on the Company's development plans, Prime expects the
relative contribution from its all-suite AmeriSuites hotels and extended-stay
HomeGate hotels to increase in 1998 with the full-service hotel's percentage
contribution declining.
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 the Company's operating
performance or as alternatives to cash flows as a measure of liquidity.
Certain statements in this Form 10-Q 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 the Company, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
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<PAGE> 11
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1997
The following table presents the components of operating income,
operating expense margins and other data for the Company and the Company's
comparable Owned Hotels for the three months ended March 31, 1997 and 1998. The
results of the seven hotels divested during 1997 and 1998 are not material to an
understanding of the results of the Company's operations in such periods and,
therefore, are not separately discussed.
<TABLE>
<CAPTION>
COMPARABLE OWNED
Total HOTELS(2)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1998 1997 1998
(IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging ...................................... $ 60,037 $ 86,601 $ 35,592 $ 39,058
Food and Beverage ............................ 9,449 11,643 4,481 4,920
Management and Other Fees .................... 1,162 1,384
Interest on Mortgages and Notes Receivable ... 1,729 1,575
Rental and Other ............................. 5,676 2,085
---------- ----------
Total Revenues ....................... 78,053 103,288
Direct Hotel Operating Expenses:
Lodging ...................................... 15,123 20,501 9,022 9,470
Food and Beverage ............................ 7,965 9,440 3,776 4,108
Selling and General .......................... 17,635 22,151 9,660 9,611
Occupancy and Other Operating .................. 5,792 12,588
General and Administrative ..................... 5,763 6,583
Depreciation and Amortization .................. 7,690 10,900
Operating Income ............................... 18,085 21,125
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue .. 25.2% 23.7% 25.4% 24.3%
Food and Beverage, as a percentage of food and
beverage revenue .......................... 84.3% 81.1% 84.3% 83.5%
Selling and General, as a percentage of
lodging and food and beverage revenue ..... 25.4% 22.5% 24.1% 21.9%
Occupancy and Other Operating, as a percentage
of lodging and food and beverage revenue ..... 8.3% 12.8%
General and Administrative, as a percentage of
total revenue ................................ 7.4% 6.4%
Other Data((1)):
Occupancy ...................................... 59.7% 60.6% 63.1% 64.7%
Average Daily Rate ("ADR") ..................... $ 75.60 $ 82.78 $ 74.75 $ 80.28
Revenue per Available Room ("REVPAR") .......... $ 45.10 $ 50.14 $ 47.14 $ 51.95
Gross Operating Profit ......................... $ 19,970 $ 37,652 $ 17,615 $ 20,790
</TABLE>
(1) For purposes of showing operating trends the seven hotels
divested in 1997 have been excluded from the other data
section of the tables.
(2) Comparable Owned Hotels refers to the 63 Owned Hotels which
were open for the full period in both 1997 and 1998 excluding
the Frenchman's Reef which was impacted by hurricane damage.
- 9 -
<PAGE> 12
Lodging revenues, which include room revenues and other related
revenues such as telephone and vending, increased by $26.6 million, or 44.2%,
for the three months ended March 31, 1998 as compared to the same period in
1997. Lodging revenues for the three months ended March 31, 1998 increased due
to incremental revenues of $21.4 million from new hotels and higher revenues for
comparable Owned Hotels, which increased by $3.5 million, or 9.7%. The revenue
gains during the three month periods were partially offset by decreases of $2.1
million related to the revenue from divested hotels. The following table sets
forth operating data for the comparable Owned Hotels for the three months ended
March 31, 1998 as compared to the same period in 1997, by product type:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
%
1997 1998 CHANGE
---- ---- ------
<S> <C> <C> <C>
AMERISUITES
OCCUPANCY 61.1% 64.5%
ADR $72.86 $78.89
REVPAR $44.53 $50.89 14.3%
FULL-SERVICE
OCCUPANCY 58.0% 59.3%
ADR $86.90 $96.26
REVPAR $50.38 $57.11 13.4%
WELLESLEY INNS
OCCUPANCY 69.5% 70.0%
ADR $68.63 $70.93
REVPAR $47.67 $49.65 4.2%
TOTAL
OCCUPANCY 63.1% 64.7%
ADR $74.75 $80.28
REVPAR $47.14 $51.95 10.2%
</TABLE>
- 10 -
<PAGE> 13
The Company achieved solid revenue growth in all of its industry
segments. The REVPAR increases reflect the growing recognition of AmeriSuites as
a leading brand in the fast-growing all-suites segment and continued favorable
industry trends in the full-service segment. The improvements in REVPAR at
comparable Owned Hotels were generated by increases in ADR, which rose by 7.4%
and occupancy gains of 1.6 percentage points, respectively, for the three month
period.
Food and beverage revenues increased by $2.2 million, or 23.2%, for the
three months ended March 31, 1998 as compared to the same period in 1997
primarily due to an increase of $1.7 million at the Frenchman's Reef, which
operated on an impaired basis during the three months ended March 31, 1997 due
to hurricane damage sustained in 1995 and 1996. Food and beverage revenues for
comparable Owned Hotels increased by $439,000, or 9.8%, for the three month
period due to an increase in banquet business.
Management and other fees consist of base and incentive fees earned
under management agreements, fees for additional services rendered to Managed
Hotels and sales commissions earned by the Company's national sales group,
Market Segments, Inc. ("MSI"). Management and other fees increased by $222,000,
or 19.1%, for the three months ended March 31, 1998 as compared to the same
period in 1997 primarily due to increased base and incentive management fees.
Interest on mortgages and notes receivable primarily relate to
mortgages secured by certain Managed Hotels. Interest on mortgages and notes
receivable decreased by $154,000, or 8.9%, for the three months ended March 31,
1998 as compared to the same period in 1997 due to conversions of notes
receivable into hotel assets.
Rental and other revenue decreased by $3.6 million, or 63.3%, for the
three months ended March 31, 1998 as compared to the same period in 1997 due to
decreased business interruption insurance revenue. Business interruption
insurance revenue is based on the settlement of the Company's claim related to
the hurricane damage at the Frenchmen's Reef caused by Hurricane Bertha in July
1996. Business interruption insurance revenue decreased by $3.4 million for the
three months ended March 31, 1998 as compared to the same period in 1997 due to
higher operating losses in 1997.
Direct lodging expenses increased by $5.4 million, or 35.6%, for the
three months ended March 31, 1998 as compared to the same period in 1997 due
primarily to the addition of new hotels. Direct lodging expenses, as a
percentage of lodging revenue, decreased from 25.2% to 23.7% for the three month
period due to increases in ADR and lower corresponding increases in
expenses. For comparable Owned Hotels, direct lodging expenses as a percentage
of lodging revenues also decreased from 25.4% to 24.3% due to ADR increases.
Direct food and beverage expenses for the three months ended March 31,
1998 increased by $1.5 million, or 18.5%, as compared to the same period in 1997
primarily due to the Frenchman's Reef. As a percentage of food and beverage
revenues, direct food and beverage
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<PAGE> 14
expenses decreased from 84.3% to 81.1% for the three month period. For
comparable Owned Hotels, food and beverage expenses as a percentage of food and
beverage revenues also decreased from 84.3% to 83.5% for the three month period.
The decreases were primarily due to the higher margins associated with the
increased banquet business.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
increased by $4.5 million, or 25.6% for the three months ended March 31, 1998 as
compared to the same period in 1997 due primarily to the addition of new hotels.
As a percentage of hotel revenues (defined as lodging and food and beverage
revenues), direct hotel selling and general expenses decreased from 25.4% to
22.5% for the three month period. For the comparable Owned Hotels, direct hotel
selling and general expenses as a percentage of hotel revenues decreased from
24.1% to 21.9% for the three month period. The decreases were primarily due to
the ADR improvements, effective expense controls and decreases in snow removal
and other weather-related costs in the first quarter.
Occupancy and other operating expenses consist primarily of insurance,
real estate and other taxes and rent expense. Occupancy and other operating
expenses increased by $6.8 million, or 117.3%, for the three months ended March
31, 1998 as compared to the same period in 1997 due to the rent expense
associated with the sale/leaseback of hotels to American General and Equity
Inns. Occupancy and other operating expenses as percentage of hotel revenues
increased from 8.3% to 12.8% for the three month period due to rent expense
associated with the sale/leasebacks. Occupancy and other operating expenses are
expected to continue to increase as the Company plans to sell and leaseback
additional hotels in 1998.
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 Hotels and
Managed Hotels and general corporate expenses. General and administrative
expenses increased by $820,000, or 14.2%, for the three months ended March 31,
1998 as compared to the same period in 1997 due to increased advertising,
personnel and training costs associated with opening the new AmeriSuites hotels.
As a percentage of total revenues, general and administrative expenses decreased
from 7.4% to 6.4% for the three month period due to increased operating
leverage.
Depreciation and amortization expense increased by $3.2 million or
41.7%, for the three months ended March 31, 1998 as compared to the same period
in 1997 due to the impact of new hotel properties.
Investment income increased by $646,000 or 105.0%, for the three month
period as compared to the same period in 1997 due to changes in weighted average
cash balances.
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<PAGE> 15
Interest expense increased by $1.1 million, or 22.7%, for the three
months ended March 31, 1998 as compared to the same period in 1997 primarily due
to the issuance of $200 million of Senior Subordinated Notes in March 1997
offset by capitalized interest related to new hotel construction. The Company
capitalized interest of $3.8 million and $7.2 million for the three months ended
March 31, 1997 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
Prime's external growth focuses on the accelerated expansion of its
proprietary AmeriSuites and HomeGates brands through new construction. As of
April 30, 1998, Prime had 71 AmeriSuites and 21 HomeGates in operation with
plans to have 95 AmeriSuites and 45 HomeGates open by the end of 1998.
Prime believes that it has access to sufficient resources to implement
its planned expansion of the AmeriSuites and HomeGate brands, including capital
from the following sources: (i) borrowing availability under the Company's
Revolving Credit Facility; (ii) proceeds from sale/leaseback transactions with
respect to certain of its properties and; (iii) internally generated cash flow.
The Company may also from time to time seek additional debt or equity financing.
At March 31, 1998, the Company had cash, cash equivalents and current
marketable securities of $58.8 million. In addition, at March 31, 1998, the
Company had $129.4 million available under the Revolving Credit Facility.
The Company's major sources of cash for the three months end March 31,
1998 were net proceeds from the sale/leaseback of hotels of $114.4 million,
borrowings under the Revolving Credit Facility of $37.5 million and cash flow
from operations of $9.8 million. The Company's major uses of cash during the
period were capital expenditures of $102.5 million relating primarily to the
development of new hotels and debt repayments of $16.0 million.
For the three months ended March 31, 1997 and 1998, cash flow from
operations was positively impacted by the utilization of net operating loss
carryforwards ("NOLs") and other tax basis differences of $1.0 million and $1.6
million, respectively. At March 31, 1998, the Company had federal NOLs relating
primarily to its predecessor, Prime Motor Inns, Inc. ("PMI"), of approximately
$77.7 million which are subject to annual utilization limitations and expire
beginning in 2005 and continuing through 2007.
Sources of Capital. The Company has undertaken a strategic initiative
to dispose of significant hotel real estate and to invest the proceeds in the
growth of its proprietary brands. As
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part of this initiative, Prime has entered into two strategic alliances with
real estate investment trusts.
In January 1998, the Company completed the sale/leaseback of eight
full-service hotels to American General for $138.4 million, consisting of $114.4
million in cash, $10.2 million in assumed debt and $13.8 million in American
General limited partnership operating units. Prime is operating the hotels under
a lease agreement with American General which has a term of 10 years. The sale
is the first phase of a transaction which also includes the sale and leaseback
of 11 additional full-service hotels to American General not later than March
31, 1999.
In May 1998, the Company agreed to sell and leaseback ten AmeriSuites
to Equity Inns for $101.3 million in cash. The sale is part of an ongoing
strategic relationship between the Company and Equity Inns, which contemplates
the sale of approximately 20 AmeriSuites per year. The Company will continue to
operate the hotels under a ten-year lease agreement and will also generate
franchise income streams under a ten-year franchise agreement. The agreement is
subject to the completion of due diligence and is expected to close by the end
of the second quarter.
The Company has a $200.0 million Revolving Credit Facility which bears
interest at LIBOR plus 2%. The facility is available through 2001 and may be
extended for an additional year. Borrowings under the facility are secured by
certain of the Company's hotels with recourse to Prime. Additional properties
may be added subject to the approval of the lenders. Availability under the
facility is subject to a borrowing base test and certain other covenants. As of
April 30, 1998, Prime had outstanding borrowings of $85.6 million under the
facility and further availability of $114.4 million.
Uses of Capital. The Company's capital spending is focused primarily on
the development of its AmeriSuites and HomeGate hotel chains. For the three
months ended March 31, 1998, the Company spent $47.9 million on new construction
of AmeriSuites and $40.4 million on new construction of HomeGates. The Company
expects to spend a total of approximately $500 million on development of new
hotels in 1998 to be funded by borrowings under the Revolving Credit Facility,
the sale/leaseback of hotels and internally generated cash flow.
On March 12, 1998, the Company settled its insurance claim for $16.4
million related to hurricane damage at the Frenchman's Reef caused by Hurricane
Bertha in July 1996. The Company had previously received $2.5 million in 1997
and received the remaining amount, net of deductibles, in April 1998.
For the three months ended March 31, 1998, the Company spent
approximately $14.2 million on capital improvements at its Owned Hotels of which
approximately $6.8 million related to the refurbishment of the Frenchman's Reef.
In December 1997, the Company's Board of Directors approved a program
to purchase from time to time up to one million shares of its common stock at
various prices. Under this
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program, the Company purchased approximately 512,000 shares at an average price
of $17.76 during the first quarter of 1998.
On April 17, 1998, the Company's $86.3 million 7% Convertible Notes due
2002 were converted into 7.2 million shares of common stock of the Company at a
conversion price of $12 per share.
In order to facilitate future tax-deferred exchanges of hotel
properties, the Company from time to time enters into arrangements with an
unaffiliated third party under Section 1031 of the Internal Revenue Code of
1986, as amended. As of March 31, 1998, the Company had advances of
approximately $42.3 million to such third party which advances are classified
as property, equipment and leasehold improvements.
The Company has preliminarily reviewed its systems and equipment as it
relates to year 2000 compliance. Based on this assessment, the Company has
determined that the cost of compliance is not expected to be material to its
cash flows, financial condition or results of operations.
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<PAGE> 18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) 10.1 Employment Agreement, dated February 20, 1998,
between David Simon and the Company.
10.2 Employment Agreement, dated February 20, 1998,
between John Elwood and the Company.
11 Computation of Earnings Per Share
27 Financial Data Schedule
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME HOSPITALITY CORP.
Date: May 11, 1998 By: /s/ David A. Simon
------------------
David A. Simon, President and
Chief Executive Officer
Date: May 11, 1998 By: /s/ John M. Elwood
------------------
John M. Elwood, Executive
Vice President and Chief
Financial Officer
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<PAGE> 1
EXECUTION VERSION
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of February 20, 1998,
between David A. Simon ("Executive") and Prime Hospitality Corp., a Delaware
corporation ("Employer").
In consideration of the premises and the mutual covenants hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE
Employer hereby agrees to employ Executive, and Executive hereby agrees
to be and remain in the employ of Employer, upon the terms and conditions
hereinafter set forth.
2. EMPLOYMENT PERIOD
Subject to earlier termination as provided in section 5, the term of
Executive's employment under this Agreement (the "Employment Period") shall
commence as of the date hereof and shall continue for a period of three (3)
years. Either party may terminate this Agreement at the end of three (3) years
or this Agreement may be renewed on a day to day basis pending the negotiation
of a new agreement.
3. DUTIES AND RESPONSIBILITIES
3.1 General. During the Employment Period, Executive (i) shall have the
titles of President and Chief Executive Officer of Employer and (ii) shall
devote substantially all of his business time and expend his best efforts,
energies and skills to the business of Employer.
Executive shall perform such duties, consistent with his status as
President and Chief Executive Officer of Employer, as he may be assigned from
time to time by Employer's Board.
4. COMPENSATION AND RELATED MATTERS
4.1 Base Salary. For each twelve-month period of the Employment Period,
commencing with the twelve-month period beginning on the date of this Agreement
(each such period, an "Employment Year"), Employer shall pay to Executive a base
salary ("Base Salary") equal to $400,000. The Base Salary for each Employment
Year shall be payable in equal weekly installments.
4.2 Annual Bonus. For each calendar year (the "Bonus Year"), at the
discretion of the Employer's Board of Directors (the "Board"), Executive may
receive a cash bonus ("Bonus") based upon attainment of annual performance
objectives to be reasonably established by the Board for the Bonus Year in
consultation with Executive, such performance objectives to be established as
soon as possible following the beginning of the Bonus Year. Bonus earned for the
<PAGE> 2
Bonus Year shall be payable promptly following the determination thereof, on the
earlier of (i) fifteen (15) days after the members of the Board have received
the audited financial statements for the Bonus Year, or (ii) the next meeting of
the Board. The Bonus Year 1998 will be deemed to commence on January 1. To the
extent specifically provided in Section 6 hereof, the Bonus payable for the
Bonus Year in which the Employment Period terminates shall equal the Bonus that
would have been paid had the Employment Period not so terminated, multiplied by
a fraction, the numerator of which shall be the number of days of the Employment
Period within the Bonus Year and the denominator of which shall be 365.
4.3 Life Insurance. Employer shall maintain in effect at all times
during the Employment Period, at Employer's expense, a policy of term insurance
on the life of Executive in the amount equal to $1,000,000, naming such person
as Executive shall designate from time to time as the owner and beneficiary
thereof. Executive agrees that Employer shall have the right to obtain other
life insurance on Executive's life, at Employer's sole expense and with Employer
or an affiliate thereof as the sole beneficiary thereof. Executive shall (i)
cooperate fully with Employer in obtaining all such insurance, (ii) sign any
necessary consents, applications and other related forms or documents, and (iii)
take any required medical examinations.
4.4 Automobile. Employer shall provide Executive with the use of a
vehicle at Employer's expense. Executive will be entitled to continue to use
that automobile for the term of this Agreement. Employer shall be responsible
for all expenses of use, maintenance and operation of that vehicle, except if
Executive's operation of the vehicle causes penalty insurance rates, in which
case Executive will bear such costs.
4.5 Other Benefits. During the Employment Period, subject to, and to
the extent Executive is eligible under their respective terms, Executive shall
be entitled to receive such fringe benefits as are, or are from time to time
hereafter generally provided by Employer to Employer's senior management
employees or other employees (other than those provided under or pursuant to
separately negotiated individual employment agreements or arrangements) under
any pension or retirement plan, disability plan or insurance, group life
insurance, medical and dental insurance, travel accident insurance, phantom
stock or other similar plan or program of Employer. Executive's Base Salary
shall (where applicable) constitute the compensation on the basis of which the
amount of Executive's benefits under any such plan or program shall be fixed and
determined.
4.6 Expense Reimbursement. Employer shall reimburse Executive for all
business expenses reasonably incurred by him in the performance of his duties
under this Agreement upon his presentation of signed, itemized accounts of such
expenditures, all in accordance with Employer's procedures and policies as
adopted and in effect from time to time and applicable to its senior management
employees.
4.7 Vacations. Executive shall be entitled to 20 days vacation for each
calendar year during the Employment Period with reasonable one year carry-over
allowances, which vacations shall be taken at such time or times as shall not
unreasonably interfere with Executive's performance of his duties under this
Agreement.
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<PAGE> 3
4.8 Stock Options. On February 20, 1998, the Compensation Committee of
the Board granted to Executive, subject to stockholder approval of an amendment
to the Employer's 1995 Employee Stock Option Plan (the "Plan") at the 1998
Annual Meeting of Stockholders, increasing the maximum number of options that
can be granted to one person during a single year, a stock option (the "Option")
to purchase 300,000 shares of Common Stock of the Employer (the "Common Stock"),
having a term of ten years. The Option shall vest and become exercisable as to
one-third of the shares of common stock covered by the Option on and after
February 20, 1999, as to an additional one-third of the shares of common stock
on and after February 20, 2000 and as to an additional one-third of the shares
of common stock on and after February 20, 2001. The exercise price shall be the
Fair Market Value of the Employer's shares as defined in the Plan on February
20, 1998. Except as otherwise set forth herein, the terms of the Option shall be
as set forth in the Plan and the Option Agreement.
4.9 Tax Gross-Up. To the extent that payments made by Employer to or on
behalf of Executive pursuant to the provisions of Sections 4.3 and 4.4 hereof
are subject to federal, state or local income or payroll taxes, Employer shall
pay to Executive, not later than forty-five (45) days after the end of the
calendar year for which such payments are includable in Executive's gross
income, the amount of such additional taxes, calculated by assuming application
of the highest applicable tax rates, plus such additional amount as shall be
necessary to hold harmless Executive, as nearly as practicable, from the
obligation to pay such taxes in respect of amounts payable pursuant to this
Section 4.9.
5. TERMINATION OF EMPLOYMENT PERIOD
5.1 Termination Without Cause; Voluntary Termination by Executive.
Employer may, by notice to Executive at any time during the Employment Period,
terminate the Employment Period without cause. The effective date of such
termination of the Executive from the Employer shall be the date that is thirty
(30) days following the date on which such notice is given. Executive may, by
notice to Employer at any time during the Employment Period, voluntarily resign
from the Employer and terminate the Employment Period. The effective date of
such termination of the Executive from the Employer shall be the date that is
thirty (30) days following the date on which such notice is given.
5.2 By Employer for Cause. Employer may, at any time during the
Employment Period by notice to Executive (but only after compliance with the
procedure hereinafter set forth in this Section 5.2 in the event of the cause
specified in clause (ii) below), terminate the Employment Period "for cause"
effective on the later of the giving of such notice or upon the determination by
the Board following notice, if applicable. Such notice shall specify the conduct
which is the basis for termination for cause in reasonable detail. For the
purposes hereof, "for cause" means:
(i) the conviction of Executive in a court of competent
jurisdiction of a crime constituting a felony in such jurisdiction involving
money or other property of the Employer or any of its affiliates or any other
felony (whether or not involving money or other property of the Employer)
involving moral turpitude; or
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<PAGE> 4
(ii) the willful engaging in misconduct that is materially
injurious to Employer, monetarily or otherwise. For the purposes hereof, (a) no
act, or failure to act, on Executive's part shall be considered "willful" unless
done, or omitted to be done, by Executive not in good faith and without
reasonable belief that such action or omission was in or not opposed to the best
interests of Employer and (b) no failure to achieve performance targets shall be
considered a willful act of misconduct.
Termination "for cause" pursuant to clause (ii) of the
preceding sentence shall be effected only if (i) Employer has delivered to
Executive a copy of a notice of termination that complies with the foregoing
paragraph and that gives Executive, on at least fifteen (15) business days'
prior notice, the opportunity, together with Executive's counsel, to be heard
before Employer's Board, and (ii) the Board (after such notice and opportunity
to be heard), adopts a resolution that in the good faith opinion of the Board
Executive was guilty of conduct set forth in clause (ii) of the preceding
sentence, and specifying the particulars thereof in reasonable detail.
5.3 By Executive for Good Reason. Executive may, at any time during the
Employment Period by notice to Employer, terminate the Employment Period under
this Agreement "for good reason" effective immediately. For the purposes hereof,
"good reason" means any material breach by Employer of any provision of this
Agreement. Without limiting the generality of the foregoing, each of the
following shall be deemed to be "good reason": (i) a failure by the Employer to
comply with any provision of this Agreement which has not been cured within ten
(10) days after notice of such noncompliance has been given by Executive to the
Employer, (ii) the assignment to Executive by Employer of duties inconsistent
with Executive's position, responsibilities or status with Employer as in effect
on the date of this Agreement including, but not limited to, any reduction
whatsoever in such position, duties, responsibilities or status, any change in
Executive's titles, offices or perquisites, as then in effect, or any removal of
Executive from, or any failure to re-elect Executive to, any of such positions
(except for Executive's election to the Board), except in connection with the
termination of his employment on account of his death, disability, or for cause,
(iii) any failure to pay (or any reduction in) compensation (including benefits)
paid or payable to Executive pursuant to the provisions of Section 4 hereof,
(iv) any purported termination of Executive's employment for cause which is not
effected in accordance with the requirements of Section 5.2 hereof (and for
purposes of this Agreement no such purported termination shall be effective) or
(v) the failure of the Employer to obtain the assumption of its obligation to
perform this Agreement by any successor to all or substantially all of the
assets of the Employer as set forth in Section 9 herein.
5.4 Disability. During the Employment Period, if, as a result of
physical or mental incapacity or infirmity, Executive shall be unable to perform
his duties under this Agreement for (i) a continuous period of at least 180
days, or (ii) periods aggregating at least 270 days during any period of 12
consecutive months (each a "Disability Period"), and at the end of the
Disability Period there is no reasonable probability that Executive can promptly
resume his duties hereunder, Executive shall be deemed disabled (the
"Disability") and Employer, by notice to Executive, shall have the right to
terminate the Employment Period for Disability at, as of or after the end of the
Disability Period. The existence of the Disability shall be determined by a
reputable, licensed physician mutually selected by Employer and Executive, whose
determination
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<PAGE> 5
shall be final and binding on the parties. Executive shall cooperate in all
reasonable respects to enable an examination to be made by such physician.
Notwithstanding the foregoing, Employer may conclusively determine Executive to
be disabled at any time after the end of the Disability Period if Executive has
then commenced receiving benefits under the long-term disability insurance
policy obtained pursuant to Section 4.5 hereof.
5.5 Death. The Employment Period shall end on the date of
Executive's death.
6. TERMINATION COMPENSATION
6.1 Termination Without Cause by Employer or for Good Reason by
Executive. If the Employment Period is terminated by Employer pursuant to the
provisions of Section 5.1 hereof or by Executive pursuant to the provisions of
Section 5.3 hereof, Employer will pay to Executive (i) Executive's Base Salary
through the date of termination, (ii) within five (5) days following the date of
termination in one lump sum an amount equal to the greater of the (a) Base
Salary multiplied by the number of full and partial years then remaining in the
Employment Period (assuming no termination) and (b) one year's Base Salary
(calculated in each case at the Base Salary rate then in effect); and (iii) on
the date due pursuant to the provisions of Section 4.2 hereof, the bonus for the
then current Bonus Year, without proration. All other benefits provided for in
Sections 4.3, 4.4, 4.5 and Section 4.9 shall be continued at the expense of
Employer for the longer of the balance of the unexpired portion of the
Employment Period (assuming no termination) and twelve months from date of
termination.
6.2 Certain Other Terminations. If the Employment Period is terminated
by Employer pursuant to the provisions of Section 5.2, or by death, pursuant to
the provisions of Section 5.5, Employer shall pay to Executive, within thirty
(30) days of the date of termination, Executive's Base Salary through the date
of termination. Provided the date of termination is after the end of a calendar
year for which a Bonus is payable, but prior to the date of payment, Employer
shall also pay to Executive, when due pursuant to provisions of Section 4.2
hereof, the Bonus for the Bonus Year in which the date of termination occurred.
Employer shall have no obligation to continue any other benefits provided for in
Section 4 past the date of termination.
6.3 Termination for Disability. If the Employment Period is terminated
by Employer pursuant to the provisions of Section 5.4, Employer shall make all
payments and continue all benefits for the period specified in Section 6.1;
provided, however, that such payment shall be reduced by any amounts actually
paid to Executive pursuant to any disability insurance or other such similar
program maintained by Employer, including amounts paid pursuant to any long-term
disability policy purchased pursuant to Section 4.5 hereof.
6.4 No Other Termination Compensation. Executive shall not, except as
set forth in this Section 6, be entitled to any compensation following
termination of the Employment Period.
6.5 Mitigation; Offset. Executive shall not be required to mitigate the
amount of any payments or benefits provided for hereunder upon termination of
the Employment Period by seeking employment with any other person, or otherwise,
nor shall the amount of any such payments or benefits be reduced by any
compensation, benefit or other amount earned by,
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<PAGE> 6
accrued for or paid to Executive as the result of Executive's employment by or
consultancy or other association with any other person or entity, provided, that
any medical, dental or hospitalization insurance or benefits provided to
Executive in connection with his employment by or consultancy with any person or
entity unaffiliated with the Employer during such period shall be primary to the
benefits to be provided to Executive pursuant to this Agreement for the purposes
of coordination of benefits. Notwithstanding the foregoing, if Executive elects
to be covered by the insurance or benefits provided by an entity or person
unaffiliated with the Employer, Executive agrees that Employer may terminate any
insurance or benefits provided to the Executive. The Employer's obligation to
pay termination compensation pursuant to this Section 6 shall not be reduced by
any amount owed by Executive to the Employer.
7. INDEMNIFICATION
7.1 General. The Employer shall indemnify the Executive to the fullest
extent permitted by law in effect as of the date hereof against all costs,
expenses, liabilities and losses (including, without limitation, attorneys'
fees, judgments, fines, penalties, ERISA excise taxes, penalties and amounts
paid in settlement) reasonably incurred by the Executive in connection with a
Proceeding. For the purposes of this Section, a "Proceeding" shall mean any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, in which the Executive is made, or is threatened to be made, a
party to, or a witness in, such action, suit or proceeding by reason of the fact
that he is or was an officer, director or employee of the Employer or is or was
serving as an officer, director, member, employee, trustee or agent of any other
entity at the request of the Employer.
7.2 Costs and Expenses. The Employer shall advance to the Executive all
reasonable costs and expenses incurred by him in connection with a Proceeding
within 20 days after receipt by the Employer of a written request for such
advance. Such request shall include an itemized list of the costs and expenses
and an undertaking by the Executive to repay the amount of such advance if it
shall ultimately be determined that he is not entitled to be indemnified against
such costs and expenses. Notwithstanding anything herein to the contrary, to the
extent that Executive has served on behalf of the Employer as a witness or other
participant in any Proceeding, or has been successful, on the merits or
otherwise, in defense of any Proceeding, including but not limited to, the
dismissal of any Proceeding without prejudice, Executive shall be indemnified
against all costs, charges and expenses (including attorney's fees) actually
incurred by Executive in connection therewith.
7.3 Standard of Conduct. The Executive shall not be entitled to
indemnification under this Section unless he meets the standard of conduct
specified in the Delaware General Corporation Law. Notwithstanding the
foregoing, to the extent permitted by law, neither Section 145(d) of the
Delaware General Corporation Law nor any similar provision shall apply to
indemnification under this Section, so that if the Executive in fact meets the
applicable standard of conduct, he shall be entitled to such indemnification
whether or not the Employer (whether by the Board of Directors, the
shareholders, independent legal counsel or other party) determines that
indemnification is proper because he has met such applicable standard of
conduct. Neither the failure of the Employer to have made such a determination
prior to the
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<PAGE> 7
commencement by the Executive of any suit or arbitration proceeding seeking
indemnification, nor a determination by the Employer that he has not met such
applicable standard of conduct, shall create a presumption that he has not met
the applicable standard of conduct.
7.4 Settlement. The Employer shall not settle any Proceeding or claim
in any manner which would impose on the Executive any penalty or limitation
without his prior written consent. Neither the Employer nor the Executive will
unreasonably withhold its or his consent to any proposed settlement. The
Employer shall not be liable to indemnify the Executive under this Agreement for
any amounts paid in settlement of any action or claim effected without its
written consent.
7.5 Notification and Defense of Claim. Promptly after receipt by the
Executive of notice of the commencement of any Proceeding, the Executive will,
if a claim in respect thereof is to be made against the Employer under this
Agreement, notify the Employer in writing of the commencement thereof; but the
omission to so notify the Employer will not relieve the Employer from any
liability that it may have to the Executive otherwise than under this Agreement.
Notwithstanding any other provision of this Agreement, with respect to any such
Proceeding as to which the Executive gives notice to the Employer of the
commencement thereof:
(i) The Employer will be entitled to participate therein at
its own expense; and
(ii) Except as otherwise provided in this Section 7.5(ii) to
the extent that it may wish, the Employer, jointly with any other indemnifying
party similarly notified, shall be entitled to assume the defense thereof, with
counsel satisfactory to the Executive. After notice from the Employer to the
Executive of its election to so assume the defense thereof, the Employer shall
not be liable to the Executive under this Agreement for any legal or other
expenses subsequently incurred by the Executive in connection with the defense
thereof other than reasonable costs of investigation or as otherwise provided
below. The Executive shall have the right to employ the Executive's own counsel
in such Proceeding, but the fees and expenses of such counsel incurred after
notice from the Employer of its assumption of the defense thereof shall be at
the expense of the Executive unless (a) the employment of counsel by the
Executive has been authorized by the Employer, (b) the Executive shall have
reasonably concluded that there may be a conflict of interest between the
Employer and the Executive in the conduct of the defense of such Proceeding
(which conclusion shall be deemed reasonable if, without limitation, such action
shall seek any remedy other than money damages and the Executive would be
personally affected by such remedy or the carrying out thereof), or (c) the
Employer shall not in fact have employed counsel to assume the defense of the
Proceeding, in each of which cases the fees and expenses of counsel shall be at
the expense of the Employer. The Employer shall not be entitled to assume the
defense of any Proceeding brought against the Executive by or on behalf of the
Employer or as to which the Executive shall have reached the conclusion provided
for in clause (b) above.
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8. CONFIDENTIALITY
Unless otherwise required by law or judicial process, Executive shall
retain in confidence after termination of Executive's employment with Employer
pursuant to this Agreement all confidential information known to the Executive
concerning the Employer and its businesses for the shorter of one (1) year
following such termination or until such information is publicly disclosed by
the Employer or otherwise becomes publicly disclosed other than through
Executive's actions.
9. SUCCESSORS; BINDING AGREEMENT
(a) The Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Employer, by agreement, in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Employer would be required to perform if no such succession had taken place.
Failure of the Employer to obtain such assumption and agreement prior to the
effectiveness of any such succession will be a breach of this Agreement and
entitle the Executive to compensation from the Employer in the same amount and
on the same terms as the Executive would be entitled to hereunder had the
Employer terminated the Executive without Cause pursuant to the provisions of
Section 5.1 hereof on the succession date (and assuming a Change in Control of
the Employer had occurred prior to such succession date). As used in this
Agreement, "the Employer" means the Employer as defined in the preamble to this
Agreement and any successor to its business or assets which executes and
delivers the agreement provided for in this Section 9 or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law or
otherwise.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by Executive and Executive's personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die while any amounts
would still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Executive's devisee, legatee, or other beneficiary
or, if there be no such beneficiary, to Executive's estate.
10. SURVIVORSHIP
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
11. MISCELLANEOUS
11.1 Notices. Any notice, consent or authorization required or
permitted to be given pursuant to this Agreement shall be in writing and sent to
the party for or to whom intended, at the address of such party set forth below,
by registered or certified mail, postage paid (deemed given five days after
deposit in the U.S. mails) or personally or by facsimile transmission (deemed
-8-
<PAGE> 9
given upon receipt), or at such other address as either party shall designate by
notice given to the other in the manner provided herein.
If to Employer: Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, NJ 07007-2700
Attn.: Secretary
If to Executive: Mr. David A. Simon
Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, NJ 07007-2700
11.2 Legal Fees. Employer shall promptly reimburse the Executive for
the reasonable legal fees and expenses incurred by Executive in connection with
enforcement of Executive's rights hereunder.
11.3 Taxes. Employer is authorized to withhold (from any compensation
or benefits payable hereunder to Executive) such amounts for income tax, social
security, unemployment compensation and other taxes as shall be necessary or
appropriate in the reasonable judgment of Employer to comply with applicable
laws and regulations.
11.4 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New Jersey applicable
to agreements made and to be performed therein.
11.5 Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Fairfield, New Jersey in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitration award in
any court having jurisdiction; provided, however, that Executive shall be
entitled to seek specific performance of his right to be paid until expiration
of the Employment Period during the pendency of any arbitration.
11.6 Headings. All descriptive headings in this Agreement are inserted
for convenience only and shall be disregarded in construing or applying any
provision of this Agreement.
11.7 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
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<PAGE> 10
11.8 Severability. If any provision of this Agreement, or any part
thereof, is held to be unenforceable, the remainder of such provision and this
Agreement, as the case may be, shall nevertheless remain in full force and
effect.
11.9 Entire Agreement and Representation. This Agreement contains the
entire agreement and understanding between Employer and Executive with respect
to the subject matter hereof. No representations or warranties of any kind or
nature relating to Employer or its several businesses, or relating to Employer's
assets, liabilities, operations, future plans or prospects have been made by or
on behalf of Employer to Executive. This Agreement supersedes any prior
agreement between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PRIME HOSPITALITY CORP.
By: /s/ David A. Simon
---------------------------
David A. Simon
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<PAGE> 1
EXECUTION VERSION
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of February 20,
1998, between John M. Elwood ("Executive") and Prime Hospitality Corp., a
Delaware corporation ("Employer").
In consideration of the premises and the mutual covenants
hereinafter set forth and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto hereby
agree as follows:
1. Employment of Executive
Employer hereby agrees to employ Executive, and Executive hereby
agrees to be and remain in the employ of Employer, upon the terms and
conditions hereinafter set forth.
2. Employment Period
Subject to earlier termination as provided in section 5, the term of
Executive's employment under this Agreement (the "Employment Period") shall
commence as of the date hereof and shall continue for a period of three (3)
years. Either party may terminate this Agreement at the end of three (3) years
or this Agreement may be renewed on a day to day basis pending the negotiation
of a new agreement.
3. Duties and Responsibilities
3.1 General. During the Employment Period, Executive (i) shall have
the titles of Executive Vice President and Chief Financial Officer of Employer
and (ii) shall devote substantially all of his business time and expend his
best efforts, energies and skills to the business of Employer.
Executive shall perform such duties, consistent with his status as
Executive Vice President and Chief Financial Officer of Employer, as he may be
assigned from time to time by Employer's Chief Executive Officer.
4. Compensation and Related Matters
4.1 Base Salary. For each twelve-month period of the Employment
Period, commencing with the twelve-month period beginning on the date of this
Agreement (each such period, an "Employment Year"), Employer shall pay to
Executive a base salary (the "Base Salary") equal to $310,000. The Base Salary
for each Employment Year shall be payable in equal weekly installments.
<PAGE> 2
4.2 Annual Bonus. For each calendar year (the "Bonus Year"), at the
discretion of the Employer's Board of Directors (the "Board"), Executive may
receive a cash bonus ("Bonus") based upon attainment of annual performance
objectives to be reasonably established by the Chief Executive Officer and
approved by the Board for the Bonus Year in consultation with Executive, such
performance objectives to be established as soon as possible following the
beginning of the Bonus Year. The Bonus earned for the Bonus Year shall be
payable promptly following the determination thereof, on the earlier of (i)
fifteen (15) days after the members of the Board have received the audited
financial statements for the Bonus Year, or (ii) the next meeting of the Board.
The Bonus Year 1998 will be deemed to commence on January 1. To the extent
specifically provided in Section 6 hereof, the Bonus payable for the Bonus Year
in which the Employment Period terminates shall equal the Bonus that would have
been paid had the Employment Period not so terminated, multiplied by a
fraction, the numerator of which shall be the number of days of the Employment
Period within the Bonus Year and the denominator of which shall be 365.
4.3 Life Insurance. Employer shall maintain in effect at all times
during the Employment Period, at Employer's expense, a policy of term insurance
on the life of Executive in the amount equal to $1,000,000 naming such person
as Executive shall designate from time to time as the owner and beneficiary
thereof. Executive agrees that Employer shall have the right to obtain other
life insurance on Executive's life, at Employer's sole expense and with
Employer or an affiliate thereof as the sole beneficiary thereof. Executive
shall (i) cooperate fully with Employer in obtaining all such insurance, (ii)
sign any necessary consents, applications and other related forms or documents,
and (iii) take any required medical examinations.
4.4 Automobile. Employer shall provide Executive with the use of a
vehicle at Employer's expense. Executive will be entitled to continue to use
that automobile for the term of this Agreement. Employer shall be responsible
for all expenses of use, maintenance and operation of that vehicle, except if
Executive's operation of the vehicle causes penalty insurance rates, in which
case Executive will bear such costs.
4.5 Other Benefits. During the Employment Period, subject to, and to
the extent Executive is eligible under their respective terms, Executive shall
be entitled to receive such fringe benefits as are, or are from time to time
hereafter generally provided by Employer to Employer's senior management
employees or other employees (other than those provided under or pursuant to
separately negotiated individual employment agreements or arrangements) under
any pension or retirement plan, disability plan or insurance, group life
insurance, medical and dental insurance, travel accident insurance, phantom
stock or other similar plan or program of Employer. Executive's Base Salary
shall (where applicable) constitute the compensation on the basis of which the
amount of Executive's benefits under any such plan or program shall be fixed
and determined.
<PAGE> 3
4.6 Expense Reimbursement. Employer shall reimburse Executive for
all business expenses reasonably incurred by him in the performance of his
duties under this Agreement upon his presentation of signed, itemized accounts
of such expenditures, all in accordance with Employer's procedures and policies
as adopted and in effect from time to time and applicable to its senior
management employees.
4.7 Vacations. Executive shall be entitled to 20 days vacation for
each calendar year during the Employment Period with reasonable one year
carry-over allowances, which vacations shall be taken at such time or times as
shall not unreasonably interfere with Executive's performance of his duties
under this Agreement.
4.8 Stock Options. On February 20, 1998, the Compensation Committee
of the Board granted to Executive, subject to stockholder approval of an
amendment to the Employer's 1995 Employee Stock Option Plan (the "Plan") at the
1998 Annual Meeting of Stockholders, increasing the maximum number of options
that can be granted to one person during a single year, a stock option (the
"Option") to purchase 240,000 shares of Common Stock of the Employer (the
"Common Stock"), having a term of ten years. The Option shall vest and become
exercisable as to one-third of the shares of common stock covered by the Option
on and after February 20, 1999, as to an additional one-third of the shares of
common stock on and after February 20, 2000 and as to an additional one-third
of the shares of common stock on and after February 20, 2001. The exercise
price shall be the Fair Market Value of the Employer's shares as defined in
the Plan on February 20, 1998. Except as otherwise set forth herein, the terms
of the Option shall be as set forth in the Plan and the Option Agreement.
4.9 Tax Gross-up. To the extent that payments made by Employer to or
on behalf of Executive pursuant to the provisions of Sections 4.3 and 4.4
hereof are subject to federal, state or local income or payroll taxes, Employer
shall pay to Executive, not later than forty-five (45) days after the end of
the calendar year for which such payments are includable in Executive's gross
income, the amount of such additional taxes, calculated by assuming application
of the highest applicable tax rates, plus such additional amount as shall be
necessary to hold harmless Executive, as nearly as practicable, from the
obligation to pay such taxes in respect of amounts payable pursuant to this
Section 4.9.
5. Termination of Employment Period
5.1 Termination Without Cause; Voluntary Termination by Executive.
Employer may, by notice to Executive at any time during the Employment Period,
terminate the Employment Period without cause. The effective date of such
termination of the Executive from the Employer shall be the date that is thirty
(30) days following the date on which such notice is given. Executive may, by
notice to Employer at any time during the Employment Period, voluntarily resign
from the Employer and terminate the Employment Period. The effective date of
such termination of the Executive from the Employer shall be the date that is
thirty (30) days following the date on which such notice is given.
<PAGE> 4
5.2 By Employer for Cause. Employer may, at any time during the
Employment Period by notice to Executive (but only after compliance with the
procedure hereinafter set forth in this Section 5.2 in the event of the cause
specified in clause (ii) below), terminate the Employment Period "for cause"
effective on the later of the giving of such notice or upon the determination by
the Board following notice, if applicable. Such notice shall specify the conduct
which is the basis for termination for cause in reasonable detail. For the
purposes hereof, "for cause" means:
(i) the conviction of Executive in a court of competent
jurisdiction of a crime constituting a felony in such jurisdiction involving
money or other property of the Employer or any of its affiliates or any other
felony (whether or not involving money or other property of the Employer)
involving moral turpitude; or
(ii) the willful engaging in misconduct that is materially
injurious to Employer, monetarily or otherwise. For the purposes hereof, (a) no
act, or failure to act, on Executive's part shall be considered "willful"
unless done, or omitted to be done, by Executive not in good faith and without
reasonable belief that such action or omission was in or not opposed to the
best interests of Employer and (b) no failure to achieve performance targets
shall be considered a willful act of misconduct.
Termination "for cause" pursuant to clause (ii) of the preceding
sentence shall be effected only if (i) Employer has delivered to Executive a
copy of a notice of termination that complies with the foregoing paragraph and
that gives Executive, on at least fifteen (15) business days' prior notice, the
opportunity, together with Executive's counsel, to be heard before Employer's
Board, and (ii) the Board (after such notice and opportunity to be heard),
adopts a resolution that in the good faith opinion of the Board Executive was
guilty of conduct set forth in clause (ii) of the preceding sentence, and
specifying the particulars thereof in reasonable detail.
5.3 By Executive for Good Reason. Executive may, at any time during
the Employment Period by notice to Employer, terminate the Employment Period
under this Agreement "for good reason" effective immediately. For the purposes
hereof, "good reason" means any material breach by Employer of any provision of
this Agreement. Without limiting the generality of the foregoing, each of the
following shall be deemed to be "good reason": (i) a failure by the Employer to
comply with any provision of this Agreement which has not been cured within ten
(10) days after notice of such noncompliance has been given by Executive to the
Employer, (ii) the assignment to Executive by Employer of duties inconsistent
with Executive's position, responsibilities or status with Employer as in
effect on the date of this Agreement including, but not limited to, any
reduction whatsoever in such position, duties, responsibilities or status, any
change in Executive's titles, offices or perquisites, as then in effect, or any
removal of Executive from, or any failure to re-elect Executive to, any of such
positions (except for Executive's election to the Board), except in connection
with the termination of his employment on account of his death, disability, or
for cause, (iii) any failure to pay (or any reduction in) compensation
(including benefits) paid or payable to Executive pursuant to the provisions of
Section 4 hereof, (iv) any purported termination of Executive's employment for
cause which is not effected in accordance with the requirements of Section 5.2
hereof (and for purposes of this Agreement no such purported termination shall
be effective) or (v) the failure of the Employer to obtain the assumption of
its obligation to perform this Agreement by any successor to all or
substantially all of the assets of the Employer as set forth in Section 9
herein.
<PAGE> 5
5.4 Disability. During the Employment Period, if, as a result of
physical or mental incapacity or infirmity, Executive shall be unable to
perform his duties under this Agreement for (i) a continuous period of at least
180 days, or (ii) periods aggregating at least 270 days during any period of 12
consecutive months (each a "Disability Period"), and at the end of the
Disability Period there is no reasonable probability that Executive can
promptly resume his duties hereunder, Executive shall be deemed disabled (the
"Disability") and Employer, by notice to Executive, shall have the right to
terminate the Employment Period for Disability at, as of or after the end of
the Disability Period. The existence of the Disability shall be determined by a
reputable, licensed physician mutually selected by Employer and Executive,
whose determination shall be final and binding on the parties. Executive shall
cooperate in all reasonable respects to enable an examination to be made by
such physician. Notwithstanding the foregoing, Employer may conclusively
determine Executive to be disabled at any time after the end of the Disability
Period if Executive has then commenced receiving benefits under the long-term
disability insurance policy obtained pursuant to Section 4.5 hereof.
5.5 Death. The Employment Period shall end on the date of
Executive's death.
6. Termination Compensation
6.1 Termination Without Cause by Employer or for Good Reason by
Executive. If the Employment Period is terminated by Employer pursuant to the
provisions of Section 5.1 hereof or by Executive pursuant to the provisions of
Section 5.3 hereof, Employer will pay to Executive (i) Executive's Base Salary
through the date of termination, (ii) within five (5) days following the date
of termination in one lump sum an amount equal to the greater of the (a) Base
Salary multiplied by the number of full and partial years then remaining in the
Employment Period (assuming no termination) and (b) one year's Base Salary
(calculated in each case at the Base Salary rate then in effect); and (iii) on
the date due pursuant to the provisions of Section 4.2 hereof, the bonus for
the then current Bonus Year, without proration. All other benefits provided for
in Sections 4.3, 4.4, 4.5 and Section 4.9 shall be continued at the expense of
Employer for the longer of the balance of the unexpired of the Employment
Period (assuming no termination) and twelve months from the date of
termination.
<PAGE> 6
6.2 Certain Other Terminations. If the Employment Period is
terminated by Employer pursuant to the provisions of Section 5.2, or by death,
pursuant to the provisions of Section 5.5, Employer shall pay to Executive,
within thirty (30) days of the date of termination, Executive's Base Salary
through the date of termination. Provided the date of termination is after the
end of a calendar year for which a Bonus is payable, but prior to the date of
payment, Employer shall also pay to Executive, when due pursuant to provisions
of Section 4.2 hereof, the Bonus for the Bonus Year in which the date of
termination occurred. Employer shall have no obligation to continue any other
benefits provided for in Section 4 past the date of termination.
6.3 Termination for Disability. If the Employment Period is
terminated by Employer pursuant to the provisions of Section 5.4, Employer
shall make all payments and continue all benefits for the period specified in
Section 6.1; provided, however, that such payment shall be reduced by any
amounts actually paid to Executive pursuant to any disability insurance or
other such similar program maintained by Employer, including amounts paid
pursuant to any long-term disability policy purchased pursuant to Section 4.5
hereof.
6.4 No Other Termination Compensation. Executive shall not, except
as set forth in this Section 6, be entitled to any compensation following
termination of the Employment Period.
6.5 Mitigation; Offset. Executive shall not be required to mitigate
the amount of any payments or benefits provided for hereunder upon termination
of the Employment Period by seeking employment with any other person, or
otherwise, nor shall the amount of any such payments or benefits be reduced by
any compensation, benefit or other amount earned by, accrued for or paid to
Executive as the result of Executive's employment by or consultancy or other
association with any other person or entity, provided, that any medical, dental
or hospitalization insurance or benefits provided to Executive in connection
with his employment by or consultancy with any person or entity unaffiliated
with the Employer during such period shall be primary to the benefits to be
provided to Executive pursuant to this Agreement for the purposes of
coordination of benefits. Notwithstanding the foregoing, if Executive elects to
be covered by the insurance or benefits provided by an entity or person
unaffiliated with the Employer, Executive agrees that Employer may terminate
any insurance or benefits provided to the Executive. The Employer's obligation
to pay termination compensation pursuant to this Section 6 shall not be
reduced by any amount owed by Executive to the Employer.
<PAGE> 7
7. Indemnification
7.1 General. The Employer shall indemnify the Executive to the
fullest extent permitted by law in effect as of the date hereof against all
costs, expenses, liabilities and losses (including, without limitation,
attorneys' fees, judgments, fines, penalties, ERISA excise taxes, penalties and
amounts paid in settlement) reasonably incurred by the Executive in connection
with a Proceeding. For the purposes of this Section, a "Proceeding" shall mean
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, in which the Executive is made, or is threatened to be made, a
party to, or a witness in, such action, suit or proceeding by reason of the
fact that he is or was an officer, director or employee of the Employer or is
or was serving as an officer, director, member, employee, trustee or agent of
any other entity at the request of the Employer.
7.2 Costs and Expenses. The Employer shall advance to the Executive
all reasonable costs and expenses incurred by him in connection with a
Proceeding within 20 days after receipt by the Employer of a written request
for such advance. Such request shall include an itemized list of the costs and
expenses and an undertaking by the Executive to repay the amount of such
advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses. Notwithstanding anything herein to
the contrary, to the extent that Executive has served on behalf of the Employer
as a witness or other participant in any Proceeding, or has been successful,
on the merits or otherwise, in defense of any Proceeding, including but not
limited to, the dismissal of any Proceeding without prejudice, Executive shall
be indemnified against all costs, charges and expenses (including attorney's
fees) actually incurred by Executive in connection therewith.
7.3 Standard of Conduct. The Executive shall not be entitled to
indemnification under this Section unless he meets the standard of conduct
specified in the Delaware General Corporation Law. Notwithstanding the
foregoing, to the extent permitted by law, neither Section 145(d) of the
Delaware General Corporation Law nor any similar provision shall apply to
indemnification under this Section, so that if the Executive in fact meets the
applicable standard of conduct, he shall be entitled to such indemnification
whether or not the Employer (whether by the Board of Directors, the
shareholders, independent legal counsel or other party) determines that
indemnification is proper because he has met such applicable standard of
conduct. Neither the failure of the Employer to have made such a determination
prior to the commencement by the Executive of any suit or arbitration
proceeding seeking indemnification, nor a determination by the Employer that he
has not met such applicable standard of conduct, shall create a presumption
that he has not met the applicable standard of conduct.
<PAGE> 8
7.4 Settlement. The Employer shall not settle any Proceeding or
claim in any manner which would impose on the Executive any penalty or
limitation without his prior written consent. Neither the Employer nor the
Executive will unreasonably withhold its or his consent to any proposed
settlement. The Employer shall not be liable to indemnify the Executive under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent.
7.5 Notification and Defense of Claim. Promptly after receipt by the
Executive of notice of the commencement of any Proceeding, the Executive will,
if a claim in respect thereof is to be made against the Employer under this
Agreement, notify the Employer in writing of the commencement thereof; but the
omission to so notify the Employer will not relieve the Employer from any
liability that it may have to the Executive otherwise than under this
Agreement. Notwithstanding any other provision of this Agreement, with respect
to any such Proceeding as to which the Executive gives notice to the Employer
of the commencement thereof:
(i) The Employer will be entitled to participate therein at its
own expense; and
(ii) Except as otherwise provided in this Section 7.5(ii) to the
extent that it may wish, the Employer, jointly with any other indemnifying
party similarly notified, shall be entitled to assume the defense thereof, with
counsel satisfactory to the Executive. After notice from the Employer to the
Executive of its election to so assume the defense thereof, the Employer shall
not be liable to the Executive under this Agreement for any legal or other
expenses subsequently incurred by the Executive in connection with the defense
thereof other than reasonable costs of investigation or as otherwise provided
below. The Executive shall have the right to employ the Executive's own counsel
in such Proceeding, but the fees and expenses of such counsel incurred after
notice from the Employer of its assumption of the defense thereof shall be at
the expense of the Executive unless (a) the employment of counsel by the
Executive has been authorized by the Employer, (b) the Executive shall have
reasonably concluded that there may be a conflict of interest between the
Employer and the Executive in the conduct of the defense of such Proceeding
(which conclusion shall be deemed reasonable if, without limitation, such
action shall seek any remedy other than money damages and the Executive would
be personally affected by such remedy or the carrying out thereof), or (c) the
Employer shall not in fact have employed counsel to assume the defense of the
Proceeding, in each of which cases the fees and expenses of counsel shall be at
the expense of the Employer. The Employer shall not be entitled to assume the
defense of any Proceeding brought against the Executive by or on behalf of the
Employer or as to which the Executive shall have reached the conclusion
provided for in clause (b) above.
<PAGE> 9
8. Confidentiality
Unless otherwise required by law or judicial process, Executive shall
retain in confidence after termination of Executive's employment with Employer
pursuant to this Agreement all confidential information known to the Executive
concerning the Employer and its businesses for the shorter of one (1) year
following such termination or until such information is publicly disclosed by
the Employer or otherwise becomes publicly disclosed other than through
Executive's actions.
9. Successors; Binding Agreement
(a) The Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Employer, by agreement, in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Employer would be required to perform if no such succession had taken place.
Failure of the Employer to obtain such assumption and agreement prior to the
effectiveness of any such succession will be a breach of this Agreement and
entitle the Executive to compensation from the Employer in the same amount and
on the same terms as the Executive would be entitled to hereunder had the
Employer terminated the Executive without Cause pursuant to the provisions of
Section 5.1 hereof on the succession date (and assuming a Change in Control of
the Employer had occurred prior to such succession date). As used in this
Agreement, "the Employer" means the Employer as defined in the preamble to this
Agreement and any successor to its business or assets which executes and
delivers the agreement provided for in this Section 9 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law or otherwise.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by Executive and Executive's
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Executive should die while any
amounts would still be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee, or other
beneficiary or, if there be no such beneficiary, to Executive's estate.
10. Survivorship
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
<PAGE> 10
11. Miscellaneous
11.1 Notices. Any notice, consent or authorization required or
permitted to be given pursuant to this Agreement shall be in writing and sent
to the party for or to whom intended, at the address of such party set forth
below, by registered or certified mail, postage paid (deemed given five days
after deposit in the U.S. mails) or personally or by facsimile transmission
(deemed given upon receipt), or at such other address as either party shall
designate by notice given to the other in the manner provided herein.
If to Employer: Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, NJ 07007-2700
Attn.: Secretary
If to Executive: Mr. John M. Elwood
Prime Hospitality Corp.
700 Route 46 East
P.O. Box 2700
Fairfield, NJ 07007-2700
11.2 Legal Fees. Employer shall promptly reimburse the Executive for
the reasonable legal fees and expenses incurred by Executive in connection with
enforcement of Executive's rights hereunder.
11.3 Taxes. Employer is authorized to withhold (from any compensation
or benefits payable hereunder to Executive) such amounts for income tax, social
security, unemployment compensation and other taxes as shall be necessary or
appropriate in the reasonable judgment of Employer to comply with applicable
laws and regulations.
11.4 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New Jersey applicable
to agreements made and to be performed therein.
11.5 Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Fairfield, New Jersey in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitration award in
any court having jurisdiction; provided, however, that Executive shall be
entitled to seek specific performance of his right to be paid until expiration
of the Employment Period during the pendency of any arbitration.
<PAGE> 11
11.6 Headings. All descriptive headings in this Agreement are
inserted for convenience only and shall be disregarded in construing or
applying any provision of this Agreement.
11.7 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
11.8 Severability. If any provision of this Agreement, or any part
thereof, is held to be unenforceable, the remainder of such provision and this
Agreement, as the case may be, shall nevertheless remain in full force and
effect.
11.9 Entire Agreement and Representation. This Agreement contains the
entire agreement and understanding between Employer and Executive with respect
to the subject matter hereof. No representations or warranties of any kind or
nature relating to Employer or its several businesses, or relating to
Employer's assets, liabilities, operations, future plans or prospects have been
made by or on behalf of Employer to Executive. This Agreement supersedes any
prior agreement between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PRIME HOSPITALITY CORP.
By: /s/ John M. Elwood
-------------------
John M. Elwood
<PAGE> 1
COMPUTATION OF EARNINGS PER COMMON SHARE Exhibit 11
(Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
------- -------
<S> <C> <C>
BASIC EARNINGS
Income before extraordinary items ........... $ 8,202 $10,291
Extraordinary items ......................... 22 --
------- -------
Net earnings ......................... $ 8,224 $10,291
======= =======
Shares:
Weighted average number of common
shares outstanding ................... 46,387 46,867
======= =======
Basic earnings per common share:
Income before extraordinary items ...... $ 0.18 $ 0.22
Extraordinary items .................... -- --
------- -------
Net earnings ......................... $ 0.18 $ 0.22
======= =======
DILUTED EARNINGS
Income before extraordinary items ........... $ 8,202 $10,291
Assumed conversion of convertible debt ...... 996 996
------- -------
Income before extraordinary items as adjusted $ 9,198 $11,287
Extraordinary items ......................... 22 --
------- -------
Net earnings as adjusted ............. $ 9,220 $11,287
======= =======
Shares:
Weighted average number of common
shares outstanding ................... 46,387 46,867
Options and warrants issued ............ 1,848 1,362
Assumed conversion of convertible debt . 7,188 7,188
------- -------
Weighted average number of common
shares outstanding as adjusted ....... 55,423 55,417
======= =======
Diluted earnings per common share:
Income before extraordinary items ...... $ 0.17 $ 0.20
Extraordinary items .................... -- --
------- -------
Net earnings ......................... $ 0.17 $ 0.20
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 35,098
<SECURITIES> 23,664
<RECEIVABLES> 21,167
<ALLOWANCES> 415
<INVENTORY> 0
<CURRENT-ASSETS> 110,622
<PP&E> 1,168,307
<DEPRECIATION> 67,427
<TOTAL-ASSETS> 1,271,156
<CURRENT-LIABILITIES> 81,888
<BONDS> 569,266
0
0
<COMMON> 473
<OTHER-SE> 527,597
<TOTAL-LIABILITY-AND-EQUITY> 1,271,156
<SALES> 103,288
<TOTAL-REVENUES> 103,288
<CGS> 0
<TOTAL-COSTS> 82,163
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,787
<INCOME-PRETAX> 16,599
<INCOME-TAX> 6,308
<INCOME-CONTINUING> 10,291
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,291
<EPS-PRIMARY> .22
<EPS-DILUTED> .20
</TABLE>
