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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-6869
------------------------
PRIME HOSPITALITY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-2640625
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
700 ROUTE 46 EAST,
FAIRFIELD, NEW JERSEY 07004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 882-1010
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Par Value $.01 Per Share, Common Stock New York Stock Exchange
9 1/4% First Mortgage Notes due 2006 New York Stock Exchange
</TABLE>
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's common stock held by
non-affiliates on March 15, 1999 based on the last sale price as reported by the
National Quotation Bureau, Inc. on that date was approximately $537,813,759.
The Registrant had 51,220,358 shares of Common Stock outstanding as of
March 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 1999 annual meeting of
shareholders are incorporated by reference into Part III of this report.
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<PAGE> 2
References in this report to the "Company" or "Prime" are to Prime
Hospitality Corp. and its subsidiaries. EBITDA represents earnings before
extraordinary items, interest expense, provision for income taxes and
depreciation and amortization and excludes interest income on cash investments
and other income. EBITDA is used by the Company for the purpose of analyzing its
operating performance, leverage and liquidity. Hotel EBITDA represents EBITDA
generated from the operations of owned hotels. Hotel EBITDA excludes management
fee income, interest income from mortgages and notes receivable, general and
administrative expenses and other revenues and expenses which do not directly
relate to operations of owned hotels. EBITDA and Hotel EBITDA are not measures
of financial performance under generally accepted accounting principles and
should not be considered as alternatives to net income as an indicator of the
Company's operating performance or as alternatives to cash flows as a measure of
liquidity. Unless otherwise indicated, industry data is based on reports of
Smith Travel Research.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
Prime is an owner, manager and franchisor of hotels, with 193 hotels in
operation containing 26,015 rooms located in 32 states and the U.S. Virgin
Islands (the "Portfolio") as of February 28, 1999. Prime controls three
high-quality hotel brands -- AmeriSuites(R), HomeGate Studios & Suites(R) and
Wellesley Inns(R) -- as well as a portfolio of upscale, full-service hotels
operated under franchise agreements with national hotel chains. As of February
28, 1999, the Company owned and operated 153 hotels (the "Owned Hotels"),
operated 28 hotels under lease agreements with real estate investment trusts
(the "Leased Hotels"), managed 10 hotels for third parties (the "Managed
Hotels") and franchised two hotels which it does not operate (the "Franchised
Hotels"). Prime's portfolio consists primarily of new, well-maintained hotels,
with an average age of approximately 6.5 years.
The Company's strategy is to develop proprietary brands in growing market
segments. Reflecting this strategy, the majority of the Company's capital
spending over the past three years was dedicated to the growth of its
proprietary brands. In particular, the Company has aggressively expanded its
AmeriSuites brand which has grown from 21 hotels at February 28, 1996, to 94
hotels at February 28, 1999. The Company seeks to further expand its brands
through franchising which commenced in 1998. Through the development of its
proprietary brands, the Company has positioned itself to generate additional
revenues with minimal capital investment. The Company's growth is also focused
on its hotel management abilities which the Company believes enables it to
maximize the value of its brands and assets.
Over the past three years, Prime has achieved rapid growth in the
Portfolio, from 13,733 rooms at February 29, 1996 to 26,015 rooms at February
28, 1999. Prime's focus on brand development has resulted in the growth of the
number of hotels operated under Prime's proprietary brands from 49 hotels at
February 29, 1996 to 160 hotels at February 28, 1999. At the same time, the
Company's EBITDA has grown at a compound annual rate of 18.6%, from $88.8
million in 1996 to $148.3 million in 1998, while recurring net income has grown
at a compound annual rate of 23.6%, from $28.3 million to $53.4 million over the
same period.
Prime's hotels serve four major lodging industry segments: the all-suites
segment, under Prime's AmeriSuites brand; the extended-stay segment, under
Prime's HomeGate brand; the limited-service segment, primarily under Prime's
Wellesley Inns brand and the full-service segment, under major national
franchises.
All-Suites: There are 94 all-suite hotels in operation under the
AmeriSuites brand name. Prime operates 92 of these hotels and franchises the
operation of the remaining two hotels. Prime currently has three AmeriSuites
under construction, six land sites targeted for AmeriSuites development and 10
AmeriSuites to be developed pursuant to franchise agreements. AmeriSuites are
upscale, all-suite hotels containing approximately 128 suites and located
primarily near suburban commercial centers, corporate office parks and other
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travel destinations, with close proximity to dining, shopping and entertainment
amenities. In 1998, AmeriSuites contributed approximately $71.7 million, or
50.5%, of the Company's Hotel EBITDA.
Extended-Stay: Through its December 1997 merger with Homegate Hospitality,
Inc., Prime owns and operates extended-stay hotels under its proprietary
HomeGate Studios & Suites brand name. There are 38 HomeGate hotels in operation
and another six hotels under construction. HomeGates are mid-price,
extended-stay hotels typically containing between 120-140 suites with fully
equipped kitchens, upscale furnishings and separation between cooking, living
and sleeping areas. In 1998, the HomeGate hotels contributed $10.4 million, or
7.3%, of the Company's Hotel EBITDA reflecting the start-up nature of the brand.
The Company expects this percentage to increase in 1999 as the new hotels
achieve stabilization.
Limited-Service: Prime operates 33 limited-service hotels, 28 of which are
Wellesley Inns. The Company owns all of the Wellesley Inns, which compete
primarily in the mid-price segment with hotels such as Hampton Inns and La
Quinta Inns. The remaining five limited-service hotels consist of four Managed
Hotels and one Owned Hotel and are operated under franchise agreements with
national chains. In 1998, the Company's limited-service hotels contributed
approximately $20.9 million, or 14.7%, of the Company's Hotel EBITDA.
Full-Service: Prime operates 28 full-service hotels primarily in the
upscale segment with food service and banquet facilities under franchise
agreements with national hotel brands such as Hilton, Marriott, Radisson,
Sheraton, Crowne Plaza, Holiday Inn and Ramada. In 1998, the Company's
full-service hotels contributed approximately $39.1 million, or 27.5%, of the
Company's Hotel EBITDA.
OPERATING PERFORMANCE AND INTERNAL GROWTH
Prime seeks to achieve internal growth through the use of sophisticated
operating, marketing and financial systems at its hotels. Prime has demonstrated
its ability to operate its hotels effectively by achieving revenue per available
room ("REVPAR") increases in 1998 at its comparable hotels of 5.2%, versus 1997
results. The Company's emphasis on efficient operations has increased operating
margins, thus translating its top-line REVPAR growth into increased earnings. In
1998, gross operating profit increased for comparable hotels by 7.0%, versus
1997 results. Management believes that its asset base is well positioned with a
national brand in AmeriSuites, an upscale portfolio of full-service hotels in
the Northeast, a consistent performer in Wellesley Inns and a new brand in a
growing segment in HomeGate.
BRAND GROWTH
Prime's external growth strategy is to develop its proprietary brands. In
particular, the Company's growth plans are concentrated on the AmeriSuites
brand. The Company is focused on the expansion of the AmeriSuites brand due to
its attractive investment returns, rapid stabilization, broad customer appeal
and positioning in the fast-growing, all-suites segment. In 1998, the Company
received the necessary statutory approvals to begin franchising its brands. The
Company intends to commit capital to develop its brands on a more limited scale
and rely on franchisees to provide the bulk of the growth.
RECENT DEVELOPMENTS
In September 1998, A.F. Petrocelli was appointed to the position of
Chairman and CEO replacing David A. Simon. Mr. Petrocelli had previously served
on Prime's Board of Directors since 1992, and is also Chairman and CEO of United
Capital Corp. (ASE:AFP), a diversified real estate and manufacturing company. In
October 1998, Mr. Petrocelli was also appointed President of Prime, replacing
John M. Elwood who resigned from the Company.
In September 1998, the Company announced plans to reduce new hotel
development. The Company's previous development plans were to be financed
primarily through the sale and leaseback of hotels to real estate investment
trusts ("REITs"). Recent changes in the capital markets have affected the
ability of hotel REITs to raise both debt and equity capital to finance
acquisitions. Due to this uncertainty regarding hotel divestitures, Prime is
developing hotels only to the extent of funding being available from internal
cash
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sources. Under its revised plans, Prime has completed the majority of its
development and has three AmeriSuites and six HomeGates under construction. The
Company also intends to develop AmeriSuites hotels on six land sites which it
owns.
In February 1999, MeriStar Hospitality Corp. ("MeriStar") notified the
Company that it would be unable to fulfill its contractual obligation to
purchase nine full-service hotels from Prime. Under the terms of the contract,
Prime received a $4 million contract termination fee. Prime had previously
modified its business and development plans in September 1998 under the
assumption that MeriStar would be unable to consummate this transaction due to
changes in the capital markets. Prime will continue to operate the nine
full-service hotels which generated $80.3 million in revenue and $25.7 million
in EBITDA in 1998.
Since December 1998, the Company has sold two AmeriSuites hotels and
certain other assets for total proceeds of $25.4 million. The Company has
utilized the proceeds to purchase 2.5 million shares of its common stock in
1999. Under the terms of the covenants of its $200 million revolving credit
facility (the "Revolving Credit Facility"), stock repurchases are limited to $50
million in 1999. The Company intends to continue to reduce its real estate
holdings with the proceeds to be utilized for stock repurchases, debt reduction
and/or new development.
INDUSTRY OVERVIEW
In 1998, industry-wide percentage growth in supply exceeded industry-wide
percentage growth in room demand (4.0% versus 3.1%), continuing a trend that
began in 1997. This resulted in a slight decline in overall occupancy levels
from 64.5% in 1997 to 64.0% in 1998. However, due to the relatively high levels
of occupancy, the industry as a whole has been able to increase the average
daily rate ("ADR") by 4.4% from $75.31 in 1997 to $78.62 in 1998, resulting in a
REVPAR increase of 3.6%. Historical performance, however, may not be indicative
of future results.
The following table was compiled from industry operating data as reported
by Smith Travel Research and highlights industry data for the United States and
the regions in which most of the Company's hotels are located: the Middle
Atlantic region, which is comprised of New Jersey, New York and Pennsylvania;
the South Atlantic region, which is comprised of Florida, Georgia, South
Carolina, North Carolina, Virginia, West Virginia, Maryland and Delaware and;
the West South Central Region is composed of Texas, Oklahoma, Arkansas and
Louisiana. The table also includes operating data concerning the two price
levels (of the five price levels classified by Smith Travel Research) in which
the Company competes: upscale and mid-price. REVPAR data was calculated by the
Company based on occupancy and ADR data supplied by Smith Travel Research.
<TABLE>
<CAPTION>
% CHANGE IN:
ROOM SUPPLY ROOM DEMAND REVPAR
--------------------------- --------------------------- ---------------------------
1996 V. 1997 V. 1998 V. 1996 V. 1997 V. 1998 V. 1996 V. 1997 V. 1998 V.
1995 1996 1997 1995 1996 1997 1995 1996 1997
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States........................... 2.3% 3.4% 4.0% 3.1% 2.5% 3.1% 7.8% 5.3% 3.6%
BY REGION:
Middle Atlantic......................... 1.0 1.7 2.3 3.3 2.5 3.1 10.1 9.6 7.3
South Atlantic.......................... 2.0 3.4 4.3 3.3 2.4 2.8 7.9 4.7 2.7
West South Central...................... -- 4.9 5.1 -- 4.0 5.2 -- 4.3 4.5
BY SERVICE (PRICE LEVEL):
Upscale................................. 3.4 4.0 5.0 3.4 3.7 4.2 5.4 4.7 2.9
Mid-Price............................... 3.3 4.6 6.2 3.3 3.5 4.7 6.7 4.9 3.4
</TABLE>
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<PAGE> 5
PRIME'S LODGING OPERATIONS
The following table sets forth information with respect to the Portfolio as
of February 28, 1999:
<TABLE>
<CAPTION>
OWNED(1) LEASED(2) MANAGED(3) FRANCHISED(4) TOTAL(5)
--------------- -------------- -------------- -------------- ---------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------ ------ ----- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL-SUITES:
AmeriSuites...................... 73 9,399 19 2,403 2 258 94 12,060
EXTENDED-STAY:
HomeGate Studios & Suites........ 38 4,774 38 4,774
FULL-SERVICE:
Crowne Plaza..................... 2 362 2 362
Hilton........................... 1 355 1 408 2 763
Holiday Inn...................... 2 390 1 160 3 550
Howard Johnson................... 1 116 1 116
Independent...................... 1 149 1 149
Marriott......................... 1 504 1 504
Radisson......................... 3 627 3 627
Ramada........................... 5 823 3 433 4 796 12 2,052
Sheraton......................... 1 240 2 349 3 589
--- ------ -- ----- -- ----- --- ------
Total Full-Service........ 13 2,939 9 1,453 6 1,320 28 5,712
LIMITED-SERVICE:
Howard Johnson................... 1 108 4 549 5 657
Wellesley Inns................... 28 2,812 28 2,812
--- ------ -- ----- --- ------
Total Limited-Service..... 29 2,920 4 549 33 3,469
Total..................... 153 20,032 28 3,856 10 1,869 2 258 193 26,015
=== ====== == ===== == ===== == === === ======
</TABLE>
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(1) The Owned Hotels represent those hotels in which the Company retains the
economic interest. The Company owns the fee interest in all but nine of the
hotels, which hotels are operated under ground or building lease agreements.
The ground and building leases covering the Company's leased hotels provide
for fixed base rents and, in most instances, additional percentage rents
based on a percentage of room revenues.
(2) The Leased Hotels have agreements which provide for minimum rents which
increase annually by the inflation rate and percentage rents based on a
percentage of room, food and beverage and other revenue. The percentage
lease calculations are designed to provide the Company with revenue streams
equal to approximately 2.5% to 3.0% of hotel revenues. The 19 AmeriSuites
hotels in this category are operated pursuant to franchise agreements which
also provide the Company with a 4.0% royalty fee.
(3) Of the 10 Managed Hotels, the Company has significant financial interests in
the form of a mortgage or profit participations on five hotels.
(4) Franchised Hotels are hotels operated by third parties under AmeriSuites
franchise agreements.
(5) In addition to the above, as of February 28, 1999, Prime has three
AmeriSuites comprising 407 rooms and six HomeGates comprising 702 rooms
under construction.
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The following table sets forth the location of the Portfolio as of February
28, 1999:
<TABLE>
<CAPTION>
OWNED LEASED MANAGED FRANCHISED TOTAL
--------------- -------------- -------------- -------------- ---------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------ ------ ----- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama................. 1 128 1 128 2 256
Arizona................. 7 916 1 117 8 1,033
Arkansas................ 1 130 1 130
California.............. 1 128 1 96 1 128 3 352
Colorado................ 5 663 5 663
Connecticut............. 4 492 2 305 6 797
Florida................. 26 3,000 4 431 1 115 31 3,546
Georgia................. 9 1,157 1 189 10 1,346
Idaho................... 1 128 1 128
Illinois................ 6 753 6 753
Indiana................. 2 263 1 126 3 389
Kansas.................. 3 379 1 126 4 505
Kentucky................ 2 251 2 251
Louisiana............... 1 128 1 128
Maine................... 1 130 1 130
Maryland................ 1 128 1 128
Massachusetts........... 1 158 1 158
Michigan................ 2 256 2 256
Minnesota............... 1 128 1 128 2 256
Nevada.................. 1 125 3 552 4 677
New Jersey.............. 15 2,455 4 637 7 1,469 26 4,561
New Mexico.............. 2 237 1 128 3 365
New York................ 8 933 8 933
North Carolina.......... 5 649 5 649
Ohio.................... 4 462 3 379 7 841
Oklahoma................ 3 384 3 384
Oregon.................. 1 137 1 161 2 298
Pennsylvania............ 4 632 4 632
South Carolina.......... 2 239 2 239
Tennessee............... 3 379 2 256 5 635
Texas................... 28 3,522 28 3,522
U.S. Virgin Islands..... 1 504 1 504
Virginia................ 4 444 1 126 5 570
--- ------ -- ----- -- ----- -- --- --- ------
Total......... 153 20,032 28 3,856 10 1,869 2 258 193 26,015
=== ====== == ===== == ===== == === === ======
</TABLE>
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The following table sets forth for the five years ended December 31, 1998
operating data for the hotels in the Portfolio as of December 31, 1998.
Operating data for the Owned Hotels built or acquired during the period are
presented from the dates such hotels commenced operations or became Owned
Hotels. For purposes of showing operating trends, the results of the Marriott
Frenchman's Reef Hotel (the "Frenchman's Reef"), which were impacted by
hurricane damage, have been excluded from the table. For purposes of showing
operating trends, the results of Owned Hotels that were managed by the Company
prior to their acquisition by the Company are presented as if they had been
Owned Hotels from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
OWNED TOTAL
------------------- -------------------
HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1994................... 45 5,828 70 9,995
1995................... 50 6,415 78 10,969
1996................... 60 7,695 92 12,698
1997................... 100 12,915 137 18,558
1998................... 140 18,042 178 23,884
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1994................... 72.1% $58.11 $41.89 70.8% $64.29 $45.51
1995................... 69.0 62.16 42.88 69.9 68.15 47.63
1996................... 68.6 68.18 46.76 70.8 73.95 52.38
1997................... 66.5 71.55 47.58 68.5 77.13 52.81
1998................... 64.6 75.13 48.52 66.4 80.22 53.24
</TABLE>
AMERISUITES
The Company currently has 94 AmeriSuites in operation and has three
AmeriSuites hotels under construction. In addition, Prime has signed 10
AmeriSuites franchise agreements and has 22 applications pending. The
AmeriSuites brand is being developed primarily through new construction to
assure product consistency and quality. All of the current AmeriSuites hotels
have been developed with Prime's capital. The Company intends to develop
AmeriSuites on a more limited scale with the bulk of new development coming from
franchisees.
AmeriSuites are positioned in the upscale segment of the lodging industry,
competing predominantly with other mid-price and upscale brands such as
Courtyard by Marriott and Holiday Inn. The average age of the AmeriSuites hotels
as of February 28, 1999 was approximately 1.75 years. In 1998, AmeriSuites which
were in operation for at least one year generated an average EBITDA of $1.2
million, representing an average unleveraged 16.8% return on total invested
capital. The Company is committed to the expansion of the AmeriSuites brand due
to its attractive investment returns, rapid stabilization, broad customer appeal
and positioning in the fast-growing all-suites segment.
AmeriSuites are all-suites, upscale hotels which offer guests an
attractively designed suite with a complimentary continental breakfast in a
spacious lobby cafe, remote-control cable television, fully-equipped business
centers, fitness centers and pool facilities. The hotels provide group meeting
space, but do not include restaurant or lounge facilities. AmeriSuites attract
customers principally because of the quality of the guest suites, which offer
distinct living, sleeping and kitchen areas and the consistency of product
quality. AmeriSuites hotels also offer business suites marketed under the name
"TCB (Taking Care of Business) Suites". TCB Suites were developed specifically
for the business traveler and feature a well-equipped, in-suite office,
including an oversized desk with executive chair, dual phone lines, easy chair
and ottoman, in addition to voice mail, data ports and other amenities. Each
AmeriSuites contains approximately 128 suites, including 20-30 TCB Suites, and
two to four meeting rooms. AmeriSuites are primarily located near suburban
commercial centers, corporate office parks and other travel destinations, with
close proximity to dining, shopping and entertainment amenities. The target
customer is primarily the business traveler, with an average
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length of stay of two to three nights, and leisure or weekend travelers.
AmeriSuites are marketed primarily through direct sales, national marketing
programs and a central reservation system.
Since 1997, the Company has utilized a central reservation system for the
AmeriSuites brand developed and operated by REZsolutions, Inc. In 1998, the
REVPAR contribution from the central reservation system for comparable
AmeriSuites hotels increased by 21% over the prior year level to 33% of
revenues.
Management believes that the growing AmeriSuites infrastructure, consisting
of elements such as improved frequent stay programs, an enhanced central
reservations system, increased advertising and marketing programs and the
heightened visibility from the increase in the chain's number of hotels in the
past year will permit AmeriSuites to achieve critical mass and outperform its
older, more established competitors.
The following table sets forth for the five years ended December 31, 1998
certain data with respect to the Owned AmeriSuites hotels. Operating data for
the hotels built during the period are presented from the dates such hotels
commenced operations. For purposes of showing operating trends, comparable data
has also been presented for the AmeriSuites hotels which have been in operation
for all of 1997 and 1998.
<TABLE>
<CAPTION>
OWNED TOTAL
------------------- -------------------
HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1994................... 5 618 12 1,494
1995................... 10 1,205 19 2,319
1996................... 20 2,485 33 4,048
1997................... 20 2,485 63 7,969
1998................... 20 2,485 83 10,684
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1994................... 73.9% $60.94 $45.03 65.9% $59.90 $39.50
1995................... 67.7 67.27 45.52 67.2 65.45 43.98
1996................... 62.2 73.85 45.93 65.6 72.12 47.28
1997................... 67.5 74.77 50.44 65.1 75.65 49.23
1998................... 68.4 78.03 53.39 65.9 81.16 53.45
</TABLE>
HOMEGATE STUDIOS & SUITES
Prime currently owns 38 HomeGate hotels and has six HomeGates under
construction. All of the HomeGate hotels are owned and operated by the Company.
The HomeGate hotels were developed primarily through new construction within the
past two years. The Company currently has seven non-prototype hotels, six of
which were purchased and subsequently converted. The Company is currently
reviewing its options regarding these seven hotels, including potential sales or
reflaggings.
HomeGate hotels are designed to compete primarily in the mid-price range of
the extended-stay industry segment. Prime believes that HomeGate is an
attractive product, based on the quality of its design elements and furnishings
and the separation between cooking, sleeping and living areas. HomeGate Studios
& Suites offer a superior price/value relationship and appeal to extended-stay
guests of both upscale and economy hotels.
Each HomeGate hotel features three types of room configurations: studios
(300 square feet); suites (450 square feet); and executive suites (570 square
feet). The hotels offer amenities that appeal to extended-stay hotel guests,
including a fully equipped kitchen consisting of a full-size refrigerator, a
cooktop, a microwave oven, a dishwasher, a coffee maker and utensils; separate
cooking, living and sleeping areas; an oversized work desk; two telephone jacks
with dataports; a direct-dial telephone with voice-mail messaging; cable
television and a sleeper sofa. Homegates also provide 24 hour desk service, and
other services such as daily maid service for one to six night stays, weekly
maid service for stays longer than six nights, twice-weekly linen service, a
coin-operated laundry facility and an exercise room.
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<PAGE> 9
In 1998, the Company introduced the HomeGate Suites concept, an upscale
version of HomeGate Studios and Suites. The HomeGate Suites will solely feature
suite rooms, in contrast to the HomeGate Studios and Suites product which
features a combination of studios and suites. The Company currently has one
HomeGate Suites hotel under construction.
Extended-stay hotels typically experience longer average guest stays than
traditional hotels, resulting in higher average occupancies and a more stable
revenue stream. While HomeGate hotels generally emphasize a minimum stay of one
week, daily rates are also offered. In addition, the staffing levels of
extended-stay hotels are much lower than those of traditional hotels, because
many labor intensive services offered by full-service hotels are de-emphasized
or excluded entirely, resulting in lower labor costs. At the HomeGate hotels,
there is no food and beverage service and limited common area amenities. The low
labor costs combined with fewer amenities result in higher operating margins
than traditional hotels. The HomeGate hotels are marketed primarily at the local
levels. In July 1998, the hotels also began utilizing the central reservation
system operated by REZsolutions, Inc.
The Company has expanded its HomeGate brand to take advantage of what
management perceives as an underserved and growing market. Based on industry
data compiled by D.K. Shifflet and Smith Travel Research, the demand for
business extended-stay rooms is between 400,000-500,000 rooms per night, however
only 140,000 rooms are dedicated to the extended-stay market. This imbalance is
most severe in the mid-price range where supply is estimated at 22,000 rooms and
there is no dominant competitor. The Company also believes that favorable
demographic and social trends will also benefit the extended-stay market. In
particular, increases in business mobility, corporate training, temporary
assignments and business relocations have created more demand for extended-stay
facilities.
The Company does not intend to develop new HomeGate hotels in the short
term. Due to its rapid growth, the Company plans to focus on the chain's
operations and on maximizing the profits on existing hotels.
The following table sets forth for the two years ended December 31, 1998,
certain data with respect to HomeGate hotels. Operating data for the hotels
built during the period are presented from the dates such hotels commenced
operations.
<TABLE>
<CAPTION>
TOTAL
------------------------------------------------
HOTELS ROOMS OCCUPANCY ADR REVPAR
------ ----- --------- ------ ------
<S> <C> <C> <C> <C> <C>
1997................................. 14 1,789 51.9% $38.13 $19.79
1998................................. 35 4,406 54.0% 46.59 25.15
</TABLE>
WELLESLEY INNS AND OTHER LIMITED SERVICE HOTELS
The Company's limited-service hotels consist primarily of 28 Wellesley
Inns, all of which are owned and operated by the Company.
Of the Company's 28 Wellesley Inns, 15 are located in Florida and the
remainder in the Middle Atlantic and Northeast United States. The prototypical
Wellesley Inn has 105 rooms and is distinguished by its classic stucco exterior,
spacious lobby and amenities such as pool facilities, complimentary continental
breakfast, remote control cable television with free movie channels and in-room
coffee makers. Marketing efforts for the Wellesley Inns chain rely heavily on
direct marketing and billboard advertising. In addition, the Wellesley Inns are
marketed under the reservation system operated by REZsolutions, Inc. In 1998,
the REVPAR contribution from the central reservation system for the Wellesley
Inns hotels increased by 16% to 17% of revenues. In Florida, where the
population has grown rapidly, the Company has built a geographically
concentrated group of Wellesley Inns, thereby developing regional brand name
recognition. The majority of the Florida Wellesley Inns were constructed within
the past ten years.
In 1997, Prime completed a $9 million reimaging program at 14 Wellesley
Inns which were acquired in March 1996. The reimaging included upgrades to the
hotels' curb appeal with a redesigned arrival court, new landscaping and a
bright, new exterior. Interior upgrades included an expanded lobby and
continental
8
<PAGE> 10
breakfast area and totally renovated rooms. Prime believes that the reimaging
improved the consistency and quality of the chain.
The Company intends to grow the chain through franchisees. Prime will
consider both new construction and conversion of existing hotels for its new
franchises. The Company signed its first Wellesley franchise agreement in 1998.
The following table sets forth for the five years ended December 31, 1998
operating data for Wellesley Inns as of December 31, 1998. Operating data for
the Owned Hotels built or acquired during the period are presented from the
dates such hotels commenced operations or became Owned Hotels. For purposes of
showing operating trends, the results of 14 Owned Hotels that were managed by
the Company prior to their acquisition by the Company are presented as if they
had been Owned Hotels from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
TOTAL
------------------------------------------------
HOTELS ROOMS OCCUPANCY ADR REVPAR
------ ----- --------- ------ ------
<S> <C> <C> <C> <C> <C>
1994................................. 28 2,812 77.8% $48.12 $37.44
1995................................. 28 2,812 75.3 52.11 39.25
1996................................. 28 2,812 73.8 53.80 39.72
1997................................. 28 2,812 73.6 58.29 42.87
1998................................. 28 2,812 70.8 61.13 43.26
</TABLE>
The Company's other limited-service hotels consist of five hotels operated
under franchise agreements, four of which are managed for third parties. The
hotels have an average of between 100 and 120 rooms and offer complimentary
continental breakfast, remote control cable television, pool facilities and
facsimile services. They are designed to appeal primarily to business travelers.
FULL-SERVICE HOTELS
The Company operates 28 full-service hotels primarily in the upscale
segment with food service and banquet facilities under franchise agreements with
Hilton, Marriott, Radisson, Sheraton, Crowne Plaza, Holiday Inn and Ramada. The
full-service hotels are concentrated in the Northeast. The Company owns 13 of
these hotels, operates nine hotels under lease agreements with REITs and manages
six hotels for third parties. The hotels are generally positioned along major
highways within close proximity to corporate headquarters, office parks,
airports, convention or trade centers and other major facilities. The customer
base for full-service hotels consists primarily of business travelers. In
addition, the Company's sales force actively markets meeting and banquet
services to groups and individuals for seminars, business meetings, holiday
parties and weddings. The hotels are also marketed through national franchisor
programs, central reservation systems and the Company's national sales group.
The Company's full-service hotels generally have between 150 and 300 rooms
and pool, restaurant, lounge, banquet and meeting facilities. Other amenities
include fitness rooms, room service, remote-control cable television and
business centers. In order to enhance guest satisfaction, the Company also has
theme concept lounges in a number of its hotels. In recent years, the Company
has received recognition from various franchisors and associations for its hotel
quality and service.
The Company owns and operates one resort hotel, the Marriott's Frenchman's
Reef Hotel in St. Thomas, U.S. Virgin Islands. The Frenchman's Reef is a
504-room resort hotel which includes a 408-room eight-story building and 96
rooms in the adjacent Morningstar Beach Resort. The Frenchman's Reef has seven
restaurants, extensive convention facilities, complete sports and beach
facilities and a self-contained, total energy system. The Frenchman's Reef is
marketed directly through its own sales force at the hotel, through regional
offices located in Connecticut and Virginia and through the Marriott reservation
system. The Frenchman's Reef market includes tour groups, corporate meetings,
conventions and individual vacationers.
In December 1997, the Frenchman's Reef and Morningstar Beach Resorts
reopened after completing a $45 million property renovation. The resorts were
closed in April 1997 in order to implement a major
9
<PAGE> 11
renovation of the facilities which were damaged by hurricanes in 1995 and 1996.
All rooms at the Frenchman's Reef have been completely renovated along with the
lobby, public areas, pools and restaurants. In addition to the upgrades, certain
enhancements have been made to the resorts in order to fortify them against
severe windstorms. Those enhancements include hurricane resistance shutters to
all public areas, new pitched metal roofs, improved exterior walls, and the
addition of hurricane resistant glass storm doors to every guestroom.
As part of the Company's strategy to reduce its real estate holdings, in
1998 the Company sold and leased back eight full-service hotels to MeriStar. In
the future, the Company intends to divest certain of its remaining 13 owned
full-service hotels which are not consistent with the majority of its portfolio
including certain mid-price hotels and the Frenchman's Reef.
Prime intends to capitalize on its ability to effectively manage
full-service hotels. While Prime does not intend to acquire full-service hotels,
it does plan to invest capital to pursue management opportunities in the
full-service segment either as a manager and/or lessee.
The following table sets forth for the five years ended December 31, 1998,
operating data for the full-service hotels in the Company's portfolio as of
December 31, 1998. For purposes of showing operating trends, the results of the
Frenchman's Reef, which were impacted by hurricane damage, have been excluded
from the table. Operating data for the hotels built or acquired during the
period are presented from the dates such hotels commenced operations or became
Owned Hotels. For purposes of showing operating trends, the results of 6 Owned
Hotels that were managed by the Company prior to their acquisition by the
Company during the five-year period are presented as if they had been Owned
Hotels from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
OWNED TOTAL
------------------- -------------------
HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1994................. 11 2,285 25 5,027
1995................. 11 2,285 26 5,176
1996................. 11 2,285 26 5,176
1997................. 12 2,435 27 5,325
1998................. 12 2,435 27 5,325
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1994.................... 64.3% $74.27 $47.78 68.9% $78.13 $53.83
1995.................... 61.8 75.83 46.89 68.1 81.26 55.37
1996.................... 67.4 83.94 56.54 72.5 88.15 63.87
1997.................... 71.6 92.28 66.02 73.9 95.84 70.80
1998.................... 70.7 101.95 72.03 73.1 104.64 76.51
</TABLE>
FRANCHISING
Prime has implemented several franchise initiatives in order to further
accelerate the growth of its brands. In 1998, the Company completed its
statutory filings and received all the necessary approvals to begin franchising.
The Company has also developed internal franchise marketing, training and
quality assurance programs to provide support to franchisees and control product
quality. The Company established a franchise sales team consisting of a senior
vice president and eight regional sales vice presidents. Prime currently has 21
hotels operated under AmeriSuites franchise agreements, 19 of which are with
Equity Inns, Inc. ("Equity Inns").
In 1997, Prime entered into a strategic alliance with Equity Inns whereby
Equity Inns has rights to acquire certain AmeriSuites through 2000. Pursuant to
this agreement, Prime will generate franchise income for its services and for
use of the AmeriSuites name. Thus far, Equity Inns has purchased 19 hotels from
Prime. Due to the recent changes in the capital markets affecting REITs, the
Company is not projecting sales of hotels to Equity Inns in the near future.
10
<PAGE> 12
As of February 28, 1999, the Company has signed 10 new AmeriSuites
franchise agreements and one Wellesley Inn franchise agreement for new hotels to
be developed and has 22 additional AmeriSuites franchise applications pending.
The standard franchise agreement has a term of ten years and requires the
franchisee to maintain certain operating and product standards. The franchise
fees are generally comprised of an initial application fee and monthly fees
based on a percentage of hotel revenues. The monthly fees cover royalties and
the cost of marketing and reservation services. Prime will also offer additional
services including purchasing and design services. The standard monthly fees as
a percentage of room sales are as follows:
<TABLE>
<CAPTION>
ROYALTY MARKETING
FEE FEE RESERVATION
------- --------- -----------
<S> <C> <C> <C>
AmeriSuites.................................. 5.0% 2.0% 1.5%
HomeGate..................................... 4.5% 2.0% 1.5%
Wellesley Inns............................... 4.5% 2.0% 1.5%
</TABLE>
DEVELOPMENT
The Company has developed its AmeriSuites brands utilizing its internal
development resources in order to maintain control of the development process.
The HomeGate hotels were developed under a master development agreement with
Trammel Crow Residential and Greystar Capital Partners entered into by Homegate
Hospitality, Inc. prior to its merger with the Company. The agreement terminated
on December 31, 1998. The following are key factors in the development process.
Detailed Site Selection. The Company undertakes an extensive review
process in selecting sites for new hotels. Key factors in the selection of sites
include close proximity to demand generators, superior visibility, ease of
access and nearby guest amenities. Sites are initially identified with the
assistance of a nationwide network of brokers. Once identified, the Company
qualifies the sites before entering into a letter of intent. After a letter of
intent is signed, the Company assesses the feasibility of the sites, which
includes extensive review by the Company's operations and sales and marketing
staffs as well as independent consultants. Upon satisfactory completion of
economic feasibility, the Company enters into a contract for the site and
commences legal, engineering and environmental due diligence. The entire
process, from site selection to completion of construction and opening, takes
approximately 18 months.
Suburban Market Focus. The Company believes that suburban markets offer a
number of features which permit the rapid expansion of its brands. As opposed to
central business districts, suburban markets offer ample land to construct new
hotels. More importantly, the Company believes that suburban locations appeal to
multiple demand generators. In addition to the business traveler, who is the
target customer, the weekend/leisure traveler is attracted by the close
proximity to nearby dining, shopping and entertainment amenities.
Strategy. The Company has expanded into new regions by first developing
hotels in certain key cities which it has targeted. The Company has added
additional hotels in that region in cities which are logical destinations from
the key cities. This strategy has permitted the Company to quickly build brand
recognition in a particular region. Key cities where AmeriSuites are open or
under development include Dallas/Fort Worth (8), Atlanta (7), Chicago (7),
Miami/Ft. Lauderdale (4), Denver (3) and Phoenix (3). Key cities where HomeGate
hotels are open or under construction include Dallas/Ft. Worth (5), Austin (4),
Houston (4), Phoenix (4) and Orlando (3). The Company has also focused on areas
where there are high barriers to entry and where the development process is more
time consuming. The Company currently has hotels open or under development in
the Northeast in New Jersey (3), Connecticut (2) and suburban Boston and the
West Coast in Sacramento and San Francisco.
OPERATIONS
As a leading domestic hotel operating company, the Company enjoys a number
of operating advantages over other lodging companies. With 191 hotels under
management covering a number of price points and broad geographic regions, the
Company possesses the critical mass to support sophisticated operating,
11
<PAGE> 13
marketing and financial systems. The Company believes that its broad array of
central services permits on-site hotel general managers to effectively focus on
providing guest services, resulting in economies of scale and leading to
above-market hotel profit margins. As a result of these operating strategies,
the Company's hotels generated average operating profit margins that exceeded
comparable industry averages for 1997, the most current data available from
industry sources, by approximately 8% for all-suites hotels, 19% for
full-service hotels and 4% for limited-service hotels.
The Company's operating strategy combines operating service and guidance
from its central management team with decentralized decision-making authority
delegated to each hotel's on-site management. The on-site hotel management teams
consist of a general manager and, depending on the hotel's size and market
positioning, managers of sales and marketing, food and beverage, front desk
services, housekeeping and engineering. The Company's operating objective is to
exceed guest expectations by providing quality services and comfortable
accommodations at a fair value. On-site hotel management is responsible for
efficient expense controls and uses operating standards provided by the Company.
Within parameters established in the operating and capital planning process,
on-site management possesses broad decision-making authority on operating issues
such as guest services, marketing strategies, hiring practices and incentive
programs. Each hotel's management team is empowered to take all necessary steps
to ensure guest satisfaction within established guidelines. Key on-site
personnel participate in an incentive program based on hotel revenues and
profits.
The central management team is located in Fairfield, New Jersey, with
AmeriSuites and HomeGate operations offices in Atlanta, Georgia. Central
management provides four major categories of services: (i) operations
management, (ii) sales and marketing management, (iii) financial reporting and
control and (iv) hotel support services.
Operations Management. Operations management consists of the development,
implementation and monitoring of hotel operating standards and is provided by a
network of regional operating officers who are each responsible for the
operations of 10 to 30 hotels. They are supported by training, food and beverage
and human resources departments, each staffed full-time by specialized
professionals. The Company's training efforts focus on sales, housekeeping, food
service, front desk services and leadership. The Company believes these efforts
increase employee effectiveness, reduce turnover and improve the level of guest
services.
Sales and Marketing Management. Sales and marketing management is directed
by a corporate staff of 20 professionals, including regional marketing directors
who are responsible for each hotel's sales and marketing strategies, and the
Company's national sales group, Market Segments, Inc. ("MSI"). In cooperation
with the regional marketing staff, on-site sales management develops and
implements short and intermediate-term marketing plans. The Company focuses on
yield management techniques, which optimize the relationship between hotel rates
and occupancies and seek to maximize profitability.
Complementing regional and on-site marketing efforts, MSI's marketing team
targets specific hotel room demand generators including tour operators, major
national corporate accounts, athletic teams, religious groups and others with
segment-specialized sales initiatives. MSI's primary objective is to book hotel
rooms at the Company's hotels and its secondary objective is to market its
services on a commission basis to hotels throughout the industry. Sales
activities on behalf of non-affiliated hotels increase the number of hotels
where bookings can be made to support marketing efforts and defray the costs of
the marketing organization.
The Company's brand advertising programs are developed at the central
office. As the AmeriSuites chain has grown, the Company has rapidly increased
its brand marketing expenditures, spending approximately 2% of revenues. The
Company has also developed marketing clubs targeted for frequent travelers and
other customer groups. In addition, the Company has formed a national sales
group which markets its hotels to major companies which produce a high volume of
room nights.
Financial Reporting and Control. The Company's system of centralized
financial reporting and control permits management to closely monitor
decentralized hotel operations without the cost of financial personnel on site.
Centralized accounting personnel produce detailed financial and operating
reports for each hotel.
12
<PAGE> 14
Additionally, central management directs budgeting and analysis, processes
payroll, handles accounts payable, manages each hotel's cash, oversees credit
and collection activities and conducts on-site hotel audits.
Hotel Support Services. The Company's hotel support services combine a
number of technical functions in central, specialized management teams to attain
economies of scale and minimize costs. Central management handles purchasing,
directs construction and maintenance and provides design services. Technical
staff teams support each hotel's information and communication systems needs.
Additionally, the Company directs safety/risk management activities and provides
central legal services.
CAPITAL IMPROVEMENTS
The Company continuously refurbishes its Owned Hotels in order to maintain
consistent quality standards. The Company generally spends between 3% to 6% of
hotel revenue on capital improvements at its Owned Hotels and typically
refurbishes each hotel approximately every five years. The Company believes that
its Owned Hotels are in generally good physical condition, with over half of the
Owned Hotels being five years old or less. The Company recommends refurbishment
and repair projects on its Managed Hotels and Leased Hotels although spending
amounts vary based on the plans of such hotels' owners and the significance of
the Company's interest as a franchisor or mortgagee.
In addition to making normal capital improvements, the Company reviews, on
an on-going basis, each hotel's competitive position in the local market in
order to decide the types of product that will best meet the market's demand
characteristics. During the past three years, the Company has repositioned
several of its Owned Hotels. Repositioning a hotel generally requires renovation
and refurbishment of the exterior and interior of the building and may result in
a change of brand name.
LEASED HOTELS
As of February 28, 1999, the Company operates 28 hotels under lease
agreements with REITs. The leases have terms of 10 years expiring from 2007 to
2008 with certain renewal options. The agreements provide for minimum rents
which increase annually by the inflation rate and percentage rents based on a
percentage of room, food and beverage and other revenue. The percentage lease
calculations are designed to provide the Company with revenue streams equal to
approximately 2.5% to 3.0% of hotel revenues. The Company also operates 19 of
the 28 Leased Hotels, pursuant to AmeriSuites franchise agreements which also
provide the Company with a 4.0% royalty fee. The remaining Leased Hotels are
operated under franchise agreements with national chains.
MANAGEMENT AGREEMENTS
As of February 28, 1999, the Company provided hotel management services to
third party hotel owners of 10 Managed Hotels. Management fees are based on
fixed percentages of the property's total revenues and incentive payments based
on certain measures of hotel income. Additional fees are also generated from the
rendering of specific services such as accounting services, construction
services, design services and sales commissions. The Company's fixed management
fee percentages average 3.5% of total revenues before giving consideration to
performance related incentive payments. Terms of the management agreements vary
with expiration dates ranging from 2000 to 2011. Although management agreements
may be terminated in connection with a change in ownership of the underlying
hotels, such risks may be limited due to the Company's other financial interests
in these hotels. The Company holds financial interests in the form of mortgages
or significant profit participations in 5 of the 10 Managed Hotels. The Company
intends to pursue new management opportunities to capitalize on its present
management infrastructure, particularly in the full-service segment.
AGREEMENTS AS FRANCHISEE
The Company has entered into franchise licensing agreements with
franchisors, which agreements typically have a ten year term and allow the
Company to benefit from franchise brand recognition and loyalty. The franchise
agreements require the Company to pay monthly fees, to maintain certain
standards and to
13
<PAGE> 15
implement certain capital programs. The payment of monthly fees, which typically
total 7% to 8% of room revenues, cover royalties and the costs of marketing and
reservation services provided by the franchisors. Franchise agreements, when
initiated, generally provide for an initial fee in addition to monthly fees
payable to the franchisor. The Company currently enjoys good relationships with
its franchisors.
WORKING CAPITAL
The Company has financed its operations and capital needs principally
through a combination of cash flow from operations, borrowings under its
Revolving Credit Facility, proceeds from the sale/leaseback of certain hotels
and proceeds from debt or equity offerings. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
SEASONALITY
The impact of seasonality on the Company as a whole is insignificant due to
the seasonal balance achieved from the geographical location of the Company's
hotel properties.
COMPETITION
The Company operates and manages hotel properties in areas that contain
numerous other hotels, some of which are affiliated with national or regional
brands. The Company competes with other hotels primarily on the basis of price,
physical facilities and customer service.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 6,800
employees. Certain of the Company's employees are covered by collective
bargaining agreements. The Company believes that relations with its employees
are good.
ENVIRONMENTAL MATTERS
The Hotels are subject to environmental regulations under Federal, state
and local laws. Certain of these laws may require a current or previous owner or
operator of real estate to clean up designated hazardous or toxic substances or
petroleum product releases affecting the property. In addition, the owner or
operator may be held liable to a governmental entity or to third parties for
damages or costs incurred by such parties in connection with the contamination.
The Company does not believe that it is subject to any material environmental
liability.
ITEM 3. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
arising in the ordinary course of its business. The Company does not believe
that it is involved in any litigation that will, individually or in the
aggregate, have a material adverse effect on its financial condition or results
of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal quarter ended December 31, 1998
to a vote of the security holders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.01 per share, trades on the New
York Stock Exchange (the "NYSE") under the symbol "PDQ." As of March 15, 1999
there were 51,220,358 shares of common stock outstanding.
14
<PAGE> 16
The following table sets forth the reported high and low closing sales
prices of the common stock on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND/SHARE
---- --- --------------
<S> <C> <C> <C>
Year Ended December 31, 1997
First Quarter.......................................... $18 1/8 $14 1/8 0
Second Quarter......................................... 20 7/8 14 3/4 0
Third Quarter.......................................... 22 9/16 17 1/2 0
Fourth Quarter......................................... 23 3/16 16 5/16 0
Year Ended December 31, 1998
First Quarter.......................................... 20 5/8 17 1/4 0
Second Quarter......................................... 21 1/4 17 1/16 0
Third Quarter.......................................... 18 3/4 5 5/8 0
Fourth Quarter......................................... 10 15/16 4 0
</TABLE>
As of March 15, 1999, the closing sales price of the common stock on the
NYSE was $10 1/2 per share, and there were approximately 2,022 holders of record
of common stock.
The Company has not declared any cash dividends on its common stock during
the two prior fiscal years and does not currently anticipate paying any
dividends on the common stock in the foreseeable future. The Company currently
anticipates that it will retain any future earnings for use in its business. The
Company is prohibited by the terms of certain debt agreements from paying cash
dividends.
15
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The table below presents selected consolidated financial data derived from
the Company's historical financial statements for the five years ended December
31, 1998. This data should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information included
herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................. $134,303 $205,628 $271,100 $ 340,961 $ 469,405
Income from continuing
operations before
extraordinary items......... 18,258 17,465 30,048 25,856 53,847
Extraordinary items-gains on
discharge of indebtedness
(net of income taxes)....... 172 104 202 75 --
Net income..................... 18,430 17,569 30,250 25,931 53,847
BALANCE SHEET DATA:
Total assets................... $434,932 $573,241 $877,100 $1,196,666 $1,408,398
Long-term debt, net of current
portion..................... 178,545 276,920 319,836 554,500 582,031
Stockholders' equity........... 204,065 232,916 484,584 524,413 641,045
</TABLE>
Quarterly financial data for the years ending December 31, 1997 and 1998 is
presented as follows (in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenue.......................... $78,053 $85,562 $87,804 $ 89,542
Operating income..................... 18,085 25,544 24,846 22,363
Merger expenses...................... -- -- -- (18,555)
Net income before extraordinary
items.............................. 8,202 12,513 10,564 (5,423)
Extraordinary items (net of tax)..... 22 53 -- --
Net income........................... 8,224 12,566 10,564 (5,423)
Earnings per common share:
Basic:
Income before extraordinary items.... $ 0.18 $ 0.27 $ 0.23 $ (0.12)
Extraordinary items.................. -- -- -- --
------- ------- ------- --------
Earnings per share................... $ 0.18 $ 0.27 $ 0.23 $ (0.12)
======= ======= ======= ========
Diluted:
Income before extraordinary items.... $ 0.17 $ 0.26 $ 0.22 $ (0.11)
Extraordinary items.................. -- -- -- --
------- ------- ------- --------
Earnings per share................... $ 0.17 $ 0.26 $ 0.22 $ (0.11)
======= ======= ======= ========
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenue............................ $103,288 $122,947 $121,045 $122,125
Operating income....................... 21,125 24,641 18,908 24,287
Extraordinary items (net of tax)....... -- -- -- --
Net income............................. 10,291 23,571 8,943 11,042
Earnings per common share:
Basic:
Income before extraordinary items...... $ 0.22 $ 0.45 $ 0.17 $ 0.20
Extraordinary items.................... -- -- -- --
-------- -------- -------- --------
Earnings per share..................... $ 0.22 $ 0.45 $ 0.17 $ 0.20
======== ======== ======== ========
Diluted:
Income before extraordinary items...... $ 0.20 $ 0.43 $ 0.17 $ 0.20
Extraordinary items.................... -- -- -- --
-------- -------- -------- --------
Earnings per share..................... $ 0.20 $ 0.43 $ 0.17 $ 0.20
======== ======== ======== ========
</TABLE>
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is an owner, manager and franchisor of hotels throughout the
United States and the U.S. Virgin Islands. The Company operates three
proprietary brands, AmeriSuites (all-suites), HomeGate Studios & Suites
(extended-stay) and Wellesley Inns (limited-service). Also within its portfolio
are full-service hotels operated under franchise agreements with national hotel
chains. As of February 28, 1999, the Company owned 153 hotels (the "Owned
Hotels"), operated 28 hotels under lease agreements with REITs (the "Leased
Hotels"), managed 10 hotels for third parties (the "Managed Hotels") and
franchised two hotels which it does not operate (the "Franchised Hotels"). The
Company has significant equity interests in the Owned Hotels and has economic
interests limited to a percentage of hotel revenues (generally between 2.5% to
5.0%) generated by the Leased Hotels, Managed Hotels and Franchised Hotels. The
Company consolidates the results of operations of its Owned Hotels and Leased
Hotels and only records management fees (including incentive management fees) on
the Managed Hotels and franchise revenue on the Franchised Hotels.
Effective September 30, 1998, A.F. Petrocelli was appointed to the position
of Chairman and CEO replacing David Simon. Mr. Petrocelli had previously served
on Prime's Board of Directors since 1992, and is also Chairman and CEO of United
Capital Corp. (ASE:AFP), a diversified real estate and manufacturing company. On
October 23, 1998, Mr. Petrocelli was also appointed President of Prime,
replacing John Elwood, who resigned from the Company.
The Company's strategy is to develop proprietary brands in growing market
segments. The Company seeks to further expand its brands through franchising
which commenced in 1998. Through the development of its proprietary brands, the
Company has positioned itself to generate additional revenues with minimal
capital investment. The Company's growth focuses on the new construction of
AmeriSuites hotels both directly by the Company and by franchisees. Due to the
uncertainty in the capital markets, during the third quarter Prime reduced its
hotel development to levels which can be funded by internal cash sources.
In 1998, earnings from recurring operations increased by 33.3% over 1997
levels. The earnings gains were the result of strong growth in revenue per
available room ("REVPAR") and profit margins at comparable Owned Hotels and
significant new AmeriSuites unit growth. For the comparable Owned Hotels, REVPAR
increased by 5.2% in 1998 over 1997 levels. The combination of strong REVPAR
increases and effective expense controls resulted in increases in gross
operating profits at comparable Owned Hotels of 7.0%. The earnings growth was
also favorably affected by the addition of 45 new AmeriSuites hotels and 35 new
HomeGate hotels since January 1, 1997.
The Company's EBITDA increased by $23.3 million, or 18.6%, from $125.0
million in 1997 to $148.3 million in 1998, and Hotel EBITDA increased by $11.6
million, or 8.9%, from $130.4 million in 1997 to $142.0 million in 1998. EBITDA
represents earnings before extraordinary items, 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 mid-price limited-service segment, primarily under the
Company's proprietary
18
<PAGE> 20
Wellesley Inns brand. The following table illustrates the Hotel EBITDA
contribution from each segment (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------------------- ----------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
All-suites...................... $ 52,377 39.3% $ 71,658 50.5%
Full-service.................... 53,861 40.5 39,111 27.5
Limited-service................. 24,120 18.1 20,875 14.7
Extended-Stay................... 2,771 2.1 10,350 7.3
-------- ----- -------- -----
Total................. $133,129 100.0% $141,994 100.0%
======== ===== ======== =====
</TABLE>
Hotel EBITDA for 1998 reflects the shifting mix in the Company's hotel
portfolio toward its proprietary brand AmeriSuites and the sale/leaseback of
eight full-service hotels. Based on the Company's development plans, Prime
expects the relative contribution from its all-suite AmeriSuites hotels and
extended-stay HomeGate hotels to continue to increase in 1999.
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-K 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.
19
<PAGE> 21
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED DECEMBER 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 years ended December 31, 1998 and 1997. The results of
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(1)
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Lodging............................................. $272,267 $393,988 $153,379 $160,715
Food and beverage................................... 41,968 53,391 22,332 24,746
Management, franchise and other fees................ 9,708 13,362
Interest on mortgages and notes receivable.......... 6,097 4,664
Business interruption insurance..................... 10,921 4,000
-------- --------
Total revenues.............................. 340,961 469,405
Direct hotel operating expenses:
Lodging............................................. 68,072 98,400 38,574 40,309
Food and beverage................................... 31,036 39,771 17,289 18,900
Selling and general................................. 70,225 99,361 38,860 39,573
Occupancy and other operating......................... 23,669 57,067
General and administrative............................ 22,923 26,509
Depreciation and amortization......................... 34,198 41,975
Other charges......................................... -- 17,361
Operating income...................................... 90,838 88,961
Operating expense margins:
Direct hotel operating expenses:
Lodging, as a percentage of lodging revenue......... 25.0% 25.0% 25.1% 25.1%
Food and beverage, as a percentage of food and
beverage revenue................................. 74.0% 74.5% 77.4% 76.4%
Selling and general, as a percentage of lodging and
food and beverage revenue........................ 22.3% 22.2% 22.1% 21.3%
Occupancy and other operating, as a percentage of
lodging and food and beverage revenue............... 7.5% 12.8%
General and administrative, as a percentage of total
revenue............................................. 6.7% 5.6%
Other Data:
Occupancy............................................. 67.6% 69.7% 70.9% 69.8%
ADR................................................... $ 74.72 $ 70.22 $ 73.68 $ 78.70
REVPAR................................................ $ 50.53 $ 48.95 $ 52.20 $ 54.91
Gross operating profit................................ $140,831 $209,847 $ 80,988 $ 86,679
</TABLE>
- ---------------
(1) For purposes of this discussion of results of operations, comparable Owned
Hotels refers to the 60 Owned Hotels that were owned by the Company during
all of 1997 and 1998.
Lodging revenues, which include room revenues and other related revenues
such as telephone and vending, increased by $121.7 million, or 44.7%, from
$272.3 million in 1997 to $394.0 million in 1998. The increase was primarily due
to incremental revenues of $96.5 million from the new hotels added during 1997
and 1998, and growth in revenues at comparable Owned Hotels of $7.3 million. In
addition, revenues at the
20
<PAGE> 22
Frenchman's Reef increased by $14.8 million over the prior year as the hotel was
closed for most of 1997 for renovation.
The following table illustrates the REVPAR growth in 1998 from the
Company's comparable Owned Hotels, by industry segment.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 %
------ ------- ---
<S> <C> <C> <C>
AMERISUITES
Occupancy........................................ 67.5% 68.4%
ADR.............................................. $74.77 $ 78.03
REVPAR........................................... $50.44 $ 53.39 5.9%
FULL-SERVICE
Occupancy........................................ 71.7% 70.6%
ADR.............................................. $92.33 $101.56
REVPAR........................................... $66.19 $ 71.67 8.3%
WELLESLEY INNS
Occupancy........................................ 73.6% 70.8%
ADR.............................................. $58.29 $ 61.13
REVPAR........................................... $42.87 $ 43.26 0.9%
TOTAL
Occupancy........................................ 70.9% 69.8%
ADR.............................................. $73.68 $ 78.70
REVPAR........................................... $52.20 $ 54.91 5.2%
</TABLE>
The REVPAR increases reflect the results of continued favorable industry
trends in the full-service segment which is concentrated in the Northeast and
growing recognition of AmeriSuites as a leading brand in the fast-growing
all-suites segment. The improvements in REVPAR at comparable Owned Hotels were
generated by increases in ADR, which rose by 6.8%, offset by occupancy declines
of 1.1 percentage points in 1998.
Food and beverage revenues increased by $11.4 million, or 27.2%, from $42.0
million in 1997 to $53.4 million in 1998 primarily due to the increase in
revenues at the Frenchman's Reef of $8.1 million. Food and beverage revenues for
comparable Owned Hotels increased by $2.4 million, or 10.8%, primarily due to
increased banquet business.
Management, franchise and other revenue consist primarily of base and
incentive fees earned under management agreements, royalties earned under
franchise agreements, sales commissions earned by the Company's national sales
group and rental income. Management, franchise and other revenue increased by
$3.7 million, or 37.6%, from $9.7 million in 1997 to $13.4 million in 1998. The
increase was primarily due to increased base and incentive management fees
associated with the Managed Hotels and franchise royalty fees derived from
hotels sold to franchisees.
Interest on mortgages and notes receivable primarily relate to mortgages
secured by certain Managed Hotels. Interest on mortgages and notes receivable
decreased by $1.4 million, or 23.5%, from $6.1 million in 1997 to $4.7 million
in 1998 due to the settlement of various cash flow mortgages and note
receivables in 1997 and 1998.
Business interruption insurance revenue is based on the settlement of the
Company's claim related to the hurricane damage at the Frenchman's Reef caused
by Hurricane Marilyn in September 1995 and Hurricane Bertha in July 1996.
Business interruption insurance revenue decreased by $6.9 million, or 63.4%,
from $10.9 million in 1997 to $4.0 million in 1998 due to higher operating
losses in 1997.
Direct lodging expenses increased by $30.3 million, or 44.6%, from $68.1
million in 1997 to $98.4 million in 1998, due primarily to the addition of new
hotels. Direct lodging expenses, as a percentage of lodging revenue, remained
constant at 25.0% in 1998 and 1997. For comparable Owned Hotels, direct lodging
expenses as a percentage of lodging revenues also remained constant at 25.1% in
1997 and 1998.
Direct food and beverage expenses increased by $8.8 million, or 28.1%, from
$31.0 million in 1997 to $39.8 million in 1998, primarily due to the full year
operation of the Frenchman's Reef which reopened in
21
<PAGE> 23
December 1997 and other new restaurant outlets added in 1997. As a percentage of
food and beverage revenues, direct food and beverage expenses increased from
74.0% in 1997 to 74.5% in 1998. For comparable Owned Hotels, direct food and
beverage expenses as a percentage of food and beverage revenue decreased from
77.4% in 1997 to 76.4% in 1998. The decrease was primarily due to a shift in the
mix of revenues to higher margin banquet revenues.
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 $29.2 million, or 41.5%, from $70.2 million in 1997 to $99.4
million in 1998, 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 slightly from 22.3% in 1997 to 22.2% in
1998. For comparable Owned Hotels, direct selling and general expenses as a
percentage of revenues also decreased from 22.1% in 1997 to 21.3% in 1998.
Occupancy and other operating expenses consist primarily of insurance, real
estate and other taxes and rent expense. Occupancy and other operating expenses
increased by $33.4 million, or 141.1%, from $23.7 million in 1997 to $57.1
million in 1998, primarily due to the rent associated with the sale/leaseback of
19 hotels to Equity Inns, Inc. ("Equity Inns") and 8 hotels to MeriStar
Hospitality Corporation ("MeriStar"). As a percentage of hotel revenues,
occupancy and other operating expenses increased from 7.5% in 1997 to 12.8% in
1998, primarily due to the rent associated with the Leased Hotels.
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 the hotels and general
corporate expenses. General and administrative expenses increased by $3.6
million, or 15.6%, from $22.9 million in 1997 to $26.5 million in 1998, due to
increased brand advertising, payroll and training costs associated with opening
new AmeriSuites and HomeGate hotels. As a percentage of total revenues, general
and administrative expenses decreased from 6.7% in 1997 to 5.6% in 1998 due to
operating leverage.
Depreciation and amortization expense increased by $7.8 million, or 22.7%,
from $34.2 million in 1997 to $42.0 million in 1998, due to the impact of new
hotel properties.
Other charges consist of a $10.0 million valuation allowance related to
certain non-prototype HomeGate properties, a charge of $4.0 million for costs
associated with the terminating hotel development projects under contract, $2.4
million for severance charges related to the resignations of the Company's chief
executive officer and chief operating officer, and a $1.0 million charge for
hurricane damage at the Frenchman's Reef.
Investment income increased by $.3 million, or 9.0%, from $3.2 million in
1997 to $3.5 million in 1998 primarily due to higher average cash balances
generated by the new borrowing.
Interest expense decreased by $3.0 million, or 11.1%, from $26.9 million in
1997 to $23.9 million in 1998, primarily due to increases in capitalized
interest related to the construction of new hotels. This increase was offset by
interest expense related to increased borrowings under the Company's Revolving
Credit Facility and the issuance of the $200 Million Senior Subordinated Notes
in March 1997. The Company capitalized $18.2 million and $26.7 million of
interest in 1997 and 1998, respectively.
Other income consists of items which are not part of the Company's
recurring operations. For the year ended December 31, 1998, other income
consisted of gains associated with the settlement of notes receivable of $18.4
million, net gains on property sales of $1.1 million and a net loss on the sale
of marketable securities of $1.3 million. Other income for the year ended
December 31, 1997, consisted of net gains on property sales of $2.1 million.
Merger expenses of $18.6 million in 1997 represent costs associated with
the merger with HomeGate Hospitality, Inc. Merger expenses consist of $12.0
million for costs associated with the termination of management agreements, $5.2
million of transaction costs which included investment banking, legal and other
professional fees and $1.4 million of transition costs which included the cost
of consolidating operations, severance and other related benefits.
The pretax extraordinary gain of $123,000 in 1997 relates to the retirement
of debt.
22
<PAGE> 24
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
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 years ended December 31, 1997 and 1996. The results of
hotels divested during 1996 and 1997 are not material to an understanding of the
results of the Company's operations in such periods and, therefore, are not
separately discussed.
<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Lodging....................................... $201,179 $272,267 $142,870 $155,426
Food and beverage............................. 41,437 41,968 31,461 31,628
Management and other fees..................... 6,729 6,424
Interest on mortgages and notes receivable.... 6,090 6,097
Business interruption insurance............... 13,562 10,921
Rental and other.............................. 2,103 3,284
-------- --------
Total revenues........................ 271,100 340,961
Direct hotel operating expenses:
Lodging....................................... 52,224 68,072 36,255 38,947
Food and beverage............................. 32,053 31,036 23,335 23,412
Selling and general........................... 62,580 70,225 41,424 42,301
Occupancy and other operating................... 17,071 23,669
General and administrative...................... 18,764 22,923
Depreciation and amortization................... 23,976 34,198
Operating income................................ 64,432 90,838
Operating expense margins:
Direct hotel operating expenses:
Lodging, as a percentage of lodging revenue... 26.0% 25.0% 25.4% 25.1%
Food and beverage, as a percentage of food and
beverage revenue........................... 77.4% 74.0% 74.2% 74.0%
Selling and general, as a percentage of
lodging and food and beverage revenue...... 25.8% 22.3% 23.8% 22.6%
Occupancy and other operating, as a percentage
of lodging and food and beverage revenue...... 7.0% 7.5%
General and administrative, as a percentage of
total revenue................................. 6.9% 6.7%
Other Data:
Occupancy....................................... 69.6% 67.6% 71.1% 72.5%
ADR............................................. $ 71.66 $ 74.72 $ 73.43 $ 78.50
REVPAR.......................................... $ 49.90 $ 50.53 $ 52.21 $ 56.92
Gross operating profit.......................... $ 89,409 $140,831 $ 73,317 $ 82,394
</TABLE>
- ---------------
(1) For purposes of this discussion of results of operations, comparable Owned
Hotels refers to the 51 Owned Hotels that were owned by the Company during
all of 1996 and 1997.
\ Lodging revenues, which include room revenues and other related revenues such
as telephone and vending, increased by $71.1 million, or 35.3%, from $201.2
million in 1996 to $272.3 million in 1997. The increase was primarily due to
incremental revenues of $56.6 million from the 44 AmeriSuites hotels, added
during 1996 and
23
<PAGE> 25
1997, growth in revenues at comparable Owned Hotels of $12.6 million and
incremental revenues of $6.1 million from new HomeGate hotels. These increases
were partially offset by a decrease in revenue at the Frenchman's Reef of $7.5
million attributable to hurricane related damage.
The following table illustrates the REVPAR growth in 1997 from the
Company's owned Hotels, by industry segment.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 %
------ ------ ----
<S> <C> <C> <C>
AMERISUITES
Occupancy........................................ 70.2% 71.6%
ADR.............................................. $71.06 $73.91
REVPAR........................................... $49.89 $52.93 6.1%
FULL-SERVICE
Occupancy........................................ 69.3% 72.0%
ADR.............................................. $85.40 $92.20
REVPAR........................................... $59.17 $66.41 12.2%
WELLESLEY INNS
Occupancy........................................ 77.3% 75.7%
ADR.............................................. $54.30 $58.01
REVPAR........................................... $41.98 $43.93 4.7%
TOTAL
Occupancy........................................ 71.1% 72.5%
ADR.............................................. $73.43 $78.50
REVPAR........................................... $52.21 $56.92 9.0%
</TABLE>
The Company achieved solid revenue growth in all of its industry segments.
The REVPAR increases reflect the results of several repositionings and continued
favorable industry trends in the full-service segment, growing recognition of
AmeriSuites as a leading brand in the fast-growing all-suites segment and the
reimaging program at the Wellesley Inns. The AmeriSuites results were achieved
despite a difficult comparison to the prior year which included significant
revenues attributable to the Olympics. Excluding Olympic-related markets,
AmeriSuites REVPAR grew by 9.1%. The improvements in REVPAR at comparable Owned
Hotels were generated by increases in ADR, which rose by 6.9%, and occupancy
gains of 1.4 percentage points, in 1997.
Food and beverage revenues increased by $531,000, or 1.3%, from $41.4
million in 1996 to $42.0 million in 1997 due to the net addition of two new
full-service hotels and growth at comparable outlets. Food and beverage revenues
for comparable Owned Hotels increased by $167,000, or 0.5%, due to increased
banquet business offset by the impact of renovations at several outlets. The
increases were partially offset by a decrease of $3.0 million at the Frenchman's
Reef attributable to the hurricane damage.
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. Management
and other fees decreased by $305,000, or 4.5%, from $6.7 million in 1996 to $6.4
million in 1997. The decrease was primarily due to the conversions of Managed
Hotels into Owned Hotels partially offset by increased base and incentive
management fees associated with the remaining Managed Hotels.
Interest on mortgages and notes receivable primarily relate to mortgages
secured by certain Managed Hotels. Interest on mortgages and notes receivable
were even with 1996 levels at $6.1 million.
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 Marilyn in September 1995 and Hurricane Bertha in July 1996.
Business interruption insurance revenue decreased by $2.7 million, or 19.5%,
from $13.6 million in 1996 to $10.9 million in 1997 due to higher operating
losses in 1996.
24
<PAGE> 26
Direct lodging expenses increased by $15.9 million, or 30.3%, from $52.2
million in 1996 to $68.1 million in 1997, due primarily to the addition of new
hotels. Direct lodging expenses, as a percentage of lodging revenue, decreased
from 26.0% in 1996 to 25.0% in 1997. This decrease was primarily due to
increases in ADR which had minimal corresponding increases in expenses. For
comparable Owned Hotels, direct lodging expenses as a percentage of lodging
revenues decreased from 25.4% in 1996 to 25.1% in 1997.
Direct food and beverage expenses decreased by $1.0 million, or 3.2%, from
$32.0 million in 1996 to $31.0 million in 1997, primarily due to the decrease in
food and beverage revenue at the Frenchman's Reef attributable to hurricane
damage. As a percentage of food and beverage revenues, direct food and beverage
expenses decreased from 77.4% in 1996 to 74.0% in 1997. For comparable Owned
Hotels, direct food and beverage expenses as a percentage of food and beverage
revenue increased slightly from 74.2% in 1996 to 74.0% in 1997. The decreases
were primarily due to a shift in the mix of revenues to higher margin banquet
revenues.
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 $7.6 million, or 12.2%, from $62.6 million in 1996 to $70.2 million
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 25.8% in 1996 to 22.3% in 1997. For
comparable Owned Hotels, direct selling and general expenses as a percentage of
revenues decreased from 23.8% in 1996 to 22.6% in 1997. The decreases were due
to ADR improvements, effective cost controls and decreases in snow removal and
other weather related costs.
Occupancy and other operating expenses consist primarily of insurance, real
estate and other taxes and rent expense. Occupancy and other operating expenses
increased by $6.6 million, or 38.7%, from $17.1 million in 1996 to $23.8 million
in 1997. As a percentage of hotel revenues, occupancy and other operating
expenses increased from 7.0% in 1996 to 7.5% in 1997, primarily due to the rent
associated with the new leased hotels. Occupancy and other operating expenses
are expected to increase in 1998 due to the rent associated with the
sale/leaseback of hotels to American General and Equity Inns.
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 $4.1 million, or 22.2%, from $18.8 million in 1996 to
$22.9 million in 1997, due to increased brand advertising, payroll and training
costs associated with opening new AmeriSuites and HomeGate hotels. As a
percentage of total revenues, general and administrative expenses decreased from
6.9% in 1996 to 6.7% in 1997 due to operating leverage.
Depreciation and amortization expense increased by $10.2 million, or 42.6%,
from $24.0 million in 1996 to $34.2 million in 1997, due to the impact of new
hotel properties and refurbishment efforts at several hotels.
Interest expense increased by $3.8 million, or 16.2%, from $23.1 million in
1996 to $26.9 million in 1997, primarily due to the issuance of the $200 million
Senior Subordinated Notes in March 1997 offset by capitalized interest related
to new AmeriSuites and HomeGate construction. The Company capitalized $7.7
million and $18.2 million of interest in 1996 and 1997, respectively.
Investment income decreased by $1.9 million, or 36.8%, from $5.1 million in
1996 to $3.2 million in 1997 primarily due to higher average cash balances
generated by the new borrowing.
Other income consists of items which are not part of the Company's
recurring operations. For the year ended December 31, 1997, other income
consisted of a net gains on property sales of $2.1 million. Other income for the
year ended December 31, 1996 consisted primarily of gains on settlements of
notes receivable of $1.8 million and gains on property sales of $2.5 million.
Pretax extraordinary gains of $337,000 and $123,000 for 1996 and 1997
relate to the retirement of debt.
25
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Prime's capital requirements have focused on the expansion of its
proprietary AmeriSuites and HomeGates brands through new construction. As of
February 28, 1999, Prime had 94 AmeriSuites and 38 HomeGates in operation with
another three AmeriSuites and six HomeGates under construction.
In September 1998, Prime announced plans to reduce its hotel development
from prior levels. The Company's previous development plans were to be financed
primarily through the sale and leaseback of hotels to REITs. Recent changes in
the capital markets have affected the ability of hotel REITs such as MeriStar
and Equity Inns to raise both debt and equity capital to finance acquisitions.
Due to this uncertainty regarding hotel divestitures, Prime is developing hotels
only to the extent of funding being available from internal cash sources. Under
its revised plans, Prime has completed the majority of its current development
program and has nine hotels remaining to be completed. Prime also anticipates
commencing construction on six land sites it currently owns in mid-1999. Prime
believes that borrowing availability under the Company's Revolving Credit
Facility and internally generated cash flow will be sufficient to fund its
revised development plan.
At December 31, 1998, the Company had cash, cash equivalents and current
marketable securities of $25.0 million. In addition, at December 31, 1998, the
Company had $35.0 million available under the Revolving Credit Facility.
The Company's major sources of cash for 1998 were gross borrowings
primarily under the Revolving Credit Facility of $203.6 million, net proceeds
from the sales of hotels of $223.8 million and cash flow from operations of
$82.2 million. The Company's major uses of cash during the period were capital
expenditures of $430.5 million relating primarily to the development of new
hotels and debt repayments of $69.9 million.
Cash flow from operations was positively impacted by the utilization of net
operating loss carryforwards ("NOLs") and other tax basis differences of $4.2
million in 1997 and $5.0 million in 1998, respectively. At December 31, 1998,
the Company had federal NOLs relating primarily to its predecessor, Prime Motor
Inns, Inc. ("PMI"), of approximately $69.9 million which are subject to annual
utilization limitations and expire in 2006.
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. Primarily, through sale/leasebacks to REITs,
the Company generated approximately $223.8 million in cash in 1998 which was
used to finance hotel development. Due to the uncertainty in the real estate
capital markets, the Company's business plan does not depend upon any proceeds
from asset sales in 1999.
In January 1998, the Company completed the sale/leaseback of eight
full-service hotels to MeriStar, formally known as American General Hospitality,
Inc., for $138.4 million. The purchase price consisted of $114.4 million in
cash, $10.2 million in assumed debt and $13.8 million in MeriStar limited
partnership operating units. The Company is operating the hotels under a lease
agreement 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 also had a contract to sell and
lease back nine additional full-service hotels to MeriStar not later than March
31, 1999. In February 1999, MeriStar informed the Company that it was unable to
fulfill its contractual obligation. Under the terms of its contract, the Company
received a $4 million contract termination fee in February 1999.
In June 1998, the Company sold nine AmeriSuites hotels to Equity Inns, Inc.
for $97.0 million in cash. The Company is operating the hotels under a lease
agreement between Equity Inns and a subsidiary of the Company for a ten-year
term with certain renewal options. The transaction generated a net gain of $15.2
million, which will be recognized as a reduction of rent expense over the life
of the lease. The Company is also generating franchise fees under a ten-year
franchise agreement. The sale is part of an ongoing strategic relationship
between the Company and Equity Inns whereby Equity Inns has the right of first
refusal on the sale of the first 20 AmeriSuites hotels per year.
In December 1998, the Company sold an AmeriSuites hotel for $10.8 million.
In February 1999, the Company sold another AmeriSuites hotel for $9.7 million.
Under both transactions, the Company will receive
26
<PAGE> 28
franchise fees under ten year franchise agreements. The Company utilized the
proceeds to repurchase its common stock. See Uses of Capital. The Company
intends to continue to reduce its real estate holdings and will utilize the
proceeds for the repurchase of stock, the reduction of debt and/or the
development of its brands.
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 the Company. 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 December 31, 1998, the Company had outstanding borrowings of
$165.0 million under the facility and further availability of $35.0 million.
On September 30, 1998, the Company's Revolving Credit Facility was amended
to provide for the elimination of a market capitalization test, a revision of
the key man employee covenant and limitations on hotel development and stock
repurchases. Pursuant to such amendment, development of new hotels is limited to
the existing development plan plus $50 million through 1999. Stock repurchases
are limited to an aggregate of $50 million in 1999 to the extent of new cash
sources (i.e asset sales, equity offerings).
On March 12, 1998, the Company settled its insurance claim for $16.4
million related to 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.
Uses of Capital. The Company's capital spending is focused on completing
the development of its AmeriSuites and HomeGate hotels currently under
construction. For 1998, the Company spent $235.4 million on new construction of
AmeriSuites and $166.7 million on new construction of HomeGates. The Company
expects to spend approximately $65 million to complete its current construction
pipeline in 1999 and an additional $30 million on new construction to begin in
mid- 1999 on six land sites it owns (amounts include capitalized interest).
These amounts will be funded by borrowings under the Revolving Credit Facility
and internally generated cash flow.
For 1998, the Company spent approximately $26.2 million on capital
improvements at its Owned Hotels of which approximately $11.8 million related to
the refurbishment of the Frenchman's Reef.
Under its stock repurchase program, in 1998 the Company purchased 1.4
million shares of its common stock at an average price of $17.78 per share.
Under the terms of the Revolving Credit Facility the Company may purchase
additional shares in an aggregate amount not to exceed $50 million in 1999. As
of March 15, 1999, the Company had purchased 2.5 million shares of stock in 1999
at an average price of $10.00 per share.
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 December 31, 1998, the Company had advances of approximately $217.4
million to such third party which advances are classified as property, equipment
and leasehold improvements.
Year 2000 Readiness. The Company has initiated a program to prepare the
Company's computer systems and applications for the year 2000. This is necessary
because certain computer programs have been written using two digits rather than
four to define the applicable year. Any of the Company's computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a material system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process normal business transactions. In addition, many
of the Company's vendors and service providers are also faced with similar
issues related to the year 2000.
In connection with the Company program related to year 2000 readiness, the
Company's management has assessed the Company's information systems, including
its hardware and software systems and embedded systems contained in the
Company's hotels and corporate headquarters. Based on the findings of this
27
<PAGE> 29
assessment, the Company has commenced a plan to upgrade or replace the Company's
hardware or software for year 2000 readiness as well as to assess the year 2000
readiness of the Company's vendors and service providers. In addition, the
Company's management is currently formulating contingency plans, which, in the
event that the Company is unable to fully achieve year 2000 readiness in a
timely manner, or any of the Company's vendors or service providers fails to
achieve year 2000 readiness, may be implemented to minimize the risks of
interruptions of the Company's business.
Based on its assessment to date of the year 2000 readiness of the Company's
vendors, service providers and other third parties on which the Company relies
for business operations, the Company believes that its principal vendors,
service providers and other third parties are taking action for year 2000
compliance. However, the Company has limited ability to test and control such
third parties' year 2000 readiness, and the Company cannot provide assurance
that failure of such third parties to address the year 2000 issue will not cause
an interruption of the Company's business.
As of December 31, 1998, the Company believes that approximately 50% of its
information systems are year 2000 ready. The Company estimates that the total
costs associated with implementing year 2000 readiness since the project's
commencement will be in the range of $1 million. The Company anticipates that it
will finance the cost of its year 2000 remediation using its existing sources of
liquidity.
The Company expects to complete its year 2000 remediation by October 1999.
However, the Company's ability to execute its plan in a timely manner may be
adversely affected by a variety of factors, some of which are beyond the
Company's control including turnover of key employees, availability and
continuity of consultants and the potential for unforeseen implementation
problems. The Company's business could be interrupted if the year 2000 plan is
not implemented in a timely manner, if the Company's vendors, service providers
or other third parties are not year 2000 ready or if the Company's contingency
plans are not successful. Based on currently available information, and although
no assurance can be given, the Company does not believe that any such
interruptions are likely to have a material adverse effect on the Company's
results of operations, liquidity or financial condition.
28
<PAGE> 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This table presents descriptions of the financial instruments and
derivative instruments that are held by the Company at December 31, 1998 and
which are sensitive to changes in interest rates. The Company has entered into a
derivative financial instrument transaction in order to manage or reduce market
risk. The Company has not entered into any derivative financial instrument
transactions for speculative purposes.
For the debt, the table represents principal cash flows that exist by
maturity date and the related average interest rate. For the swaps, the table
presents the notional amounts and expected interest rates that exist by
contractual dates; the notional amount is used to calculate the contractual
payments to be exchanged under the contract. The variable rates are estimated
based upon applicable LIBOR or Prime rates.
All amounts are reflected in thousands of dollars.
<TABLE>
<CAPTION>
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Fixed Rate............ $1,333.. $1,135 $ 1,173 $ 7,378 $1,166 $339,754 $351,939 $360,888
Average Interest
Rate................ 9.51% 9.52% 9.53% 9.63% 9.56% 9.34% 9.35%
Average Rate.......... $14,429 $4,500 $44,592 $145,304 $6,848 $ 30,181 $245,855 $245,855
Average Interest
Rate................ 7.55% 7.42% 7.42% 7.81% 8.31% 7.67% 7.71%
INTEREST-RATE
DERIVATIVES
Variable to fixed:
Notional amount....... $40,000 $ -- $ -- $ -- $ -- $ -- $ -- $ (397)
Average Pay Rate...... 6.18% -- -- -- -- -- --
Average Receive
Rate................ 5.06% -- -- -- -- -- --
</TABLE>
In October 1995, the Company entered into an interest rate protection
agreement with a major financial institution which fixes interest rates on 40.0
million of variable interest rate debt. Under the agreement, on a monthly basis
the Company pays a fixed rate of interest of 6.18% and receives a floating
interest rate payment equal to the 30 day LIBOR rate on a $40.0 million notional
principal amount. The agreement expires in October 1999 and has been reflected
in the table above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements included in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
29
<PAGE> 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- --------------------------------------
<S> <C> <C>
A.F. Petrocelli....................... 55 President, Chief Executive Officer and
Chairman of the Board of Directors
Lawrence N. Friedland(1).............. 76 Director
Howard M. Lorber(1)................... 50 Director
Herbert Lust, II(1)................... 72 Director
Jack H. Nusbaum....................... 58 Director
Paul H. Hower......................... 64 Executive Vice President
Joseph Bernadino...................... 52 Senior Vice President, Secretary and
General Counsel
Ethan Kramer.......................... 41 Senior Vice President/Development
John H. Leavitt....................... 46 Senior Vice President/Sales and
Marketing
Terry P. O'Leary...................... 43 Senior Vice President/Franchising
Douglas W. Vicari..................... 39 Senior Vice President and Chief
Financial Officer
Richard T. Szymanski.................. 41 Vice President/Finance
</TABLE>
- ---------------
(1) Member of the Compensation and Audit Committee.
The following is a biographical summary of the experience of the directors
and executive officers of the Company:
A.F. Petrocelli was a Director since 1992 and a member of the Compensation
and Audit Committee from 1993 to 1998. Mr. Petrocelli has been Chairman of the
Board of Directors, President and Chief Executive Officer of the Company since
1998. Mr. Petrocelli has been Chairman of the Board of Directors and Chief
Executive Officer of United Capital Corp. for more than the past five years. He
is also a director of Nathan's Famous, Inc., Boyar Value Fund, Inc. and Philips
International Realty Corp.
Lawrence N. Friedland has been a Director of the Company since August,
1998. Mr. Friedland has been a partner in the law firm of Hoffinger Friedland
Dobrish & Stern, P.C. for more than the past 25 years. He has been a director of
the Apple Bank for Savings since 1990, a director of Lutron Electronics Co.,
Inc. since 1961, a member of the Advisory Committee of Brown Harris Stevens, LLC
since 1995 and a general partner, manager or director of numerous real estate
entities.
Howard M. Lorber has been a Director of the Company and a member since 1994
and Chairman since 1998 of the Compensation and Audit Committee. Mr. Lorber has
been Chairman of the Board and Chief Executive Officer of Nathan's Famous, Inc.
for more than the past five years and Chairman of the Board of Directors and
Chief Executive Officer of Hallman & Lorber Associates, Inc., for over five
years. He has been a director, President and Chief Operating Officer of New
Valley Corporation for more than five years. He has been a director of and
member of the Audit Committee of United Capital Corp. for more than the past
five years, and he has been a director of PLM International, Inc. since January
1999.
Herbert Lust, II has been a Director since 1992 and a member of the
Compensation and Audit Committee of the Company since 1993. Mr. Lust has been a
private investor and President of Private Water Supply Inc. for more than the
past five years. Mr. Lust is a director of BRT Realty Trust.
30
<PAGE> 32
Jack H. Nusbaum has been a Director since 1994. Mr. Nusbaum is the Chairman
of the law firm of Willkie Farr & Gallagher, where he has been a partner for
more than the past twenty-five years. He also is a director of Pioneer
Companies, Inc., W.R. Berkley Corporation, Strategic Distribution, Inc., The
Topps Company, Inc. and Fine Host Corporation.
Paul H. Hower has been an Executive Vice President of the Company since
June 1993. Mr. Hower was President of Integrity Hospitality Services prior to
June 1993.
Joseph Bernadino has been Senior Vice President, Secretary and General
Counsel of the Company since 1992.
Ethan Kramer has been a Senior Vice President-Development of the Company
since 1998, a Vice President of Development from 1996 to 1997, and a director of
Development from 1995 to 1996. Mr. Kramer was a Senior Vice President of
Atterbury & Associates, Inc. from 1994 to 1995.
John H. Leavitt has been a Senior Vice President of the Company since 1992.
Terry P. O'Leary has been a Senior Vice President of the Company since 1998
and was Vice President of the Company since 1998 and was Vice President of Food
and Beverage since 1995. Mr. O'Leary was an area manager and corporate director
with B.F. Saul Co. from 1993 to 1995.
Douglas W. Vicari became a Senior Vice President and Chief Financial
Officer of the Company in 1998. Prior to that he had been a Vice President and
Treasurer of the Company for more than five years.
Richard T. Szymanski became Vice President/Finance of the Company in 1998.
Prior to that he had been a Vice President and Corporate Controller of the
Company for more than five years.
ITEM 11. EXECUTIVE COMPENSATION
There are incorporated in this Item 11 by reference those portions of the
Company's definitive Proxy Statement, which the Company intends to file not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
appearing under the captions "Executive Compensation," "Compensation Pursuant to
Plans," "Other Compensation," "Compensation of Directors," and "Termination of
Employment and Change of Control Agreements".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are incorporated in this Item 12 by reference those portions of the
Company's definitive Proxy Statement, which the Company intends to file not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
appearing under the captions "Principal Shareholders" and "Security Ownership of
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are incorporated in this Item 13 by reference those portions of the
Company's definitive Proxy Statement, which the Company intends to file not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
appearing under the caption "Certain Relationships and Related Transactions."
31
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Financial Statements listed in the accompanying index to financial
statements are filed as part of this Annual Report.
2. Exhibits
2(a) Reference is made to the Contract of Purchase and Sale between
Hillsborough Associates, Meriden Hotel Associates, L.P., Wellesley
I, L.P., Multi-Wellesley Limited Partnership and the Company,
dated March 6, 1996, filed as an Exhibit to the Company's 8-K
dated March 21, 1996, which is incorporated herein by reference.
(b) Reference is made to Consent of the Holders Thereof to the
Purchase by the Company of the Outstanding First Mortgage Notes
filed as an Exhibit to the Company's 8-K, dated March 21, 1996,
which is incorporated herein by reference.
(c) Reference is made to the Agreement and Plan of Merger as of July
25, 1997 by and among Prime Hospitality Corp., PH Sub Corporation
and Homegate Hospitality, Inc. filed as an Exhibit to the
Company's Form S-4, dated October 24, 1997, which is incorporated
herein by reference.
(d) Reference is made to the form of Amended and Restated Purchase and
Sale Agreement between Prime Hospitality Corp., as seller, and
Equity Inns Partnership, L.P., as purchaser, dated December 2,
1997, filed as an Exhibit to the Company's Form 8-K dated December
11, 1997, which is incorporated herein by reference.
(e) Reference is made to the form of Amended and Restated Purchase and
Sale Agreement between Prime Hospitality Corp., as seller, and
American General Hospitality Operating Partnership, L.P., as
purchaser, dated January 7, 1998 filed as an Exhibit to the
Company's Form 8-K dated January 7, 1998, which is incorporated
herein by reference.
(f) Reference is made to the form of Purchase and Sale Agreement
between Prime Hospitality Corp., as seller, and Equity Inns
Partnership, L.P., as purchaser, dated June 26, 1998, filed as an
Exhibit to Company's Form 10-Q, dated June 30, 1998, which is
incorporated herein by reference.
3(a) Reference is made to the Restated Certificate of Incorporation of
the Company, dated June 5, 1992, filed as an Exhibit to the
Company's Form 10-K dated September 25, 1992, which is
incorporated herein by reference.
(b) Reference is made to the restated Certificate of Incorporation, As
Amended, filed as an Exhibit to the Company's Form 10-QA, dated
April 30, 1996, which is incorporated herein by reference.
(c) Reference is made to the Restated Bylaws of the Company filed as
an Exhibit to the Company's Form 10-K, dated September 25, 1992,
which is incorporated herein by reference.
4(a) Reference is made to the Form of 8.20% Tax Note of the Company
filed as an Exhibit to the Company's Form 10-K, dated September
25, 1992, which is incorporated herein by reference.
(b) Reference is made to the Form of 8% Secured UND Restructured Note
of the Company filed as an Exhibit to the Company's Form 10-K,
dated September 25, 1992, which is incorporated herein by
reference.
32
<PAGE> 34
(c) Reference is made to the Form of 9.20% OVR Restructured Note of
the Company filed as an Exhibit to the Company's Form 10-K, dated
September 25, 1992, which is incorporated herein by reference.
(d) Reference is made to a Form 8-A of the Company as filed on June 5,
1992 with the Securities and Exchange Commission, as amended by
Amendment No. 1 and Amendment No. 2, which is incorporated herein
by reference.
(e) Reference is made to an Indenture, dated January 23, 1996, between
the Company and the Trustee related to 9 1/4% First Mortgage Notes
due 2006, filed as an Exhibit to the Company's Form 10-K dated
March 21, 1996, which is incorporated herein by reference.
(f) Reference is made to the Senior Secured Revolving Credit
Agreement, dated as of June 26, 1996, among the Company and the
Lenders Party hereto, and Credit Lyonnais New York Branch, as
Documentation Agent, and Bankers Trust Company, as Agent, filed as
an Exhibit to the Company's Amendment No. 1 to Form S-3 dated July
26, 1996, which is incorporated herein by reference.
(g) Reference is made to the 9 3/4% Senior Subordinated Notes due
2007, dated March 21, 1997, filed as an Exhibit to the Company's
Form S-4, dated April 2, 1997, which is incorporated herein by
reference.
(h) Reference is made to the Amended and Restated Senior Secured
Revolving Credit Agreement, dated as of December 17, 1997, among
Prime Hospitality Corp., and The Lenders Party hereto, and Societe
Generale, Southwest Agency, as Documentation Agent, and Credit
Lyonnais New York Branch, as Syndication Agent, and Bankers Trust
Company, as Agents filed as an Exhibit to the Company's Form 10-K,
dated December 31, 1997, which is incorporated herein by
reference.
(i) Reference is made to the Second Amendment to the Senior Secured
Revolving Credit Agreement, dated September 30, 1998, among Prime
Hospitality Corp., Societe Generale Southwest Agency, as
Documentation Agent, Credit Lyonnais New York Bank, as Syndication
Agent and Bankers Trust Company as Agent for Lenders filed as an
Exhibit to the Company's Form 10-Q dated November 6, 1998, which
is incorporated herein by reference.
10(a) Reference is made to PMI's Flexible Benefit Plan, filed as an
Exhibit to the Form 10-Q, dated February 12, 1988 of PMI, which is
incorporated herein by reference.
(b) Reference is made to the 1992 Performance Incentive Stock Option
Plan of the Company, dated as of July 31, 1992, filed as an
Exhibit to the Company's Form 10-K dated September 25, 1992, which
is incorporated herein by reference.
(c) Reference is made to the 1992 Stock Option Plan of the Company
filed as an Exhibit to the Company's Form 10-K, dated September
25, 1992, which is incorporated herein by reference.
(d) Reference is made to the 1992 Non-Qualified Stock Option Agreement
between the Company and David A. Simon filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(e) Reference is made to the 1992 Non-Qualified Stock Option Agreement
between the Company and John Elwood filed as an Exhibit to the
Company's Form 10-K, dated March 26, 1993, which is incorporated
herein by reference.
(f) Reference is made to an Amendment regarding the 1995 Employee and
Non-Employee Stock Option Plans, incorporated in the Company's
proxy statement dated April 13, 1998.
(g) Change of Control Agreement, dated May 14, 1998, between Paul H.
Hower and the Company.
33
<PAGE> 35
(h) Change of Control Agreement, dated May 14, 1998, between John H.
Leavitt and the Company.
(i) Change of Control Agreement, dated May 14, 1998, between Joseph
Bernadino and the Company.
(j) Change of Control Agreement, dated May 14, 1998, between Richard
T. Szymanski and the Company.
(k) Change of Control Agreement, dated May 14, 1998, between Douglas
W. Vicari and the Company.
(l) Change of Control Agreement, dated May 14, 1998, between Terry P.
O'Leary and the Company.
(m) Change of Control Agreement, dated May 14, 1998 between Ethan Kramer
and the Company.
(n) Employment Agreement, dated September 14, 1998, between Attilio F.
Petrocelli and the Company.
(o) Change of Control Agreement, dated September 14, 1998, between
Atillio F. Petrocelli and the Company.
(21) Subsidiaries of the Company are as follows:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
<S> <C>
AmeriSuites Franchising, Inc.......................... Delaware
Caldwell Holding Corp................................. Delaware
Clifton Holding Corp.................................. Delaware
Dynamic Marketing Group, Inc.......................... Delaware
Fairfield Holding Corp................................ Delaware
Fairfield-Meridian Claims Service, Inc................ Delaware
HomeGate Franchising, Inc............................. Delaware
HomeGate Hospitality, Inc............................. Delaware
KSA Management, Inc................................... Kansas
Mahwah Holding Corp................................... Delaware
Market Segments, Incorporated......................... Delaware
Prime-American Realty Corp............................ Delaware
Prime Hospitality Franchising, Inc.................... Delaware
Prime-O-Lene, Inc..................................... New Jersey
Republic Motor Inns, Inc.............................. Virginia
Secaucus Holding Corp................................. Delaware
VPS, Inc.............................................. Delaware
Wellesley Inns Franchising, Inc....................... Delaware
</TABLE>
(23) Consent of Arthur Andersen LLP
(27) Financial data schedule.
Certain instruments defining the rights of holders of long-term debt of the
Company and its subsidiaries have not been filed in accordance with Item
601(b)(4)(iii) of Regulation S-K. The Company hereby agrees to finish a copy of
such instruments to the Commission upon request.
34
<PAGE> 36
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(ITEM 14(a))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Financial Statements:
Balance Sheets at December 31, 1997 and 1998.............. F-3
Statements of Income for the Years Ended December 31,
1996, 1997 and 1998.................................... F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998....................... F-5
Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998.................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
F-1
<PAGE> 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Prime Hospitality Corp.:
We have audited the accompanying consolidated balance sheets of Prime
Hospitality Corp. (a Delaware corporation) and subsidiaries (the "Company") as
of December 31, 1997 and 1998 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prime Hospitality Corp. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 4, 1999
F-2
<PAGE> 38
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 5,013 $ 12,534
Marketable securities available for sale.................... 8,697 12,460
Accounts receivable, net of reserves of $415 and $732 in
1997 and 1998, respectively............................... 16,318 20,816
Current portion of mortgages and notes receivable........... 2,271 797
Other current assets........................................ 28,780 28,791
---------- ----------
Total current assets.............................. 61,079 75,398
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization................. 1,079,591 1,281,378
Mortgages and notes receivable, net of current portion...... 19,698 14,688
Other assets................................................ 36,298 36,934
---------- ----------
Total Assets...................................... $1,196,666 $1,408,398
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt..................................... $ 3,871 $ 15,762
Other current liabilities................................... 76,921 82,767
---------- ----------
Total current liabilities......................... 80,792 98,529
Long-term debt, net of current portion...................... 554,500 582,031
Other liabilities........................................... 18,253 6,240
Deferred income, net of current portion..................... 18,708 80,553
---------- ----------
Total liabilities................................. 672,253 767,353
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; 47,233,011 and 55,202,253 shares issued and
outstanding in 1997 and 1998, respectively................ 472 552
Capital in excess of par value.............................. 419,242 511,981
Retained earnings........................................... 105,737 159,584
Accumulated other comprehensive loss, net of taxes.......... -- (4,993)
Treasury stock, at cost (50,039 and 1,470,439 shares in 1997
and 1998, respectively)................................... (1,038) (26,079)
Total stockholders' equity........................ 524,413 641,045
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,196,666 $1,408,398
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 39
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Lodging.................................................. $201,179 $272,267 $393,988
Food and beverage........................................ 41,437 41,968 53,391
Management, franchise and other fees..................... 8,832 9,708 13,362
Interest on mortgages and notes receivable............... 6,090 6,097 4,664
Business interruption insurance.......................... 13,562 10,921 4,000
-------- -------- --------
Total revenues................................... 271,100 340,961 469,405
-------- -------- --------
Costs and expenses:
Direct hotel operating expenses:
Lodging............................................... 52,224 68,072 98,400
Food and beverage..................................... 32,053 31,036 39,771
Selling and general................................... 62,580 70,225 99,361
Occupancy and other operating.............................. 17,071 23,669 57,067
General and administrative................................. 18,764 22,923 26,509
Depreciation and amortization.............................. 23,976 34,198 41,975
Other charges.............................................. -- -- 17,361
-------- -------- --------
Total costs and expenses......................... 206,668 250,123 380,444
-------- -------- --------
Operating income........................................... 64,432 90,838 88,961
Investment income.......................................... 5,061 3,197 3,486
Interest expense........................................... (23,149) (26,893) (23,914)
Other income............................................... 4,313 2,077 18,132
Merger costs............................................... -- (18,555) --
-------- -------- --------
Income before income taxes and extraordinary items......... 50,657 50,664 86,665
Provision for income taxes................................. 20,609 24,808 32,818
-------- -------- --------
Income before extraordinary items.......................... 30,048 25,856 53,847
Extraordinary items -- gains on discharges of indebtedness
(net of income taxes of $135 and $48 in 1996 and 1997,
respectively)............................................ 202 75 --
-------- -------- --------
Net income................................................. $ 30,250 $ 25,931 $ 53,847
======== ======== ========
Basic earnings per Common Share:
Income before extraordinary items.......................... $ .74 $ .56 $ 1.04
Extraordinary items........................................ -- -- --
-------- -------- --------
Net income per common share................................ $ .74 $ .56 $ 1.04
======== ======== ========
Diluted earnings per Common Share:
Income before extraordinary items.......................... $ .68 $ .54 $ 1.00
Extraordinary items........................................ -- -- --
-------- -------- --------
Net income per common share................................ $ .68 $ .54 $ 1.00
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 40
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL IN ACCUMULATED
COMMON STOCK EXCESS OF OTHER
------------------- PAR RETAINED COMPREHENSIVE TREASURY COMPREHENSIVE
SHARES AMOUNT VALUE EARNINGS LOSS STOCK TOTAL INCOME
---------- ------ ---------- --------- ------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995.... 31,004,499 $310 $183,050 $ 49,556 $ -- $ -- $232,916 $ --
Net income................... -- -- -- 30,250 -- -- 30,250 30,250
Utilization of net operating
loss carryforwards......... -- -- 10,590 -- -- -- 10,590 --
Amortization of pre-fresh
start tax basis
differences................ -- -- 1,243 -- -- -- 1,243 --
Proceeds from issuance of
common stock............... 14,763,000 148 206,827 -- -- -- 206,975 --
Proceeds and tax benefits
from exercise of stock
options.................... 148,492 1 1,521 -- -- -- 1,522 --
Proceeds from exercise of
stock warrants............. 401,926 4 1,084 -- -- -- 1,088 --
Comprehensive income......... -- -- -- -- -- -- -- $30,250
---------- ---- -------- -------- ------- -------- -------- =======
Balance December 31, 1996.... 46,317,917 463 404,315 79,806 -- -- 484,584 $ --
Net income................... -- -- -- 25,931 -- -- 25,931 25,931
Utilization of net operating
loss carryforwards......... -- -- 4,141 -- -- -- 4,141 --
Amortization of pre-fresh
start tax basis
differences................ -- -- 102 -- -- -- 102 --
Proceeds and tax benefits
from exercise of stock
options.................... 576,908 6 5,771 -- -- -- 5,777 --
Proceeds from exercise of
stock warrants............. 338,186 3 913 -- -- -- 916 --
Treasury stock purchases..... (50,039) -- -- -- -- (1,038) (1,038) --
Contribution from
shareholder................ -- -- 4,000 -- -- -- 4,000 --
Comprehensive income......... -- -- -- -- -- -- -- $25,931
---------- ---- -------- -------- ------- -------- -------- =======
Balance December 31, 1997.... 47,182,972 472 419,242 105,737 -- (1,038) 524,413 $ --
Net income................... -- -- -- 53,847 -- -- 53,847 53,847
Utilization of net operating
loss carryforwards......... -- -- 3,956 -- -- -- 3,956 --
Amortization of pre-fresh
start tax basis
differences................ -- -- 1,005 -- -- -- 1,005 --
Proceeds and tax benefits
from exercise of stock
options.................... 146,167 2 1,906 -- -- -- 1,908 --
Proceeds from exercise of
stock warrants............. 637,524 6 1,712 -- -- -- 1,718 --
Unrealized loss on marketable
securities available for
sale....................... -- -- -- -- (4,993) -- (4,993) (4,993)
Treasury stock purchases..... (1,420,400) -- -- -- -- (25,041) (25,041) --
Conversion of long-term
debt....................... 7,185,551 72 84,160 -- -- -- 84,232 --
Comprehensive income......... -- -- -- -- -- -- -- $48,854
---------- ---- -------- -------- ------- -------- -------- =======
Balance December 31, 1998.... 53,731,814 $552 $511,981 $159,584 $(4,993) $(26,079) $641,045
========== ==== ======== ======== ======= ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 41
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 30,250 $ 25,931 $ 53,847
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 23,976 34,198 41,975
Valuation adjustment on properties held for sale........ -- -- 10,000
Amortization of deferred financing costs................ 2,268 2,874 3,109
Utilization of net operating loss carryforwards......... 10,590 4,141 3,956
Gain on sale of assets.................................. (6,123) (2,077) (18,132)
Gain on discharge of indebtedness....................... (337) (123) --
Amortization of deferred gain........................... -- (150) (9,421)
Amortization of pre-fresh start tax basis differences... 1,243 102 1,005
Deferred income taxes................................... 1,386 2,479 (4,259)
Reserve for hurricane damages........................... -- -- 1,000
Merger expenses funded by shareholder................... -- 4,000 --
Increase (decrease) from changes in other operating assets
and liabilities:
Accounts receivable....................................... (221) (3,423) (4,498)
Other current assets...................................... (5,695) (21,079) (1,554)
Other liabilities......................................... 8,841 27,508 5,183
--------- --------- ---------
Net cash provided by operating activities............... 66,178 74,381 82,211
Cash flows from investing activities:
Net proceeds from mortgages and notes receivable.......... 8,933 3,543 26,320
Disbursements for mortgages and notes receivable.......... (2,700) (1,194) (1,541)
Proceeds from sales of property, equipment and
leasehold............................................... 12,962 100,820 223,773
Purchases of property, equipment and leasehold
improvements............................................ (134,266) (107,868) (28,473)
Construction of new hotels................................ (184,566) (343,203) (402,066)
(Increase) decrease in restricted cash.................... 5,377 3,596 (7,012)
Proceeds from insurance settlement........................ 1,500 2,500 3,782
Proceeds from sales of marketable securities.............. 15,023 238 1,906
Purchase of marketable securities......................... -- -- (350)
Other..................................................... 13 (1,597) (3,298)
--------- --------- ---------
Net cash used in investing activities................... (277,724) (343,165) (186,959)
Cash flows from financing activities:
Net proceeds from issuance of debt........................ 184,705 390,769 203,552
Payments of debt.......................................... (184,803) (170,100) (69,870)
Proceeds from the exercise of stock options and
warrants................................................ 2,609 6,693 3,628
Proceeds from issuance of common stock.................... 206,975 -- --
Purchase of treasury stock................................ -- (1,038) (25,041)
--------- --------- ---------
Net cash provided by financing activities............... 209,486 226,324 112,269
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (2,060) (42,460) 7,521
Cash and cash equivalents at beginning of period............ 49,533 47,473 5,013
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 47,473 $ 5,013 $ 12,534
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 42
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
The Company is an owner, manager and franchisor of hotels throughout the
United States and the U.S. Virgin Islands. The Company operates three
proprietary brands, AmeriSuites (all-suites), HomeGate Studios & Suites
(extended-stay) and Wellesley Inns (limited-service). Also within its portfolio
are full-service hotels operated under franchise agreements with national hotel
chains. As of February 28, 1999, the Company owned 153 hotels (the "Owned
Hotels"), operated 28 hotels under lease agreements with REITs (the "Leased
Hotels"), managed 10 hotels for third parties (the "Managed Hotels") and
franchised two hotels which it does not operate (the "Franchised Hotels"). The
Company has significant equity interests in the Owned Hotels and has economic
interests limited to a percentage of hotel revenues (generally between 2.5% to
5.0%) generated by the Leased Hotels, Managed Hotels and Franchised Hotels. The
Company consolidates the results of operations of its Owned Hotels and Leased
Hotels and only records management fees (including incentive management fees) on
the Managed Hotels and franchise revenue on the Franchised Hotels.
BASIS OF PRESENTATION
The Company emerged from the Chapter 11 reorganization proceeding of its
predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"),
which consummated its Plan of Reorganization ("the Plan") on July 31, 1992.
Pursuant to the American Institute of Certified Public Accountant's
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh start
reporting as of July 31, 1992. Under fresh start reporting, the reorganization
value of the entity was allocated to the reorganized Company's assets on the
basis of the purchase method of accounting. The reorganization value (the
approximate fair value) of the assets of the emerging entity was determined by
consideration of many factors and various valuation methods, including
discounted cash flows and price/earnings and other applicable ratios believed by
management to be representative of the Company's business and industry.
Liabilities were recorded at face values, which approximated the present values
of amounts to be paid, determined at appropriate interest rates. Under fresh
start reporting, the consolidated balance sheet as of July 31, 1992 became the
opening consolidated balance sheet of the emerging Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents are highly liquid, unrestricted investments with a
maturity of three months or less when acquired.
F-7
<PAGE> 43
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARKETABLE SECURITIES
Marketable securities consist of equity securities which are available for
sale within one year. Marketable securities are valued at current market value.
The differences between the historical cost of the marketable securities
available for sale and the current market value are reflected in stockholders'
equity.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements that the Company intends to
continue to operate are stated at their fair market value as of July 31, 1992
plus the cost of acquisitions subsequent to that date less accumulated
depreciation and amortization from August 1, 1992. Provision is made for
depreciation and amortization using the straight-line method over the estimated
useful lives of the assets. Properties identified for disposal are stated at
their estimated net realizable value.
The Company evaluates whether impairment has occurred at each of its
properties based upon the future cash flows (undiscounted and before interest
charges) as compared to the carrying value of the property. During 1998, the
Company established a $10 million valuation reserve (which is included as part
of other charges) related to seven non-prototype HomeGate hotels. As of December
31, 1998, the Company believes that no further impairment exists regarding these
or any of its other properties.
MORTGAGES AND NOTES RECEIVABLE
Mortgages and notes receivable are reflected at their fair value as of July
31, 1992, adjusted for payments and other advances since that date. The amount
of interest income recognized on mortgages and notes receivable is generally
based on the stated interest rate and the carrying value of the notes. The
Company has a number of subordinated or junior mortgages which remit payment
based on hotel cash flow. Because there was substantial doubt that the Company
would recover any value, these mortgages were assigned no value in the Company's
consolidated financial statements when the Company adopted fresh-start reporting
on July 31, 1992. Interest income on cash flow mortgages and delinquent notes
receivable is generally recognized when cash is received.
The Company measures impairment of its mortgages and notes receivable based
on the present value of expected future cash flows (net of estimated costs to
sell) discounted at the effective interest rate. Impairment can also be measured
based on observable market price or the fair value of collateral, if the
mortgages and notes receivable are collateral dependent. If the measure of the
impaired mortgage or note receivable is less than the recorded investment, the
Company will establish a valuation allowance, or adjust existing valuation
allowances, with a corresponding charge or credit to operations. Based upon its
evaluation, the Company determined that no impairment had occurred as of
December 31, 1998.
OTHER ASSETS
Other assets consist primarily of deferred issuance costs related to the
Company's debt obligations. Deferred issuance costs are amortized over the
respective terms of the loans using the effective interest method.
INSURANCE PROGRAMS
The Company uses an incurred loss retrospective insurance plan for general
and auto liability and workers' compensation. Predetermined loss limits have
been arranged with insurance companies to limit the Company's per occurrence and
aggregate cash outlay.
The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and dependents which is partially funded
by payroll deductions. Payments for major medical and
F-8
<PAGE> 44
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
hospitalization below specified aggregate annual amounts are self-insured by the
Company. Claims for benefits in excess of these amounts are covered by insurance
purchased by the Company.
Provisions have been made in the consolidated financial statements which
represent the expected future payments based on the estimated ultimate cost for
incidents incurred through the balance sheet date and are included in other
current liabilities.
INCOME TAXES
The Company files a consolidated Federal income tax return. For financial
reporting purposes, the Company follows Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes". In accordance with
SFAS 109, as well as SOP 90-7, income taxes have been provided at statutory
rates in effect during the period. Tax benefits associated with net operating
loss carryforwards and other temporary differences that existed at the time
fresh start reporting was adopted are reflected as a contribution to
stockholders' equity in the period in which they are realized.
PRE-OPENING COSTS
Non-capital expenditures incurred prior to opening new or renovated hotels,
such as payroll and operating supplies, are deferred and expensed within one
year after opening. Pre-opening costs charged to expense were $1.3 million, $3.3
million and $6.7 million for the years ended December 31, 1996, 1997 and 1998,
respectively. As of December 31, 1998, $8.7 million of pre-opening costs are
included in other current assets.
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 the first quarter of 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 the results of its operations.
DEFERRED INCOME
Deferred income consists primarily of gains related to the sale of
properties under sale/leaseback transactions. These gains are being amortized
over the life of their respective leases as a reduction of rent expense.
INTEREST RATE AGREEMENTS
The Company has an interest rate swap agreement with a major financial
institution which reduces the Company's exposure to interest rate fluctuations
on its variable rate debt. The accounting treatment for this agreement is to
accrue net interest to be received or to be paid as an adjustment to interest
expense as incurred.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which is effective for fiscal
years beginning after June 15, 1999. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company has
not yet quantified the impact of adopting SFAS 133 on its financial statements,
however, the Company expects the impact to be immaterial due to its limited
derivative activity.
F-9
<PAGE> 45
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1996 and 1997
consolidated financial statements to conform them to the December 31, 1998
presentation.
NOTE 2 -- MERGER
On December 1, 1997, the Company merged with Homegate Hospitality, Inc.
("Homegate"), a provider of mid-price extended-stay hotels. Pursuant to the
merger, the Company issued approximately 6.5 million shares of common stock
based upon a fixed exchange ratio of 0.6073 per share of the Company's common
stock for each of the approximately 10.7 million outstanding shares of Homegate.
The transaction was accounted for as a pooling of interests.
Under pooling of interests accounting, all transaction costs are expensed
as incurred and the historical consolidated statements of operations of the
companies are restated on a combined basis without giving effect to operating
synergies.
For the year ended December 31, 1997, merger expenses consisted of the
following (in thousands):
<TABLE>
<S> <C>
Cost of terminating the management agreement................ $12,000
Transaction related costs................................... 5,168
Transition costs............................................ 1,387
-------
Total............................................. $18,555
=======
</TABLE>
Costs to terminate the management agreement represent amounts paid to
Wyndham Hotel Corporation pursuant to the termination agreement. These amounts
were funded: $8.0 million by the Company and $4.0 million by a shareholder of
Homegate. The amount paid by the shareholder has been reflected as a
contribution to capital.
Transaction related costs primarily represent fees paid for investment
banking, legal, accounting and other professional services. Transition costs
represent costs associated with the merging of the Company's and Homegate's
operations, including the combining of systems, facilities and management
resources.
NOTE 3 -- HOTEL ACQUISITIONS/DISPOSITIONS
SALE/LEASEBACK TRANSACTIONS
In January 1998, the Company completed the sale/leaseback of eight
full-service hotels to MeriStar Hospitality Corp. ("MeriStar"), formally known
as American General Hospitality, Inc., for $138.4 million. The purchase price
consisted of $114.4 million in cash, $10.2 million in assumed debt and $13.8
million in MeriStar limited partnership operating units. The Company is
operating the hotels under a lease agreement 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. As of
December 31, 1998, $6.5 million of this gain had been amortized.
The Company also had a contract to sell and lease back nine additional
full-service hotels to MeriStar not later than March 31, 1999. In February 1999,
MeriStar informed the Company that it was unable to fulfill its contractual
obligation. Under the terms of the contract, the Company received a $4.0 million
contract termination fee in February 1999.
On September 22, 1997, the Company entered into a strategic alliance with
Equity Inns, Inc. ("Equity Inns"), a real estate investment trust for the
purpose of financing its brand development through the sale/ leaseback of
AmeriSuites hotels. Under the agreement, Equity Inns has certain rights to
acquire AmeriSuites hotels developed by Prime through September 2000.
F-10
<PAGE> 46
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1997, the Company sold 10 hotels to Equity Inns for $87.0
million, consisting of $78.3 million in cash and $8.7 million in limited
partnership operating units. The Company will continue to operate the hotels
under a lease agreement for a term of 10 years with certain renewal options. The
Company is also generating franchise fees under a ten year franchise agreement.
The sale generated a gain of $20.2 million which will be recognized over the
life of the lease. As of December 31, 1998, $2.2 million of this gain had been
amortized.
In June 1998, the Company sold nine AmeriSuites hotels to Equity Inns for
$97.0 million in cash. The Company is operating the hotels under a lease
agreement for a ten-year term with certain renewal options. The Company is also
generating franchise fees under a ten-year franchise agreement. The transaction
generated a net gain of $15.2 million, which will be recognized as a reduction
of rent expense over the life of the lease. As of December 31, 1998, $800,000 of
this gain had been amortized.
ACQUISITIONS
In February 1997, the Company acquired the Monroe Township, NJ Holiday Inn
for approximately $11.2 million in cash. The acquisition was accounted for as a
purchase and, accordingly, the revenues and expenses of the hotel have been
included in reported results from the date of acquisition. If these operations
had been included in the consolidated financial statements since the beginning
of the year in which they occurred, reported results would not have been
materially different.
NOTE 4 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ -------
<S> <C> <C>
Cash...................................................... $2,981 $ 500
Commercial paper and other cash equivalents............... 2,032 12,034
------ -------
Totals.......................................... $5,013 $12,534
====== =======
</TABLE>
NOTE 5 -- OTHER CURRENT ASSETS/LIABILITIES
Other current assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Hotel inventories........................................ $ 7,046 $12,083
Pre-opening expense...................................... 2,572 8,713
Accrued interest receivable.............................. 3,075 1,854
Business interruption insurance receivable............... 6,485 --
Prepaid expenses......................................... 2,067 3,350
Other.................................................... 7,535 2,791
------- -------
Totals......................................... $28,780 $28,791
======= =======
</TABLE>
F-11
<PAGE> 47
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Accounts payable......................................... $19,696 $16,293
Construction payables.................................... 9,431 9,209
Interest payable......................................... 11,319 11,248
Accrued payroll and related benefits..................... 4,598 6,576
Accrued expenses......................................... 10,895 16,783
Accrued merger costs..................................... 5,114 --
Income taxes payable..................................... 3,055 5,613
Insurance reserves....................................... 8,277 5,298
Deferred income -- current portion....................... 2,093 10,322
Other.................................................... 2,443 1,425
------- -------
Totals......................................... $76,921 $82,767
======= =======
</TABLE>
NOTE 6 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ YEARS OF
1997 1998 USEFUL LIFE
---------- ---------- -----------
<S> <C> <C> <C>
Land and land leased to others(a)............... $ 188,531 $ 202,444
Hotels.......................................... 587,809 821,737 20 to 40
Furniture, fixtures and autos................... 118,262 148,602 3 to 10
Leasehold improvements.......................... 136,564 64,856 3 to 40
Construction in progress........................ 120,897 130,726
---------- ----------
Sub-total..................................... 1,152,063 1,368,365
Less accumulated depreciation and
amortization.................................. (72,472) (86,987)
---------- ----------
Totals................................ $1,079,591 $1,281,378
========== ==========
</TABLE>
- ---------------
(a) Included in land at December 31, 1997 and 1998 was $65.5 million and $47.9
million, respectively, of land associated with hotels under construction.
At December 31, 1998, the Company was the lessor of land and certain
restaurant facilities in Company-owned hotels with an approximate aggregate book
value of $11.2 million pursuant to noncancelable operating leases expiring on
various dates through 2013. Minimum future rentals under such leases are $6.2
million, of which $4.0 million is scheduled to be received during the five-year
period ending December 31, 2003.
Depreciation and amortization expense on property, equipment and leasehold
improvements was $22.2 million, $31.1 million and $36.7 million for the years
ended December 31, 1996, 1997 and 1998, respectively.
During the years ended December 31, 1996, 1997 and 1998, the Company
capitalized $7.7 million, $18.2 million and $26.7 million, respectively, of
interest related to borrowings used to finance hotel construction.
F-12
<PAGE> 48
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- MORTGAGES AND NOTES RECEIVABLE
Mortgages and notes receivable are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Properties operated by the Company(a).................... $19,195 $13,325
Other(b)................................................. 2,774 2,160
------- -------
Total.......................................... 21,969 15,485
Less current portion..................................... (2,271) (797)
------- -------
Long-term portion........................................ $19,698 $14,688
======= =======
</TABLE>
- ---------------
(a) At December 31, 1998, the Company is the holder of mortgage notes receivable
with a book value of $10.5 million secured primarily by the operations of
three hotels operated under lease agreements and mortgage notes receivable
with a book value of $2.8 million secured by four hotel properties operated
by the Company under management agreements. These notes bear interest at
rates ranging from 8.0% to 13.5% and mature on various dates from 1999
through 2015. The mortgages were derived from the sales of hotel properties.
The loans secured by hotel properties operated under management agreements
include loans which pay interest and principal based upon available cash and
include a participation in the excess cash flow of such hotel properties. In
accordance with the adoption of fresh start reporting under SOP 90-7, no
value was assigned to the cash flow notes as there was substantial doubt at
the time of valuation that the Company would recover any of their value. As
a result, interest income on these junior or cash flow mortgages is
recognized when cash is received. During 1996, 1997 and 1998, the Company
recognized $2.9 million, $3.3 million and $3.3 million, respectively, of
interest income related to these mortgages. Future recognition of interest
income on these mortgages is dependent primarily upon the net cash flow of
the underlying hotels after debt service, which is senior to the Company's
junior positions.
(b) Other notes receivable currently bear interest at effective rates ranging
from 4.0% to 10.0%, mature through 2011 and are secured primarily by hotel
properties not currently managed by the Company.
NOTE 8 -- DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
9 3/4% Senior Subordinated Notes(a).................... $200,000 $200,000
Revolving Credit Facility(b)........................... 35,000 165,000
9 1/4% First Mortgage Notes(c)......................... 120,000 120,000
7% Convertible Subordinated Notes(d)................... 86,250 --
Mortgages and other notes payable(e)................... 117,121 112,793
-------- --------
Total debt............................................. 558,371 597,793
Less current maturities................................ (3,871) (15,762)
-------- --------
Long-Term debt, net of current portion................. $554,500 $582,031
======== ========
</TABLE>
- ---------------
(a) In March 1997, the Company issued $200.0 million 9 3/4% Senior Subordinated
Notes due 2007 ("Senior Subordinated Notes") in reliance upon Rule 144A
under the Securities Act of 1933, as amended.
F-13
<PAGE> 49
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest on the notes is paid semi-annually on April 1 and October 1. The
notes are unsecured obligations of the Company and contain certain covenants
including limitations on the incurrence of debt, dividend payments, certain
investments, transactions with affiliates, asset sales and mergers and
consolidations. These notes are redeemable, in whole or in part, at the
option of the Company on or after April 1, 2002 at premiums to principal
which decline on each anniversary date.
(b) The Company established a revolving credit facility (the "Revolving Credit
Facility") in 1996 with a group of financial institutions providing for
availability of funds up to the lesser of $100.0 million or a borrowing base
determined under the agreement. In December 1997, the Revolving Credit
Facility was amended and the availability of funds was increased to $200.0
million. The Revolving Credit Facility is secured by certain of the
Company's hotels with recourse to the Company. The Revolving Credit Facility
bears interest at LIBOR plus 2.0% and is available through December 2001
with a one year extension. The Revolving Credit Facility contains covenants
requiring the Company to maintain certain financial ratios and limitations
on the incurrence of debt, liens, dividend payments, stock repurchases,
certain investments, transactions with affiliates, asset sales, mergers and
consolidations and any change of control of the Company. On September 30,
1998, the Company's Revolving Credit Facility was amended to provide for the
elimination of a market capitalization test, a revision of the key man
employee covenant and limitations on hotel development and stock
repurchases. Pursuant to such amendment, development of new hotels is
limited to the existing development plan plus $50 million through 1999.
Stock repurchases are limited to an aggregate of $50 million in 1999 to the
extent of new cash sources (i.e. asset sales, equity offerings). The
aggregate amount of the Revolving Credit Facility will be reduced to $175.0
million in December 2000 and $125.0 million in December 2001. During 1998,
the Company had gross borrowings and repayments of $181.9 million and $51.9
million, respectively, under the Revolving Credit Facility. As of December
31, 1998, the Company had outstanding borrowings of $165.0 million under
this facility and had additional borrowing capacity of $35.0 million.
(c) During 1996, the Company issued $120 million of 9 1/4% First Mortgage Notes
due 2006. Interest on the notes is payable semi-annually on January 15 and
July 15. The notes are secured by 15 hotels and contain certain covenants
including limitations on the incurrence of debt, dividend payments, certain
investments, transactions with affiliates, asset sales and mergers and
consolidations. These notes are redeemable, in whole or in part, at the
option of the Company after January 15, 2001 at premiums to principal which
decline on each anniversary date.
(d) In 1995, the Company sold $86.3 million of 7% Convertible Subordinated Notes
due 2002. On April 17, 1998, the notes were converted into 7.2 million
shares of common stock of the Company at a conversion price of $12 per share
and transferred to stockholders' equity.
(e) The Company has mortgage and other notes payable of approximately $112.8
million that are secured by mortgage notes receivable and hotel properties
with a book value of $225.3 million. Principal and interest on these
mortgages and notes are generally paid monthly. At December 31, 1998 these
notes bear interest at rates ranging from 6.0% to 9.7%, with a weighted
average interest rate of 8.6%, and mature from 1999 through 2008.
In August 1995, the Company entered into an interest rate protection
agreement with a major financial institution which reduces the Company's
exposure to fluctuations in interest rates by effectively fixing interest rates
on $40.0 million of variable interest rate debt. Under the agreement, on a
monthly basis the Company pays a fixed rate of interest of 6.18% and receives a
floating interest rate payment equal to the 30 day LIBOR rate on a $40.0 million
notional principal amount. The agreement commenced in October 1995 and expires
in October 1999.
F-14
<PAGE> 50
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt subsequent to December 31, 1998 are as follows
(in thousands):
<TABLE>
<S> <C>
1999...................................................... $ 15,762
2000...................................................... 5,635
2001...................................................... 45,765
2002...................................................... 152,682
2003...................................................... 8,014
Thereafter................................................ 369,935
--------
Total..................................................... $597,793
========
</TABLE>
In connection with certain covenants related the Company's Senior
Subordinated Notes, Revolving Credit Facility and 9 1/4% First Mortgage Notes
due 2006, Homegate, a wholly-owned subsidiary of the Company is listed as a
guarantor.
The following is the separate financial information of Homegate for the
years ended December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Balance Sheet Data:
Total current assets................................. $ 4,729 $ 9,554
Noncurrent assets.................................... 157,555 244,229
-------- --------
Total assets......................................... $162,284 $253,783
======== ========
Total current liabilities............................ $ 61,514 $ 4,422
Noncurrent liabilities............................... 53,284 210,235
-------- --------
Total liabilities.................................... $114,798 $214,657
======== ========
Stockholder's equity................................. $ 47,486 $ 39,126
Operating Results:
Net sales............................................ $ 8,546 $ 29,419
Operating income..................................... (1,533) (3,785)
Merger expenses...................................... (18,555) --
Loss before extraordinary items...................... (21,202) (7,834)
Net income........................................... $(21,202) $ (7,834)
</TABLE>
Total noncurrent liabilities includes $10.0 million and $165.4 million of
intercompany liabilities at December 31, 1997 and 1998, respectively. Included
in operating income in 1998 is a $10.0 million valuation reserve. (See Note 1).
NOTE 9 -- LEASE COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases various hotels under lease agreements with initial terms
expiring at various dates from 2000 through 2061. The Company has options to
renew certain of the leases for periods ranging from 1 to 99 years. Rental
payments are based on minimum rentals plus a percentage of the hotel properties'
revenues in excess of stipulated amounts.
In addition, the Company leases 28 hotels under lease agreements with real
estate investment trusts ("REITS"). The leases have terms of 10 years expiring
from 2007 to 2008 with certain renewal options. Rental payments are based on
minimum rentals plus a percentage of the hotel properties' revenues in excess of
F-15
<PAGE> 51
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stipulated amounts. The percentage rent calculations are designed to provide the
Company with income streams from these hotels equal to 2.5 % to 3.0% of hotel
revenues.
The following is a schedule, by year, of future minimum lease payments
required under the remaining operating leases that have terms in excess of one
year as of December 31, 1998 (in thousands):
<TABLE>
<S> <C>
1999...................................................... $ 35,704
2000...................................................... 35,560
2001...................................................... 35,226
2002...................................................... 35,226
2003...................................................... 35,203
Thereafter................................................ 157,842
--------
Total..................................................... $334,761
========
</TABLE>
Rental expense for all operating leases, including those with terms of less
than one year, consist of the following for the years ended December 31, 1996,
1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Rentals................................................. $6,652 $8,131 $41,237
Contingent rentals...................................... 1,250 1,608 7,010
------ ------ -------
Rental expense........................................ $7,902 $9,739 $48,247
====== ====== =======
</TABLE>
EMPLOYEE BENEFITS
The Company does not provide any material post employment benefits to its
current or former employees.
NOTE 10 -- INCOME TAXES
The provision for income taxes (including amounts applicable to
extraordinary items) consisted of the following for the years ended December 31,
1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $ 5,147 $13,133 $33,391
State............................................... 563 1,450 4,500
------- ------- -------
5,710 14,583 37,891
Deferred:
Federal............................................. 13,005 9,174 (4,573)
State............................................... 2,029 1,099 (500)
------- ------- -------
15,034 10,273 (5,073)
------- ------- -------
Total....................................... $20,744 $24,856 $32,818
======= ======= =======
</TABLE>
F-16
<PAGE> 52
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes are provided at the applicable federal and state statutory
rates. The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions for the years ended December 31,
1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Utilization of net operating loss........................... $11,714 $ 4,141 $ 3,956
Amortization of pre-fresh start basis
differences -- properties and notes....................... 1,243 102 1,005
Depreciation................................................ 830 650 1,066
Compensation expense........................................ 691 3,552 152
Property sales.............................................. (11) (1,273) (10,822)
Note settlement............................................. -- -- 1,104
Other....................................................... 567 3,101 (1,534)
------- ------- --------
Total............................................. $15,034 $10,273 $ (5,073)
======= ======= ========
</TABLE>
The following is a reconciliation of the statutory Federal tax rate to the
Company's effective income tax rate:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statutory Federal tax rate................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit............. 3.3 3.3 5.1
Non deductible merger expenses-
Homegate Hospitality,Inc................................. -- 6.5 --
Effect of Homegate Hospitality, Inc.
Net Operating Loss....................................... -- 1.6 (1.0)
Other, net................................................. 1.7 2.5 (1.2)
----- ----- -----
Effective income tax rate................................ 40.0% 48.9% 37.9%
===== ===== =====
</TABLE>
At December 31, 1998, the Company had available federal net operating loss
carryforwards related to PMI of approximately $69.9 million which will expire in
2006. This amount is subject to an annual utilization limitation of $8.7 million
under the Internal Revenue Code due to a change in ownership of the Company upon
consummation of the Plan.
In accordance with SFAS 109, the Company has not recognized the future tax
benefits associated with the net operating loss carryforwards or with other
temporary differences. Accordingly, the Company has provided a valuation
allowance of approximately $24.5 million against the deferred tax asset as of
December 31, 1998. To the extent any available carryforwards or other tax
benefits related to PMI are utilized, the amount of tax benefit realized will be
treated as a contribution to stockholders' equity and will have no effect on the
income tax provision for financial reporting purposes. For the years ended
December 31, 1996, 1997 and 1998, the Company recognized $10.6 million, $4.1
million and $4.0 million, respectively, of such benefits as a contribution to
stockholders' equity.
Additionally, the Company recognized $1.2 million, $102,000 and $1.0
million as a contribution to stockholders' equity for the years ended December
31, 1996 and 1997, and 1998 respectively, which represents the amortization of
pre-fresh start tax basis differences related to properties and notes
receivable. As a result of reflecting substantially all of the deferred tax
provisions as a contribution to stockholders' equity, the Company had no
material deferred tax assets or liabilities as of December 31, 1997 and 1998.
F-17
<PAGE> 53
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- BUSINESS INTERRUPTION INSURANCE
In September 1995, the Frenchman's Reef suffered damage when Hurricane
Marilyn struck the U.S. Virgin Islands. In July 1996, the Company received the
final installment under its insurance settlement, bringing the proceeds to $22.8
million, net of deductibles. In addition, in July 1996, Hurricane Bertha struck
the island and caused further damage to the hotel. In March 1998, the Company
settled its insurance claim with respect to Hurricane Bertha for $16.4 million.
The Company received $2.5 million in 1997 and received the remaining portion,
net of deductibles, in April 1998.
The impact of the hurricanes caused operating profits to decline from prior
year levels. In 1996, 1997 and 1998, the Company, in addition to recording the
operating revenues and expenses of the Frenchman's Reef, recorded business
interruption insurance revenue of $13.6 million, $10.9 million and $4.0 million,
respectively. As of December 31, 1998, the Company has fully utilized its
business interruption proceeds.
NOTE 12 -- OTHER INCOME/OTHER CHARGES
Other income consists of items which are not considered part of the
Company's recurring operations and is composed of the following as of December
31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Gains on sales of properties............................ $2,539 $2,077 $ 1,060
Gains on settlements of notes receivable................ 1,774 -- 18,353
Loss on the sale of marketable securities............... -- -- (1,281)
------ ------ -------
Total......................................... $4,313 $2,077 $18,132
====== ====== =======
</TABLE>
Other charges in 1998 consist of a $10.0 million valuation allowance
related to certain non-prototype HomeGate properties, charges of $4.0 million
for costs associated with terminating hotel development projects under contract,
$2.4 million for severance charges primarily related to the resignations of the
Company's chief executive officer and chief operating officer and $1.0 million
for hurricane damage at the Frenchman's Reef.
NOTE 13 -- FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The fair values of non-current financial assets and liabilities and other
financial instruments are shown below (in thousands). The fair values of current
assets and current liabilities are assumed to be equal to their reported
carrying amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Mortgage and notes receivable................... $ 19,698 $ 48,347 $ 14,688 $ 28,864
Long-term debt.................................. 554,500 598,113 582,031 590,981
Interest rate swap agreement.................... -- (242) -- (397)
</TABLE>
The fair value for mortgages and notes receivable is based on the valuation
of the underlying collateral utilizing discounted cash flows and other methods
applicable to the industry. Valuations for long-term debt are based on quoted
market prices or at current rates available to the Company for debt of the same
maturities. The fair values of the interest rate swap and hedge agreements are
based on the estimated amounts the Company would pay to terminate the
agreements.
The Company's mortgages and other notes receivable (See Note 7) are derived
primarily from and are secured by hotel properties, which constitutes a
concentration of credit risk. These notes are subject to many
F-18
<PAGE> 54
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the same risks as the Company's operating hotel assets. A significant portion
of the collateral is located in the Northeastern United States.
NOTE 14 -- RELATED PARTY TRANSACTIONS
The following summarizes significant financial information with respect to
transactions with present officers, directors, their relatives and certain
entities they control or in which they have a beneficial interest for the years
ended December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Management and other fee income............................. $157 $144 $138
</TABLE>
At December 31, 1998, the Company managed two hotels for the income amounts
shown above.
NOTE 15 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS
COMMON STOCK
Under its stock repurchase program in 1998, the Company purchased 1.4
million shares of its common stock at an average price of $17.78 per share.
Under the terms of the Revolving Credit Facility the Company may purchase
additional shares in an aggregate amount not to exceed $50 million in 1999. As
of March 15, 1999, the Company had purchased 2.5 million shares of stock in 1999
at an average price of $10.00 per share.
STOCK OPTIONS
The Company has adopted various stock option and performance incentive
plans under which options to purchase shares of common stock may be granted to
directors, officers or key employees under terms determined by the Board of
Directors. At December 31, 1998, a total of 3.6 million options were outstanding
under various plans with another 1.9 million options available to be issued.
In addition to the options granted pursuant to the Company's various stock
options plans, on October 14, 1998, the Board of Directors granted options to
purchase 1,750,000 shares to the Company's president and CEO at $5.91, which
approximated market value at the date of grant. These options vest ratably over
a 5 year period with respect to 1,000,000 of the options. The additional 750,000
options vest as certain performance criteria are met or, if the criteria are not
met, the options vest eight years after the original grant date.
Under the 1995 Employee Stock Option Plan, options to purchase shares of
common stock may be granted at the fair market value of the common stock at the
date of grant. Options can generally be exercised during a participant's
employment with the Company in equal annual installments over a three-year
period and expire ten years from the date of grant. During 1997 and 1998,
respectively, options to purchase 998,000 and 2,653,000 shares of common stock
were granted under this plan.
Under the 1995 Non-Employee Director Stock Option Plan, options to purchase
10,000 shares of common stock are automatically granted to each non-employee
director at the fair market value of the common stock at the date of grant. All
options will be fully vested and exercisable one year after the date of grant
and will expire ten years after the date of grant, or earlier if the
non-employee director ceases to be a director. Options to purchase 50,000 and
190,000 shares of common stock were granted under this plan in both 1997 and
1998.
Options to purchase 310,000 shares of common stock were issued to HomeGate
employees in 1996 and 1997 under HomeGate's 1996 Stock Option Plan to company
officers, key employees and company advisors. These options were converted to
the Company's plan at an exercise price consistent with the fixed exchange rate
used for the common shares in connection with the merger. Of the total shares
issued, 106,000 options
F-19
<PAGE> 55
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issued to Company advisors vested immediately upon consummation of the merger
and expired on May 30, 1998. The remaining 204,000 shares issued to company
officers and key employees vested immediately upon consummation of the merger
and expire over a period of ten years from the date of the grant.
Under the Company's 1992 Stock Option and Performance Incentive Plans,
options to purchase 273,000 shares of common stock were outstanding at December
31, 1998. The options were granted at prices which approximate fair market value
at the date of grant ranging from $2.71 to $9.88 and expire from 1999 to 2005.
During 1998, the Company repriced certain outstanding options.
Approximately 290,000 options issued pursuant to the non-employee director plans
were repriced, as were options to purchase approximately 1,087,000 shares which
had been issued under the various employee stock option plans. These options
were repriced to allow exercise at a price of $10.00 per share, an amount in
excess of the fair market value of the Company's stock at the date of repricing.
The options had originally had exercise prices of between $11.13 per share and
$20.16 per share.
Effective January 1, 1996, the Company adopted the provisions of SFAS 123,
Accounting for Stock-Based Compensation. As permitted by the Statement, the
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method. Accordingly, no compensation expense has been recognized
for its stock-based compensation plans other than for performance-based awards,
which was not significant. Had the fair value method of accounting been applied
to the Company's stock plans, which requires recognition of compensation cost
ratably over the vesting period of the underlying equity instruments, net income
would have been reduced by $2.3 million, or $.05 per share in 1996, $3.2
million, or $.07 per share in 1997 and $6.5 million, or $.12 per share in 1998.
This pro forma impact only takes into account options granted since January 1,
1996 and is likely to increase in future years as additional options are granted
and amortized ratably over the vesting period. The average fair value of options
granted during 1996, 1997 and 1998 was $7.33, $7.03 and $3.49, respectively.
The fair value was estimated using the Black-Scholes option-pricing model
based on the weighted average market price at grant date of $16.51 in 1996,
$18.57 in 1997 and $8.49 in 1998 and the following weighted average assumptions:
risk-free interest rate of 6.43% for 1996, 6.21% in 1997 and 4.72% in 1998,
volatility of 38.64% for 1996, 30.80% for 1997 and 40.38% in 1998, and dividend
yield of 0.0% for 1996, 1997 and 1998.
F-20
<PAGE> 56
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the stock options outstanding:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
---------- -------------
<S> <C> <C>
Outstanding at December 31, 1995................. 1,828,000
Granted.......................................... 956,000 $14.75-$18.94
Exercised...................................... (149,000) $ 3.63-$10.81
Canceled....................................... (59,000) $ 3.63-$16.63
----------
Outstanding at December 31, 1996................. 2,576,000
Granted.......................................... 998,000 $13.78-$20.16
Exercised...................................... (579,000) $ 2.71-$16.63
Canceled....................................... (119,000) $ 7.63-$19.09
----------
Outstanding at December 31, 1997................. 2,876,000
Granted.......................................... 4,403,000 $ 4.72-$18.44
Exercised...................................... (146,000) $ 3.63-$18.94
Canceled....................................... (1,765,000) $ 4.72-$19.09
----------
Outstanding at December 31, 1998................. 5,368,000
==========
Exercisable at December 31, 1998................. 1,759,000 $ 3.20-$18.44
==========
</TABLE>
WARRANTS
Pursuant to the Plan, warrants to purchase 2,053,583 shares of the
Company's common stock were issued to former shareholders of the Company's
predecessor, PMI, in partial settlement of their bankruptcy interests. The
warrants became exercisable on August 31, 1993 at an exercise price of $2.71 per
share and expired in August 1998.
F-21
<PAGE> 57
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------
PER-SHARE
INCOME SHARES AMOUNT
--------- -------- -----------
<S> <C> <C> <C>
Basic Earnings per Share
Net income........................................... $30,250 40,650 $ .74
=====
Diluted Earnings per Share
Options and warrants issued.......................... -- 2,064
Conversion of debt................................... 3,901 7,188
------- ------
Net income plus assumed conversions.................. $34,151 49,902 $ .68
======= ====== =====
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------
PER-SHARE
INCOME SHARES AMOUNT
--------- -------- -----------
Basic Earnings per Share
Net income........................................... $25,931 46,755 $ .56
=====
Diluted Earnings per Share
Options and warrants issued.......................... -- 1,545
Conversion of debt................................... -- --
------- ------
Net income plus assumed conversions.................. $25,931 48,300 $ .54
======= ====== =====
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------
PER-SHARE
INCOME SHARES AMOUNT
--------- -------- -----------
Basic Earnings per Share
Net income........................................... $53,847 51,749 $1.04
=====
Diluted Earnings per Share
Options and warrants issued.......................... -- 902
Conversion of Debt................................... 1,142 2,108
------- ------
Net income plus assumed conversions.................. $54,989 54,759 $1.00
======= ====== =====
</TABLE>
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share for 1996 was determined on the assumptions
that the 7% convertible subordinated notes due 2002 were converted upon
issuance. For the year ended December 31, 1997, the effects of the 7%
convertible subordinated notes due 2002 were not included in the calculation of
diluted earnings per share due to the fact that their conversion would be
antidilutive. The 7% convertible subordinated notes due 2002 were called and
converted into common stock in April 1998.
F-22
<PAGE> 58
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes non-cash investing and financing activities for
the years ended December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997 1998
------- ------ -------
<S> <C> <C> <C>
Assumption of mortgages and notes payable in connection
with the acquisitions of hotels...................... $12,222 $ -- $ --
Hotels received in settlements of mortgage notes
receivable........................................... 35,306 -- --
Land received in settlements of mortgage notes
receivable........................................... -- 3,094 --
Marketable securities received in connection with the
sale of hotels....................................... -- 8,697 13,841
</TABLE>
Cash paid for interest was $22.9 million, $36.7 million and $48.5 million
for the years ended December 31, 1996, 1997 and 1998, respectively.
Cash paid for income taxes was $8.0 million, $14.4 million and $17.7
million for the years ended December 31, 1996, 1997 and 1998, respectively.
NOTE 18 -- GEOGRAPHIC AND BUSINESS INFORMATION
The Company's hotels serve four major lodging industry segments: the
all-suites segment, under its AmeriSuites brand; the extended-stay segment,
under its HomeGates brand; the limited-service segment, primarily under its
Wellesley Inns brand and the full-service segment under major national
franchises. The Company's AmeriSuites are upscale, all-suite limited service
hotels containing approximately 128 suites and located within close proximity to
dining, shopping and entertainment amenities. HomeGates are mid-price,
extended-stay hotels typically containing between 120 to 140 suites with fully
equipped kitchens, upscale furnishings and separation between cooking, living
and sleeping areas. Wellesley Inns compete in the mid-price segment, and are
primarily located in the Northeast and Florida region of the United States. The
prototypical Wellesley Inns has 105 rooms and includes amenities such as pool
facilities, complimentary continental breakfast, remote control television and
facsimile services. The Company also operates 28 upscale full-service hotels
with food service and banquet facilities under franchise agreements with
national hotel brands. The Company's hotels are primarily located near suburban
commercial centers, corporate office parks, and other travel destinations
throughout the United States, with one resort hotel located in the United States
Virgin Islands.
The Company evaluates the performance of its segments based primarily on
earnings before interest, taxes and depreciation and amortization ("Hotel
EBITDA") generated by the operations of its Owned Hotels. Interest expense is
primarily related to debt incurred by the Company through its corporate
obligations and collateralized by certain of its hotel properties. The Company's
taxes are included in the consolidated Federal income tax return of the Company
and are allocated based upon the relative contribution to the Company's
consolidated taxable income/losses and changes in temporary differences. The
allocation of interest expense and taxes is not evaluated at the segment level
and is not believed to be material to these consolidated statements.
F-23
<PAGE> 59
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents revenues and other financial information by
business segment for the years ended December 31, 1996, 1997 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------
EXTENDED LIMITED FULL
ALL-SUITES STAY SERVICE SERVICE CONSOLIDATED
---------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $191,690 $ 29,234 $ 47,482 $178,973 $ 447,379
Hotel EBITDA....................... 71,658 10,350 20,875 39,111 141,994
Depreciation and amortization...... 20,967 3,691 5,174 11,992 41,824
Capital expenditures............... 224,282 174,239 3,980 18,489 420,991
Total Assets....................... 554,253 253,764 114,207 228,385 1,150,609
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------
EXTENDED LIMITED FULL
ALL-SUITES STAY SERVICE SERVICE CONSOLIDATED
---------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $113,412 $ 8,327 $ 50,530 $141,966 $ 314,235
Hotel EBITDA....................... 52,377 2,771 24,120 53,861 133,129
Depreciation and amortization...... 15,289 1,474 4,179 12,122 33,064
Capital expenditures............... 265,956 33,508 6,017 68,664 374,145
Total Assets....................... 431,673 162,220 112,853 286,487 993,233
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
EXTENDED LIMITED FULL
ALL-SUITES STAY SERVICE SERVICE CONSOLIDATED
---------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 54,198 $ 2,691 $ 49,787 $135,940 $ 242,616
Hotel EBITDA....................... 25,987 557 20,452 44,460 91,456
Depreciation and amortization...... 7,108 344 5,683 10,604 23,739
Capital expenditures............... 111,269 32,375 74,099 80,562 298,305
Total Assets....................... 234,631 88,533 123,457 240,771 687,392
</TABLE>
NOTE 19 -- OTHER COMPREHENSIVE INCOME
The tax effect of other comprehensive losses is as follows for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
BEFORE- NET OF
TAX TAX TAX
AMOUNT EFFECT AMOUNT
------- ------- -------
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holdings losses arising during period...... $(9,335) $(3,546) $(5,789)
Less -- Reclassification adjustments for losses
realized in net income.............................. (1,281) (485) (796)
------- ------- -------
Other comprehensive loss.............................. $(8,054) $(3,061) $(4,993)
======= ======= =======
</TABLE>
F-24
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:
------------------------------------
A.F. Petrocelli,
Chairman of the Board of Directors,
President and Chief Executive
Officer
DATE: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Chairman of Board of Directors, President
- ----------------------------------------------------- and Chief Executive Officer
A.F. Petrocelli
Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
Douglas Vicari
Director
- -----------------------------------------------------
Lawrence Friedland
Director
- -----------------------------------------------------
Herbert Lust
Director
- -----------------------------------------------------
Jack H. Nusbaum
Director
- -----------------------------------------------------
Howard M. Lorber
</TABLE>
<PAGE> 61
EXHIBIT INDEX
Exhibits
2(a) Reference is made to the Contract of Purchase and Sale between
Hillsborough Associates, Meriden Hotel Associates, L.P., Wellesley
I, L.P., Multi-Wellesley Limited Partnership and the Company,
dated March 6, 1996, filed as an Exhibit to the Company's 8-K
dated March 21, 1996, which is incorporated herein by reference.
(b) Reference is made to Consent of the Holders Thereof to the
Purchase by the Company of the Outstanding First Mortgage Notes
filed as an Exhibit to the Company's 8-K, dated March 21, 1996,
which is incorporated herein by reference.
(c) Reference is made to the Agreement and Plan of Merger as of July
25, 1997 by and among Prime Hospitality Corp., PH Sub Corporation
and Homegate Hospitality, Inc. filed as an Exhibit to the
Company's Form S-4, dated October 24, 1997, which is incorporated
herein by reference.
(d) Reference is made to the form of Amended and Restated Purchase and
Sale Agreement between Prime Hospitality Corp., as seller, and
Equity Inns Partnership, L.P., as purchaser, dated December 2,
1997, filed as an Exhibit to the Company's Form 8-K dated December
11, 1997, which is incorporated herein by reference.
(e) Reference is made to the form of Amended and Restated Purchase and
Sale Agreement between Prime Hospitality Corp., as seller, and
American General Hospitality Operating Partnership, L.P., as
purchaser, dated January 7, 1998 filed as an Exhibit to the
Company's Form 8-K dated January 7, 1998, which is incorporated
herein by reference.
(f) Reference is made to the form of Purchase and Sale Agreement
between Prime Hospitality Corp., as seller, and Equity Inns
Partnership, L.P., as purchaser, dated June 26, 1998, filed as an
Exhibit to Company's Form 10-Q, dated June 30, 1998, which is
incorporated herein by reference.
3(a) Reference is made to the Restated Certificate of Incorporation of
the Company, dated June 5, 1992, filed as an Exhibit to the
Company's Form 10-K dated September 25, 1992, which is
incorporated herein by reference.
(b) Reference is made to the restated Certificate of Incorporation, As
Amended, filed as an Exhibit to the Company's Form 10-QA, dated
April 30, 1996, which is incorporated herein by reference.
(c) Reference is made to the Restated Bylaws of the Company filed as
an Exhibit to the Company's Form 10-K, dated September 25, 1992,
which is incorporated herein by reference.
4(a) Reference is made to the Form of 8.20% Tax Note of the Company
filed as an Exhibit to the Company's Form 10-K, dated September
25, 1992, which is incorporated herein by reference.
(b) Reference is made to the Form of 8% Secured UND Restructured Note
of the Company filed as an Exhibit to the Company's Form 10-K,
dated September 25, 1992, which is incorporated herein by
reference.
(c) Reference is made to the Form of 9.20% OVR Restructured Note of
the Company filed as an Exhibit to the Company's Form 10-K, dated
September 25, 1992, which is incorporated herein by reference.
<PAGE> 62
(d) Reference is made to a Form 8-A of the Company as filed on June 5,
1992 with the Securities and Exchange Commission, as amended by
Amendment No. 1 and Amendment No. 2, which is incorporated herein
by reference.
(e) Reference is made to an Indenture, dated January 23, 1996, between
the Company and the Trustee related to 9 1/4% First Mortgage Notes
due 2006, filed as an Exhibit to the Company's Form 10-K dated
March 21, 1996, which is incorporated herein by reference.
(f) Reference is made to the Senior Secured Revolving Credit
Agreement, dated as of June 26, 1996, among the Company and the
Lenders Party hereto, and Credit Lyonnais New York Branch, as
Documentation Agent, and Bankers Trust Company, as Agent, filed as
an Exhibit to the Company's Amendment No. 1 to Form S-3 dated July
26, 1996, which is incorporated herein by reference.
(g) Reference is made to the 9 3/4% Senior Subordinated Notes due
2007, dated March 21, 1997, filed as an Exhibit to the Company's
Form S-4, dated April 2, 1997, which is incorporated herein by
reference.
(h) Reference is made to the Amended and Restated Senior Secured
Revolving Credit Agreement, dated as of December 17, 1997, among
Prime Hospitality Corp., and The Lenders Party hereto, and Societe
Generale, Southwest Agency, as Documentation Agent, and Credit
Lyonnais New York Branch, as Syndication Agent, and Bankers Trust
Company, as Agents filed as an Exhibit to the Company's Form 10-K,
dated December 31, 1997, which is incorporated herein by
reference.
(i) Reference is made to the Second Amendment to the Senior Secured
Revolving Credit Agreement, dated September 30, 1998, among Prime
Hospitality Corp., Societe Generale Southwest Agency, as
Documentation Agent, Credit Lyonnais New York Bank, as Syndication
Agent and Bankers Trust Company as Agent for Lenders filed as an
Exhibit to the Company's Form 10-Q dated November 6, 1998, which
is incorporated herein by reference.
10(a) Reference is made to PMI's Flexible Benefit Plan, filed as an
Exhibit to the Form 10-Q, dated February 12, 1988 of PMI, which is
incorporated herein by reference.
(b) Reference is made to the 1992 Performance Incentive Stock Option
Plan of the Company, dated as of July 31, 1992, filed as an
Exhibit to the Company's Form 10-K dated September 25, 1992, which
is incorporated herein by reference.
(c) Reference is made to the 1992 Stock Option Plan of the Company
filed as an Exhibit to the Company's Form 10-K, dated September
25, 1992, which is incorporated herein by reference.
(d) Reference is made to the 1992 Non-Qualified Stock Option Agreement
between the Company and David A. Simon filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(e) Reference is made to the 1992 Non-Qualified Stock Option Agreement
between the Company and John Elwood filed as an Exhibit to the
Company's Form 10-K, dated March 26, 1993, which is incorporated
herein by reference.
(f) Reference is made to an Amendment regarding the 1995 Employee and
Non-Employee Stock Option Plans, incorporated in the Company's
proxy statement dated April 13, 1998.
(g) Change of Control Agreement, dated May 14, 1998, between Paul H.
Hower and the Company.
(h) Change of Control Agreement, dated May 14, 1998, between John H.
Leavitt and the Company.
<PAGE> 63
(i) Change of Control Agreement, dated May 14, 1998, between Joseph
Bernadino and the Company.
(j) Change of Control Agreement, dated May 14, 1998, between Richard
T. Szymanski and the Company.
(k) Change of Control Agreement, dated May 14, 1998, between Douglas
W. Vicari and the Company.
(l) Change of Control Agreement, dated May 14, 1998, between Terry P.
O'Leary and the Company.
(m) Change of Control Agreement, dated May 14, 1998 between Ethan Kramer
and the Company.
(n) Employment Agreement, dated September 14, 1998, between Attilio F.
Petrocelli and the Company.
(o) Change of Control Agreement, dated September 14, 1998, between
Atillio F. Petrocelli and the Company.
(21) Subsidiaries of the Company are as follows:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
<S> <C>
AmeriSuites Franchising, Inc.......................... Delaware
Caldwell Holding Corp................................. Delaware
Clifton Holding Corp.................................. Delaware
Dynamic Marketing Group, Inc.......................... Delaware
Fairfield Holding Corp................................ Delaware
Fairfield-Meridian Claims Service, Inc................ Delaware
HomeGate Franchising, Inc............................. Delaware
HomeGate Hospitality, Inc............................. Delaware
KSA Management, Inc................................... Kansas
Mahwah Holding Corp................................... Delaware
Market Segments, Incorporated......................... Delaware
Prime-American Realty Corp............................ Delaware
Prime Hospitality Franchising, Inc.................... Delaware
Prime-O-Lene, Inc..................................... New Jersey
Republic Motor Inns, Inc.............................. Virginia
Secaucus Holding Corp................................. Delaware
VPS, Inc.............................................. Delaware
Wellesley Inns Franchising, Inc....................... Delaware
</TABLE>
(23) Consent of Arthur Andersen LLP
(27) Financial data schedule.
<PAGE> 1
EXHIBIT 10(g)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 14th day of May, 1998, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and Paul H. Hower
("Employee").
R E C I T A L S:
A. Employee is a key officer and employee of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
Employee is one of several key officer/employees whose high quality of job
performance is essential to promoting and protecting the best interests of the
Company and its shareholders.
C. The Board further recognizes (i) that it is possible that a Change
in Control of the Company could occur at some time in the future, (ii) that the
uncertainty associated with such a possibility could result in the distraction
of Employee from Employee's assigned duties and responsibilities, (iii) that it
is in the best interests of the Company and its shareholders to assure the
continued attention by Employee to such duties and responsibilities without such
distraction and (iv) that Employee must be able to participate in the assessment
and evaluation of any proposal which could effect a Change in Control of the
Company without Employee's judgment being influenced by uncertainties regarding
Employee's future financial security.
D. The Company wishes to provide Employee with certain benefits in the
event of a Change in Control of the Company as set forth herein.
TERMS AND CONDITIONS
For valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon (A) the willful
engaging by Employee in misconduct
<PAGE> 2
which results in demonstrable and material economic injury to the Company, or
(B) the conviction of Employee of a felony involving moral turpitude. For
purposes of this paragraph, no act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in or not
opposed to the best interests of the Company. Employee shall not be deemed to
have been terminated for Cause unless the Company shall have given or delivered
to Employee (i) reasonable notice setting forth the reasons for the Company's
intention to terminate for Cause, (ii) an opportunity for Employee to cure any
such breach within thirty (30) days after receipt of such notice, (iii) an
opportunity for Employee, together with his counsel, to be heard before the
Board, and (iv) a written notice of termination stating that, in the good faith
opinion of not less than a majority of the entire membership of the Board,
Employee was guilty of conduct set forth above in clauses (A) or (B) of the
second preceding sentence, and specifying the particulars thereof in detail.
Notwithstanding the foregoing, in the case of any Employee who has in effect an
employment agreement with the Company ("Employment Agreement"), no termination
following a Change in Control shall be treated as for Cause (x) for purposes of
this Agreement unless it would also be treated as for Cause under such
Employment Agreement, or (y) for purposes of such Employment Agreement unless it
would also be treated as for Cause under this Agreement.
(b) A "Change in Control" of the Company shall be considered
to occur if and when:
(i) more than 30% of the Company's outstanding
securities entitled to vote in elections of directors (the
"Voting Securities") are acquired by any person, entity or
group (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934) (other than the
Company, any corporation, partnership, trust or other
entity controlled by the Company (a "Subsidiary") or any
trustee, fiduciary or other person or entity holding
securities under any employee benefit plan or trust of the
Company or any of its Subsidiaries) (such person, entity
or group, a "Person"); provided, however that,
notwithstanding the prior clause of this Section 1(b)(i),
unless
2
<PAGE> 3
the Board, within thirty (30) days of such event,
determines otherwise, a Change in Control shall be
considered to occur if and when more than 20% of the
Voting Securities are acquired by any Person; or
(ii) during any period of two consecutive years,
the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof,
provided, however, that a director who is not otherwise a
member of the Incumbent Board shall be deemed to be a
member of the Incumbent Board if such director was elected
by, on the recommendation of, or with the approval of, at
least two-thirds of the Incumbent Board (taking into
account the proviso in this Section 1(b)(ii);
(iii) the sale, lease, exchange or other
disposition in one transaction or in a series of related
transactions of all or substantially all of the assets of
the Company, other than a sale, lease, exchange or other
disposition to an entity, following which (A) more than
50%, respectively, of the then outstanding shares of
common stock or other securities, (measured by value) of
such entity and the combined voting power of the then
outstanding voting securities of such entity entitled to
vote generally in the election of directors (collectively,
"Equity Securities") is then beneficially owned, directly
or indirectly, by individuals and entities who were the
beneficial owners of the outstanding Voting Securities
immediately prior to such sale, lease, exchange or other
disposition, in substantially the same proportions among
such beneficial owners, (B) no Person (excluding any
Person beneficially owning, immediately prior to such
sale, lease, exchange or other disposition, directly or
indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly,
30% or more, respectively, of the then outstanding Equity
Securities, and (C) at least a majority of the members of
the board of directors of the entity were members of the
Incumbent Board at
3
<PAGE> 4
the time of the execution of the initial agreement or
action of the Board providing for such sale, lease,
exchange or other disposition of assets of the Company;
(iv) approval by the Company's shareholders of a
reorganization, merger or consolidation of the Company,
unless, following such reorganization, merger or
consolidation, (A) more than 50%, respectively, of the
then outstanding Equity Securities of the entity resulting
from such reorganization, merger or consolidation is then
beneficially owned, directly or indirectly, by individuals
and entities who were the beneficial owners, respectively,
of the outstanding Voting Securities immediately prior to
such reorganization, merger or consolidation, in
substantially the same proportions among such beneficial
owners, (B) no Person (excluding any Person beneficially
owning, immediately prior to such reorganization, merger
or consolidation, directly or indirectly, 30% or more of
the outstanding Voting Securities), beneficially owns,
directly or indirectly, 30% or more of the outstanding
Voting Securities), beneficially owns, directly or
indirectly, 30% or more, respectively, of the then
outstanding Equity Securities of the entity resulting from
such reorganization, merger or consolidation, and (C) at
least a majority of the members of the board of directors
of the entity resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at
the time of the execution of the initial agreement
providing for such reorganization, merger or
consolidation;
(v) approval by the Company's shareholders of a
complete liquidation or dissolution of the Company; or
(vi) such other events as the Board may designate.
(c) "Good Reason" shall mean the occurrence of any of the
following, without Employee's consent, after a Change in Control:
(i) a material reduction or adverse alteration in
the titles, duties,
4
<PAGE> 5
authorities or responsibilities of Employee's position;
(ii) a reduction in Employee's annual base salary,
bonus or other compensation arrangements provided by the
Company;
(iii) the relocation of Employee's place of
employment by more than twenty miles; or
(iv) a material reduction in or the discontinuance
of the perquisites or benefits provided by the Company to
Employee.
In addition, and without limiting the foregoing, in the case
of an Employee with an Employment Agreement "Good Reason"
shall include any act or failure to act which would constitute
"good reason" as such term is defined in the Employee's
Employment Agreement.
(d) The term "Cash Compensation" shall mean, during
any fiscal year of the Company, Employee's aggregate cash
compensation earned as an Employee of the Company during the
immediately preceding fiscal year (including any bonus earned
but not paid by fiscal year-end and without regard to any
election deferring the receipt of compensation so earned). If
Employee was employed by the Company for only a portion of the
preceding fiscal year, "Cash Compensation" shall mean his
annualized aggregate cash compensation for such year, which
shall be determined based on the aggregate cash compensation
earned during the portion of such year that Employee was
employed.
2. Change in Control.
(a) Options. In the event of a Change in Control of the
Company, all stock options granted to Employee by the Company
under any compensatory plan or arrangement shall become
immediately vested and exercisable, notwithstanding any
vesting schedule previously applicable to such stock options.
(b) Cash Payment. If, within twenty-four (24) months following
a Change in Control of the Company, the Company terminates
Employee's employment without Cause, or Employee terminates
his or her employment with the Company for
5
<PAGE> 6
Good Reason, then the Company shall, within ten (10) days of
such termination of employment, pay to Employee, in one lump
sum, in immediately available funds by wire transfer in
accordance with Employee's instructions, an amount equal to
two and one-half (2-1/2) times Employee's "Cash Compensation"
as defined above.
3. Excise Tax Gross-Up.
(a) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or
distribution by the Company to or for Employee's benefit
(whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or pursuant to an
Employment Agreement or any other compensatory Company plan or
arrangement, without taking into account the Gross-Up Payment,
as hereinafter defined) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by Employee with respect to such excise
tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by Employee of all Federal, state and local
taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any
income taxes, withholding taxes and payroll taxes (and any
interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment, Employee retains
an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
All determinations required to be made under this
Section 11, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized accounting firm as
may be designated by Employee (the "Accounting Firm") which
shall provide detailed supporting calculations both to the
Company and Employee within fifteen (15) business days of
6
<PAGE> 7
the receipt of notice from Employee that there has been a
Payment, or such earlier time as is requested by the Company.
In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the
Change in Control, Employee shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 11, shall be
paid by the Company to Employee within five days of the
receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the
Company and Employee. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 3(b) and Employee thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to
or for Employee's benefit.
(b) Employee shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as
practicable but no later than fifteen business days after
Employee is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. Employee shall
not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Company notifies
7
<PAGE> 8
Employee in writing prior to the expiration of such period
that it desires to contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceeding relating to such claim,
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold Employee harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expense. Without
limitation on the foregoing provisions of this Section 3, the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct Employee to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and Employee agrees to prosecute such
contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided,
however, that if the Company directs Employee to pay such
claim and sue for a refund, the Company shall advance the
amount of such payment to Employee, on an interest-free basis,
and shall indemnify and hold Employee harmless, on an
after-tax
8
<PAGE> 9
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for Employee's taxable year with respect to which such
contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Employee shall
be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any
other taxing authority.
(c) If, after Employee's receipt of an amount
advanced by the Company pursuant to Section 3(b), Employee
becomes entitled to receive any refund with respect to such
claim, Employee shall (subject to the Company's complying with
the requirements of this Section 3(b)) promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after Employee's receipt of an amount advanced by the Company
pursuant to Section 3(b), a determination is made that
Employee shall not be entitled to any refund with respect to
such claim and the Company does not notify Employee in writing
of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid.
4. Waiver of Invalidity. Inasmuch as the injury caused to
Employee in the event Employee's employment is terminated within
twenty-four (24) months of a Change in Control is difficult or
incapable of accurate estimation at the date of this Agreement, the
amounts to be paid pursuant to Sections 2 and 3 are intended to be
liquidated damages and not a penalty, and therefore constitute a good
faith forecast of the harm which might be expected to be caused to
Employee. Accordingly, the Company waives any right to assert against
Employee the invalidity of any payment provided in Sections 2 and 3 by
reason of Employee's failure to seek other employment or otherwise, nor
shall the amount of any payment provided in Sections 2 and 3 be reduced
by reason of
9
<PAGE> 10
any compensation earned or not earned by Employee as a result of
employment by another employer after the date of termination or
otherwise.
5. Arbitration of Disputes. All disputes governing the
interpretation or enforcement of this Agreement shall be resolved
exclusively by arbitration in the manner set forth in this Section 5.
Employee or the Company may submit to arbitration any claim under this
Agreement as follows: At any time following the termination of
Employee's employment with the Company, the claim may be filed in
writing with an arbitrator of Employee's choice or, if the claim is
filed by the Company, reasonably acceptable to Employee, and thereafter
the Company, or Employee, as applicable, shall be notified in writing
of the claim and furnished with a true copy as so filed. The arbitrator
must be a member of the National Academy of Arbitrators or one who
currently appears on arbitration panels issued by the American
Arbitration Association. To the extent not inconsistent with the rules
set forth in this Section 5, the arbitration proceeding shall insofar
as practicable be conducted in accordance with the National Rules of
the American Arbitration Association for the Resolution of Employment
Disputes effective June 1, 1996. The arbitration hearing shall be held
within ten (10) business days after the receipt of notice of the claim
by the Company. No continuance of the hearing shall be allowed without
the mutual consent of Employee and the Company. Absence from or
non-participation at the hearing by either party shall not prevent the
issuance of an award. Hearing procedures which will expedite the
hearing may be ordered at the arbitrator's discretion. The arbitrator's
award shall be rendered as expeditiously as possible. In the event the
arbitrator finds that the Company has breached this Agreement, the
arbitrator shall order the Company to pay to Employee, within
twenty-four hours after the decision is rendered, the amount due
hereunder. The award of the arbitrator shall be final and binding upon
the parties. Judgment may be entered on the arbitrator's award in any
appropriate court as soon as possible after its rendition without
further notice to the Company. The Company shall promptly reimburse
Employee for the reasonable legal
10
<PAGE> 11
fees and expenses incurred by Employee in connection with enforcement
of Employee's rights hereunder or the determination of Employee's
rights in any arbitration proceeding.
6. Miscellaneous.
(a) Waiver. The failure of any party to exercise any
rights hereunder or to enforce any of the terms or conditions
of this Agreement on any occasion shall not constitute or be
deemed a waiver of that party's rights thereafter to exercise
any rights hereunder or to enforce each and every term and
condition of this Agreement.
(b) Binding Effect; Successors.
(i) The Company 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 Company, by agreement, in form and substance
satisfactory to Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession will entitle Employee
to compensation from the Company in the same amount and on
the same terms as Employee would be entitled to under
Section 2(b) hereunder had the Company terminated Employee
without Cause on the succession date (assuming a Change in
Control of the Company had occurred prior to such
succession date). As used in this Agreement, "the Company"
means 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 6(b) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of
law or otherwise.
(ii) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable
by Employee and Employee's personal or legal
representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Employee
should die while any amounts would still be payable to him
hereunder if he had continued to live, all such amounts,
unless otherwise
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<PAGE> 12
provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee, or other
beneficiary or, if there be no such beneficiary, to Employee's
estate.
(c) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
(d) Authorization and Modification. This Agreement is
executed for and on behalf of the Company by an officer
thereof duly authorized to do so by resolution of the Board of
Directors approving this Agreement and authorizing such
execution. This Agreement shall not be varied, altered,
modified, changed or in any way amended except by an
instruction in writing executed by the parties hereto.
(e) Assignment by Employee. Except as otherwise expressly
provided for in this Agreement, no right, benefit or interest
of Employee arising hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance,
charge, pledge, hypothecation or set-off in respect of any
claim, debt or obligation or to execution, attachment, levy or
similar process, or assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action
specified in the immediately preceding sentence shall, to the
full extent permitted by law, be null, void and of no effect.
(f) Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in the
Agreement shall be in writing and shall be deemed to have been
given when hand delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: Paul H. Hower
2320 Gates Court
Morris Plains, New Jersey 07950
If to the Company: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
12
<PAGE> 13
or to such other address as any party may have furnished to
the others in writing in accordance herewith, except that
notices of change of address shall be effective only upon
receipt.
(g) Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
(h) Taxes. The Company shall deduct from all amounts
payable under this Agreement all federal, state, local and
other taxes required by law to be withheld with respect to
such payments.
7. Other Arrangements. The rights of Employee under this
Agreement are in addition to Employee's rights under any
Employment Agreement or any successor agreement to an
Employment Agreement covering Employee. Nothing contained in
this Agreement shall adversely affect any of Employee's rights
under an Employment Agreement or as a participant or
beneficiary under the Company's pension and welfare benefit
plans, incentive compensation arrangements and perquisite
programs, or Employee's obligations arising under any
confidentiality, non-competition or no solicitation agreement
with the Company. This Agreement supersedes any and all prior
Change in Control Agreements entered into between Employee and
the Company.
PRIME HOSPITALITY CORP.
By:
-----------------------------------
EMPLOYEE:
-----------------------------------
Paul H. Hower
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<PAGE> 1
EXHIBIT 10(h)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 14th day of May, 1998, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and John H. Leavitt
("Employee").
R E C I T A L S:
A. Employee is a key officer and employee of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
Employee is one of several key officer/employees whose high quality of job
performance is essential to promoting and protecting the best interests of the
Company and its shareholders.
C. The Board further recognizes (i) that it is possible that a Change
in Control of the Company could occur at some time in the future, (ii) that the
uncertainty associated with such a possibility could result in the distraction
of Employee from Employee's assigned duties and responsibilities, (iii) that it
is in the best interests of the Company and its shareholders to assure the
continued attention by Employee to such duties and responsibilities without such
distraction and (iv) that Employee must be able to participate in the assessment
and evaluation of any proposal which could effect a Change in Control of the
Company without Employee's judgment being influenced by uncertainties regarding
Employee's future financial security.
D. The Company wishes to provide Employee with certain benefits in the
event of a Change in Control of the Company as set forth herein.
TERMS AND CONDITIONS
For valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon (A) the willful
engaging by Employee in misconduct
<PAGE> 2
which results in demonstrable and material economic injury to the Company, or
(B) the conviction of Employee of a felony involving moral turpitude. For
purposes of this paragraph, no act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in or not
opposed to the best interests of the Company. Employee shall not be deemed to
have been terminated for Cause unless the Company shall have given or delivered
to Employee (i) reasonable notice setting forth the reasons for the Company's
intention to terminate for Cause, (ii) an opportunity for Employee to cure any
such breach within thirty (30) days after receipt of such notice, (iii) an
opportunity for Employee, together with his counsel, to be heard before the
Board, and (iv) a written notice of termination stating that, in the good faith
opinion of not less than a majority of the entire membership of the Board,
Employee was guilty of conduct set forth above in clauses (A) or (B) of the
second preceding sentence, and specifying the particulars thereof in detail.
Notwithstanding the foregoing, in the case of any Employee who has in effect an
employment agreement with the Company ("Employment Agreement"), no termination
following a Change in Control shall be treated as for Cause (x) for purposes of
this Agreement unless it would also be treated as for Cause under such
Employment Agreement, or (y) for purposes of such Employment Agreement unless it
would also be treated as for Cause under this Agreement.
(b) A "Change in Control" of the Company shall be considered
to occur if and when:
(i) more than 30% of the Company's outstanding
securities entitled to vote in elections of directors (the
"Voting Securities") are acquired by any person, entity or
group (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) (other than the Company,
any corporation, partnership, trust or other entity controlled
by the Company (a "Subsidiary") or any trustee, fiduciary or
other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its
Subsidiaries) (such person, entity or group, a "Person");
provided, however that, notwithstanding the prior clause of
this Section 1(b)(i), unless
2
<PAGE> 3
the Board, within thirty (30) days of such event, determines
otherwise, a Change in Control shall be considered to occur if
and when more than 20% of the Voting Securities are acquired
by any Person; or
(ii) during any period of two consecutive years, the
individuals who, at the beginning of such period, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided, however,
that a director who is not otherwise a member of the Incumbent
Board shall be deemed to be a member of the Incumbent Board if
such director was elected by, on the recommendation of, or
with the approval of, at least two-thirds of the Incumbent
Board (taking into account the proviso in this Section
1(b)(ii);
(iii) the sale, lease, exchange or other disposition
in one transaction or in a series of related transactions of
all or substantially all of the assets of the Company, other
than a sale, lease, exchange or other disposition to an
entity, following which (A) more than 50%, respectively, of
the then outstanding shares of common stock or other
securities, (measured by value) of such entity and the
combined voting power of the then outstanding voting
securities of such entity entitled to vote generally in the
election of directors (collectively, "Equity Securities") is
then beneficially owned, directly or indirectly, by
individuals and entities who were the beneficial owners of the
outstanding Voting Securities immediately prior to such sale,
lease, exchange or other disposition, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such sale, lease, exchange or other disposition, directly
or indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly, 30% or
more, respectively, of the then outstanding Equity Securities,
and (C) at least a majority of the members of the board of
directors of the entity were members of the Incumbent Board at
3
<PAGE> 4
the time of the execution of the initial agreement or action
of the Board providing for such sale, lease, exchange or other
disposition of assets of the Company;
(iv) approval by the Company's shareholders of a
reorganization, merger or consolidation of the Company,
unless, following such reorganization, merger or
consolidation, (A) more than 50%, respectively, of the then
outstanding Equity Securities of the entity resulting from
such reorganization, merger or consolidation is then
beneficially owned, directly or indirectly, by individuals and
entities who were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more, respectively, of the then outstanding
Equity Securities of the entity resulting from such
reorganization, merger or consolidation, and (C) at least a
majority of the members of the board of directors of the
entity resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time
of the execution of the initial agreement providing for such
reorganization, merger or consolidation;
(v) approval by the Company's shareholders of a
complete liquidation or dissolution of the Company; or
(vi) such other events as the Board may designate.
(c) "Good Reason" shall mean the occurrence of any of the
following, without Employee's consent, after a Change in Control:
(i) a material reduction or adverse alteration in the
titles, duties,
4
<PAGE> 5
authorities or responsibilities of Employee's position;
(ii) a reduction in Employee's annual base salary,
bonus or other compensation arrangements provided by the
Company;
(iii) the relocation of Employee's place of
employment by more than twenty miles; or
(iv) a material reduction in or the discontinuance of
the perquisites or benefits provided by the Company to
Employee.
In addition, and without limiting the foregoing, in the case of an
Employee with an Employment Agreement "Good Reason" shall include any
act or failure to act which would constitute "good reason" as such term
is defined in the Employee's Employment Agreement.
(d) The term "Cash Compensation" shall mean, during any fiscal
year of the Company, Employee's aggregate cash compensation earned as an
Employee of the Company during the immediately preceding fiscal year (including
any bonus earned but not paid by fiscal year-end and without regard to any
election deferring the receipt of compensation so earned). If Employee was
employed by the Company for only a portion of the preceding fiscal year, "Cash
Compensation" shall mean his annualized aggregate cash compensation for such
year, which shall be determined based on the aggregate cash compensation earned
during the portion of such year that Employee was employed.
2. Change in Control.
(a) Options. In the event of a Change in Control of the
Company, all stock options granted to Employee by the Company under any
compensatory plan or arrangement shall become immediately vested and
exercisable, notwithstanding any vesting schedule previously applicable to such
stock options.
(b) Cash Payment. If, within twenty-four (24) months following
a Change in Control of the Company, the Company terminates Employee's employment
without Cause, or Employee terminates his or her employment with the Company for
5
<PAGE> 6
Good Reason, then the Company shall, within ten (10) days of such termination of
employment, pay to Employee, in one lump sum, in immediately available funds by
wire transfer in accordance with Employee's instructions, an amount equal to two
and one-half (2-1/2) times Employee's "Cash Compensation" as defined above.
3. Excise Tax Gross-Up.
(a) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or distribution by
the Company to or for Employee's benefit (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or pursuant to an
Employment Agreement or any other compensatory Company plan or arrangement,
without taking into account the Gross-Up Payment, as hereinafter defined) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by Employee with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Employee of all Federal, state and local taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes, withholding taxes and payroll taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee within fifteen (15)
business days of
6
<PAGE> 7
the receipt of notice from Employee that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, Employee shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by
the Company to Employee within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 3(b) and Employee thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for Employee's benefit.
(b) Employee shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than fifteen business days after Employee is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies
7
<PAGE> 8
Employee in writing prior to the expiration of such period that it desires to
contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceeding relating to such claim,
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Employee harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expense.
Without limitation on the foregoing provisions of this Section 3, the
Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs Employee to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
Employee, on an interest-free basis, and shall indemnify and hold
Employee harmless, on an after-tax
8
<PAGE> 9
basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations
relating to payment of taxes for Employee's taxable year with respect
to which such contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Employee shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(c) If, after Employee's receipt of an amount advanced by the
Company pursuant to Section 3(b), Employee becomes entitled to receive any
refund with respect to such claim, Employee shall (subject to the Company's
complying with the requirements of this Section 3(b)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after Employee's receipt of an
amount advanced by the Company pursuant to Section 3(b), a determination is made
that Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify Employee in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
4. Waiver of Invalidity. Inasmuch as the injury caused to Employee in
the event Employee's employment is terminated within twenty-four (24) months of
a Change in Control is difficult or incapable of accurate estimation at the date
of this Agreement, the amounts to be paid pursuant to Sections 2 and 3 are
intended to be liquidated damages and not a penalty, and therefore constitute a
good faith forecast of the harm which might be expected to be caused to
Employee. Accordingly, the Company waives any right to assert against Employee
the invalidity of any payment provided in Sections 2 and 3 by reason of
9
<PAGE> 10
Employee's failure to seek other employment or otherwise, nor shall the amount
of any payment provided in Sections 2 and 3 be reduced by reason of any
compensation earned or not earned by Employee as a result of employment by
another employer after the date of termination or otherwise.
5. Arbitration of Disputes. All disputes governing the interpretation
or enforcement of this Agreement shall be resolved exclusively by arbitration in
the manner set forth in this Section 5. Employee or the Company may submit to
arbitration any claim under this Agreement as follows: At any time following the
termination of Employee's employment with the Company, the claim may be filed in
writing with an arbitrator of Employee's choice or, if the claim is filed by the
Company, reasonably acceptable to Employee, and thereafter the Company, or
Employee, as applicable, shall be notified in writing of the claim and furnished
with a true copy as so filed. The arbitrator must be a member of the National
Academy of Arbitrators or one who currently appears on arbitration panels issued
by the American Arbitration Association. To the extent not inconsistent with the
rules set forth in this Section 5, the arbitration proceeding shall insofar as
practicable be conducted in accordance with the National Rules of the American
Arbitration Association for the Resolution of Employment Disputes effective June
1, 1996. The arbitration hearing shall be held within ten (10) business days
after the receipt of notice of the claim by the Company. No continuance of the
hearing shall be allowed without the mutual consent of Employee and the Company.
Absence from or non-participation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which will expedite the
hearing may be ordered at the arbitrator's discretion. The arbitrator's award
shall be rendered as expeditiously as possible. In the event the arbitrator
finds that the Company has breached this Agreement, the arbitrator shall order
the Company to pay to Employee, within twenty-four hours after the decision is
rendered, the amount due hereunder. The award of the arbitrator shall be final
and binding upon the parties. Judgment may be entered on the arbitrator's award
in any appropriate court as soon as possible after its rendition without further
notice to the Company. The Company shall promptly reimburse Employee for the
reasonable legal
10
<PAGE> 11
fees and expenses incurred by Employee in connection with enforcement of
Employee's rights hereunder or the determination of Employee's rights in any
arbitration proceeding.
6. Miscellaneous.
(a) Waiver. The failure of any party to exercise any rights
hereunder or to enforce any of the terms or conditions of this Agreement on any
occasion shall not constitute or be deemed a waiver of that party's rights
thereafter to exercise any rights hereunder or to enforce each and every term
and condition of this Agreement.
(b) Binding Effect; Successors.
(i) The Company 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 Company, by agreement, in form and substance
satisfactory to Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession will entitle Employee to
compensation from the Company in the same amount and on the
same terms as Employee would be entitled to under Section 2(b)
hereunder had the Company terminated Employee without Cause on
the succession date (assuming a Change in Control of the
Company had occurred prior to such succession date). As used
in this Agreement, "the Company" means 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 6(b) or which otherwise becomes
bound by all the terms and provisions of this Agreement by
operation of law or otherwise.
(ii) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable by
Employee and Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any
amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise
11
<PAGE> 12
provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee, or other
beneficiary or, if there be no such beneficiary, to Employee's
estate.
(c) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
(d) Authorization and Modification. This Agreement is executed
for and on behalf of the Company by an officer thereof duly authorized to do so
by resolution of the Board of Directors approving this Agreement and authorizing
such execution. This Agreement shall not be varied, altered, modified, changed
or in any way amended except by an instruction in writing executed by the
parties hereto.
(e) Assignment by Employee. Except as otherwise expressly
provided for in this Agreement, no right, benefit or interest of Employee
arising hereunder shall be subject to anticipation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of
any claim, debt or obligation or to execution, attachment, levy or similar
process, or assignment by operation of law. Any attempt, voluntary or
involuntary, to effect any action specified in the immediately preceding
sentence shall, to the full extent permitted by law, be null, void and of no
effect.
(f) Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been given when hand delivered or (unless
otherwise specified) mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: John H. Leavitt
17 Tannery Hill Drive
Hamburg, New Jersey 07419
If to the Company: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
12
<PAGE> 13
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(g) Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which shall remain in
full force and effect.
(h) Taxes. The Company shall deduct from all amounts payable
under this Agreement all federal, state, local and other taxes required by law
to be withheld with respect to such payments.
7. Other Arrangements. The rights of Employee under this Agreement are
in addition to Employee's rights under any Employment Agreement or any successor
agreement to an Employment Agreement covering Employee. Nothing contained in
this Agreement shall adversely affect any of Employee's rights under an
Employment Agreement or as a participant or beneficiary under the Company's
pension and welfare benefit plans, incentive compensation arrangements and
perquisite programs, or Employee's obligations arising under any
confidentiality, non-competition or no solicitation agreement with the Company.
This Agreement supersedes any and all prior Change in Control Agreements entered
into between Employee and the Company.
PRIME HOSPITALITY CORP.
By:_______________________________
EMPLOYEE:
__________________________________
John H. Leavitt
13
<PAGE> 1
EXHIBIT 10(i)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 14th day of May, 1998, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and Joseph Bernadino
("Employee").
R E C I T A L S:
A. Employee is a key officer and employee of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
Employee is one of several key officer/employees whose high quality of job
performance is essential to promoting and protecting the best interests of the
Company and its shareholders.
C. The Board further recognizes (i) that it is possible that a Change
in Control of the Company could occur at some time in the future, (ii) that the
uncertainty associated with such a possibility could result in the distraction
of Employee from Employee's assigned duties and responsibilities, (iii) that it
is in the best interests of the Company and its shareholders to assure the
continued attention by Employee to such duties and responsibilities without such
distraction and (iv) that Employee must be able to participate in the assessment
and evaluation of any proposal which could effect a Change in Control of the
Company without Employee's judgment being influenced by uncertainties regarding
Employee's future financial security.
D. The Company wishes to provide Employee with certain benefits in the
event of a Change in Control of the Company as set forth herein.
TERMS AND CONDITIONS
For valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon (A) the willful
engaging by Employee in misconduct
<PAGE> 2
which results in demonstrable and material economic injury to the Company, or
(B) the conviction of Employee of a felony involving moral turpitude. For
purposes of this paragraph, no act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in or not
opposed to the best interests of the Company. Employee shall not be deemed to
have been terminated for Cause unless the Company shall have given or delivered
to Employee (i) reasonable notice setting forth the reasons for the Company's
intention to terminate for Cause, (ii) an opportunity for Employee to cure any
such breach within thirty (30) days after receipt of such notice, (iii) an
opportunity for Employee, together with his counsel, to be heard before the
Board, and (iv) a written notice of termination stating that, in the good faith
opinion of not less than a majority of the entire membership of the Board,
Employee was guilty of conduct set forth above in clauses (A) or (B) of the
second preceding sentence, and specifying the particulars thereof in detail.
Notwithstanding the foregoing, in the case of any Employee who has in effect an
employment agreement with the Company ("Employment Agreement"), no termination
following a Change in Control shall be treated as for Cause (x) for purposes of
this Agreement unless it would also be treated as for Cause under such
Employment Agreement, or (y) for purposes of such Employment Agreement unless it
would also be treated as for Cause under this Agreement.
(b) A "Change in Control" of the Company shall be considered
to occur if and when:
(i) more than 30% of the Company's outstanding
securities entitled to vote in elections of directors (the
"Voting Securities") are acquired by any person, entity or
group (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) (other than the Company,
any corporation, partnership, trust or other entity controlled
by the Company (a "Subsidiary") or any trustee, fiduciary or
other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its
Subsidiaries) (such person, entity or group, a "Person");
provided, however that, notwithstanding the prior clause of
this Section 1(b)(i), unless
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<PAGE> 3
the Board, within thirty (30) days of such event, determines
otherwise, a Change in Control shall be considered to occur if
and when more than 20% of the Voting Securities are acquired
by any Person; or
(ii) during any period of two consecutive years, the
individuals who, at the beginning of such period, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided, however,
that a director who is not otherwise a member of the Incumbent
Board shall be deemed to be a member of the Incumbent Board if
such director was elected by, on the recommendation of, or
with the approval of, at least two-thirds of the Incumbent
Board (taking into account the proviso in this Section
1(b)(ii);
(iii) the sale, lease, exchange or other disposition
in one transaction or in a series of related transactions of
all or substantially all of the assets of the Company, other
than a sale, lease, exchange or other disposition to an
entity, following which (A) more than 50%, respectively, of
the then outstanding shares of common stock or other
securities, (measured by value) of such entity and the
combined voting power of the then outstanding voting
securities of such entity entitled to vote generally in the
election of directors (collectively, "Equity Securities") is
then beneficially owned, directly or indirectly, by
individuals and entities who were the beneficial owners of the
outstanding Voting Securities immediately prior to such sale,
lease, exchange or other disposition, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such sale, lease, exchange or other disposition, directly
or indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly, 30% or
more, respectively, of the then outstanding Equity Securities,
and (C) at least a majority of the members of the board of
directors of the entity were members of the Incumbent Board at
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<PAGE> 4
the time of the execution of the initial agreement or action
of the Board providing for such sale, lease, exchange or other
disposition of assets of the Company;
(iv) approval by the Company's shareholders of a
reorganization, merger or consolidation of the Company,
unless, following such reorganization, merger or
consolidation, (A) more than 50%, respectively, of the then
outstanding Equity Securities of the entity resulting from
such reorganization, merger or consolidation is then
beneficially owned, directly or indirectly, by individuals and
entities who were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more, respectively, of the then outstanding
Equity Securities of the entity resulting from such
reorganization, merger or consolidation, and (C) at least a
majority of the members of the board of directors of the
entity resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time
of the execution of the initial agreement providing for such
reorganization, merger or consolidation;
(v) approval by the Company's shareholders of a
complete liquidation or dissolution of the Company; or
(vi) such other events as the Board may designate.
(c) "Good Reason" shall mean the occurrence of any of the
following, without Employee's consent, after a Change in Control:
(i) a material reduction or adverse alteration in the
titles, duties,
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<PAGE> 5
authorities or responsibilities of Employee's position;
(ii) a reduction in Employee's annual base salary,
bonus or other compensation arrangements provided by the
Company;
(iii) the relocation of Employee's place of
employment by more than twenty miles; or
(iv) a material reduction in or the discontinuance of
the perquisites or benefits provided by the Company to
Employee.
In addition, and without limiting the foregoing, in the case of an
Employee with an Employment Agreement "Good Reason" shall include any
act or failure to act which would constitute "good reason" as such term
is defined in the Employee's Employment Agreement.
(d) The term "Cash Compensation" shall mean, during any fiscal
year of the Company, Employee's aggregate cash compensation earned as an
Employee of the Company during the immediately preceding fiscal year (including
any bonus earned but not paid by fiscal year-end and without regard to any
election deferring the receipt of compensation so earned). If Employee was
employed by the Company for only a portion of the preceding fiscal year, "Cash
Compensation" shall mean his annualized aggregate cash compensation for such
year, which shall be determined based on the aggregate cash compensation earned
during the portion of such year that Employee was employed.
2. Change in Control.
(a) Options. In the event of a Change in Control of the
Company, all stock options granted to Employee by the Company under any
compensatory plan or arrangement shall become immediately vested and
exercisable, notwithstanding any vesting schedule previously applicable to such
stock options.
(b) Cash Payment. If, within twenty-four (24) months following
a Change in Control of the Company, the Company terminates Employee's employment
without Cause, or Employee terminates his or her employment with the Company for
5
<PAGE> 6
Good Reason, then the Company shall, within ten (10) days of such termination of
employment, pay to Employee, in one lump sum, in immediately available funds by
wire transfer in accordance with Employee's instructions, an amount equal to two
and one-half (2-1/2) times Employee's "Cash Compensation" as defined above.
3. Excise Tax Gross-Up.
(a) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or distribution by
the Company to or for Employee's benefit (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or pursuant to an
Employment Agreement or any other compensatory Company plan or arrangement,
without taking into account the Gross-Up Payment, as hereinafter defined) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by Employee with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Employee of all Federal, state and local taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes, withholding taxes and payroll taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee within fifteen (15)
business days of
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<PAGE> 7
the receipt of notice from Employee that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, Employee shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by
the Company to Employee within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 3(b) and Employee thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for Employee's benefit.
(b) Employee shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than fifteen business days after Employee is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies
7
<PAGE> 8
Employee in writing prior to the expiration of such period that it desires to
contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceeding relating to such claim,
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Employee harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expense.
Without limitation on the foregoing provisions of this Section 3, the
Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs Employee to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
Employee, on an interest-free basis, and shall indemnify and hold
Employee harmless, on an after-tax
8
<PAGE> 9
basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations
relating to payment of taxes for Employee's taxable year with respect
to which such contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Employee shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(c) If, after Employee's receipt of an amount advanced by the
Company pursuant to Section 3(b), Employee becomes entitled to receive any
refund with respect to such claim, Employee shall (subject to the Company's
complying with the requirements of this Section 3(b)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after Employee's receipt of an
amount advanced by the Company pursuant to Section 3(b), a determination is made
that Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify Employee in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
4. Waiver of Invalidity. Inasmuch as the injury caused to Employee in
the event Employee's employment is terminated within twenty-four (24) months of
a Change in Control is difficult or incapable of accurate estimation at the date
of this Agreement, the amounts to be paid pursuant to Sections 2 and 3 are
intended to be liquidated damages and not a penalty, and therefore constitute a
good faith forecast of the harm which might be expected to be caused to
Employee. Accordingly, the Company waives any right to assert against Employee
the invalidity of any payment provided in Sections 2 and 3 by reason of
9
<PAGE> 10
Employee's failure to seek other employment or otherwise, nor shall the amount
of any payment provided in Sections 2 and 3 be reduced by reason of any
compensation earned or not earned by Employee as a result of employment by
another employer after the date of termination or otherwise.
5. Arbitration of Disputes. All disputes governing the interpretation
or enforcement of this Agreement shall be resolved exclusively by arbitration in
the manner set forth in this Section 5. Employee or the Company may submit to
arbitration any claim under this Agreement as follows: At any time following the
termination of Employee's employment with the Company, the claim may be filed in
writing with an arbitrator of Employee's choice or, if the claim is filed by the
Company, reasonably acceptable to Employee, and thereafter the Company, or
Employee, as applicable, shall be notified in writing of the claim and furnished
with a true copy as so filed. The arbitrator must be a member of the National
Academy of Arbitrators or one who currently appears on arbitration panels issued
by the American Arbitration Association. To the extent not inconsistent with the
rules set forth in this Section 5, the arbitration proceeding shall insofar as
practicable be conducted in accordance with the National Rules of the American
Arbitration Association for the Resolution of Employment Disputes effective June
1, 1996. The arbitration hearing shall be held within ten (10) business days
after the receipt of notice of the claim by the Company. No continuance of the
hearing shall be allowed without the mutual consent of Employee and the Company.
Absence from or non-participation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which will expedite the
hearing may be ordered at the arbitrator's discretion. The arbitrator's award
shall be rendered as expeditiously as possible. In the event the arbitrator
finds that the Company has breached this Agreement, the arbitrator shall order
the Company to pay to Employee, within twenty-four hours after the decision is
rendered, the amount due hereunder. The award of the arbitrator shall be final
and binding upon the parties. Judgment may be entered on the arbitrator's award
in any appropriate court as soon as possible after its rendition without further
notice to the Company. The Company shall promptly reimburse Employee for the
reasonable legal
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<PAGE> 11
fees and expenses incurred by Employee in connection with enforcement of
Employee's rights hereunder or the determination of Employee's rights in any
arbitration proceeding.
6. Miscellaneous.
(a) Waiver. The failure of any party to exercise any rights
hereunder or to enforce any of the terms or conditions of this Agreement on any
occasion shall not constitute or be deemed a waiver of that party's rights
thereafter to exercise any rights hereunder or to enforce each and every term
and condition of this Agreement.
(b) Binding Effect; Successors.
(i) The Company 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 Company, by agreement, in form and substance
satisfactory to Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession will entitle Employee to
compensation from the Company in the same amount and on the
same terms as Employee would be entitled to under Section 2(b)
hereunder had the Company terminated Employee without Cause on
the succession date (assuming a Change in Control of the
Company had occurred prior to such succession date). As used
in this Agreement, "the Company" means 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 6(b) or which otherwise becomes
bound by all the terms and provisions of this Agreement by
operation of law or otherwise.
(ii) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable by
Employee and Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any
amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise
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<PAGE> 12
provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee, or other
beneficiary or, if there be no such beneficiary, to Employee's
estate.
(c) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
(d) Authorization and Modification. This Agreement is executed
for and on behalf of the Company by an officer thereof duly authorized to do so
by resolution of the Board of Directors approving this Agreement and authorizing
such execution. This Agreement shall not be varied, altered, modified, changed
or in any way amended except by an instruction in writing executed by the
parties hereto.
(e) Assignment by Employee. Except as otherwise expressly
provided for in this Agreement, no right, benefit or interest of Employee
arising hereunder shall be subject to anticipation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of
any claim, debt or obligation or to execution, attachment, levy or similar
process, or assignment by operation of law. Any attempt, voluntary or
involuntary, to effect any action specified in the immediately preceding
sentence shall, to the full extent permitted by law, be null, void and of no
effect.
(f) Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been given when hand delivered or (unless
otherwise specified) mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: Joseph Bernadino
195 Elmwood Avenue
Glen Rock, New Jersey 07452
If to the Company: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
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or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(g) Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which shall remain in
full force and effect.
(h) Taxes. The Company shall deduct from all amounts payable
under this Agreement all federal, state, local and other taxes required by law
to be withheld with respect to such payments.
7. Other Arrangements. The rights of Employee under this Agreement are
in addition to Employee's rights under any Employment Agreement or any successor
agreement to an Employment Agreement covering Employee. Nothing contained in
this Agreement shall adversely affect any of Employee's rights under an
Employment Agreement or as a participant or beneficiary under the Company's
pension and welfare benefit plans, incentive compensation arrangements and
perquisite programs, or Employee's obligations arising under any
confidentiality, non-competition or no solicitation agreement with the Company.
This Agreement supersedes any and all prior Change in Control Agreements entered
into between Employee and the Company.
PRIME HOSPITALITY CORP.
By:____________________________________
EMPLOYEE:
_______________________________________
Joseph Bernadino
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EXHIBIT 10(j)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 14th day of May, 1998, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and Richard T.
Szymanski ("Employee").
R E C I T A L S:
A. Employee is a key officer and employee of the Company.
B. The Board of Directors of the Company (the "Board") recognizes
that Employee is one of several key officer/employees whose high quality of job
performance is essential to promoting and protecting the best interests of the
Company and its shareholders.
C. The Board further recognizes (i) that it is possible that a
Change in Control of the Company could occur at some time in the future, (ii)
that the uncertainty associated with such a possibility could result in the
distraction of Employee from Employee's assigned duties and responsibilities,
(iii) that it is in the best interests of the Company and its shareholders to
assure the continued attention by Employee to such duties and responsibilities
without such distraction and (iv) that Employee must be able to participate in
the assessment and evaluation of any proposal which could effect a Change in
Control of the Company without Employee's judgment being influenced by
uncertainties regarding Employee's future financial security.
D. The Company wishes to provide Employee with certain benefits
in the event of a Change in Control of the Company as set forth herein.
TERMS AND CONDITIONS
For valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon (A) the willful
engaging by Employee in misconduct
<PAGE> 2
which results in demonstrable and material economic injury to the Company, or
(B) the conviction of Employee of a felony involving moral turpitude. For
purposes of this paragraph, no act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in or not
opposed to the best interests of the Company. Employee shall not be deemed to
have been terminated for Cause unless the Company shall have given or delivered
to Employee (i) reasonable notice setting forth the reasons for the Company's
intention to terminate for Cause, (ii) an opportunity for Employee to cure any
such breach within thirty (30) days after receipt of such notice, (iii) an
opportunity for Employee, together with his counsel, to be heard before the
Board, and (iv) a written notice of termination stating that, in the good faith
opinion of not less than a majority of the entire membership of the Board,
Employee was guilty of conduct set forth above in clauses (A) or (B) of the
second preceding sentence, and specifying the particulars thereof in detail.
Notwithstanding the foregoing, in the case of any Employee who has in effect an
employment agreement with the Company ("Employment Agreement"), no termination
following a Change in Control shall be treated as for Cause (x) for purposes of
this Agreement unless it would also be treated as for Cause under such
Employment Agreement, or (y) for purposes of such Employment Agreement unless it
would also be treated as for Cause under this Agreement.
(b) A "Change in Control" of the Company shall be considered
to occur if and when:
(i) more than 30% of the Company's outstanding
securities entitled to vote in elections of directors (the
"Voting Securities") are acquired by any person, entity or
group (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934) (other than the
Company, any corporation, partnership, trust or other
entity controlled by the Company (a "Subsidiary") or any
trustee, fiduciary or other person or entity holding
securities under any employee benefit plan or trust of the
Company or any of its Subsidiaries) (such person, entity
or group, a "Person"); provided, however that,
notwithstanding the prior clause of this Section 1(b)(i),
unless
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<PAGE> 3
the Board, within thirty (30) days of such event,
determines otherwise, a Change in Control shall be
considered to occur if and when more than 20% of the
Voting Securities are acquired by any Person; or
(ii) during any period of two consecutive years,
the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof,
provided, however, that a director who is not otherwise a
member of the Incumbent Board shall be deemed to be a
member of the Incumbent Board if such director was elected
by, on the recommendation of, or with the approval of, at
least two-thirds of the Incumbent Board (taking into
account the proviso in this Section 1(b)(ii);
(iii) the sale, lease, exchange or other
disposition in one transaction or in a series of related
transactions of all or substantially all of the assets of
the Company, other than a sale, lease, exchange or other
disposition to an entity, following which (A) more than
50%, respectively, of the then outstanding shares of
common stock or other securities, (measured by value) of
such entity and the combined voting power of the then
outstanding voting securities of such entity entitled to
vote generally in the election of directors (collectively,
"Equity Securities") is then beneficially owned, directly
or indirectly, by individuals and entities who were the
beneficial owners of the outstanding Voting Securities
immediately prior to such sale, lease, exchange or other
disposition, in substantially the same proportions among
such beneficial owners, (B) no Person (excluding any
Person beneficially owning, immediately prior to such
sale, lease, exchange or other disposition, directly or
indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly,
30% or more, respectively, of the then outstanding Equity
Securities, and (C) at least a majority of the members of
the board of directors of the entity were members of the
Incumbent Board at
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<PAGE> 4
the time of the execution of the initial agreement or
action of the Board providing for such sale, lease,
exchange or other disposition of assets of the Company;
(iv) approval by the Company's shareholders of a
reorganization, merger or consolidation of the Company,
unless, following such reorganization, merger or
consolidation, (A) more than 50%, respectively, of the
then outstanding Equity Securities of the entity resulting
from such reorganization, merger or consolidation is then
beneficially owned, directly or indirectly, by individuals
and entities who were the beneficial owners, respectively,
of the outstanding Voting Securities immediately prior to
such reorganization, merger or consolidation, in
substantially the same proportions among such beneficial
owners, (B) no Person (excluding any Person beneficially
owning, immediately prior to such reorganization, merger
or consolidation, directly or indirectly, 30% or more of
the outstanding Voting Securities), beneficially owns,
directly or indirectly, 30% or more of the outstanding
Voting Securities), beneficially owns, directly or
indirectly, 30% or more, respectively, of the then
outstanding Equity Securities of the entity resulting from
such reorganization, merger or consolidation, and (C) at
least a majority of the members of the board of directors
of the entity resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at
the time of the execution of the initial agreement
providing for such reorganization, merger or
consolidation;
(v) approval by the Company's shareholders of a
complete liquidation or dissolution of the Company; or
(vi) such other events as the Board may designate.
(c) "Good Reason" shall mean the occurrence of any of the
following, without Employee's consent, after a Change in Control:
(i) a material reduction or adverse alteration in
the titles, duties,
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authorities or responsibilities of Employee's position;
(ii) a reduction in Employee's annual base salary,
bonus or other compensation arrangements provided by the
Company;
(iii) the relocation of Employee's place of
employment by more than twenty miles; or
(iv) a material reduction in or the discontinuance
of the perquisites or benefits provided by the Company to
Employee.
In addition, and without limiting the foregoing, in the case
of an Employee with an Employment Agreement "Good Reason"
shall include any act or failure to act which would constitute
"good reason" as such term is defined in the Employee's
Employment Agreement.
(d) The term "Cash Compensation" shall mean, during
any fiscal year of the Company, Employee's aggregate cash
compensation earned as an Employee of the Company during the
immediately preceding fiscal year (including any bonus earned
but not paid by fiscal year-end and without regard to any
election deferring the receipt of compensation so earned). If
Employee was employed by the Company for only a portion of the
preceding fiscal year, "Cash Compensation" shall mean his
annualized aggregate cash compensation for such year, which
shall be determined based on the aggregate cash compensation
earned during the portion of such year that Employee was
employed.
2. Change in Control.
(a) Options. In the event of a Change in Control of the
Company, all stock options granted to Employee by the Company
under any compensatory plan or arrangement shall become
immediately vested and exercisable, notwithstanding any
vesting schedule previously applicable to such stock options.
(b) Cash Payment. If, within twenty-four (24) months following
a Change in Control of the Company, the Company terminates
Employee's employment without Cause, or Employee terminates
his or her employment with the Company for
5
<PAGE> 6
Good Reason, then the Company shall, within ten (10) days of
such termination of employment, pay to Employee, in one lump
sum, in immediately available funds by wire transfer in
accordance with Employee's instructions, an amount equal to
two and one-half (2-1/2) times Employee's "Cash Compensation"
as defined above.
3. Excise Tax Gross-Up.
(a) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or
distribution by the Company to or for Employee's benefit
(whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or pursuant to an
Employment Agreement or any other compensatory Company plan or
arrangement, without taking into account the Gross-Up Payment,
as hereinafter defined) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by Employee with respect to such excise
tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by Employee of all Federal, state and local
taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any
income taxes, withholding taxes and payroll taxes (and any
interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment, Employee retains
an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
All determinations required to be made under this
Section 11, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized accounting firm as
may be designated by Employee (the "Accounting Firm") which
shall provide detailed supporting calculations both to the
Company and Employee within fifteen (15) business days of
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<PAGE> 7
the receipt of notice from Employee that there has been a
Payment, or such earlier time as is requested by the Company.
In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the
Change in Control, Employee shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 11, shall be
paid by the Company to Employee within five days of the
receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the
Company and Employee. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 3(b) and Employee thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to
or for Employee's benefit.
(b) Employee shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as
practicable but no later than fifteen business days after
Employee is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. Employee shall
not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Company notifies
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<PAGE> 8
Employee in writing prior to the expiration of such period
that it desires to contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and (iv) permit
the Company to participate in any proceeding relating to
such claim,
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold Employee harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expense. Without
limitation on the foregoing provisions of this Section 3, the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct Employee to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and Employee agrees to prosecute such
contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided,
however, that if the Company directs Employee to pay such
claim and sue for a refund, the Company shall advance the
amount of such payment to Employee, on an interest-free basis,
and shall indemnify and hold Employee harmless, on an
after-tax
8
<PAGE> 9
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for Employee's taxable year with respect to which such
contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Employee shall
be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any
other taxing authority.
(c) If, after Employee's receipt of an amount
advanced by the Company pursuant to Section 3(b), Employee
becomes entitled to receive any refund with respect to such
claim, Employee shall (subject to the Company's complying with
the requirements of this Section 3(b)) promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after Employee's receipt of an amount advanced by the Company
pursuant to Section 3(b), a determination is made that
Employee shall not be entitled to any refund with respect to
such claim and the Company does not notify Employee in writing
of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid.
4. Waiver of Invalidity. Inasmuch as the injury caused to
Employee in the event Employee's employment is terminated within
twenty-four (24) months of a Change in Control is difficult or
incapable of accurate estimation at the date of this Agreement, the
amounts to be paid pursuant to Sections 2 and 3 are intended to be
liquidated damages and not a penalty, and therefore constitute a good
faith forecast of the harm which might be expected to be caused to
Employee. Accordingly, the Company waives any right to assert against
Employee the invalidity of any payment provided in Sections 2 and 3 by
reason of
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<PAGE> 10
Employee's failure to seek other employment or otherwise, nor shall the
amount of any payment provided in Sections 2 and 3 be reduced by reason
of any compensation earned or not earned by Employee as a result of
employment by another employer after the date of termination or
otherwise.
5. Arbitration of Disputes. All disputes governing the
interpretation or enforcement of this Agreement shall be resolved
exclusively by arbitration in the manner set forth in this Section 5.
Employee or the Company may submit to arbitration any claim under this
Agreement as follows: At any time following the termination of
Employee's employment with the Company, the claim may be filed in
writing with an arbitrator of Employee's choice or, if the claim is
filed by the Company, reasonably acceptable to Employee, and thereafter
the Company, or Employee, as applicable, shall be notified in writing
of the claim and furnished with a true copy as so filed. The arbitrator
must be a member of the National Academy of Arbitrators or one who
currently appears on arbitration panels issued by the American
Arbitration Association. To the extent not inconsistent with the rules
set forth in this Section 5, the arbitration proceeding shall insofar
as practicable be conducted in accordance with the National Rules of
the American Arbitration Association for the Resolution of Employment
Disputes effective June 1, 1996. The arbitration hearing shall be held
within ten (10) business days after the receipt of notice of the claim
by the Company. No continuance of the hearing shall be allowed without
the mutual consent of Employee and the Company. Absence from or
non-participation at the hearing by either party shall not prevent the
issuance of an award. Hearing procedures which will expedite the
hearing may be ordered at the arbitrator's discretion. The arbitrator's
award shall be rendered as expeditiously as possible. In the event the
arbitrator finds that the Company has breached this Agreement, the
arbitrator shall order the Company to pay to Employee, within
twenty-four hours after the decision is rendered, the amount due
hereunder. The award of the arbitrator shall be final and binding upon
the parties. Judgment may be entered on the arbitrator's award in any
appropriate court as soon as possible after its rendition without
further notice to the Company. The Company shall promptly reimburse
Employee for the reasonable legal
10
<PAGE> 11
fees and expenses incurred by Employee in connection with enforcement
of Employee's rights hereunder or the determination of Employee's
rights in any arbitration proceeding.
6. Miscellaneous.
(a) Waiver. The failure of any party to exercise any rights
hereunder or to enforce any of the terms or conditions of this
Agreement on any occasion shall not constitute or be deemed a
waiver of that party's rights thereafter to exercise any
rights hereunder or to enforce each and every term and
condition of this Agreement.
(b) Binding Effect; Successors.
(i) The Company 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 Company, by agreement, in form and substance
satisfactory to Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession will entitle Employee
to compensation from the Company in the same amount and on
the same terms as Employee would be entitled to under
Section 2(b) hereunder had the Company terminated Employee
without Cause on the succession date (assuming a Change in
Control of the Company had occurred prior to such
succession date). As used in this Agreement, "the Company"
means 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 6(b) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of
law or otherwise.
(ii) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable
by Employee and Employee's personal or legal
representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Employee
should die while any amounts would still be payable to him
hereunder if he had continued to live, all such amounts,
unless otherwise
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<PAGE> 12
provided herein, shall be paid in accordance with
the terms of this Agreement to Employee's devisee,
legatee, or other beneficiary or, if there be no such
beneficiary, to Employee's estate.
(c) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
(d) Authorization and Modification. This Agreement is executed
for and on behalf of the Company by an officer thereof duly
authorized to do so by resolution of the Board of Directors
approving this Agreement and authorizing such execution. This
Agreement shall not be varied, altered, modified, changed or
in any way amended except by an instruction in writing
executed by the parties hereto.
(e) Assignment by Employee. Except as otherwise expressly
provided for in this Agreement, no right, benefit or interest
of Employee arising hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance,
charge, pledge, hypothecation or set-off in respect of any
claim, debt or obligation or to execution, attachment, levy or
similar process, or assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action
specified in the immediately preceding sentence shall, to the
full extent permitted by law, be null, void and of no effect.
(f) Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in the
Agreement shall be in writing and shall be deemed to have been
given when hand delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: Richard T. Szymanski
133 Smoke Rise Drive
Warren, New Jersey 07059
If to the Company: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
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<PAGE> 13
or to such other address as any party may have furnished to
the others in writing in accordance herewith, except that
notices of change of address shall be effective only upon
receipt.
(g) Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
(h) Taxes. The Company shall deduct from all amounts payable
under this Agreement all federal, state, local and other taxes
required by law to be withheld with respect to such payments.
7. Other Arrangements. The rights of Employee under this
Agreement are in addition to Employee's rights under any Employment
Agreement or any successor agreement to an Employment Agreement
covering Employee. Nothing contained in this Agreement shall adversely
affect any of Employee's rights under an Employment Agreement or as a
participant or beneficiary under the Company's pension and welfare
benefit plans, incentive compensation arrangements and perquisite
programs, or Employee's obligations arising under any confidentiality,
non-competition or no solicitation agreement with the Company. This
Agreement supersedes any and all prior Change in Control Agreements
entered into between Employee and the Company.
PRIME HOSPITALITY CORP.
By:
-----------------------------------
EMPLOYEE:
-----------------------------------
Richard T. Szymanski
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<PAGE> 1
EXHIBIT 10(k)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 14th day of May, 1998, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and Douglas Vicari
("Employee").
R E C I T A L S:
A. Employee is a key officer and employee of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
Employee is one of several key officer/employees whose high quality of job
performance is essential to promoting and protecting the best interests of the
Company and its shareholders.
C. The Board further recognizes (i) that it is possible that a Change in
Control of the Company could occur at some time in the future, (ii) that the
uncertainty associated with such a possibility could result in the distraction
of Employee from Employee's assigned duties and responsibilities, (iii) that it
is in the best interests of the Company and its shareholders to assure the
continued attention by Employee to such duties and responsibilities without such
distraction and (iv) that Employee must be able to participate in the assessment
and evaluation of any proposal which could effect a Change in Control of the
Company without Employee's judgment being influenced by uncertainties regarding
Employee's future financial security.
D. The Company wishes to provide Employee with certain benefits in the
event of a Change in Control of the Company as set forth herein.
TERMS AND CONDITIONS
For valuable consideration, the receipt of which is hereby acknowledged,
the parties agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the Company shall have "Cause" to
terminate Employee's employment hereunder upon (A) the willful engaging by
Employee in misconduct
<PAGE> 2
which results in demonstrable and material economic injury to the Company, or
(B) the conviction of Employee of a felony involving moral turpitude. For
purposes of this paragraph, no act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in or not
opposed to the best interests of the Company. Employee shall not be deemed to
have been terminated for Cause unless the Company shall have given or delivered
to Employee (i) reasonable notice setting forth the reasons for the Company's
intention to terminate for Cause, (ii) an opportunity for Employee to cure any
such breach within thirty (30) days after receipt of such notice, (iii) an
opportunity for Employee, together with his counsel, to be heard before the
Board, and (iv) a written notice of termination stating that, in the good faith
opinion of not less than a majority of the entire membership of the Board,
Employee was guilty of conduct set forth above in clauses (A) or (B) of the
second preceding sentence, and specifying the particulars thereof in detail.
Notwithstanding the foregoing, in the case of any Employee who has in effect an
employment agreement with the Company ("Employment Agreement"), no termination
following a Change in Control shall be treated as for Cause (x) for purposes of
this Agreement unless it would also be treated as for Cause under such
Employment Agreement, or (y) for purposes of such Employment Agreement unless it
would also be treated as for Cause under this Agreement.
(b) A "Change in Control" of the Company shall be considered to occur
if and when:
(i) more than 30% of the Company's outstanding securities
entitled to vote in elections of directors (the "Voting Securities")
are acquired by any person, entity or group (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934)
(other than the Company, any corporation, partnership, trust or other
entity controlled by the Company (a "Subsidiary") or any trustee,
fiduciary or other person or entity holding securities under any
employee benefit plan or trust of the Company or any of its
Subsidiaries) (such person, entity or group, a "Person"); provided,
however that, notwithstanding the prior clause of this Section
1(b)(i), unless
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<PAGE> 3
the Board, within thirty (30) days of such event, determines
otherwise, a Change in Control shall be considered to occur if and
when more than 20% of the Voting Securities are acquired by any
Person; or
(ii) during any period of two consecutive years, the individuals
who, at the beginning of such period, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided, however, that a director who is not
otherwise a member of the Incumbent Board shall be deemed to be a
member of the Incumbent Board if such director was elected by, on the
recommendation of, or with the approval of, at least two-thirds of the
Incumbent Board (taking into account the proviso in this Section
1(b)(ii);
(iii) the sale, lease, exchange or other disposition in one
transaction or in a series of related transactions of all or
substantially all of the assets of the Company, other than a sale,
lease, exchange or other disposition to an entity, following which (A)
more than 50%, respectively, of the then outstanding shares of common
stock or other securities, (measured by value) of such entity and the
combined voting power of the then outstanding voting securities of
such entity entitled to vote generally in the election of directors
(collectively, "Equity Securities") is then beneficially owned,
directly or indirectly, by individuals and entities who were the
beneficial owners of the outstanding Voting Securities immediately
prior to such sale, lease, exchange or other disposition, in
substantially the same proportions among such beneficial owners, (B)
no Person (excluding any Person beneficially owning, immediately prior
to such sale, lease, exchange or other disposition, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more, respectively,
of the then outstanding Equity Securities, and (C) at least a majority
of the members of the board of directors of the entity were members of
the Incumbent Board at
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<PAGE> 4
the time of the execution of the initial agreement or action of the
Board providing for such sale, lease, exchange or other disposition of
assets of the Company;
(iv) approval by the Company's shareholders of a reorganization,
merger or consolidation of the Company, unless, following such
reorganization, merger or consolidation, (A) more than 50%,
respectively, of the then outstanding Equity Securities of the entity
resulting from such reorganization, merger or consolidation is then
beneficially owned, directly or indirectly, by individuals and
entities who were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, in substantially the same
proportions among such beneficial owners, (B) no Person (excluding any
Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more, respectively,
of the then outstanding Equity Securities of the entity resulting from
such reorganization, merger or consolidation, and (C) at least a
majority of the members of the board of directors of the entity
resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the
initial agreement providing for such reorganization, merger or
consolidation;
(v) approval by the Company's shareholders of a complete
liquidation or dissolution of the Company; or
(vi) such other events as the Board may designate.
(c) "Good Reason" shall mean the occurrence of any of the following,
without Employee's consent, after a Change in Control:
(i) a material reduction or adverse alteration in the titles,
duties,
4
<PAGE> 5
authorities or responsibilities of Employee's position;
(ii) a reduction in Employee's annual base salary, bonus or other
compensation arrangements provided by the Company;
(iii) the relocation of Employee's place of employment by more
than twenty miles; or
(iv) a material reduction in or the discontinuance of the
perquisites or benefits provided by the Company to Employee.
In addition, and without limiting the foregoing, in the case of an Employee
with an Employment Agreement "Good Reason" shall include any act or failure
to act which would constitute "good reason" as such term is defined in the
Employee's Employment Agreement.
(d) The term "Cash Compensation" shall mean, during any fiscal year of
the Company, Employee's aggregate cash compensation earned as an Employee
of the Company during the immediately preceding fiscal year (including any
bonus earned but not paid by fiscal year-end and without regard to any
election deferring the receipt of compensation so earned). If Employee was
employed by the Company for only a portion of the preceding fiscal year,
"Cash Compensation" shall mean his annualized aggregate cash compensation
for such year, which shall be determined based on the aggregate cash
compensation earned during the portion of such year that Employee was
employed.
2. Change in Control.
(a) Options. In the event of a Change in Control of the Company, all
stock options granted to Employee by the Company under any compensatory
plan or arrangement shall become immediately vested and exercisable,
notwithstanding any vesting schedule previously applicable to such stock
options.
(b) Cash Payment. If, within twenty-four (24) months following a
Change in Control of the Company, the Company terminates Employee's
employment without Cause, or Employee terminates his or her employment with
the Company for
5
<PAGE> 6
Good Reason, then the Company shall, within ten (10) days of such
termination of employment, pay to Employee, in one lump sum, in immediately
available funds by wire transfer in accordance with Employee's
instructions, an amount equal to two and one-half (2-1/2) times Employee's
"Cash Compensation" as defined above.
3. Excise Tax Gross-Up.
(a) Anything in this Agreement to the contrary notwithstanding, if it
shall be determined that any payment or distribution by the Company to or
for Employee's benefit (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or pursuant to an
Employment Agreement or any other compensatory Company plan or arrangement,
without taking into account the Gross-Up Payment, as hereinafter defined)
(a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any interest
or penalties are incurred by Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by Employee of all Federal, state and local
taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes, withholding taxes
and payroll taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by a nationally recognized accounting
firm as may be designated by Employee (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and Employee
within fifteen (15) business days of
6
<PAGE> 7
the receipt of notice from Employee that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Employee shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne by the Company. Any Gross-Up Payment, as determined pursuant
to this Section 11, shall be paid by the Company to Employee within five
days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
Employee. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 3(b) and Employee
thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to or for
Employee's benefit.
(b) Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than fifteen business days after Employee
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. Employee shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies
7
<PAGE> 8
Employee in writing prior to the expiration of such period that it desires
to contest such claim, Employee shall:
(i) give the Company any information reasonably requested by the
Company to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceeding relating
to such claim,
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expense. Without limitation
on the foregoing provisions of this Section 3, the Company shall control
all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct Employee to pay
the tax claimed and sue for a refund or contest the claim in any
permissible manner, and Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Employee to pay
such claim and sue for a refund, the Company shall advance the amount of
such payment to Employee, on an interest-free basis, and shall indemnify
and hold Employee harmless, on an after-tax
8
<PAGE> 9
basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect
to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of
taxes for Employee's taxable year with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and Employee shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.
(c) If, after Employee's receipt of an amount advanced by the Company
pursuant to Section 3(b), Employee becomes entitled to receive any refund
with respect to such claim, Employee shall (subject to the Company's
complying with the requirements of this Section 3(b)) promptly pay to the
Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after Employee's
receipt of an amount advanced by the Company pursuant to Section 3(b), a
determination is made that Employee shall not be entitled to any refund
with respect to such claim and the Company does not notify Employee in
writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
4. Waiver of Invalidity. Inasmuch as the injury caused to Employee in the
event Employee's employment is terminated within twenty-four (24) months of a
Change in Control is difficult or incapable of accurate estimation at the date
of this Agreement, the amounts to be paid pursuant to Sections 2 and 3 are
intended to be liquidated damages and not a penalty, and therefore constitute a
good faith forecast of the harm which might be expected to be caused to
Employee. Accordingly, the Company waives any right to assert against Employee
the invalidity of any payment provided in Sections 2 and 3 by reason of
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<PAGE> 10
Employee's failure to seek other employment or otherwise, nor shall the amount
of any payment provided in Sections 2 and 3 be reduced by reason of any
compensation earned or not earned by Employee as a result of employment by
another employer after the date of termination or otherwise.
5. Arbitration of Disputes. All disputes governing the interpretation or
enforcement of this Agreement shall be resolved exclusively by arbitration in
the manner set forth in this Section 5. Employee or the Company may submit to
arbitration any claim under this Agreement as follows: At any time following the
termination of Employee's employment with the Company, the claim may be filed in
writing with an arbitrator of Employee's choice or, if the claim is filed by the
Company, reasonably acceptable to Employee, and thereafter the Company, or
Employee, as applicable, shall be notified in writing of the claim and furnished
with a true copy as so filed. The arbitrator must be a member of the National
Academy of Arbitrators or one who currently appears on arbitration panels issued
by the American Arbitration Association. To the extent not inconsistent with the
rules set forth in this Section 5, the arbitration proceeding shall insofar as
practicable be conducted in accordance with the National Rules of the American
Arbitration Association for the Resolution of Employment Disputes effective June
1, 1996. The arbitration hearing shall be held within ten (10) business days
after the receipt of notice of the claim by the Company. No continuance of the
hearing shall be allowed without the mutual consent of Employee and the Company.
Absence from or non-participation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which will expedite the
hearing may be ordered at the arbitrator's discretion. The arbitrator's award
shall be rendered as expeditiously as possible. In the event the arbitrator
finds that the Company has breached this Agreement, the arbitrator shall order
the Company to pay to Employee, within twenty-four hours after the decision is
rendered, the amount due hereunder. The award of the arbitrator shall be final
and binding upon the parties. Judgment may be entered on the arbitrator's award
in any appropriate court as soon as possible after its rendition without further
notice to the Company. The Company shall promptly reimburse Employee for the
reasonable legal
10
<PAGE> 11
fees and expenses incurred by Employee in connection with enforcement of
Employee's rights hereunder or the determination of Employee's rights in any
arbitration proceeding.
6. Miscellaneous.
(a) Waiver. The failure of any party to exercise any rights hereunder
or to enforce any of the terms or conditions of this Agreement on any
occasion shall not constitute or be deemed a waiver of that party's rights
thereafter to exercise any rights hereunder or to enforce each and every
term and condition of this Agreement.
(b) Binding Effect; Successors.
(i) The Company 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 Company, by
agreement, in form and substance satisfactory to Employee, expressly
to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no
such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such
succession will entitle Employee to compensation from the Company in
the same amount and on the same terms as Employee would be entitled to
under Section 2(b) hereunder had the Company terminated Employee
without Cause on the succession date (assuming a Change in Control of
the Company had occurred prior to such succession date). As used in
this Agreement, "the Company" means 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
6(b) or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law or otherwise.
(ii) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by Employee and
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts would still be
payable to him hereunder if he had continued to live, all such
amounts, unless otherwise
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<PAGE> 12
provided herein, shall be paid in accordance with the terms of this
Agreement to Employee's devisee, legatee, or other beneficiary or, if
there be no such beneficiary, to Employee's estate.
(c) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware.
(d) Authorization and Modification. This Agreement is executed for and
on behalf of the Company by an officer thereof duly authorized to do so by
resolution of the Board of Directors approving this Agreement and
authorizing such execution. This Agreement shall not be varied, altered,
modified, changed or in any way amended except by an instruction in writing
executed by the parties hereto.
(e) Assignment by Employee. Except as otherwise expressly provided for
in this Agreement, no right, benefit or interest of Employee arising
hereunder shall be subject to anticipation, alienation, sale, assignment,
encumbrance, charge, pledge, hypothecation or set-off in respect of any
claim, debt or obligation or to execution, attachment, levy or similar
process, or assignment by operation of law. Any attempt, voluntary or
involuntary, to effect any action specified in the immediately preceding
sentence shall, to the full extent permitted by law, be null, void and of
no effect.
(f) Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been given when hand delivered or (unless
otherwise specified) mailed by United States registered mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Employee: Douglas Vicari
464 Oradell Avenue
Oradell, New Jersey 07649
If to the Company: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
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<PAGE> 13
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
(g) Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which shall
remain in full force and effect.
(h) Taxes. The Company shall deduct from all amounts payable under
this Agreement all federal, state, local and other taxes required by law to
be withheld with respect to such payments.
7. Other Arrangements. The rights of Employee under this Agreement are in
addition to Employee's rights under any Employment Agreement or any successor
agreement to an Employment Agreement covering Employee. Nothing contained in
this Agreement shall adversely affect any of Employee's rights under an
Employment Agreement or as a participant or beneficiary under the Company's
pension and welfare benefit plans, incentive compensation arrangements and
perquisite programs, or Employee's obligations arising under any
confidentiality, non-competition or no solicitation agreement with the Company.
This Agreement supersedes any and all prior Change in Control Agreements entered
into between Employee and the Company.
PRIME HOSPITALITY CORP.
By:________________________________
EMPLOYEE:
___________________________________
Douglas Vicari
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<PAGE> 1
EXHIBIT 10(l)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 14th day of May, 1998, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and Terry P. O'Leary
("Employee").
R E C I T A L S:
A. Employee is a key officer and employee of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
Employee is one of several key officer/employees whose high quality of job
performance is essential to promoting and protecting the best interests of the
Company and its shareholders.
C. The Board further recognizes (i) that it is possible that a Change
in Control of the Company could occur at some time in the future, (ii) that the
uncertainty associated with such a possibility could result in the distraction
of Employee from Employee's assigned duties and responsibilities, (iii) that it
is in the best interests of the Company and its shareholders to assure the
continued attention by Employee to such duties and responsibilities without such
distraction and (iv) that Employee must be able to participate in the assessment
and evaluation of any proposal which could effect a Change in Control of the
Company without Employee's judgment being influenced by uncertainties regarding
Employee's future financial security.
D. The Company wishes to provide Employee with certain benefits in the
event of a Change in Control of the Company as set forth herein.
TERMS AND CONDITIONS
For valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon (A) the willful
engaging by Employee in misconduct
<PAGE> 2
which results in demonstrable and material economic injury to the Company, or
(B) the conviction of Employee of a felony involving moral turpitude. For
purposes of this paragraph, no act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in or not
opposed to the best interests of the Company. Employee shall not be deemed to
have been terminated for Cause unless the Company shall have given or delivered
to Employee (i) reasonable notice setting forth the reasons for the Company's
intention to terminate for Cause, (ii) an opportunity for Employee to cure any
such breach within thirty (30) days after receipt of such notice, (iii) an
opportunity for Employee, together with his counsel, to be heard before the
Board, and (iv) a written notice of termination stating that, in the good faith
opinion of not less than a majority of the entire membership of the Board,
Employee was guilty of conduct set forth above in clauses (A) or (B) of the
second preceding sentence, and specifying the particulars thereof in detail.
Notwithstanding the foregoing, in the case of any Employee who has in effect an
employment agreement with the Company ("Employment Agreement"), no termination
following a Change in Control shall be treated as for Cause (x) for purposes of
this Agreement unless it would also be treated as for Cause under such
Employment Agreement, or (y) for purposes of such Employment Agreement unless it
would also be treated as for Cause under this Agreement.
(b) A "Change in Control" of the Company shall be considered
to occur if and when:
(i) more than 30% of the Company's outstanding
securities entitled to vote in elections of directors (the
"Voting Securities") are acquired by any person, entity or
group (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) (other than the Company,
any corporation, partnership, trust or other entity controlled
by the Company (a "Subsidiary") or any trustee, fiduciary or
other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its
Subsidiaries) (such person, entity or group, a "Person");
provided, however that, notwithstanding the prior clause of
this Section 1(b)(i), unless
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<PAGE> 3
the Board, within thirty (30) days of such event, determines
otherwise, a Change in Control shall be considered to occur if
and when more than 20% of the Voting Securities are acquired
by any Person; or
(ii) during any period of two consecutive years, the
individuals who, at the beginning of such period, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided, however,
that a director who is not otherwise a member of the Incumbent
Board shall be deemed to be a member of the Incumbent Board if
such director was elected by, on the recommendation of, or
with the approval of, at least two-thirds of the Incumbent
Board (taking into account the proviso in this Section
1(b)(ii);
(iii) the sale, lease, exchange or other disposition
in one transaction or in a series of related transactions of
all or substantially all of the assets of the Company, other
than a sale, lease, exchange or other disposition to an
entity, following which (A) more than 50%, respectively, of
the then outstanding shares of common stock or other
securities, (measured by value) of such entity and the
combined voting power of the then outstanding voting
securities of such entity entitled to vote generally in the
election of directors (collectively, "Equity Securities") is
then beneficially owned, directly or indirectly, by
individuals and entities who were the beneficial owners of the
outstanding Voting Securities immediately prior to such sale,
lease, exchange or other disposition, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such sale, lease, exchange or other disposition, directly
or indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly, 30% or
more, respectively, of the then outstanding Equity Securities,
and (C) at least a majority of the members of the board of
directors of the entity were members of the Incumbent Board at
3
<PAGE> 4
the time of the execution of the initial agreement or action
of the Board providing for such sale, lease, exchange or other
disposition of assets of the Company;
(iv) approval by the Company's shareholders of a
reorganization, merger or consolidation of the Company,
unless, following such reorganization, merger or
consolidation, (A) more than 50%, respectively, of the then
outstanding Equity Securities of the entity resulting from
such reorganization, merger or consolidation is then
beneficially owned, directly or indirectly, by individuals and
entities who were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more, respectively, of the then outstanding
Equity Securities of the entity resulting from such
reorganization, merger or consolidation, and (C) at least a
majority of the members of the board of directors of the
entity resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time
of the execution of the initial agreement providing for such
reorganization, merger or consolidation;
(v) approval by the Company's shareholders of a
complete liquidation or dissolution of the Company; or
(vi) such other events as the Board may designate.
(c) "Good Reason" shall mean the occurrence of any of the
following, without Employee's consent, after a Change in Control:
(i) a material reduction or adverse alteration in the
titles, duties,
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<PAGE> 5
authorities or responsibilities of Employee's position;
(ii) a reduction in Employee's annual base salary,
bonus or other compensation arrangements provided by the
Company;
(iii) the relocation of Employee's place of
employment by more than twenty miles; or
(iv) a material reduction in or the discontinuance of
the perquisites or benefits provided by the Company to
Employee.
In addition, and without limiting the foregoing, in the case of an
Employee with an Employment Agreement "Good Reason" shall include any
act or failure to act which would constitute "good reason" as such term
is defined in the Employee's Employment Agreement.
(d) The term "Cash Compensation" shall mean, during any fiscal
year of the Company, Employee's aggregate cash compensation earned as an
Employee of the Company during the immediately preceding fiscal year (including
any bonus earned but not paid by fiscal year-end and without regard to any
election deferring the receipt of compensation so earned). If Employee was
employed by the Company for only a portion of the preceding fiscal year, "Cash
Compensation" shall mean his annualized aggregate cash compensation for such
year, which shall be determined based on the aggregate cash compensation earned
during the portion of such year that Employee was employed.
2. Change in Control.
(a) Options. In the event of a Change in Control of the
Company, all stock options granted to Employee by the Company under any
compensatory plan or arrangement shall become immediately vested and
exercisable, notwithstanding any vesting schedule previously applicable to such
stock options.
(b) Cash Payment. If, within twenty-four (24) months following
a Change in Control of the Company, the Company terminates Employee's employment
without Cause, or Employee terminates his or her employment with the Company for
5
<PAGE> 6
Good Reason, then the Company shall, within ten (10) days of such termination of
employment, pay to Employee, in one lump sum, in immediately available funds by
wire transfer in accordance with Employee's instructions, an amount equal to one
and one-half (1-1/2) times Employee's "Cash Compensation" as defined above.
3. Excise Tax Gross-Up.
(a) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or distribution by
the Company to or for Employee's benefit (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or pursuant to an
Employment Agreement or any other compensatory Company plan or arrangement,
without taking into account the Gross-Up Payment, as hereinafter defined) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by Employee with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Employee of all Federal, state and local taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes, withholding taxes and payroll taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee within fifteen (15)
business days of
6
<PAGE> 7
the receipt of notice from Employee that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, Employee shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by
the Company to Employee within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 3(b) and Employee thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for Employee's benefit.
(b) Employee shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than fifteen business days after Employee is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies
7
<PAGE> 8
Employee in writing prior to the expiration of such period that it desires to
contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceeding relating to such claim,
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Employee harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expense.
Without limitation on the foregoing provisions of this Section 3, the
Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs Employee to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
Employee, on an interest-free basis, and shall indemnify and hold
Employee harmless, on an after-tax
8
<PAGE> 9
basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations
relating to payment of taxes for Employee's taxable year with respect
to which such contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Employee shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(c) If, after Employee's receipt of an amount advanced by the
Company pursuant to Section 3(b), Employee becomes entitled to receive any
refund with respect to such claim, Employee shall (subject to the Company's
complying with the requirements of this Section 3(b)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after Employee's receipt of an
amount advanced by the Company pursuant to Section 3(b), a determination is made
that Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify Employee in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
4. Waiver of Invalidity. Inasmuch as the injury caused to Employee in
the event Employee's employment is terminated within twenty-four (24) months of
a Change in Control is difficult or incapable of accurate estimation at the date
of this Agreement, the amounts to be paid pursuant to Sections 2 and 3 are
intended to be liquidated damages and not a penalty, and therefore constitute a
good faith forecast of the harm which might be expected to be caused to
Employee. Accordingly, the Company waives any right to assert against Employee
the invalidity of any payment provided in Sections 2 and 3 by reason of
9
<PAGE> 10
Employee's failure to seek other employment or otherwise, nor shall the amount
of any payment provided in Sections 2 and 3 be reduced by reason of any
compensation earned or not earned by Employee as a result of employment by
another employer after the date of termination or otherwise.
5. Arbitration of Disputes. All disputes governing the interpretation
or enforcement of this Agreement shall be resolved exclusively by arbitration in
the manner set forth in this Section 5. Employee or the Company may submit to
arbitration any claim under this Agreement as follows: At any time following the
termination of Employee's employment with the Company, the claim may be filed in
writing with an arbitrator of Employee's choice or, if the claim is filed by the
Company, reasonably acceptable to Employee, and thereafter the Company, or
Employee, as applicable, shall be notified in writing of the claim and furnished
with a true copy as so filed. The arbitrator must be a member of the National
Academy of Arbitrators or one who currently appears on arbitration panels issued
by the American Arbitration Association. To the extent not inconsistent with the
rules set forth in this Section 5, the arbitration proceeding shall insofar as
practicable be conducted in accordance with the National Rules of the American
Arbitration Association for the Resolution of Employment Disputes effective June
1, 1996. The arbitration hearing shall be held within ten (10) business days
after the receipt of notice of the claim by the Company. No continuance of the
hearing shall be allowed without the mutual consent of Employee and the Company.
Absence from or non-participation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which will expedite the
hearing may be ordered at the arbitrator's discretion. The arbitrator's award
shall be rendered as expeditiously as possible. In the event the arbitrator
finds that the Company has breached this Agreement, the arbitrator shall order
the Company to pay to Employee, within twenty-four hours after the decision is
rendered, the amount due hereunder. The award of the arbitrator shall be final
and binding upon the parties. Judgment may be entered on the arbitrator's award
in any appropriate court as soon as possible after its rendition without further
notice to the Company. The Company shall promptly reimburse Employee for the
reasonable legal
10
<PAGE> 11
fees and expenses incurred by Employee in connection with enforcement of
Employee's rights hereunder or the determination of Employee's rights in any
arbitration proceeding.
6. Miscellaneous.
(a) Waiver. The failure of any party to exercise any rights
hereunder or to enforce any of the terms or conditions of this Agreement on any
occasion shall not constitute or be deemed a waiver of that party's rights
thereafter to exercise any rights hereunder or to enforce each and every term
and condition of this Agreement.
(b) Binding Effect; Successors.
(i) The Company 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 Company, by agreement, in form and substance
satisfactory to Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession will entitle Employee to
compensation from the Company in the same amount and on the
same terms as Employee would be entitled to under Section 2(b)
hereunder had the Company terminated Employee without Cause on
the succession date (assuming a Change in Control of the
Company had occurred prior to such succession date). As used
in this Agreement, "the Company" means 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 6(b) or which otherwise becomes
bound by all the terms and provisions of this Agreement by
operation of law or otherwise.
(ii) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable by
Employee and Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any
amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise
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<PAGE> 12
provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee, or other
beneficiary or, if there be no such beneficiary, to Employee's
estate.
(c) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
(d) Authorization and Modification. This Agreement is executed
for and on behalf of the Company by an officer thereof duly authorized to do so
by resolution of the Board of Directors approving this Agreement and authorizing
such execution. This Agreement shall not be varied, altered, modified, changed
or in any way amended except by an instruction in writing executed by the
parties hereto.
(e) Assignment by Employee. Except as otherwise expressly
provided for in this Agreement, no right, benefit or interest of Employee
arising hereunder shall be subject to anticipation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of
any claim, debt or obligation or to execution, attachment, levy or similar
process, or assignment by operation of law. Any attempt, voluntary or
involuntary, to effect any action specified in the immediately preceding
sentence shall, to the full extent permitted by law, be null, void and of no
effect.
(f) Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been given when hand delivered or (unless
otherwise specified) mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: Terry P. O'Leary
163 East Main Street
Little Falls, New Jersey 07424
If to the Company: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
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<PAGE> 13
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(g) Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which shall remain in
full force and effect.
(h) Taxes. The Company shall deduct from all amounts payable
under this Agreement all federal, state, local and other taxes required by law
to be withheld with respect to such payments.
7. Other Arrangements. The rights of Employee under this Agreement are
in addition to Employee's rights under any Employment Agreement or any successor
agreement to an Employment Agreement covering Employee. Nothing contained in
this Agreement shall adversely affect any of Employee's rights under an
Employment Agreement or as a participant or beneficiary under the Company's
pension and welfare benefit plans, incentive compensation arrangements and
perquisite programs, or Employee's obligations arising under any
confidentiality, non-competition or no solicitation agreement with the Company.
This Agreement supersedes any and all prior Change in Control Agreements entered
into between Employee and the Company.
PRIME HOSPITALITY CORP.
By:____________________________________
EMPLOYEE:
_______________________________________
Terry P. O'Leary
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EXHIBIT 10(m)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this 14th day of May, 1998, is between Prime
Hospitality Corp., a Delaware corporation (the "Company"), and Ethan Kramer
("Employee").
R E C I T A L S:
A. Employee is a key officer and employee of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
Employee is one of several key officer/employees whose high quality of job
performance is essential to promoting and protecting the best interests of the
Company and its shareholders.
C. The Board further recognizes (i) that it is possible that a Change
in Control of the Company could occur at some time in the future, (ii) that the
uncertainty associated with such a possibility could result in the distraction
of Employee from Employee's assigned duties and responsibilities, (iii) that it
is in the best interests of the Company and its shareholders to assure the
continued attention by Employee to such duties and responsibilities without such
distraction and (iv) that Employee must be able to participate in the assessment
and evaluation of any proposal which could effect a Change in Control of the
Company without Employee's judgment being influenced by uncertainties regarding
Employee's future financial security.
D. The Company wishes to provide Employee with certain benefits in the
event of a Change in Control of the Company as set forth herein.
TERMS AND CONDITIONS
For valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon (A) the willful
engaging by Employee in misconduct
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which results in demonstrable and material economic injury to the Company, or
(B) the conviction of Employee of a felony involving moral turpitude. For
purposes of this paragraph, no act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in or not
opposed to the best interests of the Company. Employee shall not be deemed to
have been terminated for Cause unless the Company shall have given or delivered
to Employee (i) reasonable notice setting forth the reasons for the Company's
intention to terminate for Cause, (ii) an opportunity for Employee to cure any
such breach within thirty (30) days after receipt of such notice, (iii) an
opportunity for Employee, together with his counsel, to be heard before the
Board, and (iv) a written notice of termination stating that, in the good faith
opinion of not less than a majority of the entire membership of the Board,
Employee was guilty of conduct set forth above in clauses (A) or (B) of the
second preceding sentence, and specifying the particulars thereof in detail.
Notwithstanding the foregoing, in the case of any Employee who has in effect an
employment agreement with the Company ("Employment Agreement"), no termination
following a Change in Control shall be treated as for Cause (x) for purposes of
this Agreement unless it would also be treated as for Cause under such
Employment Agreement, or (y) for purposes of such Employment Agreement unless it
would also be treated as for Cause under this Agreement.
(b) A "Change in Control" of the Company shall be considered
to occur if and when:
(i) more than 30% of the Company's outstanding
securities entitled to vote in elections of directors (the
"Voting Securities") are acquired by any person, entity or
group (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) (other than the Company,
any corporation, partnership, trust or other entity controlled
by the Company (a "Subsidiary") or any trustee, fiduciary or
other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its
Subsidiaries) (such person, entity or group, a "Person");
provided, however that, notwithstanding the prior clause of
this Section 1(b)(i), unless
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the Board, within thirty (30) days of such event, determines
otherwise, a Change in Control shall be considered to occur if
and when more than 20% of the Voting Securities are acquired
by any Person; or
(ii) during any period of two consecutive years, the
individuals who, at the beginning of such period, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided, however,
that a director who is not otherwise a member of the Incumbent
Board shall be deemed to be a member of the Incumbent Board if
such director was elected by, on the recommendation of, or
with the approval of, at least two-thirds of the Incumbent
Board (taking into account the proviso in this Section
1(b)(ii);
(iii) the sale, lease, exchange or other disposition
in one transaction or in a series of related transactions of
all or substantially all of the assets of the Company, other
than a sale, lease, exchange or other disposition to an
entity, following which (A) more than 50%, respectively, of
the then outstanding shares of common stock or other
securities, (measured by value) of such entity and the
combined voting power of the then outstanding voting
securities of such entity entitled to vote generally in the
election of directors (collectively, "Equity Securities") is
then beneficially owned, directly or indirectly, by
individuals and entities who were the beneficial owners of the
outstanding Voting Securities immediately prior to such sale,
lease, exchange or other disposition, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such sale, lease, exchange or other disposition, directly
or indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly, 30% or
more, respectively, of the then outstanding Equity Securities,
and (C) at least a majority of the members of the board of
directors of the entity were members of the Incumbent Board at
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the time of the execution of the initial agreement or action
of the Board providing for such sale, lease, exchange or other
disposition of assets of the Company;
(iv) approval by the Company's shareholders of a
reorganization, merger or consolidation of the Company,
unless, following such reorganization, merger or
consolidation, (A) more than 50%, respectively, of the then
outstanding Equity Securities of the entity resulting from
such reorganization, merger or consolidation is then
beneficially owned, directly or indirectly, by individuals and
entities who were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more, respectively, of the then outstanding
Equity Securities of the entity resulting from such
reorganization, merger or consolidation, and (C) at least a
majority of the members of the board of directors of the
entity resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time
of the execution of the initial agreement providing for such
reorganization, merger or consolidation;
(v) approval by the Company's shareholders of a
complete liquidation or dissolution of the Company; or
(vi) such other events as the Board may designate.
(c) "Good Reason" shall mean the occurrence of any of the
following, without Employee's consent, after a Change in Control:
(i) a material reduction or adverse alteration in the
titles, duties,
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authorities or responsibilities of Employee's position;
(ii) a reduction in Employee's annual base salary,
bonus or other compensation arrangements provided by the
Company;
(iii) the relocation of Employee's place of
employment by more than twenty miles; or
(iv) a material reduction in or the discontinuance of
the perquisites or benefits provided by the Company to
Employee.
In addition, and without limiting the foregoing, in the case of an
Employee with an Employment Agreement "Good Reason" shall include any
act or failure to act which would constitute "good reason" as such term
is defined in the Employee's Employment Agreement.
(d) The term "Cash Compensation" shall mean, during any fiscal
year of the Company, Employee's aggregate cash compensation earned as an
Employee of the Company during the immediately preceding fiscal year (including
any bonus earned but not paid by fiscal year-end and without regard to any
election deferring the receipt of compensation so earned). If Employee was
employed by the Company for only a portion of the preceding fiscal year, "Cash
Compensation" shall mean his annualized aggregate cash compensation for such
year, which shall be determined based on the aggregate cash compensation earned
during the portion of such year that Employee was employed.
2. Change in Control.
(a) Options. In the event of a Change in Control of the
Company, all stock options granted to Employee by the Company under any
compensatory plan or arrangement shall become immediately vested and
exercisable, notwithstanding any vesting schedule previously applicable to such
stock options.
(b) Cash Payment. If, within twenty-four (24) months following
a Change in Control of the Company, the Company terminates Employee's employment
without Cause, or Employee terminates his or her employment with the Company for
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Good Reason, then the Company shall, within ten (10) days of such termination of
employment, pay to Employee, in one lump sum, in immediately available funds by
wire transfer in accordance with Employee's instructions, an amount equal to one
and one-half (1-1/2) times Employee's "Cash Compensation" as defined above.
3. Excise Tax Gross-Up.
(a) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or distribution by
the Company to or for Employee's benefit (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or pursuant to an
Employment Agreement or any other compensatory Company plan or arrangement,
without taking into account the Gross-Up Payment, as hereinafter defined) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by Employee with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Employee of all Federal, state and local taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes, withholding taxes and payroll taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee within fifteen (15)
business days of
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the receipt of notice from Employee that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, Employee shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by
the Company to Employee within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 3(b) and Employee thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for Employee's benefit.
(b) Employee shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than fifteen business days after Employee is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies
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Employee in writing prior to the expiration of such period that it desires to
contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceeding relating to such claim,
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Employee harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expense.
Without limitation on the foregoing provisions of this Section 3, the
Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs Employee to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
Employee, on an interest-free basis, and shall indemnify and hold
Employee harmless, on an after-tax
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basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations
relating to payment of taxes for Employee's taxable year with respect
to which such contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Employee shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(c) If, after Employee's receipt of an amount advanced by the
Company pursuant to Section 3(b), Employee becomes entitled to receive any
refund with respect to such claim, Employee shall (subject to the Company's
complying with the requirements of this Section 3(b)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after Employee's receipt of an
amount advanced by the Company pursuant to Section 3(b), a determination is made
that Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify Employee in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
4. Waiver of Invalidity. Inasmuch as the injury caused to Employee in
the event Employee's employment is terminated within twenty-four (24) months of
a Change in Control is difficult or incapable of accurate estimation at the date
of this Agreement, the amounts to be paid pursuant to Sections 2 and 3 are
intended to be liquidated damages and not a penalty, and therefore constitute a
good faith forecast of the harm which might be expected to be caused to
Employee. Accordingly, the Company waives any right to assert against Employee
the invalidity of any payment provided in Sections 2 and 3 by reason of
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Employee's failure to seek other employment or otherwise, nor shall the amount
of any payment provided in Sections 2 and 3 be reduced by reason of any
compensation earned or not earned by Employee as a result of employment by
another employer after the date of termination or otherwise.
5. Arbitration of Disputes. All disputes governing the interpretation
or enforcement of this Agreement shall be resolved exclusively by arbitration in
the manner set forth in this Section 5. Employee or the Company may submit to
arbitration any claim under this Agreement as follows: At any time following the
termination of Employee's employment with the Company, the claim may be filed in
writing with an arbitrator of Employee's choice or, if the claim is filed by the
Company, reasonably acceptable to Employee, and thereafter the Company, or
Employee, as applicable, shall be notified in writing of the claim and furnished
with a true copy as so filed. The arbitrator must be a member of the National
Academy of Arbitrators or one who currently appears on arbitration panels issued
by the American Arbitration Association. To the extent not inconsistent with the
rules set forth in this Section 5, the arbitration proceeding shall insofar as
practicable be conducted in accordance with the National Rules of the American
Arbitration Association for the Resolution of Employment Disputes effective June
1, 1996. The arbitration hearing shall be held within ten (10) business days
after the receipt of notice of the claim by the Company. No continuance of the
hearing shall be allowed without the mutual consent of Employee and the Company.
Absence from or non-participation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which will expedite the
hearing may be ordered at the arbitrator's discretion. The arbitrator's award
shall be rendered as expeditiously as possible. In the event the arbitrator
finds that the Company has breached this Agreement, the arbitrator shall order
the Company to pay to Employee, within twenty-four hours after the decision is
rendered, the amount due hereunder. The award of the arbitrator shall be final
and binding upon the parties. Judgment may be entered on the arbitrator's award
in any appropriate court as soon as possible after its rendition without further
notice to the Company. The Company shall promptly reimburse Employee for the
reasonable legal
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fees and expenses incurred by Employee in connection with enforcement of
Employee's rights hereunder or the determination of Employee's rights in any
arbitration proceeding.
6. Miscellaneous.
(a) Waiver. The failure of any party to exercise any rights
hereunder or to enforce any of the terms or conditions of this Agreement on any
occasion shall not constitute or be deemed a waiver of that party's rights
thereafter to exercise any rights hereunder or to enforce each and every term
and condition of this Agreement.
(b) Binding Effect; Successors.
(i) The Company 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 Company, by agreement, in form and substance
satisfactory to Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession will entitle Employee to
compensation from the Company in the same amount and on the
same terms as Employee would be entitled to under Section 2(b)
hereunder had the Company terminated Employee without Cause on
the succession date (assuming a Change in Control of the
Company had occurred prior to such succession date). As used
in this Agreement, "the Company" means 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 6(b) or which otherwise becomes
bound by all the terms and provisions of this Agreement by
operation of law or otherwise.
(ii) This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable by
Employee and Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any
amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise
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provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee, or other
beneficiary or, if there be no such beneficiary, to Employee's
estate.
(c) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
(d) Authorization and Modification. This Agreement is executed
for and on behalf of the Company by an officer thereof duly authorized to do so
by resolution of the Board of Directors approving this Agreement and authorizing
such execution. This Agreement shall not be varied, altered, modified, changed
or in any way amended except by an instruction in writing executed by the
parties hereto.
(e) Assignment by Employee. Except as otherwise expressly
provided for in this Agreement, no right, benefit or interest of Employee
arising hereunder shall be subject to anticipation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of
any claim, debt or obligation or to execution, attachment, levy or similar
process, or assignment by operation of law. Any attempt, voluntary or
involuntary, to effect any action specified in the immediately preceding
sentence shall, to the full extent permitted by law, be null, void and of no
effect.
(f) Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been given when hand delivered or (unless
otherwise specified) mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Employee: Ethan Kramer
527 N. Chestnut Street
Westfield, New Jersey 07090
If to the Company: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
Attention: General Counsel
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or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(g) Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which shall remain in
full force and effect.
(h) Taxes. The Company shall deduct from all amounts payable
under this Agreement all federal, state, local and other taxes required by law
to be withheld with respect to such payments.
7. Other Arrangements. The rights of Employee under this Agreement are
in addition to Employee's rights under any Employment Agreement or any successor
agreement to an Employment Agreement covering Employee. Nothing contained in
this Agreement shall adversely affect any of Employee's rights under an
Employment Agreement or as a participant or beneficiary under the Company's
pension and welfare benefit plans, incentive compensation arrangements and
perquisite programs, or Employee's obligations arising under any
confidentiality, non-competition or no solicitation agreement with the Company.
This Agreement supersedes any and all prior Change in Control Agreements entered
into between Employee and the Company.
PRIME HOSPITALITY CORP.
By:____________________________________
EMPLOYEE:
_______________________________________
Ethan Kramer
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Exhibit 10(n)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of September 14, 1998,
between A.F. Petrocelli ("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. The Employment Period shall be automatically extended for an additional
period(s) of one year (and such additional one year period(s) shall be
considered the applicable Employment Period) upon the terms and conditions set
forth herein unless written notice of non-renewal is given by either party at
least ninety (90) days prior to the expiration of this 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 a substantial part of his business time and expend his best efforts,
energies and skills to the business of Employer.
Executive shall be responsible for the general management of Employer and
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 of directors (the "Board").
Throughout the Employment Period, Executive shall faithfully and
diligently perform his duties under this Agreement and shall use his best
efforts to promote the interests of Employer.
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 $700,000. The Base Salary for each Employment
Year shall be payable in equal weekly installments.
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4.2 Annual Bonus. For each calendar year (the "Bonus Year"), at the
discretion of the Compensation and Audit Committee of the Board (the
"Committee"), Executive shall be eligible to receive a cash bonus of up to 100%
of Base Salary ("Bonus") based upon Employer's and Executive's attainment of
annual performance objectives to be reasonably established by the Committee 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 Bonus Year shall be payable promptly following the determination
thereof by the Committee, on the earlier of (i) fifteen (15) days after the
members of the Committee received the audited financial statements for the Bonus
Year, or (ii) the next meeting of the Board. 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. To the extent it can be obtained at standard (i.e.,
non-rated) premium rates, Employer shall use its best efforts to procure and
maintain in effect at all times during the Employment Period, at Employer's
expense other than with respect to PS58 costs, a policy of whole life insurance
on the life of Executive in the amount equal to $2,000,000, naming such person
or trust as Executive shall designate from time to time as the owner and
beneficiary thereof. The amount of such life insurance shall be provided under a
conventional split dollar arrangement that gives Employer enforceable rights to
death benefit proceeds equal to the aggregate premiums paid by Employer and that
gives Executive, his legal representatives or beneficiaries, and trusts of which
Executive was the settlor, as applicable, the right to assume the policy, upon
payment to Employer of the cash surrender value in the event of his Termination
of employment. 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.
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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 twenty (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. As soon as practicable after execution of this
Agreement, the Committee shall meet and, as a material inducement to Executive's
commencement of employment with Employer, grant to Executive a nonqualified
stock option (the "Option") to purchase 1,750,000 shares of Common Stock of the
Employer (the "Common Stock"), having a term of ten (10) years. The Option shall
vest and become exercisable as follows: (i) Tranche A of the Option, covering
1,000,000 shares of Common Stock, shall vest and become exercisable as to 20% of
the shares covered on each of the first through fourth anniversaries of
September 14, 1998, and with respect to the remaining 20% of such Option Shares
on September 13, 2003, provided, in each case, that Executive remains an
employee of Employer on the applicable vesting date; and (ii) Tranche B of the
Option, covering the remaining 750,000 shares of Common Stock, shall vest and
become exercisable on the ninth anniversary of the date of grant, provide
Executive remains an employee of Employer on such date, subject to earlier
vesting, however, based upon Employer's attainment of the following share price
values: (A) 250,000 Options shall vest and become exercisable at such time as
the Common Stock's closing price on the New York Stock Exchange is first at or
above $20.00 per share; (B) an additional 250,000 Options shall vest and become
exercisable at such time as the Common Stock's closing price on the New York
Stock Exchange is first at or above $25.00 per share; and (C) an additional
250,000 Options shall vest and become exercisable at such time as the Common
Stock's closing price on the New York Stock Exchange is first at or above $30.00
per share; provided further, that in each case, Executive remains an employee of
Employer. The exercise price shall be the fair market value of the Common Stock
on the day preceding the date of grant (or, if no value was reported on that
date, the last preceding date for which a value was reported). Except as
otherwise set forth herein, the terms of the Option shall be as set forth in the
Option Agreement to be entered into between Employer and Executive.
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.
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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
(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
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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 twelve (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 portion of the Employment Period (assuming no
termination) and twelve (12) months from date of termination. In addition, upon
such termination, all of the unvested options granted as part of Tranch A shall
immediately vest and become exercisable.
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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 unpaid Bonus for such Bonus Year. 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 Termination Prior to September 13, 2003 As a Result of Non-Renewal
Notice Given by Employer. If the Employment Period is terminated by Employer
prior to September 13, 2003 as a result of a non-renewal notice given by
Employer in accordance with Section 2, all unvested options granted as part of
Tranche A of the Option shall vest and become exercisable as provided in the
Option Agreement.
6.5 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.
6.6 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.
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.
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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 twenty (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.
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:
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(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 th 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.
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.
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(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 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
Attention: Secretary
If to Employer: Mr. A.F. Petrocelli
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.
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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.
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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PRIME HOSPITALITY CORP.
By:
_______________________________
___________________________________
A.F. PETROCELLI
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Exhibit 10(o)
CHANGE IN CONTROL AGREEMENT
This Agreement, dated this ____ day of ________, 1998, is between
Prime Hospitality Corp., a Delaware corporation (the "Company"), and A.F
Petrocelli ("Employee").
R E C I T A L S:
A. Employee is a key officer and employee of the Company.
B. The Board of Directors of the Company (the "Board") recognizes
that Employee is one of several key officer/employees whose high quality of job
performance is essential to promoting and protecting the best interests of the
Company and its shareholders.
C. The Board further recognizes (i) that it is possible that a
Change in Control of the Company could occur at some time in the future, (ii)
that the uncertainty associated with such a possibility could result in the
distraction of Employee from Employee's assigned duties and responsibilities,
(iii) that it is in the best interests of the Company and its shareholders to
assure the continued attention by Employee to
<PAGE> 2
such duties and responsibilities without such distraction and (iv) that Employee
must be able to participate in the assessment and evaluation of any proposal
which could effect a Change in Control of the Company without Employee's
judgment being influenced by uncertainties regarding Employee's future financial
security.
D. The Company wishes to provide Employee with certain benefits in
the event of a Change in Control of the Company as set forth herein.
TERMS AND CONDITIONS
For valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon (A) the
willful engaging by Employee in misconduct which results in
demonstrable and material economic injury to the Company, or (B) the
conviction of Employee of a felony involving moral turpitude. For
purposes of this paragraph, no act, or failure to act,
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<PAGE> 3
on Employee's part shall be considered "willful" unless done, or
omitted to be done, by him not in goo faith and without reasonable
belief that his action or omission was in or not opposed to the best
interests of the Company. Employee shall not be deemed to have been
terminated for Cause unless the Company shall have given or
delivered to Employee (i) reasonable notice setting forth the
reasons for the Company's intention to terminate for Cause, (ii) in
the case of conduct described in clause (A) above, an opportunity
for Employee to cure any such breach within thirty (30) days after
receipt of such notice, (iii) an opportunity for Employee, together
with his counsel, to be heard before the Board, and (iv) a written
notice of termination stating that, in the good faith opinion of not
less than a majority of the entire membership of the Board, Employee
was guilty of conduct set forth above in clauses (A) or (B) of the
second preceding sentence, and specifying the particulars thereof in
detail. Notwithstanding the foregoing, no termination following a
Change in Contro shall be treated as for Cause (x) for purposes of
this Agreement unless it
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<PAGE> 4
would also be treated as for Cause under Employee's employment
agreement with the Company, dated September 14, 1998 (the
"Employment Agreement"), or (y) for purposes of such Employment
Agreement unless it would also be treated as for Cause under this
Agreement.
(b) A "Change in Control" of the Company shall be considered
to occur if and when:
(i) more than 30% of the Company's outstanding
securities entitled to vote in elections of directors (the
"Voting Securities") are acquired by any person, entity or
group (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) (other than the Company,
any corporation, partnership, trust or other entity controlled
by the Company (a "Subsidiary") or any trustee, fiduciary or
other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its
Subsidiaries) (such a person, entity or group, a "Person");
provided, however that, notwithstanding the prior clause of
this Section
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<PAGE> 5
1(b)(i), unless the Board, within thirty (30) days of such
event, determines otherwise, a Change in Control shall be
considered to occur if and when more than 20% of the Voting
Securities are acquired by any Person; or
(ii) during any period of two (2) consecutive years, the
individuals who, at the beginning of such period, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided, however,
that a director who is not otherwise a member of the Incumbent
Board shall be deemed to be a member of the Incumbent Board if
such director was elected by, on the recommendation of, or
with the approval of, at least two-thirds of the Incumbent
Board (taking into account the proviso in this Section
1(b)(ii));
(iii) the sale, lease, exchange or other disposition in
one transaction or in a series of related transactions of all
or substantially all of the assets of the Company, other than
a sale,
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lease, exchange or other disposition to an entity, following
which (A) more than 50%, respectively, of the then outstanding
shares of common stock or other equity securities, (measured
by value) of such entity and the combined voting power of the
then outstanding voting securities of such entity entitled to
vote generally in the election of directors (collectively,
"Equity Securities") is then beneficially owned, directly or
indirectly, by individuals and entities who were the
beneficial owners of the outstanding Voting Securities
immediately prior to such sale, lease, exchange or other
disposition, in substantially the same proportions among such
beneficial owners, (B) no Person (excluding any Person
beneficially owning, immediately prior to such sale, lease,
exchange or other disposition, directly or indirectly, 30% or
more of the outstanding Voting Securities), beneficially owns,
directly or indirectly, 30% or more, respectively, of the then
outstanding Equity Securities, and (C) at least a majority of
the members of the board of directors
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of the entity were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the
Board providing for such sale, lease, exchange or other
disposition of assets of the Company;
(iv) approval by the Company's shareholders of a
reorganization, merger or consolidation of the Company,
unless, following such reorganization, merger or
consolidation, (A) more than 50%, respectively, of the then
outstanding Equity Securities of the entity resulting from
such reorganization, merger or consolidation is then
beneficially owned, directly or indirectly, by individuals and
entities who were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, in substantially the
same proportions among such beneficial owners, (B) no Person
(excluding any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the
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outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more, respectively, of the then outstanding
Equity Securities of the entity resulting from such
reorganization, merger or consolidation, and (C) at least a
majority of the members of the board of directors of the
entity resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time
of the execution of the initial agreement providing for such
reorganization, merger or consolidation;
(v) approval by the Company's shareholders of a complete
liquidation or dissolution of the Company; or
(vi) such other events as the Board may designate.
(c) "Good Reason" shall mean the occurrence of any of the
following, without Employee's consent, after a Change in Control:
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(i) a material reduction or adverse alteration in the
titles, duties, authorities or responsibilities of Employee's
position;
(ii) a reduction in Employee's annual base salary, bonus
or other compensation arrangements provided by the Company;
(iii) the relocation of Employee's place of employment
by more than twenty (20) miles; or
(iv) a material reduction in or the discontinuance of
any perquisites or benefits provided by the Company to
Employee.
In addition, and without limiting the foregoing, "Good Reason" shall
include any act or failure to act which would constitute "good
reason" as such term is defined in the Employment Agreement.
(d) The term "Cash Compensation" shall mean, during any fiscal
year of the Company, Employee's aggregate cash compensation earned
as an employee of the Company during the immediately preceding
fiscal year (including any bonus earned but not paid by fiscal
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year-end and without regard to any election deferring the receipt of
compensation so earned). If Employee was employed by the Company for
only a portion of the preceding fiscal year, "Cash Compensation"
shall mean his annualized aggregate cash compensation for such year,
which shall be determined based on the aggregate cash compensation
earned during the portion of such year that Employee was employed.
2. Change in Control.
(a) Options. In the event of a Change in Control of the
Company, all stock options granted to Employee by the Company under
any compensatory plan or arrangement shall become immediately vested
and exercisable, notwithstanding any vesting schedule previously
applicable to such stock options.
(b) Cash Payment. If, within twenty-four (24) months following
a Change in Control of the Company, the Company terminates
Employee's employment without Cause, or Employee terminates his
employment with the Company for Good Reason, then the Company shall,
within ten (10) days of such termination of employment, pay to
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<PAGE> 11
Employee, in one lump sum, in immediately available funds by wire
transfer in accordance with Employee's instructions, an amount equal
to two and one-half (2 1/2) times Employee's "Cash Compensation" as
defined above.
3. Excise Tax Gross-Up.
(a) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or
distribution by the Company to or for Employee's benefit, or any
acceleration of vesting and exercisability of Company stock options
(whether paid or payable or distributed or distributable or
otherwise occurring pursuant to the terms of this Agreement or
pursuant to the Employment Agreement or any other compensatory
Company plan or arrangement, without taking into account the
Gross-Up Payment, as hereinafter defined) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by Employee with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter
-11-
<PAGE> 12
collectively referred to as the "Excise Tax"), then Employee shall
be entitled to receive an additional payment (a "Gross-Up Payment")
in an amount such that, after payment by Employee or the Company on
Employee's behalf of all Federal, state and local taxes imposed upon
the Gross-Up Payment, including, without limitation, any income
taxes, withholding taxes, payroll taxes and the Excise Tax (and any
interest and penalties imposed with respect thereto), Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
All determinations required to be made under this
Section 3, including whether and when a Gross-Up Payment is required
and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by a
nationally recognized accounting firm as may be designated by
Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee within
fifteen (15) business days of the receipt of notice from Employee
that there has been a Payment, or such earlier time as is requested
by the
-12-
<PAGE> 13
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting
the Change in Control, Employee shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 3, shall be paid by the Company
to Employee, or to the applicable tax authorities on Employee's
behalf (with notice to Employee of the name of each such tax
authority and the amount and date of payment), within five (5) days
of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the
Company and Employee. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the
calculations
-13-
<PAGE> 14
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 3(b) and Employee
thereafter is required to make a payment of any Excise Tax, the
Accountin Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the
Company to or for Employee's benefit.
(b) Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
fifteen (15) business days after Employee is informed in writing of
such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Employee
shall not pay suc claim prior to the expiration of the thirty
(30)-day period following the date on which it gives such notice to
the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company
notifies Employee in
-14-
<PAGE> 15
writing prior to the expiration of such period that it desires to
contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceeding
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold Employee harmless, on an after-tax basis, from
any
-15-
<PAGE> 16
Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing
provisions of this Section 3, the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct
Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Employee agrees to prosecute
such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if
the Company directs Employee to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to Employee, on
an interest-free basis, and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
-16-
<PAGE> 17
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for Employee's taxable year with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and Employee shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(c) If, after Employee's receipt of an amount paid or
advanced by the Company to or on Employee's behalf pursuant to
Section 3(a) or 3(b), Employee becomes entitled to receive any
refund with respect to any taxes, interest or penalties to which the
payments or advances related, Employee shall (subject to the
Company's complying with the requirements of this Section 3(c))
promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes
-17-
<PAGE> 18
applicable thereto). If, after Employee's receipt of an amount
advanced by the Company pursuant to Section 3(b), a determination is
made that Employee shall not be entitled to any refund with respect
to such claim and the Company does not notify Employee in writing of
its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
4. Waiver of Invalidity. Inasmuch as the injury caused to Employee
in the event Employee's employment is terminated within twenty-four (24) months
of a Change in Control is difficult or incapable of accurate estimation at the
date of this Agreement, the amounts to be paid pursuant to Sections 2 and 3 are
intended to be liquidated damages and not a penalty, and therefore constitute a
good faith forecast of the harm which might be expected to be caused to
Employee. Accordingly, the Company waives any right to assert against Employee
the invalidity of any payment provided in Sections 2 and 3 by reason of
Employee's failure to seek other employment or otherwise, nor
-18-
<PAGE> 19
shall the amount of any payment provided in Sections 2 and 3 be reduced by
reason of any compensation earned or not earned by Employee as a result of
employment by another employer after the date of termination or otherwise.
5. Arbitration of Disputes. All disputes governing the
interpretation or enforcement of this Agreement shall be resolved exclusively by
arbitration in the manner set forth in this Section 5. Employee or the Company
may submit to arbitration any claim under this Agreement as follows: At any time
following the termination of Employee's employment with the Company, the claim
may be filed in writing with an arbitrator of Employee's choice or, if the claim
is filed by the Company, reasonably acceptable to Employee, and thereafter the
Company, or Employee, as applicable, shall be notified in writing of the claim
and furnished with a true copy as so filed. The arbitrator must be a member of
the National Academy of Arbitrators or one who currently appears on arbitration
panels issued by the American Arbitration Association. To the extent not
inconsistent with the rules set forth in this Section 5, the arbitration
proceeding shall insofar as practicable be conducted in accordance wit the
National Rules of the American Arbitration Association for the Resolution of
Employment Disputes effective
-19-
<PAGE> 20
June 1, 1996. The arbitration hearing shall be held within ten (10) business
days after the receipt of notice of the claim by the Company. No continuance of
the hearing shall be allowed without the mutual consent of Employee and the
Company. Absence from or non-participation at the hearing by either party shall
not prevent the issuance of an award. Hearing procedures which will expedite the
hearing may be ordered at the arbitrator's discretion. The arbitrator's award
shall be rendered as expeditiously as possible. In the event the arbitrator
finds that the Company has breached this Agreement, the arbitrator shall order
the Company to pay to Employee, within twenty-four (24) hours after the decision
is rendered, the amount due hereunder. The award of the arbitrator shall be
final and binding upon the parties. Judgment may be entered on the arbitrator's
award in any appropriate court as soon as possible after its rendition without
further notice to the Company. The Company shall promptly reimburse Employee for
the reasonable legal fees and expenses incurred by Employee in connection with
enforcement of Employee's rights hereunder or the determination of Employee's
rights in any arbitration proceeding.
6. Miscellaneous.
-20-
<PAGE> 21
(a) Waiver. The failure of any party to exercise any rights
hereunder or to enforce any of the terms or conditions of this
Agreement on any occasion shall not constitute or be deemed a waiver
of that party's rights thereafter to exercise any rights hereunder
or to enforce each and every term and condition of this Agreement.
(b) Binding Effect; Successors.
(i) The Company 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 Company, by agreement, in form and substance
satisfactory to Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no
such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession will entitle Employee to
compensation from the Company in the
-21-
<PAGE> 22
same amount and on the same terms as Employee would be
entitled to under Section 2(b) hereunder had the Company
terminated Employee without Cause on the succession date
(assuming a Change in Control of the Company had occurred
prior to such succession date). As used in this Agreement,
"the Company" 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 6(b) or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law or
otherwise.
(ii) This Agreement and all rights of Employee hereunder
shall inure to the benefit of and be enforceable by Employee
and Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If Employee 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
-22-
<PAGE> 23
be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee, or other beneficiary or, if there
be no such beneficiary, to Employee's estate.
(c) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
(d) Authorization and Modification. This Agreement is executed
for and on behalf of the Company by an officer thereof duly
authorized to do so by resolution of the Board approving this
Agreement and authorizing such execution. This Agreement shall not
be varied, altered, modified, changed or in any way amended except
by an instruction in writing executed by the parties hereto.
(e) Assignment by Employee. Except as otherwise expressly
provided for in this Agreement, no right, benefit or interest of
Employee arising hereunder shall be subject to anticipation,
alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation or set-off in respect of any claim, debt or obligation
-23-
<PAGE> 24
or to execution, attachment, levy or similar process, or assignment
by operation of law. Any attempt, voluntary or involuntary, to
effect any action specified in th immediately preceding sentence
shall, to the full extent permitted by law, be null, void and of no
effect.
(f) Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in the Agreement
shall be in writing and shall be deemed to have been duly given when
hand delivered or (unless otherwise specified) mailed by United
States registered mail, return receipt requested, postage prepaid,
addressed as follows:
-24-
<PAGE> 25
If to Employee: At his then current permanent
home address as shown on the
Company's records
If to the Company: Prime Hospitality Corp.
700 Route 46 East
Fairfield, NJ 07007-2700
Attn: General Counsel
or to such other address as any party may have furnished to the
others in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
(g) Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
(h) Taxes. The Company shall deduct from all amounts payable
under this Agreement all federal, state, local and other taxes
required by law to be withheld with respect to such payments.
7. Other Arrangements. The rights of Employee under this Agreement
are in addition to Employee's rights under the Employment Agreement or any
successor agreement to the Employment
-25-
<PAGE> 26
Agreement covering Employee. Nothing contained in this Agreement shall adversely
affect any of Employee's rights under the Employment Agreement or as a
participant or beneficiary under the Company's pension and welfare benefit
plans, incentive compensation arrangements and perquisite programs, or
Employee's obligations arising under any confidentiality, non-competition or
nonsolicitation agreement with the Company. This Agreement supersedes any and
all prior Change in Control agreements entered into between Employee and the
Company.
PRIME HOSPITALITY CORP.
By____________________________
Name:
Title:
A.F. PETROCELLI
______________________________
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<PAGE> 1
EXHIBIT (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Prime Hospitality Corp:
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our reports included in the Company's previously
filed Registration Statement Nos. 333-07431 and 333-38749.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 22, 1999
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,534
<SECURITIES> 12,460
<RECEIVABLES> 20,816
<ALLOWANCES> 732
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<CURRENT-ASSETS> 75,398
<PP&E> 1,378,365
<DEPRECIATION> 96,987
<TOTAL-ASSETS> 1,408,398
<CURRENT-LIABILITIES> 82,767
<BONDS> 664,798
0
0
<COMMON> 552
<OTHER-SE> 640,493
<TOTAL-LIABILITY-AND-EQUITY> 1,408,398
<SALES> 447,379
<TOTAL-REVENUES> 469,405
<CGS> 0
<TOTAL-COSTS> 380,444
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 23,914
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<INCOME-TAX> 32,818
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<NET-INCOME> 53,847
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